WONG KWOK YAN v. LEE KENNY AND ANOTHER

IN THE COURT OF APPEAL

1993, No. 151
(Civil)

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J U D G M E N T  O F  T H E  C O U R T

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Macdougall, V.-P.:

1. On 25 August 1993, Saied J ordered specific performance of an agreement dated 1 April 1991 entered into between the plaintiff ("the purchaser") and the defendants ('the vendors") for the sale and purchase of the property described in the provisional sale and purchase agreement as Section G, 1st Street, 29 Fairview Park Yuen Long. The judge further ordered that damages be assessed by the Registrar and that the purchaser have the costs of the action.

2. The vendors now appeal against the judge's orders. The provisional sale and purchase agreement, which was signed by one of the vendors, Lee Kenny ("Mr. Lee"), and by the purchaser, was a pro forma document in Chinese prepared by the vendors' estate agents. In clause 1 the price of the property is stated to be $1.72m. The agreed translation of Clause 2 is as follows:

"(2) The Purchaser shall now pay an initial deposit of Hong Kong Dollars Fifty Thousand only (HK$50,000.00) and further deposit of Hong Kong Dollars One Hundred and Twenty-two Thousand only (HK$122,000.00) shall be paid in the form of cheque/cashier order upon the signing of the formal Agreement for Sale and Purchase on or before 8th April 1991 at Solicitor's firm. The balance of the purchase price being Hong Kong Dollars One Million Five Hundred and Forty-eight Thousand only (HK$1.548,000.00) should be paid upon the signing of the Assignment."

3. Clause 4 states that the "date to deliver vacant possession upon completion shall be on or before the 10th day of May 1991".

4. The only other clause which is of relevance is clause 6 which states:

"(6) Should the Purchaser be in breach of this Agreement (after paying the said initial deposit,) the said initial deposit shall be absolutely forfeited by the Vendor who shall be entitled to re- sell the said property. Should the Vendor be in breach of this Agreement (after receiving the said initial deposit,) the Vendor shall repay the double of the said initial deposit to the Purchaser provided that 1% of purchase price of HK$6,000.00 out of such payment shall be set aside for payment to our company and another 1% of purchase price of HK$6,000.00 service charge be paid by the party in default to our company."

5. At the trial the purchaser agreed that, owing to a miscalculation on his part, the cheque for $50,000 which he gave in payment of the initial deposit was dishonoured because there were insufficient funds in his account to meet it. On 2 April he telephoned Mr. Lee and it was agreed that the date for the signing of the formal agreement would be postponed from 8 April to 15 April. It was the purchaser's understanding that the date for completion would automatically be extended to 15 May. On the following morning, 3 April, the purchaser deposited $50,000 in his bank account and discovered later that day that his cheque had been honoured.

6. Mr. Lee denied in evidence that he had agreed to a postponement of completion to 15 April and asserted that he expected it to take place on 10 May as stated in the provisional agreement. According to Mr. Lee, he had agreed with the purchaser in the telephone conversation of 2 April that the date for the signing of the formal agreement should be postponed and that the purchaser had told him that the completion date would remain unchanged. Indeed, Mr. Lee asserted that he had acceded to the purchaser's request for a postponement of the date for the signing of the agreement only because the purchaser had told him that the date for completion would remain unchanged, and that he had told the purchaser that unless he signed the formal agreement or paid the further deposit on or before 15 April there would be no deal. This, however, flew in the face of the draft formal agreement which was subsequently prepared by the vendors' solicitors and which states that completion was to take place on or before 15 May. The judge was entirely justified in finding as he did that Mr. Lee was not a reliable witness.

7. On 9 April 1991 the purchaser's solicitors, under the letter head of their Tuen Mun office, wrote to the vendors solicitors as follows:

"We act for the intended purchaser and understand that you act for the Vendor.

We have instructions that our client and yours have agreed to purchase and sell the above property on the following terms and conditions:-

1. Consideration:	HK$1,720,000.00
2. initial deposit:	HK$50,000.00
3. further deposit:	HK$122,000.00 to be paid upon signing of the formal Agreement and the balance thereof on completion.
3. completion:	on or before 15th May, 1991
4. Vacant possession:	to be delivered to the Purchaser upon completion
5. Stamp Duty:	to be borne by the Purchaser
6. Legal Costs:	each party to pay its own costs and disbursements
7. Others:	free from all encumbrance

Kindly take instructions from your client and let us have your draft Agreement for Sale and Purchase with all the relevant title deeds and documents for our approval on behalf of our client.

Please note that none of the terms and conditions herein contained shall be binding on our client unless and until formal Agreement has been signed by our clients and return to you."

8. This letter was received by the vendors' solicitors on the following day, 10 April. By a letter which was written on 12 April but not delivered until 12.30 p.m., during the lunch hour, on 15 April, the vendors' solicitors replied:

"With reference to your letter of 9th instant, we send herewith our draft Agreement for sale and purchase (in duplicate) in respect of the above property for your approval for and on behalf of your client, the intended purchaser herein. If the said draft meets with your approval, please treat it as an engrossment and attend to your client's execution thereof and then return the same to us together with your cheque for HK$122,000.00 being the further deposit and part payment of the purchase price.

Please note that our clients are not bound to sell the said property to yours unless and until the formal Agreement for sale and purchase shall has been signed by our clients and a duplicate of the same is returned to you in due course.

Please note that all the relevant title deeds and documents are not in our possession and we will let you have the same in due course."

9. This letter was not sent to the Tuen Mun office of the purchaser's solicitors, as one would expect it to have been sent, but was sent to their office on Hong Kong Island. Moreover, having been written on 12 April it could, if despatched promptly, have been delivered early on the following morning, a Saturday.

10. There is nothing on the face of the letter which should have alerted the recipient at the Hong Kong Island office of the purchaser's solicitors that the matter was one of urgency or that the expiration of a time limit was imminent. Indeed, the tone of the letter suggests the contrary. Its delivery by the staff of the Hong Kong Island office of the purchaser's solicitors to the Tuen Mun office later that afternoon was wholly reasonable.

11. In the meantime, at about 10.30 a.m. that day, the purchaser inquired from his solicitors whether, because of the difficulty he would have in travelling to the Tuen Mun office, he could deposit his cheque for $122,000 at their Tsuen Wan office. When told that that would be satisfactory, the purchaser attended at the Tsuen Wan office and presented the cheque at about 3 p.m. He was told that there was no document for him to sign.

12. On the same day the Tsuen Wan office sent the following letter by fax to the vendors' solicitors:

"We enclose herewith a cheque in your favour for the sum of HK$122,000.00 being further deposit payable under the provisional

13. Agreement of the captioned property to you as Stakeholders subject to your undertaking:-

1. To forward to us your draft Agreement for Sale and Purchase and the relevant title deeds and documents for our approval.

2. Not to release to the Vendor unless and until the formal Agreement has been signed by the parties and the Vendor's title being accepted by us."

14. Since, of course, the cheque itself could not be sent by fax, the letter enclosing the cheque was also sent by post and arrived at the office of the vendors' solicitors at 12.21 p.m. on 16 April.

15. The vendors' solicitors responded by sending the following letter dated 16 April and addressed, correctly this time, to the Tuen Mun office of the purchaser's solicitors:

"We refer to the above property and your letter to us of the 15th instant received by us on even date at 12.29 p.m. According to our client, both parties have agreed that the signing of the Sale and Purchase Agreement shall be postponed from the original 8th April 1991 to 15 April 1991.

Since your client had failed to execute the Sale and Purchase Agreement and effect payment of deposit on 15th April 1991 your client had evinced an intention not to abide of the term of the said Chinese Provisional Agreement and has repudiated the same. Our client hereby accept your client's repudiation and the initial deposit paid will be forfeited without prejudice to any of our client's right to claim damages. All rights of our client are hereby reserved."

16. On being told by his solicitors that the vendors intended to forfeit the initial deposit, the purchaser telephoned Mr. Lee in an attempt to persuade him "to resume the transaction". Mr. Lee refused to do so. He told the plaintiff that since he had been late in handing in the cheque for the further deposit, he was going to forfeit the deposit and would not sell the flat to him. He added that the price at which he had agreed to sell the flat to the purchaser was "rather cheap" and that it had increased in price since the date of the provisional agreement.

17. After another futile telephone conversation in which he attempted to persuade Mr. Lee to reverse his decision, the purchaser went to his solicitor's office and, on advice, signed the draft sale and purchase agreement.

18. On 17 April the vendors' solicitors, under cover of a letter stamped "Urgent" and delivered by hand, returned the purchaser's cheque for $122,000.

19. On 18 April the purchaser's solicitors sent an urgent letter by fax and by hand to the vendors' solicitors protesting that the purchaser's failure to send the further deposit and the executed draft sale and purchase agreement on 15 April was mainly due to the late delivery of the draft to the Hong Kong Island office of the plaintiff's solicitors when the vendors' solicitors well knew that the Tuen Mun office was handling the matter on behalf of the purchaser, and that in the circumstances it was not right to say that the purchaser had evinced an intention to commit a breach of the provisional agreement.

20. The vendors' solicitors responded by a letter, erroneously dated 16 April but which was in fact sent on 18 April, in which, notwithstanding that the letter head on the letter of the purchaser's solicitors of 9 April clearly indicated that that letter had been sent from their Tuen Mun office, they complained that there had been "no indication or note drawing our attention that our Sale and Purchase Agreement shall be directed to your Tuen Mun Office."

21. Then, on 19 April, in a last attempt to resurrect the transaction, the purchaser's solicitors sent the draft agreement for sale and purchase signed by the purchaser to the vendors' solicitors and requested that the vendors sign it. This invitation was rejected by the vendors. On 29 April the purchaser issued a writ with statement of claim against the vendors.

22. In finding for the purchaser the judge came to his conclusion on two bases. First he said:

"With regard to the draft formal agreement, it is clear that the vendors' solicitors undertook to prepare the draft formal agreement upon receipt of the plaintiff's solicitor's letter of the 9th April which, besides setting out the other conditions and terms, asked for 'all the relevant title deeds and documents' for their approval. Why it took the plaintiff's solicitors until the 9th April to contact the other side is not clear from the evidence and I will not hazard to guess. As I have pointed out already, in their reply of the 12th April sending the draft, the vendors' solicitors pointed out in the last paragraph that they did not have 'all the relevant title deeds and documents' in their possession and would send them in due course. There can be no doubt that by this statement the vendors' solicitors were clearly saying, and must be taken to mean as much, that there were more papers and documents still to be submitted by them concerning the vitally important issue of their clients' title to the property. The inference plainly must be that they did not consider the 15th April as of the essence, for they themselves had not provided or made available to the plaintiff's solicitors what they had demanded by way of ' all the relevant title deeds and documents' for their approval. That draft was sent to the Hong Kong address of the plaintiff's solicitors. Their explanation contained in their letter, which it was admitted is wrongly dated as the 16th April [at page 8 of the bundle], that there was no indication or note drawing their attention that the draft agreement had to be directed to their Tuen Mun office is, to say the least, on the fact of it most unconvincing since the previous correspondence, in particular the letter of 9th April, had emanated from their Tuen Mun office. However, it is not disputed that the draft reached the [Hong Kong Island] office in the afternoon of the 15th April which was the stipulated date for signing it and for the payment of the further deposit. As seen already, the plaintiff had handed in his cheque for $122,000.00 at his solicitor's [Tsuen Wan] Office which reached the other side the following day.

That then was the situation on the 15th April. The plaintiff's solicitors had the draft but not all the title deeds and other relevant documents. Two other factors must also be pointed out. First, it is abundantly clear in the covering letter forwarding the draft agreement that the vendor' solicitors appreciated that the draft had to meet with the plaintiff's solicitors' approval, 'If the said draft meets with your approval......', secondly, in their letter sending the plaintiff's cheque, his solicitors had drawn the vendors' solicitors attention to the relevant title deeds and documents. However, there is no evidence that those deeds and documents were in fact made available to them at any time on the 15th April, even applying the mid-night rule to which Mr. Chan referred. This deficiency must have impeded, in my view, the immediate approval of the draft. The argument that in the end they made no amendments to it is neither here nor there. The question that arises is: who can tell the draft would not have been approved on the 15th April had all the relevant title deeds and documents been made available on that very day?"

23. It seems clear that the judge had formed the view that the failure of the purchaser to tender the cheque for the balance of the deposit and to sign and return the draft sale and purchase agreement on 15 April was attributable to the conduct of the vendors, by their solicitors, in failing to send the relevant title deeds and documents to the Tuen Mun office of the plaintiff's solicitors within a reasonable time on 15 April to enable them to approve the draft agreement and return it with the cheque to the vendors' solicitors on the same day, and that by their letter of 12 April the vendors' solicitors had indicated that they were not treating "15 April as of the essence".

24. The effect of this finding is that it would be inequitable in the circumstances of the case to permit the vendors to refuse to perform their part of the contract, having failed to give the purchaser a reasonable opportunity to perform his.

25. Secondly, the judge found that time was not of the essence. We have difficulty in extracting from the judgment the process of reasoning by which the judge made this finding. He does not appear to have analysed the terms of the provisional agreement for this purpose, but seems to have focussed on the subsequent conduct of the parties, in particular that of the vendors' solicitors.

26. Whether or not time was of the essence was to be determined on a construction of clause (2) of the provisional agreement. Although it is clear that the words "time shall be of the essence" do not appear in that agreement, we have no doubt that Mr. Chang, who appeared for the vendors in this court but not in the court below, is correct in his submission that the effect of clause (2) is to make the time of payment of the balance of the deposit and the signing of the formal agreement for sale and purchase of the essence.

27. Mr. Chan for the purchaser, arguing otherwise, sought to rely on Smith v. Hamilton [1951]1 Ch 174. This decision was disapproved by the Court of Appeal in Behzadi v. Shaftesbury Hotels Ltd. [1992] Ch 1, at least in so far as it stated a general rule that an innocent party must wait until there has been unreasonable delay on the part of the other party before he can exercise his right to forfeit the deposit and re-sell. (See also Raineri v. Miles [1981] AC 1050).

28. But in any event the condition of sale in Smith v. Hamilton, as to which Harman J held that time was not of the essence, and which Mr. Chan submits is essentially the same as clause 2 in the provisional agreement in the present case, did not provide that time shall be of the essence, whereas another condition of sale in the contract did so provide. In the present case, however, there is no other clause in the provisional agreement that specifies that time shall be of the essence which could properly give rise to the inference that, because there is no such stipulation in clause 2, the parties did not intend that time shall be of the essence with regard to the obligations cast upon the purchaser in clause 2. In our opinion, on a proper construction of clause 2, the parties did intend that time was to be of the essence.

29. But the judgment below can and should be upheld on the ground that, in all the circumstances (in particular the failure of the vendors' solicitors (1) to deliver the draft to the purchaser's solicitors before 12.30 p.m. on the day on which the agreement was then to be signed - and then to the wrong office; and (2) to deliver the promised Title Deeds and Documents at all) the vendors' insistence on termination of the contract and forfeiture of the purchaser's initial deposit was unconscionable, and that it would therefore be inequitable to deny the purchaser relief (see Legione v. Handley (1983) 152 CLR 406 and Stern v. McArthur (1988) 165 CLR 489).

30. Mr. Chang for the vendors argued otherwise. He said that the purchaser, having failed to pay the balance of the deposit and sign the formal agreement for sale and purchase by midnight on 15 April or, at the very latest, prior to the receipt by his solicitors on 17 April of the letter from the vendors' solicitors accepting the alleged repudiation of the contract, had committed a breach of the provisional agreement as varied, and that the vendors were therefore to forfeit the initial deposit and resell the property pursuant to clause 6 of the provisional agreement.

31. Although Mr. Chang accepted that, even where time is of the essence, a court may grant the purchaser relief if the vendors' conduct has been unconscionable, he submitted that the delivery of the draft agreement to the purchaser's solicitors on the afternoon of 15 April did not make it unreasonable for the purchaser to comply with what is commonly referred to as the "midnight" rule. He further contended that not only did the purchaser fail to deliver the balance of the deposit and sign the draft formal agreement by the stipulated time but that, although he had later paid the balance of the deposit, he had failed to sign that agreement by the time that the vendors' solicitors had communicated the vendors' intention to forfeit the deposit. Thus, even if the late delivery of the draft formal agreement to the purchaser's solicitors could properly be said to deny them a reasonable time within which to examine and approve it, have the purchaser sign it and then deliver it and the cheque for balance of the deposit to the vendors' solicitors on that very day, there was ample time within which to have attended to these matters on the following day.

32. In concluding that the immediate approval of the draft was impeded, the judge appears to have focussed on the failure of the vendors' solicitors to provide the purchaser's solicitors with the title deeds and documents on 15 April rather than on the lateness of the delivery of the draft formal agreement on that day by the vendors' solicitors. Perhaps it is for this reason that the purchaser, out of an abundance of caution, filed a respondent's notice contending that the judge's decision should be affirmed on the basis that the purchaser was denied a reasonable time within which to fulfil the obligations cast on him by clause 2 of the provisional agreement.

33. It is clear that the property was merely described in the provisional agreement by its address whereas in the draft agreement it was given its full technical description. Moreover, the draft formal agreement was far more detailed than the provisional agreement, consisting as it did of ten pages while the provisional agreement consisted only of three.

34. The request by the purchaser's solicitors in their letter of 9 April that the vendors' solicitors send them the draft agreement with all the relevant title deeds and documents for their approval was one which was fully in accordance with the practice in Hong Kong that the title deeds are usually delivered before the contract is made (see Nield, The Hong Kong Conveyancing and Property Ordinance, at page 235). The vendors' solicitors in their letter in reply of 12 April did not raise any objection to this request. On the contrary, they explained that they did not have "all the relevant title and documents" in their possession and that they would let the purchaser's solicitors have them in due course.

35. In my opinion the judge correctly concluded that the inference to be drawn from the letter was that the vendors' solicitors "did not consider 15 April as of the essence" and were not expecting the purchaser to sign the agreement and return it with a cheque for the balance of the deposit by the end of that day or, indeed, until the documents of title had been delivered to the purchaser's solicitors.

36. Although the judge did not in terms say so, it follows from his reasons that in those circumstances it was unconscionable, as we hold, for the vendors to insist on termination of the contract and forfeiture of the purchaser's initial deposit.

37. From the vendors' point of view the important obligation cast on the purchaser by clause 2 of the provisional agreement was the payment of the balance of the deposit by the agreed date. By signing the provisional agreement the purchaser had already committed himself to purchase of the property on pain of forfeiture of his deposit and rendering himself liable to damages. A delay beyond 15 April in signing the draft agreement would not have affected the completion date of 15 May.

38. The assertion of the vendor's solicitors in their letter of 16 April that the purchaser had evinced an intention not to abide by the terms of the provisional agreement was unjustified. Not only did the purchaser lodge his cheque for the balance of the deposit with his solicitors on 15 May, but the letter from his solicitors to the vendors' solicitors which enclosed the cheque again drew attention to the earlier request for delivery of the relevant documents of title. This is clearly a case in which it was unconscionable for the vendors to purport to terminate the contract and forfeit the purchaser's deposit.

39. For these reasons we would uphold the judge's decision and dismiss this appeal.