OCEAN FORCE ENTERPRISES LTD. v. CHUN SAU WAN and GRAND FULLY HOLDINGS LTD. AND ANOTHER (Third Party)

HCA3571/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3571 OF 1997

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J U D G M E N T

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1. This is a claim by the purchaser in an agreement for sale and purchase of a flat in Hong Kong against the vendor for rescission and damages for loss arising out of the vendor's wrongful termination of that agreement. In the alternative she claims against the firm of solicitors who contracted to represent her in the transaction damages for the same loss arising out of their lack of care in breach of that contract.

Background

2. Grand Fully Holdings Limited (Grand Fully Holdings) was, at the material time, the registered owner of 43B, Tower 2, University Heights, Hong Kong (the flat). By agreement dated 3rd February 1997 (the first agreement) Grand Fully Holdings agreed to sell the flat to one Chun Sau Wan (Madam Chun) for $9,300,000. The first agreement superseded the usual provisional agreement between the parties of 14th January 1997. In compliance with its terms Madam Chun had by 3rd February paid deposits totalling $930,000. The first agreement called for payment of the balance of the purchase price on or before 1st April 1997 being the nominated date for completion.

3. Those clauses of the first agreement pertinent to these proceedings are as follows:-

"7.(a) Completion shall take place at the office of the Vendor's Solicitors on or before the date stated in the Seventh Schedule hereto ("the Completion Date"). Completion shall take place by way of undertaking (subject to the usual Law Society Qualifications) unless either party shall serve on the other party or the other party's solicitors 3 days before the Completion Date a notice in writing requesting formal completion in which case formal completion shall take place. Notwithstanding such formal completion, the Purchaser shall accept the undertaking of the Vendor's Solicitors to send the Discharge and Reassignment of the Charge hereinafter defined or a certified copy of the Partial Reassignment thereof (as the case may be) to the Purchaser's Solicitors subject to the usual Law Society Qualifications.

(b) Notwithstanding anything herein provided, if the completion date for sale and purchase of the Property and/or any of the date(s) stipulated for payment herein shall fall on a day which is not business day (business day shall be a day on which licensed banks are open for business in Hong Kong) or shall fall on a day on which typhoon signal No. 8 or above or a Black Rainstorm Signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m., such date for payment or the Completion Date (as the case may be) shall automatically be postponed to the next business day or such next succeeding business day on which no typhoon signal No. 8 or above or a Black Rainstorm Signal is hoisted (as the case may be) between the aforementioned hours. The sale and purchase shall be completed between the hours of 9:00 a.m. and 5:00 p.m. on or before the completion date if completion shall take place on a weekday and if such date shall fall on a Saturday then between the hours of 9:00 a.m. and 12:00 noon.

13. Time shall in every respect be of the essence of this Agreement.

14.(a) If the Purchaser shall fail to complete the purchase of the Property in accordance with the terms and conditions contained herein (other than due to the default of the Vendor), then all moneys paid hereunder shall be absolutely forfeited to the Vendor who may thereupon by notice given to the Purchaser but without tendering an assignment to the Purchaser determine this Agreement.

(b) Upon the Vendor exercising its right of determination under the provisions of Sub-clause (a) of this Clause, the Vendor may but is not obliged to register a Memorandum of Determination signed by the Vendor alone in the Land Registry.

(c) Upon the Vendor exercising its right of determination under the provisions of Sub-clause (a) of this Clause, he may (but is not obliged) to resell, let or otherwise deal with the Property of any part or parts thereof either by public auction or private contract or in such other manner as the Vendor may in its absolute discretion think fit and on such terms and conditions as the Vendor shall deem fit. Without prejudice to the Vendor's right to recover the actual loss which flow from the Purchaser's breach of this Agreement, in the event that the Vendor elects to and does sell the Property, any deficiency in price and all expenses attending such resale shall be borne by the Purchaser and shall be recoverable by the Vendor as and for liquidated damages. Any surplus gain or profit made by the Vendor from such resale shall belong to the Vendor.

15. If the Vendor shall (for any cause other than the failure to complete the sale following the provision of determination of sale under clause 12(b) above) fail to complete the sale of the Property in accordance with the terms hereof then all money paid hereunder shall be returned to the Purchaser forthwith who shall also be entitled to recover from the Vendor such damages (if any) over and above all deposit(s) paid hereunder which includes and not limit to any stamp duty or duties paid or payable as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution before taking such proceedings."

4. By agreement dated 14th March 1997 (the sub-agreement) Madam Chun agreed to sell the flat to Ocean Force Enterprises Limited (Ocean Force) for $10,280,000. The sub-agreement superseded the usual provisional agreement between the parties of 1st March 1997. In compliance with its terms Ocean Force had by 14th March paid deposits totalling $1,028,000. The sub-agreement called for payment of the balance of the purchase price on or before 1st April 1997 being the nominated completion date.

5. Those clauses of the sub-agreement pertinent to these proceedings are as follows:-

"3. (1) The purchase shall be completed at the office of the Vendor's Solicitors on the date set out in Part VI of the First Schedule hereto ("the Completion Date") between the hours of 9:00 a.m. and 11:30 a.m. if completion shall take place on a weekday and between the hours of 9:00 a.m. and 10:00 a.m. if completion shall take place on a Saturday when the balance of the purchase price shall be fully paid to the Vendor and/or the Vendor's Solicitors and the Vendor and all other necessary parties (if any) will execute a proper assurance of the Property to the Purchaser or his nominee(s) or sub-purchaser(s) in accordance with this Agreement but otherwise free from incumbrances.

(2) In respect of each payment of the purchase price or any part thereof payable by the Purchaser hereunder, the Purchaser shall deliver to the Vendor and/or the Vendor's solicitors either cashier order(s) issued by a licensed bank in Hong Kong or cheque(s) drawn on a licensed bank in Hong Kong issued by a firm of Solicitors in Hong Kong for the relevant amount. The Purchaser shall not be deemed to have discharged the obligation to make payment hereunder unless in making such payment the Purchaser shall also comply with the provisions of this Clause.

(3) If the Completion Date shall fall on a day which is not a business day (a business day is herein defined as a day on which The Hongkong and Shanghai Banking Corporation Limited is open for business in Hong Kong) or shall fall on a day on which typhoon signal No. 8 or above is hoisted in Hong Kong at any time during the period specified in sub-clause (1) above, the Completion Date shall automatically be postponed to the next business day or such next succeeding business day on which no typhoon signal No. 8 or above is hoisted (as the case may be).

12. If the Vendor shall (for any cause save as herein provided) fail to complete the sale in accordance with the terms and conditions of this Agreement, the deposit and all other money paid by the Purchaser to the Vendor shall be returned forthwith to the Purchaser who shall also be entitled to recover from the Vendor such damages (if any) as the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an assignment to the Vendor for execution.

14. Time shall in every respect be of the essence of this Agreement."

6. Both the first agreement and sub-agreement contain such additional clauses as are usually contained in agreements for the sale and purchase of flats in Hong Kong to enable such transactions to be completed in good order and in compliance with conveyancing laws and practice in Hong Kong. No issue is taken with the terms of these clauses.

7. Madam Chun appointed Messrs Richard Tai and Co. solicitors, (Richard Tai) to act for her in the purchase and sale of the flat, and that appointment was accepted. Grand Fully Holdings appointed Messrs Laurence Pang and Co., solicitors (Laurence Pang) to represent it.

8. 1st April 1997 dawned. It was a weekday. There were to be, during the course of the day, no weather signals hoisted to interrupt business.

9. Ocean Force had until 11:30 a.m. (time being of the essence) to complete its part under the sub-agreement by delivering a cheque for the balance of the purchase price to Richard Tai together with the assignment executed by Ocean Force as purchaser. Its solicitors complied by making such delivery, timed at approximately 9:45 a.m. That cheque being sufficient to cover the balance purchase price under the first agreement, Richard Tai was thus put in funds to pay that. By a letter, sent at first instance by fax timed at 10:21 a.m., Laurence Pang directed how that was to be paid. Madam Chun on request attended the offices of Richard Tai at 2:15 p.m. and executed the assignment. So, from 2:15 p.m., Richard Tai was in funds and in possession of an executed deed of assignment and thus in a position thereafter to tender completion at the offices of Laurence Pang before the deadline of 5 p.m.

10. But it was not until some time between 4:58 and 5:03 p.m. (which precise time is in dispute) that an employee of a courier service appointed for the purpose arrived at Laurence Pang's offices and handed over an envelope containing the cheques and assignment. Laurence Pang claimed she was late by 3 minutes and as a consequence Madam Chun was in breach for failing to tender completion in time. Grand Fully Holdings instructed its intention to rescind because of that breach. The assignment and cheques were rejected and Laurence Pang gave notice of rescission and forfeiture of the deposit Madam Chun had paid.

11. Madam Chun disputes that completion was tendered after 5:00 p.m. and that she was in breach. Alternatively, she blames Richard Tai for failing to look after her interests and complete in time.

12. Either way, she was unable to perform her obligations under the sub-agreement with Ocean Force which thereby held her in breach.

The proceedings

13. Ocean Force as plaintiff sued Madam Chun as defendant for breach of the sub-agreement, claiming, inter alia, reimbursement of the deposits paid of $1,028,000, interest and costs. Madam Chun joined Grand Fully Holdings as first third party and sued it for wrongful termination and breach of the first agreement, claiming indemnity for whatever Ocean Force recovered from her, additional loss occasioned by her as detailed, interests, costs and other relief. Madam Chun also joined Richard Tai as second third parties and sued them in the alternative for the same loss, occasioned by, inter alia, the firm's failure to exercise due skill and care in breach of express or implied terms of the contract between them.

14. Madam Chun did not defend the claim by Ocean Force and summary judgment in its favour was granted, followed by an order by consent of 27th November 1997 which fixed the amount at $1,118,000, representing the deposit refunded and interest on that. Madam Chun has paid this judgment debt in full.

15. Grand Fully Holdings and Richard Tai both dispute liability to Madam Chun's third party claims.

16. These, then, are the matters before me for resolution.

The issues

(1) At what time did Richard Tai tender for completion under the first agreement?

(2) What are the consequences of that finding?

(3) If those consequences are unfavourable to Madam Chun, can she look to Richard Tai to make good her loss?

The significance of time

17. Where as in this case the parties to a contract stipulate a time by which they are to perform and time is of the essence then failure by one of the parties to abide by that puts that party in repudiatory breach and entitles the other to rescind. The party in default has no remedy in law or equity even if the lateness amounts to a few minutes.

18. This proposition was considered and dealt with by the Privy Council in Union Eagle Limited v. Golden Achievement Limited (1997) 1 HKC 173. In that case the parties in an agreement for sale and purchase contracted that the time for completion was to be by 5 p.m. on the nominated date, time being of the essence. The purchaser tendered for completion by delivery of the money and documents at 5:10 p.m. (that being an express finding of fact). The vendor declined to accept and rescinded and forfeited the deposit. The purchaser sought relief contending that up to the point in time of tender the contract was on foot, and that it could demand performance until it was rescinded. Their Lordships rejected that argument. They held that after 5 p.m. performance by the purchaser was no longer possible. The vendor had no obligation to accept late performance in the absence of waiver or estoppel. Furthermore, equity could not intervene in a failure by one party to comply with an essential condition as to time, even though that failure might amount to being late by only a few minutes.

19. It follows, then, that the time at which completion was tendered by Richard Tai's agent, the employee of the courier service employed for the purpose, is of vital significance.

How is completion tendered?

20. A preliminary matter to be resolved is this:- at what point in the series of events that transpired did Madam Chun tender for completion? Was it when Madam Yau, the courier's employee, armed with the envelope containing cheques and assignment, set foot in the offices of Laurence Pang? Was it when she stood alongside the receptionist's desk, or when the envelope changed hands, or when it was opened, or when receipt was acknowledged?

21. In the usual run of the mill cases this is a subtlety that is of academic moment only. But where, as here, there is evidence, albeit disputed, that Madam Yau arrived but was thus delayed as she waited to be served, then it assumes significance and may be crucial.

22. In deciding this point I am assisted by Shihombing & Wilkinson's Hong Kong Conveyancing - Law & Practice. At chapter XIV paragraph 56 the authors state:- "At 'completion' the purchaser must pay the balance of the purchase money on the day and time thereon set out in the contract....". To this can be added the obvious, namely, "at the place designated in the contract".

23. Accepting as I do that this states the law, the mere arrival of the purchaser's solicitor's agent at the door of the vendor's solicitors unannounced with an envelope does not, in my view, amount to this. That is achieved when the contents of the envelope are revealed, identified and received. This invariably takes place at the receptionist's desk. It behoves the vendor's solicitors to be ready and willing to receive, and to suffer the consequences of any untoward delay; for instance if the reception desk is unmanned for a period of time, or if the envelope is left unopened for a period of time. But that does not entail, in my view, having staff poised at the door to query every visitor to the firm's premises, identify the messenger and then seize from her and thus take delivery of the money just because time is in danger of running out.

24. In this case I am satisfied that completion was tendered by Madam Chun when Madam Yau handed over the envelope and its contents were revealed. If this was some time, brief though material, after her arrival, then so be it. As long as she was not kept waiting for an inordinate length of time the onus was on her to identify herself and push herself forward if she wanted to make better time. But she did not. And why should she? No one told her to.

What time was completion tendered?

25. This is the first of the three issues to be decided.

26. There was a wealth of conflicting evidence adduced by those clerks, clients and courier who played some part in events as the crucial hour of 5 p.m. approached, arrived and then became the past.

27. Madam Yau and the receptionist at Richard Tai both said that by their timepieces she left their offices for Laurence Pang's at 4:50 p.m. She was told the delivery was an urgent one. She had to get there by 5 p.m. This journey entailed travelling on foot by lift from the 15th floor of V-Huen Building at 138, Queen's Road Central, along Queen's Road Central to Gloucester Tower in Pedder Street and by lift to the 42nd floor. She had, by her reckoning, 10 minutes within which to make the deadline. It was on any view, including mine, always going to be tight. But by dint of half running, using the road to avoid the worst of the pedestrian traffic and with the luck of a smooth ride in the Gloucester Tower lift she claimed to have made it in time. As she walked through the doors of the offices of Laurence Pang she glanced at her watch and found it was 4:58 p.m. So, 2 minutes to spare. But there was a delay before she got to reception. She waited her turn, without demur, whilst others ahead of her were attended to. And she did not again check her watch to see how long that was. Nor did she seek to argue the point when the receptionist who received the envelope from her told her she was late. At or about that time the delivery voucher was time chopped by the receptionist. It recorded 5:03 p.m. So, 3 minutes late. The receptionist at Richard Tai, who had seen Madam Yau off at 4:50 p.m., said she got a call from an unnamed male clerk at Laurence Pang who told her the cheques and assignment had come too late. She immediately time chopped a scrap of appear to see if that was so. It recorded 4:58 or 4:59 p.m. So, 1 or 2 minutes to spare, even by then. The conveyancing clerk at Laurence Pang dealing with the transaction said delivery was after 5 p.m. But she was called out from her office after the event and could not be precise. A director of Grand Fully Holdings was waiting in reception. She said her own timepiece disclosed that the messenger arrived at the reception counter a few minutes after 5 p.m. So, too late, by an imprecise period.

28. All these accounts might well be coloured by the desire, conscious or not, by the witness recounting events to protect his or her position or that of his or her employer, principal or client. But it also serves to highlight that a timepiece is only as accurate as its own mechanism and the person who last adjusted it allows it to be. That is a matter of common sense and common knowledge.

29. What is revealing is the time chop on the docket of 5:03 p.m. As far as I can judge that was affixed at or very close to the time when completion was tendered. But how reliable was that machine? If Richard Tai's receptionist remembered accurately when she said her machine chopped out 4:58 or 4:59 p.m. during the call from the clerk of Laurence Pang, that meant there was a discrepancy between machines of at least 5 minutes.

30. But there is only one time that is truly accurate and that is Hong Kong Time, which, by definition, is precisely 8 hours in advance of Universal Standard Time, commonly known as Greenwich mean time. Any other recording of time will be an attempt to match that, with more or less accuracy from timepiece to timepiece.

31. If follows that the parties intended contractually to be bound to perform by 5 p.m. Hong Kong Time. This time is an absolute, incapable of fluctuation, approximation or inaccuracy. But if a chronometer (which presumably includes any device whose function is to record the passage of time) is tested and checked for accuracy by an officer of the Royal Observatory, his certificate of the outcome of that test and check is admissible as to its facts stated therein. Sec. 24 Evidence Ordinance Cap 8 states that.

32. Nobody thought to test Laurence Pang's time chopping machine or any other timepiece relied upon on or about 1st April 1997.

33. The consequence of that then, is that I am left with no alternative but to make the finding of fact that completion was tendered around 5 p.m. I can be no more precise than that.

The consequences of that finding

34. This is the second of the three issues.

35. How such finding affects the positions of the contracting parties depends on where the burden of proof lies.

36. Mr. Collins for Grand Fully Holdings has argued that this must fall for Madam Chun to have to shoulder, because it is her claim for damages for loss for wrongful termination and for her to establish her case; "she who alleges must prove".

37. But Madam Chun being the claimant in these proceedings does not inevitably put the burden of proof on her shoulders.

38. Phipson on Evidence, 14th edition, at chapter 4, para. 4.02 states:-

" The burden of proof lies upon the party who substantially asserts the affirmative of the issue. Robins v. National Trust Co. [1927] A.C. 515, 520; Huyton-with-Roby U.D.C. v. Hunter [1955] 1 W.L.R. 603. "The burden of proof in any particular case depends on the circumstances in which the claim arises. In general the rule which applies is Ei qui affirmat non ei qui negat incumbit probatio. It is an ancient rule founded on considerations of good sense and should not be departed from without strong reasons," per Lord Maugham in Constantine Line v. Imperial Smelting Corporation [1942] A.C. 154, 174. This rule is adopted principally because it is but just that he who invokes the aid of the law should be the first to prove his case; and partly because, in the nature of things, a negative is more difficult to establish than an affirmative."

39. In this case it was Grand Fully Holdings which alleged breach for failure to comply with an essential term and purported to exercise a right to rescind. It must prove, as I find, that it had the right to do so and avail itself of the law's aid, rather than that it should be Madam Chun to prove that it did not.

40. It thus being for Grand Fully Holdings to prove that the courier's employee was late in tendering for completion, it has failed because it has not succeeded in proving that was after 5 p.m. It follows from that that by refusing to accept the money and assignment and purporting to rescind the first agreement it was in repudiatory breach and liable for Madam Chun's loss occasioned by that. Accordingly her claim against Grand Fully Holdings succeeds in an amount to be assessed.

41. Madam Chun's suit in the alternative against Richard Tai, the third issue for consideration, falls away as a consequence.

Costs

42. The orders I propose to make (and not make) on the matter of costs will be nisi at first instance because as this judgment is handed down I have not had the benefit of argument.

43. Those of Madam Chun will follow the event and be met by Grand Fully Holdings.

44. Those of Richard Tai will not.

45. The conduct of Richard Tai cannot be free from criticism. In the evidence no good reason was put forward as to why the cheques and assignment did not leave the firm's offices before 4:50 p.m. The firm would or ought to have known the consequences of a late delivery and the likely loss its client would suffer. Madam Yau did her level best to make the delivery on time, risking life and limb by using the carriageway and half running to do so. But for that and the good fortune that she was not unduly delayed by the lift, she might have been some 5 or more minutes too late, so that the time of arrival after 5 p.m. would have been much easier to establish. And she was not warned by staff of Richard Tai to present herself at the reception counter before 5 p.m. but merely to get there in time.

46. Richard Tai has been found not liable for failure to exercise due skill and care. But the firm has escaped by failure of Grand Fully Holdings to prove its case. Had it exercised prudence and ordered the delivery in good time then there would have been no dispute and no litigation. In the circumstances it will bear it own costs.

47. The orders now follow.

48. The defendant shall have judgment against the first third party for damages to be assessed.

49. The defendant's claim against the second third party is dismissed.

50. Costs of the defendant including any reserved shall be met by the first third party taxed if not agreed.

51. The order for costs shall be nisi at first instance with liberty to apply on notice given within 14 days of the date upon which the judgment is handed down.