WIN JOYCE INVESTMENT LTD v. LIU KAM CHEONG

cacv 25/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 25 of 2005

(on appeal from HCA NO. 287 of 2004)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This is an appeal from a judgment of Chu J given on 16 December 2004.  In that judgment the judge dismissed an appeal from the master who had granted final judgment in favour of the plaintiff on a summary judgment application and awarded the plaintiff damages to be assessed.  At the conclusion of the hearing of this appeal, this court dismissed the appeal with costs with reasons to be given in writing which we now do.

Background

2.  The plaintiff’s claim arises out of a sub-sale agreement it made with the defendant in respect of house number 17, 24^th Street, Hong Lok Yuen, New Territories (“the house”).  On 9 August 2003 the defendant had entered into an agreement (“the head sale agreement”) to purchase the house from Ocean Win Fashion Company Ltd for $8.3 million.  Completion was to take place on 9 January 2004.  By the sub-sale agreement the plaintiff agreed to purchase the house for $9.98 million, again, completion to take place on 9 January 2004.

3.  Ocean Win Fashion Company Limited was unable to complete its part of the head sale agreement because the amount owing to the bank on mortgage was in excess of the sum it would receive on the sale agreement.  Indeed, it would appear from the correspondence that has been exhibited that the amount which that company owed the bank was far in excess of the sale price.  The plaintiff had paid the usual 10% deposit, i.e. $998,000.

4.  As a result of the head vendor being unable to discharge the mortgage its solicitors gave notice to the defendant’s solicitors that they had no instructions to complete the sale.  The defendant’s solicitors acknowledged that the head vendor had been in breach of the head sale agreement with its client and then informed the plaintiff’s solicitors of the head vendor’s failure to complete the sale.  It indicated that its client had “exercised his right of rescission” and purported to rely on clause 26(f) of the sub-sale agreement saying that the sub-sale agreement was to be treated as rescinded.

5.  The issue in the case, throughout, has been as to whether the defendant was entitled to rely on clause 26(f) and rescind the sub-sale agreement.  Clause 26(f) reads as follows:

“Clause 26

Subsale Provisions

(f)

If the Vendor shall exercise any right of rescission under the Head Agreement, then this Agreement shall also be treated as rescinded and the Vendor shall return the deposit to the Purchaser forthwith and neither party shall have any claim against the other and the parties hereto shall at their own costs and expenses enter into and cause to be registered at the Tai Po New Territories Land Registry an Agreement for Cancellation.”

6.  In my view, the judgement below cannot be criticised and there is little or no need to say anything further.  Merely for completeness, I would make the following observations.

7.  Simply on the wording of clause 26(f), I do not consider that the circumstances where the head vendor has repudiated the contract by being in fundamental breach constitutes a situation where the defendant has exercised a right to rescind.  The right to rescind is a right to set a transaction aside and to be restored to one’s former position.  Ignoring the fact that since the commencement of these proceedings the defendant has commenced proceedings for breach of contract against the head vendor, this is simply not a case where the defendant has exercised a right of rescission.

8.  Neither do I consider that any assistance can be gained from reference to the head sale agreement between the head vendor and the defendant.  The situation where the head vendor was unable to, or otherwise did not, complete the sale is governed by clause 16 of the head sale agreement.  That reads:

“Clause 16     In the event of the Vendor failing to complete the sale in accordance with the terms hereof, all moneys paid by the Purchaser to the Vendor or the Vendor’s Solicitors pursuant to the provision of this Agreement shall forthwith be returned to the Purchase who shall also be entitled to recover from the Vendor damages (if any) which 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.”

9.  There is specific reference in clause 20(iii) of the head sale agreement to the right of the defendant to rescind the head sale agreement if the house were found to be affected by any notice or otherwise resulting from application of various ordinances including the Lands Resumption Ordinance, Cap. 124, the Mass Transit Railway Resumption and Related Provisions Ordinance, Cap. 276 and the Town Planning Ordinance, Cap. 131.  As Chu J pointed out, the right to rescind under this clause of the head sale agreement envisaged the defendant and the vendor being restored to their pre-contractual positions.

10.  On this appeal Mr Yuen S C, who appeared on behalf of the defendant, took as his main point the ground that clause 26(f) should be given a broad and generous interpretation.  He referred specifically to Order 86 of the Rules of the High Court.  In that respect it is noted that rubric 86/1/1 states:

“It is plain that “rescission” in Para. (1)(b) is used in the wide sense, including the acceptance by the plaintiff of a repudiation by the defendant of the contract by breach, and is not confined to the narrower sense to which the Hours of Lords in Johnson v. Agnew [1980] AC 367 said “rescission” should be restricted.”

11.  In each case, the construction of a document whether it be the Rules of the High Court or a contract must depend upon the proper construction of the document itself.  I have no doubt in the present case that the proper construction of clause 26(f) is as the judge set out in her judgment.  To construe that clause in the way that the defendant wishes would entail interpreting the clause and the sub-sale agreement as if it were drafted differently.  In so saying I consider that the judge was entitled to pray in aid the existence of clause 13(a) of the sub-sale agreement which provided for circumstances where the defendant should “for any cause (save as herein provided) fail to complete the sale” as a further aid to construing the agreement leading to the conclusion that clause 26(f) related to rescission in the proper sense and not a circumstance where one party was in breach.

Hon Le Pichon JA:

12.  I agree.