ETERNAL CROWN DEVELOPMENT LTD v. GREAT WIDE INVESTMENT LTD

HCA 2550/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2550 OF 2007

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D E C I S I O N

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Background

1.  By a sale and purchase agreement dated 10 October 2007 (“the Agreement”) made between the defendant as the Vendor and the plaintiff as the Purchaser, the defendant agreed to sell to the plaintiff the property known as G/F and Cockloft including portion of flat roof adjacent to the Cockloft of Lee Wai Building, No. 41 Pok Fu Lam Road, Hong Kong (“the Property”).

2.  The Agreement provides, inter alia, as follows :

(a)  the purchase price for the Property (“the Price”) is $4,550,000, of which $150,000 had been paid prior to the Agreement as initial deposit and $305,000 to be paid upon the signing of the Agreement as further deposit (collectively as “the Deposits”).  The balance of the Price shall be paid on completion [Clauses 2.1, 3.1 and Part III of the Schedule];

(b)  completion shall take place at the offices of Messrs Donald Yap, Cheng & Kong (the Vendor’s solicitors) on or before 21 November 2007 (“the Completion Date”) [Clause 5.1 and Part IV of the Schedule];

(c)  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 three days before the Completion Date a notice in writing requesting formal completion in which case formal completion shall take place [Clause 5.1];

(d)  time shall in every respect be of the essence of the Agreement [Clause 7.1];

(e)  the Vendor shall give good title to the Property.  The title shall commence with the Government Lease and the Vendor shall show good title to the Property in accordance with section 13 of the Conveyancing and Property Ordinance; and

(f)  on the payment of the residue of the Price in the manner provided in the Agreement, the Vendor and all other necessary parties (if any) will execute a proper assignment or other assurance of the Property sold to the Purchaser and deliver the same to the Purchaser.  The said assignment or other assurances of the Property shall be delivered by the Purchaser’s solicitors to the Vendor’s solicitors for approval at least one (1) working day prior to the Completion Date [Clause 13.1].

3.  Clause 10.1 of the Agreement is important for the purpose of the present case.  I shall set out the provisions in full :

“Any requisitions or objections in respect of the title or otherwise arising out of this Agreement shall be delivered in writing to the Vendor’s Solicitors within seven (7) working days after the day of receipt of the title deeds by the Purchaser’s Solicitors or within seven (7) working days after the reply to requisitions raised is received otherwise the same shall be considered as waived (in which respect time shall be of the essence of the Agreement) and if the Purchaser shall make and insist on any objection or requisition in respect of the title or otherwise which the Vendor shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with the Vendor shall notwithstanding any previous negotiation or litigation be at liberty on giving to the Purchaser or his Solicitors not less than three (3) working days notice in writing to annul the sale in which case, unless the objection or requisition shall have been in the meantime withdrawn, the sale shall at the expiration of the notice be annulled the Purchaser being in that event entitled to a return of the Deposit forthwith but without interest, (if return within 7 days) costs or compensation and the Purchaser shall return to the Vendor all title deeds, documents and any other parties furnished to the Purchaser or his solicitors by or on behalf of the Vendor in connection with the sale and purchase hereunder.”

4.  After the signing of the Agreement, the title deeds were delivered by the Vendor’s solicitors, Messrs Donald Yap, Cheng & Kong (“DYCK”) to the Purchaser’s solicitors, Messrs Raymond Chan, Kenneth Yuen & Co. (“RCKY”). 

5.  Amongst the title deeds delivered by DYCK was an assignment dated 15 August 1996 (“the 1996 Assignment”) by which the Property was assigned by one Au Wai Ming, Au Wai Sang and Au Wai Hung (as tenants-in-common) to the defendant in the present case.  Au Wai Ming, Au Wai Sang and Au Wai Hung (collectively as “the TIC”) were thus the immediate predecessors-in-title of the present Vendor. 

6.  One of the TIC, namely Au Wai Sang, did not execute the 1996 Assignment personally.  Instead he executed the same by his “lawful attorney” Au Wai Hung who, it may be noted, was also one of the TIC. 

7.  To prove that Au Wai Hung was indeed the lawful attorney of Au Wai Sang, a Power of Attorney dated 26 May 1993 (“the P.A.”) was produced by DYCK.  By the P.A., Au Wai Sang appointed Au Wai Hung as his attorney to “do perform transact and effectuate all or any of the … acts, deeds, matters and things … more particularly described in the Second Schedule” of the P.A.  Under the Second Schedule of the P.A., Au Wai Hung was expressly authorised to dispose of (whether by way of sale surrender exchange mortgage lease or otherwise) or deal with the Property or any part thereof.

8.  It appears from the execution page of the P.A. that Au Wai Sang originally executed the same in the presence of a solicitor in Brisbane.  It is not known when that execution was made.  However, the P.A. was subsequently “Resigned, Resealed and Redelivered” by Au Wai Sang in the presence of a notary public in Brisbane, and the notary public had, by a certificate dated 5 May 1993 (“the Certificate”), certified that Au Wai Sang had duly signed and delivered the P.A. in his presence on 5 May 1993, and that Au Wai Sang was personally known to him and of full age. 

9.  So it appears that although the P.A. bears the date of 26 May 1993, it was in fact re-executed by Au Wai Sang on 5 May 1993.  The original execution by Au Wai Sang (in the presence of a solicitor in Brisbane) would have been even earlier, although the exact date of that execution is not known.

10.  By a letter dated 24 October 2007, RCKY raised certain requisitions with DYCK.  Requisitions Nos. 3 and 4 were respectively as follows :

“3.  Power of Attorney of Au Wai Sang (26.5.1993)

The P.A. was dated 26.5.1993, while the Certificate given by the Notary Public was dated 5.5.1993, a date earlier than the date of the P.A.  Since the P.A. will be invalid if the Donor is deceased after 5.5.1993, please clarify (copy enclosed).

4.  Assignment Memorial no. UB6738203

The Power of Attorney of Au Wai Sang dated 26.5.1993 was older than 1 year when the Assignment was executed on 15.8.1996 (copy enclosed).  Please provide a Statutory Declaration made by the authorized person of the Purchaser, Great Wide Investment Limited, pursuant to s.5 (4)(b) of the Powers of Attorney Ordinance.”

The reference to “Assignment Memorial No. UB6738203” in Requisition No. 4 was a reference to the 1996 Assignment.

11.  I would point out, for completeness’ sake, that in fact the letter of 24 October 2007 also mentioned other requisitions.  In particular, Requisition No. 1(c) featured in some of the subsequent correspondence.  However, counsel for both parties have told me at the hearing that I can ignore all the other requisitions except Requisitions Nos. 3 and 4 mentioned above.  Both counsel have confirmed to me that nothing turns on these other requisitions and they are entirely irrelevant to any of the issues before me.  In these circumstances I will say nothing more about these other requisitions.

12.  By a letter dated 6 November 2007, DYCK replied to the requisitions, inter alia, as follows :

“3.  Power of Attorney Au Wai Sang (26.05.1993)

We do agree to your views and have requested our client to clarify it.

4.  Assignment Memorial No. UB6738203

Our client instructed us that they have already paid a lot of money in obtaining certified copies title deeds and will only consider entertaining your client’s request at your client’s expenses.”

13.  Given the fact that the defendant had the duty to show good title, it is difficult to see the basis of the defendant’s answer that it would only entertain the plaintiff’s request for a statutory declaration under section 5(4)(b) of the Power of Attorney Ordinance (“PAO”) at the plaintiff’s expenses.  Merely because the defendant had already “paid a lot of money in obtaining certified copies title deeds” is certainly not a good reason.

14.  By its letter of 8 November 2007, RCKY informed DYCK that it awaited its reply in respect of Requisition No. 3.  As to Requisition No. 4, RCKY pointed out that the answer of DYCK was not acceptable as it was the duty of the Vendor to prove title at its costs.  RCKY further pointed out that “it was within the power and ability of the 2 directors of [the defendant], namely Au Wai Hung and Lo Choi Sum, to make a declaration pursuant to s.5(4)(b) of the P.A.O.”.

15.  DYCK replied by a letter dated 12 November 2007.  In respect of Requisition No. 3, they alleged that the defendant had instructed them that the whereabouts of Au Wai Sang could not be traced to clarify the matter.  In respect of Requisition No. 4, DYCK’s answer was as follows :

“We do not agree to your views as expressed.  Our client has indeed performed and observed its duties to prove title to the Property at its own costs.  However, our client is not obliged to comply with your requisitions which Clause 10 of the Agreement for Sale and Purchase dated 10^th October 2007 has clearly provided.”

16.  By letter dated 14 November 2007, RCKY wrote to DYCK in reply to DYCK’s letter of 12 November.  Referring to both Requisitions Nos. 3 and 4 together, RCKY informed DYCK that they were prepared to accept a statutory declaration made by the other two vendors (i.e. the other two tenants-in-common) of the 1996 Assignment (in the letter the memorial No. of the 1996 Assignment was mis-stated as UB1146841, but nothing turns on this).  RCKY expressed the view that the title of the Property would be “defective without any secondary evidence of the validity of the P.A. of Au Wai Sang”.

17.  On 15 November 2007, DYCK gave notice to RCKY that the defendant would annul the sale and purchase (“Notice of Annulment”) purportedly under Clause 10 of the Agreement, unless the requisitions raised by RCKY were withdrawn.  In the said letter, DYCK informed RCKY that the defendant would not be able to prove good title to the Property, in that :

(a)  the defendant could not trace the whereabouts of Au Wai Sang to clarify the matter; and

(b)  the defendant could not trace the whereabouts of the other two vendors as tenants-in-common in the 1996 Assignment to make a statutory declaration.

18.  By the same letter DYCK gave three working days’ notice to RCKY that “pursuant to Clause 10 of [the Agreement], [the defendant] shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with [the plaintiff’s] requisitions in respect of the title to the Property and unless the said requisitions shall have been withdrawn by [RCKY], the sale and purchase herein shall at the expiration of the said notice be annulled.”

19.  By its letter dated 19 November 2007, RCKY wrote to DYCK and, referring to Requisitions Nos. 3 and 4 together, informed DYCK that they were “instructed to enquire how much [would] be the costs of preparing the Statutory Declaration concerned”.

20.  The next day DYCK replied to RCKY and curtly stated as follows :

“We would like to advise you that it is not merely a matter of costs, but the difficulty that counts.”

The alleged “difficulty that counts” was not explained.  This letter was received by RCKY at 3:19 p.m. on 20 November 2007.

21.  21 November 2007 was the Completion Date scheduled under the Agreement.  Under cover of a letter dated 21 November 2007 (which arrived at RCKY’s office at 10:56 a.m.), DYCK sent to RCKY a cheque in the sum of $455,000.00, described as the “return of the Deposits paid by [the plaintiff] on annulment of the sale and purchase herein upon the expiration of the notice given”.

22.  As noted above, Clause 13.1 of the Agreement provides that the (draft) Assignment shall be delivered by the Purchaser’s solicitors to the Vendor’s solicitors for approval at least one working day prior to the Completion Date.  At 11:41 a.m. on 21 November 2007, RCKY faxed to DYCK the draft Assignment together with the draft Undertaking for its approval, but made it clear that the sending of the same was to be without prejudice to any outstanding requisitions.  This was followed by the physical delivery of the draft Assignment and draft Undertaking to DYCK’s offices at 1:14 p.m.  It will be noted that the faxing and the physical delivery of the draft Assignment and draft Undertaking all took place on 21 November 2007.  The draft Assignment was therefore not delivered to the Vendor’s solicitors at least one working day prior to the Completion Date, as defined under the Agreement.

23.  In the meantime, RCKY refused to accept the return of the Deposits by DYCK.  By another letter dated 21 November 2007 (faxed to DYCK at 12:19 p.m. and delivered to their office at 1:14 p.m., together with the cover letter that enclosed the draft Assignment and draft Undertaking mentioned above), RCKY informed DYCK that the plaintiff would “insist of [sic] completing the sale and purchase today”, and returned the cheque of $455,000 to DYCK.  DYCK was further informed that the balance of the Price would be sent to them before 5:00 p.m. for completion of the sale and purchase.

24.  By its second letter of 21 November 2007 sent to RCKY (and received by them at 2:57 p.m.), DYCK :

(a)  “put on record” that if, which DYCK denied, the Agreement “should still be valid”, the plaintiff had acted in breach of Clause 13 of the Agreement by failing to deliver the draft Assignment to DYCK for their approval at least one working day prior to the Completion Date;

(b)  maintained that the defendant was entitled to annul the sale and purchase under Clause 10 of the Agreement, as the defendant had not withdrawn its requisitions despite the defendant’s Notice of Annulment;

(c)  drew attention to Clause 7 of the Agreement which provided that time was of the essence of the Agreement;

(d)  maintained that the sale and purchase of the Property had been annulled; and

(e)  returned the cheque of $455,000 to RCKY again as the return of the Deposits.

25.  In response to DYCK’s second letter, RCKY sent a further letter to DYCK dated 21 November 2007, alleging, inter alia, that :

“The fact is we were awaiting for your quotation on the costs of preparing the Statutory Declaration which we only received your reply on 20^th November 2007.  In the circumstances, we need reasonable time to consider your reply and prepare the draft undertaking and assignment which we have faxed the same to you this morning.  Even if we are late in sending the draft documents for your approval, which we deny, your client is not entitled to rescind the S&P simply on this basis.  We cannot see how, as Vendor, your client’s position is prejudiced and suffered from damages (which we will put you on strict proof) in receiving the draft documents late.”

26.  RCKY’s attempt to complete the sale and purchase in the afternoon of 21 November 2007 was unsuccessful.  The balance of the Price was sent to DYCK, who refused to accept the same.  DYCK alleged that the staff of RCKY had left a “sealed envelop with letters and cheques” in the corridor of their office and demanded RCKY to “get back” the same.  There was in fact rather protracted correspondence on that matter, which I do not need to deal with.  Suffice to say that they are quite irrelevant to the issues now before the court and I have found the contents of some of these correspondences (with allegations of false statutory declaration and counter-allegations of defamation) rather unseemly.

The Application before the Court

27.  By its Amended Summons issued under Order 14A of the Rules of High Court (“Amended Summons”), the defendant applied for the following order or relief :

“(1)  that the following questions of law may be determined, namely :

(a)  whether the Defendant [was] entitled to give the Notice of Annulment on 15^th November 2007;

(b)  if the answer to (a) is in the affirmative, whether the Defendant’s Notice of Annulment dated 15^th November 2007 remained valid on 20^th November 2007;

(c)  whether the Defendant has validly rescinded the Agreement;

(d)  whether time is of the essence;

(e)  if the answer to 1(d) is in the affirmative, whether the Plaintiff breached Clause 13 of the Agreement in failing to deliver to the Defendant’s Solicitors the draft assignment as well as other assurance of the Property for approval at least one (1) working day prior to the day of completion and thus the Defendant is entitled to rescind the Agreement.

(2)  that if the said question to question 1(a) to 1(c) and/or 1(d) to 1(e) hereinabove be answered in the affirmative, then the Plaintiff’s claim be dismissed and that judgment be entered for the Defendant against the Plaintiff for final judgment in this action against the Plaintiff and the Plaintiff shall forthwith vacate the lis pendens registered in the Land Registry of HKSAR or if the question be answered in the negative, then judgment be entered for the Plaintiff.”

28.  No objection is taken by the plaintiff (represented by Mr Timothy Ling) regarding the appropriateness of the Order 14A procedure.  It is also agreed by counsel that all the facts relevant to the determination of the questions set out in paragraph 26(1) above are undisputed. 

Question 1(a) :   Was the defendant entitled to give the Notice of Annulment on 15 November 2007?

29.  In my judgment, the answer must be “no”.

30.  Clause 10.1 is clear in its provision.  On the plain reading of the clause, the Vendor’s “liberty” to give notice to annul under Clause 10.1 is conditional upon a big “if”, namely, “if the Purchaser shall make and insist on any objection or requisition in respect of the title or otherwise which the Vendor shall be unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with…”  Unless the contingency spelled out has occurred, the Vendor is not at liberty to give notice to annul.

31.  It seems to me plain that before the Purchaser can “insist” on an objection or requisition of title under Clause 10.1, it has to be made aware of the Vendor’s inability or unwillingness (on grounds of difficulty, delay, etc.) to remove or comply with the objection or requisition.  Hence before the Vendor could avail itself of the right to give a notice of annulment under Clause 10.1, it must first have informed the Purchaser of its inability or unwillingness to remove or comply with the objection or requisition raised by the Purchaser.  If the Purchaser should insist on the objection or requisition despite having been informed of the Vendor’s inability or unwillingness, the Vendor may then give notice of annulment—in effect forcing the Purchaser either to withdraw the objection or requisition before the notice expires or else suffer the annulment of the Agreement. 

32.  This construction of the Agreement is fortified by the decision of the Court of Appeal in Sun Wealthy Limited v. Galant Motors Limited, CACV184/2005, 22 February 2006, a decision which is binding on me.  In that case, the Court of Appeal was concerned with a clause (Clause 11) in a sale and purchase agreement which, insofar as it is relevant to the present consideration, was in terms similar to Clause 10.1 of the Agreement in the present case.  In paragraph 6 of her judgment, Le Pichon JA held as follows :

“It is clear from the way Clause 11 is drafted that the vendor’s right to give a notice under that clause is conditional upon certain events happening : not only has there to be a requisition or objection made by the purchaser, there has to be an inability or unwillingness on the part of the vendor to answer the requisition or objection and an insistence on the part of the purchaser that the requisition be answered.  Before one can ‘insist’ on something being done, one has to be made aware that the other party, i.e. the vendor is unable or unwilling to do what was requested.  Implicit in the word ‘insist’ is the notion that the person ‘insisting’ is aware of the inability or unwillingness on the part of the vendor.  That is no different from the inability or unwillingness having to be communicated to the other party who then has the option of taking no further action or ‘insisting’ that the requisition or objection be answered or complied with.  I do not therefore accept Mr Jat SC’s submission that Clause 11 contains no requirement that the purchaser be informed of the vendor’s ability or unwillingness to answer the requisition.  The conditions precedent to the service of a valid Clause 11 notice are thus no different from those under Condition 7(2).”

33.  The Condition 7(2) referred to by Le Pichon JA in the passage cited above is contained in Part A of the Second Schedule to the Conveyancing and Property Ordinance.  Condition 7(2) is similar to Clause 11 in the sale and purchase agreement considered by the Court of Appeal in the Sun Wealthy case, but there are differences.  Despite the differences, the Court of Appeal held that on the construction of Clause 11, the conditions precedent to the service of a notice under that clause are the same as those under Condition 7(2).  These conditions precedent are set out in paragraph 5 of the judgment of Le Pichon JA as follows :

“… for the right to annul the sale to arise, there must be (1) an objection to the title; (2) an inability or unwillingness on the part of the vendor to remove that objection; (3) a communication to the purchaser of the existence of this inability or unwillingness; and (4) an insisting by the purchaser on his objection, notwithstanding this communication.  See per Sir H M Cairns LJ in Duddell v. Simpson (1886) 2 Ch App 102 at 109.”

34.  In the present case, prior to the giving of the Notice of Annulment on 15 November 2007, the defendant had not communicated to the plaintiff of its inability or unwillingness to remove or comply with the plaintiff’s requisitions.  It is true that the plaintiff had informed the defendant (by DYCK’s letter of 12 November 2007) that it had not been able to “trace the whereabouts of Au Wai Sang to clarify the matter”, but that in itself was not an intimation of inability or unwillingness to remove or comply with the plaintiff’s requisitions.  The possibility that the P.A. might be rendered invalid by the death of Au Wai Sang could be satisfactorily addressed by other means even though Au Wai Sang could not be traced.  In particular, that concern could be effectively addressed by the defendant providing the plaintiff with a statutory declaration that conformed with section 5(4)(b) of PAO.  The plaintiff had asked for such a statutory declaration and the defendant’s position, as indicated by DYCK in their correspondence prior to 15 November 2007, was merely that the defendant would only provide the same at the cost of the plaintiff.  There was never any intimation by the defendant that, question of costs aside, it was unable or unwilling to provide the statutory declaration requested.  The plaintiff had also indicated that it was prepared to accept a statutory declaration made by the other two tenants-in-common.  Prior to the giving of the Notice of Annulment on 15 November 2007, the defendant had not indicated any difficulty or unwillingness to provide such a statutory declaration.  It was only in the letter of 15 November 2007, and not at any time prior thereto, that the defendant claimed that it was not able to “trace the whereabouts of the other 2 vendors as tenants-in-common”.

35.  In my judgment, prior to the giving of the Notice of Annulment on 15 November 2007, the defendant had plainly not communicated to the plaintiff of any inability or unwillingness on its part to remove or comply with the plaintiff’s requisitions.  On that ground alone, the Notice of Annulment was invalid as being premature.

36.  There is, in my view, another reason why the Notice of Annulment was invalid.

37.  It is settled law that a vendor is not entitled to act unreasonably or recklessly in giving notice of annulment on grounds of inability or unwillingness to comply with the requisitions of the purchaser.  The inability or unwillingness relied upon by the vendor for giving the notice must be based on reasonable grounds.  In Selkirk v. Romar Investments [1963] 1 WLR 1415, Lord Radcliffe giving the judgment of the Privy Council held at pp.1422–1423 :

“It does not appear to their Lordships, any more than it did to the judge who tried the action, that there is any room for uncertainty as to the nature of the equitable principle that is invoked in these cases.  It has frequently been analysed, and frequently applied, by Chancery judges and, although the epithets that describe the vendor’s offending action having been shown some variety of expression, they are all related to the same underlying idea, and their variety is only due to the fact that, as each case is decided according to the whole context of its circumstances and the course of conduct of the vendor, one may illustrate more vividly than another some particular aspect of that idea.  Thus, it has been said that a vendor, in seeking to rescind, must not act arbitrarily, or capriciously, or unreasonably.  Much less can he act in bad faith.  He may not use the power of rescission to get out of a sale brevi manu, since by doing so he makes a nullity of the whole elaborate and protracted transaction.  Above all, perhaps, he must not be guilty of ‘recklessness’ in entering into his contract, a term frequently resorted to in discussion of the legal principle and which their Lordships understand to connote an unacceptable indifference to the situation of a purchaser who is allowed to enter into a contract with the expectation of obtaining a title which the vendor has no reasonable anticipation of being able to deliver.  A vendor who has so acted is not allowed to call off the whole transaction by resorting to the contractual right of rescission; see Re Jackson and Haden’s Contract [1906] 1 Ch 412 and Baines v. Tweddle [1959] Ch 679.”

38.  In addition to the authorities cited by Lord Radcliffe, one might also mention the case of In re Des Reaux and Setchfield’s Contract [1926] 1 Ch 178, and the decision of our own Court of Appeal in Queen’s Electronic Manufacturing Co. Ltd v. Dr Ma Chung Ho Kei [1991] 2 HKC 218.

39.  In the present case, the concern raised by the plaintiff (in raising Requisitions Nos. 3 and 4) was the possible invalidity of the P.A. if Au Wai Sang had died after 5 May 1993 but before the 1996 Assignment was executed by his attorney, Au Wai Hung.  The concern was raised legitimately, for the P.A. would be automatically revoked by the death of the donor, and the defendant’s title to the Property may be in doubt if Au Wai Sang had died before his attorney executed the 1996 Assignment.  Section 5(2) of PAO however provides that :

“where a power of attorney has been revoked and a person, without knowledge of the revocation, deals with the donee of the power, the transaction between them shall, in favour of that person, be as valid as if the power had been in existence.”

Section 5(4) further provides :

“Where the interest of a purchaser depends on whether a transaction between the donee of a power of attorney and another person was valid by virtue of subsection (2), it shall be conclusively presumed in favour of the purchaser that that person did not at the material time know of the revocation of the power if—

(a)   …

(b)  that person makes a statutory declaration, before or within three months after the completion of the purchase, that he did not at the material time know of the revocation of the power.”

40.  In the present case, the interest of the plaintiff as a purchaser clearly depends on the validity of the 1996 Assignment, which was a transaction between the donee of the P.A. and another person, namely, the defendant.  Hence the making by the defendant of a statutory declaration pursuant to section 5(4)(b) of PAO would be an effective way of addressing the concern raised by the plaintiff, as such statutory declaration would be conclusive in presuming that the defendant did not at the time of the 1996 Assignment have knowledge of any revocation of the P.A.  The combined operation of sections 5(2) and 5(4)(b) would remove any doubt on title that may arise from the possibility that Au Wai Sang might have died before the 1996 Assignment.

41.  As the defendant itself was the person required to make the statutory declaration, there should not be any difficulty by the defendant to comply with the plaintiff’s request for a statutory declaration in conformity with section 5(4)(b).  The present case is not a case where the person required to make the statutory declaration is some predecessor-in-title far up in the title chain, unknown and unrelated to the present vendor, and whose whereabouts cannot be traced by the vendor despite reasonable efforts.  I can see no reason why the defendant was not able to make the statutory declaration in conformity with section 5(4)(b), and no reason had ever been suggested by the defendant either in the correspondence or by its counsel (Ms Lorinda Lau) at the hearing.  Insofar as the defendant purported to insist that it would only make the statutory declaration at the cost of the plaintiff, the position of the defendant was unreasonable.  The defendant had the duty to show and give good title, and any costs incurred or to be incurred by the defendant in the discharge of its duty must, unless the Agreement provides otherwise, be borne by the defendant.  There is nothing in the Agreement to provide otherwise. 

42.  Further, the plaintiff had, by RCKY’s letter of 14 November 2007, indicated to the defendant that it was prepared to accept a statutory declaration made by the other two vendors to the 1996 Assignment.  The other two vendors were Au Wai Ming and Au Wai Hung.  By its letter dated 15 November 2007 (i.e. the letter in which the Notice of Annulment was given), DYCK alleged that the defendant was not able to trace the whereabouts of the other two vendors.  Nothing was said as to what efforts had been made to trace the whereabouts of the other two vendors.  This allegation of DYCK was somewhat surprising, for according to the company search of the defendant, Au Wai Hung was both a director and shareholder of the defendant, and no reason had been proffered by the defendant as to why it could not even trace its own shareholder or director.

43.  In all the circumstances, I am of the view that as at 15 November 2007, the defendant had no reasonable grounds to give the Notice of Annulment and for that reason as well, the Notice of Annulment was invalid.

44.  It follows that my determination of Question 1(a) is “no”.

Question 1(b) :   whether the Notice of Annulment remained valid on 20 November 2007?

45.  As I have answered Question 1(a) in the negative, it follows that there was never any valid notice of annulment given and therefore no valid notice of annulment existed on 20 November 2007.

Question 1(c) :    whether the defendant has validly rescinded the Agreement?

46.  If what is intended to be asked by Question 1(c) is whether the defendant has validly annulled the sale and purchase under the Agreement pursuant to Clause 10.1 thereunder, the answer is “no”.  There was never any valid notice of annulment given, and the sale and purchase could not be annulled by the defendant without a valid notice of annulment.

47.  If what is intended to be asked by Question 1(c) is whether the defendant has validly rescinded the Agreement on other grounds (i.e. grounds other than annulment pursuant to Clause 10.1 of the Agreement), an answer will be given when I consider Question 1(e) below.

Question 1(d) :   whether time is of the essence?

48.  The Agreement expressly provides in Clause 7.1 that time shall in every respect be of the essence of the Agreement.

49.  As pointed out by Sir Nicholas Browne-Wilkinson VC in British Holdings Plc. v. Quadrex Inc. [1989] QB 842 at 856, the phrase “time is of the essence of the contract” is capable of causing confusion since the question in each case is whether time is of the essence of the particular contractual term which has been breached.  As the Vice-Chancellor said in the Quadrex case (at p. 856) :

“[The question of time of the essence] normally arises in the context of the failure to complete a contract on the date specified (i.e. is time of the essence of completion) and that is what is normally meant by time being of the essence of a contract, e.g. the giving of notices under rent review clause (United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904) and the making of a declaration of ship under a commercial contract : Societe Italo-Belge pour le Commerce et l’Industrie v. Palm and Vegetable Oils (Malaysia) Sdn. Bhd. [1982] 1 All E.R. 19.  There is therefore no general concept that time is of the essence of a contract as a whole : the question is whether time is of the essence of a particular term in question.”

50.  In the present case, the question is whether the time stipulation stipulated in Clause 13.1 of the Agreement is of the essence.

51.  Time is not normally of the essence of a contractual term.  However, in the case where the contract expressly so provides, time is regarded in equity to be of the essence.

52.  In the present case, Clause 13.1 provides that the (draft) Assignment or other assurance of the Property (“draft Assignment”) shall be delivered by the Purchaser’s solicitors to the Vendor’s solicitors for approval at least one working day prior to the Completion Date.

53.  The Completion Date is defined under Part IV of the Schedule to the Agreement as “on or before 21 November 2007”. 

54.  The parties have expressly agreed to a deadline by which the draft Assignment was to be provided by the Purchaser’s solicitors to the Vendor’s solicitors for approval.  I have no doubt that, as a matter of construction, the stipulation that time shall in every respect be of the essence applies to the obligation imposed upon the Purchaser’s solicitors under Clause 13.1.  Not only does such conclusion follow naturally from the language in Clause 7.1 (which makes time of the essence in every respect of the Agreement), the fact that Clause 13.1 employs the words “at least” in describing the time for sending the draft Assignment for approval strongly fortifies that conclusion.  If compliance with the deadline is not regarded by the parties as material, the use of the expression “at least” in Clause 13.1 would have been out of place.

55.  I therefore determine Question 1(d) by answering “yes” to the question.

Question 1(e) :    whether the plaintiff was in breach of Clause 13 of the Agreement and whether the defendant is entitled to rescind the Agreement?

56.  Mr Ling argued that the plaintiff was not in breach of Clause 13 of the Agreement, alternatively that even if it was in breach the defendant was not entitled to rescind the Agreement, because :

(a)  the Completion Date was a mere target date only, and the plaintiff was entitled to postpone the same as the defendant had been late in replying to the requisitions raised by the plaintiff.  Hence the plaintiff’s solicitors had not been late in providing the draft Assignment to the defendant’s solicitors;

(b)  relying on the “prevention principle” enunciated by the Court of Final Appeal in the case of Kensland Realty Ltd v. Whale View Investment Ltd [2002] 1 HKLRD 87, Mr Ling argued that the defendant was in the wrong by answering the plaintiff’s requisition late and the delay by the plaintiff’s solicitors in complying with the obligations under Clause 13.1 was caused by the defendant’s wrong.  Accordingly, the defendant should not be permitted to take advantage of its own wrong to claim rescission of the Agreement; and

(c)  in any event, the defendant had not “relied on” the plaintiff’s breach.  Further, the defendant had not suffered any prejudice as a result of the plaintiff’s breach.

57.  Mr Ling’s submission that even if the plaintiff was in breach of Clause 13.1, the defendant had not suffered prejudice, may be disposed of immediately.  The effect of a breach of a contractual time stipulation, which is of the essence, is that the breach is to be regarded as a breach of condition that would entitle the other party to terminate the contract for repudiatory breach, irrespective of the magnitude of the breach : see, Okachi (Hong Kong) Co. Ltd v. Nominee (Holdings) Ltd [2007] 1 HKLRD 55, per Yuen JA at 79I–J.  Mere absence of prejudice by the defendant would not, per se, have disentitled the defendant from terminating the Agreement on ground of repudiatory breach by the plaintiff.

58.  Mr Ling argued that under Clause 10.1 the plaintiff was entitled to raise further requisitions or objections within seven working days after receiving the defendant’s reply to its initial requisitions (which must be raised within seven working days after the receipt of the title deeds by the Purchaser’s solicitors).  Accordingly, the plaintiff was entitled to seven working days to consider the defendant’s reply to its initial requisitions.  He pointed out that the defendant only replied to the plaintiff on 15 November 2007 by alleging that it could not trace Au Wai Sang “to clarify the matter”, and that the other two vendors could not be traced to make a statutory declaration.  Mr Ling further pointed out that it was only on 20 November 2007 that DYCK informed RCKY, after the latter had inquired for the amount of costs involved in the preparation of the statutory declaration, that it was “not merely a matter of costs, but the difficulty that counts”.  As the plaintiff was entitled to have seven working days to consider these replies of the defendant’s solicitors, it was entitled to postpone completion of the sale and purchase to a date being seven working days from 20 November 2007, alternatively seven working days from 15 November 2007. 

59.  Implied in Mr Ling’s arguments is that the reference to “at least one (1) working day prior to the Completion Date” in Clause 13.1 should be construed as “at least one (1) working day prior to the Completion Date as may be extended or postponed”.  If he is right, and if the Completion Date had in fact been postponed or extended to a date being seven working days from 20 November 2007, or alternatively from 15 November 2007, RCKY was not late in delivering the draft Assignment to the DYCK on 21 November 2007.

60.  There are substantial difficulties in Mr Ling’s arguments.  Clause 13.1 is clear in its terms.  It provides that the draft Assignment shall be delivered at least one (1) working day prior to the Completion Date.  The term “Completion Date” is precisely defined in Part IV of the Schedule as “on or before 21 November 2007”, and not any other date after 21 November 2007.  Even if I were to accept (without making a final decision on that matter) Mr Ling’s argument that the plaintiff was entitled to seven days’ time to consider the replies of the defendant, and to extend the time for completion accordingly, it does not necessarily follow that the time provided under Clause 13.1 for the delivery of the draft Assignment would have to be extended on the same ground.  In my judgment, there is simply no causal connection at all between the plaintiff’s obligation under Clause 13.1 and the time stipulations under Clause 10.1, which relate to the time for raising requisitions.  In particular, the preparation of the draft Assignment and the delivery of the same to the Vendor’s solicitors for approval could be performed by the Purchaser’s solicitors without waiting for the answer to the requisitions.  Indeed in the present case, when RCKY sent the draft Assignment to DYCK for their approval, they expressly stated that the same was sent “without prejudice to any outstanding requisitions and [their] rights to raise requisitions”.  Hence it is clear that the sending of the draft Assignment to the Vendor’s solicitors for approval could be made by the Purchaser’s solicitors while the requisitions were still outstanding.  There is no reason to hold that because the plaintiff might have been entitled to extend the time for completion, the time for compliance of its obligation (to be carried out by its solicitors) under Clause 13.1 must be extended accordingly.

61.  Moreover, even assuming (without deciding) that the plaintiff was entitled to extend the time for completion, the fact remains that the plaintiff had never sought to exercise that entitlement.  The plaintiff had never sought extension of the time for completion.  Indeed on 21 November 2007 the plaintiff made it clear through its solicitors that they insisted on completion on that day as scheduled under the Agreement.  It is not the plaintiff’s case that the Completion Date had in fact been postponed or extended.  There is a world of difference between merely having an entitlement to extend time and an actual extension of time.  The obligation under Clause 13.1 is for the Purchaser’s solicitors to deliver the draft Assignment to the Vendor’s solicitors for their approval at least one working day prior to the Completion Date.  It follows that unless the Completion Date was changed, the time for performing the obligation remained the same, i.e. one working day prior to 21 November 2007 at the latest.

62.  Mr Ling’s reliance on the “prevention principle” is, in my view, misplaced.  As pointed out above, the preparation and delivery of the draft Assignment did not depend on the answer to the requisitions.  The obligation under Clause 13.1 could be discharged by the plaintiff’s solicitors without waiting for the answer to the requisitions.  For the prevention principle to apply, there must at least be a causal connection between the alleged wrong of the defendant and the plaintiff’s breach : see Kensland Realty Ltd v. Whale View Investment Ltd (supra), at pp.118-119.  In the present case, the alleged wrong of the defendant relied upon by Mr Ling was the “Defendant’s failure to provide the relevant [statutory declaration] for which it was obliged and able to do”, and the refusal by the defendant to pay for costs of preparing the statutory declaration.  In other words, Mr Ling was relying upon the defendant’s failure to prove good title as the “wrong” which enabled him to invoke the prevention principle.

63.  I am unable to accept Mr Ling’s argument.  Even if the defendant had failed to prove good title, it did not and could not have prevented the plaintiff from complying with its own obligation under Clause 13.1.  As pointed out above, when RCKY did deliver the draft Assignment to DYCK on 21 November 2007, it was made without prejudice to any outstanding requisitions that they had raised.  Clearly the alleged failure to prove good title by the defendant had not prevented the plaintiff from delivering the draft Assignment on 21 November 2007, and I cannot see why the plaintiff could not have performed its obligation (which was to be carried out by its solicitors) in accordance with the time stipulations under Clause 13.1 while its requisitions were still outstanding.  The alleged failure to prove good title simply cannot satisfy the causal requirement necessary for the invocation of the “prevention principle” as enunciated in the Kensland case.  If, in the event as happened, the plaintiff decided to accept the defendant’s title and proceeded to completion, it is not open to the plaintiff to rely on the defendant’s alleged failure to prove good title as a “wrong” for its own failure to comply with its obligation under Clause 13.1.

64.  In my judgment, by delivering the draft Assignment only on 21 November 2007, and not at least one working day before 21 November 2007, the plaintiff was in repudiatory breach of Clause 13.1 of the Agreement.

65.  That, however, does not mean that the Agreement would have automatically come to an end upon the plaintiff’s breach.  In my view, on the facts of the present case, the defendant had never accepted the plaintiff’s repudiation.  As famously observed by Asquith LJ in Howard v. Pickford Tool Co. Ltd [1951] 1 KB 417 at 421, an unaccepted repudiation is “a thing writ in water and of no value to anybody”.  See, also Fercometal S.A.R.L. v. Mediterranean Shipping Co. S.A. [1989] 1 AC 789.  An unaccepted repudiation therefore has no legal effect at all, and would not operate to prevent the plaintiff from obtaining specific performance in the present case.

66.  After the draft Assignment was received by DYCK, its reaction was to “put on record”, in its second letter of 21 November 2007, that the plaintiff was in breach of Clause 13 of the Agreement as the draft Assignment was not delivered to DYCK for their approval at least one working day prior to the Completion Date, and reminded RCKY that Clause 7 of the Agreement stipulated that time was to be in every respect of the essence to the Agreement.  However, despite putting this on record, it is clear from the letter dated 21 November 2007 that the defendant never purported to accept the plaintiff’s breach as a repudiation of the Agreement.  Nothing was mentioned in DYCK’s letter to the effect that the defendant was treating the plaintiff’s breach as a repudiation, let alone any mention of the defendant accepting the plaintiff’s repudiation as bringing the Agreement to an end.  Indeed it is abundantly clear that the defendant’s solicitors were insisting that the defendant had a contractual right to annul the Agreement on strength of the Notice of Annulment purportedly issued under Clause 10.1 of the Agreement.  Instead of forfeiting the Deposits (as one would expect the defendant to have done if it was indeed treating the plaintiff’s breach as a repudiation, and was accepting the same), the defendant’s solicitors sought to return the Deposits to the plaintiff stating expressly that :

“As the sale and purchase of the Property has been annulled, it is entirely up to our client to keep whatever stuff therein.”

67.  Rescinding an agreement by accepting the other party’s repudiation is a very different thing from annulling the agreement on the strength of one’s contractual right thereunder.  By maintaining that the sale and purchase had been annulled under Clause 10.1 of the Agreement, and by returning the Deposits to the plaintiff, the defendant could not at the same time maintain that the Agreement had been brought to an end by rescission.  The defendant’s conduct of returning the Deposits to the plaintiff made it clear that it was not rescinding the Agreement on the ground of the plaintiff’s repudiation.

68.  In these circumstances, I would answer Question 1(e) by holding that although the plaintiff was in breach of Clause 13 of the Agreement, the defendant is not entitled to rescind the Agreement as it had never accepted the plaintiff’s repudiation.  The Agreement remains on foot and is capable of being made the subject of an order for specific performance.

Order of the Court

69.  Order 14A, rule 1(2) provides that upon determination by the court of the questions raised in an Order 14A application, “the Court may dismiss the cause or matter or make such order or judgment as it thinks fit.”

70.  It is accepted by both Counsel that if I determine the questions set out in paragraph 1 of the Amended Summons against the defendant, I would have the power to enter judgment for the plaintiff.  I have no doubt that under Order 14A, rule 1(2) the court has such power and indeed paragraph 2 of the Amended Summons anticipates this eventuality by seeking an order from the court that “if the question (referring to the questions set out in paragraph 1 of the Amended Summons) be answered in the negative, then judgment be entered for the plaintiff.”

71.  Mr Ling informed me that the plaintiff would only seek judgment on the following :

(a)  a declaration that the Notice of Annulment was invalid;

(b)  specific performance of the Agreement;

(c)  damages in addition to specific performance, to be agreed; and

(d)  interest.

72.  Insofar as the Amended Statement of Claim prays for other relief, Mr Ling has made it clear that the plaintiff is no longer pursuing the same.

73.  I have already decided that the Notice of Annulment was invalid.  I will make the declaration sought accordingly.

74.  Although specific performance is a discretionary remedy, Ms Lau for the defendant has not made any submission, nor has she made any attempt, to persuade me why I should not exercise my discretion to order specific performance in this case.  Nor can I see any circumstances in the present case which would make an order for specific performance inappropriate.  I will make the order accordingly.

75.  I will also make an order in favour of the plaintiff for damages in addition to specific performance, such damages to be assessed.  The question of interest to be reserved to the master assessing damages.

76.  Judgment shall be entered for the plaintiff in terms of the orders above.  I will give liberty to the parties to apply for further directions.