IP MING WAI AND ANOTHER v. WORLD FORD DEVELOPMENT LTD

1991, No. A6388

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H E A D N O T E

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    Action for specific performance of a contract for the sale and purchase of land where the defendant purported to terminate the agreement by reason of the plaintiffs' delay in completion of the contract by 24 minutes when time was of the essence. A decree of specific performance was granted to the plaintiffs on the grounds that upon the facts the de minimis principle applied.

1991, No. A6388

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. The plaintiffs who are husband and wife entered into a contract with the defendant on the 20th July 1991 to purchase a flat, Flat B 5th Floor Block 18 Wonderland Villas, Kwai Chung, for the sum of $3,380,000. Mr Garcia, the Managing Director of the defendant, and his wife who is also a director, signed the agreement on behalf of the defendant. The sum of $338,000 was paid as deposit and in part payment of the purchase price and it was agreed that the balance was to be paid on the date of completion. Completion was fixed to take place on or before 5 p.m. on the 12th August 1991 at the offices of the defendant's solicitors who acted in the conveyancing transaction Messrs Jesse H.Y. Kwok & Co. Time was to be of the essence. By clause 8 of the agreement, it was provided:-

"8. Should the Purchaser fail to observe or comply with any of the conditions herein contained the deposit shall be absolutely forfeited to the Vendor who may (without tendering an Assignment to the Purchaser) rescind the sale and resell the Property ......

2. On the 12th August 1991 at about 10:40 a.m. the plaintiffs' solicitors in the conveyancing transaction Messrs Joseph Chu & Co. sent a draft of the assignment which had been earlier executed that morning by the plaintiffs by fax to Messrs Jesse H.,Y. Kwok & Co. for approval. Although the fax was dated the 9th August which was a Friday, it was not despatched until the date fixed for completion. The fax also requested details as to how the cheques for the balance of the purchase price should be split on completion.

3. The draft was approved in the afternoon without amendment and instructions were also given to Messrs Joseph Chu & Co. with regard to the drawing of split cheques for payment of the balance of the purchase price. In fact, only one cheque was required to discharge the defendant's mortgage to the Wing Hang Bank Limited, although eventually when completion was sought, two cheques were drawn for this purpose. No money was therefore payable to the defendant so that Mr Garcia and his wife on behalf of the defendant were only required to sign the assignment upon completion.

4. The plaintiffs inspected the premises in the afternoon of the 12th August at 2 p.m. when a set of keys to the premises was handed to them whilst the plaintiffs also purchased an oil exhaust fan from the defendant for a sum of $1,500 and settled the apportionment account.

5. During the course of the afternoon, it became clear to the plaintiffs' solicitors that they might not be able to complete the purchase by 5 p.m. with the result that Mr Nelson Leung, the conveyancing clerk who was in charge of the transaction, informed his equivalent at the defendant's firm, Miss Rose Lam, that completion could not take place until either 5 p.m. or shortly after that time. The allegation that an extension was granted is denied by Miss Lam. However, it is not in dispute that the documents and two cheques in favour of the Wing Hang Bank Limited for the balance of the purchase price were received by Messrs Jesse H.Y. Kwok & Co. at 5:24 p.m.

6. As a result of the delay, Mr Garcia on behalf of the defendant cancelled the agreement and forfeited the deposit. The plaintiffs did not accept the defendant's repudiation and made further attempts to complete the purchase, but without success. The balance of the purchase price was subsequently returned to the plaintiffs' solicitors.

7. The plaintiffs have at all times been willing to complete the purchase and by this action which was commenced on the 21st August 1991, seek, inter alia, an order for specific performance and damages. By the defence, a counterclaim is sought seeking a declaration that the defendant was entitled to terminate the agreement and forfeit the deposit.

8. The plaintiffs' case is that the defendant agreed to an extension for the completion of the purchase or,.in the alternative, after 5 p.m., contend that the breach was of such a trivial nature that the principle de minimis non curat lex applies. The defendant denies that there was any agreement for an extension and that the principle of de minimis does not apply in any event.

9. I will now deal with the facts.

10. Mr Nelson Leung testified that after the draft assignment had been faxed in the morning of the 12th August at 10:40, a fax was received from Messrs Jesse H.Y. Kwok & Co. at about 2:30 p.m. to 2:35 p.m. which he described as garbled and not legible. This fax was not produced by Mr Leung as he said that he had thrown it away which evidence I accept. Accordingly, he telephoned Miss Lam requesting a better copy. Mr Leung made a contemporaneous note of the conversation on his firm's conveyancing file which reads:

"With telephone conversation between Miss Lam about 2:30 p.m. that I have received a fax split cheque letter from her but not clear and ask her to fax a better copy for my perusal".

He said Miss Lam agreed to send another copy which was received that afternoon at 3:33 p.m. The fax stated that the draft assignment was approved without amendment and requested a cheque for the balance of the purchase price to be made in favour of the Wing Hang Bank Limited.

11. Upon receipt of this fax, Mr Leung telephoned Mss Lam again informing her that the cheques and documents would be delivered to her at 5 p.m. or shortly after to which no objection was raised and made a contemporaneous note of the conversation on his firm's file which reads

"With telephone conversation between Miss Lam about 3:35 p.m. that I have received the better fax split cheque letter from her but in view of the late, the Agt and the balance of purchase money will reach to her office around 5 p.m. or will be later and our clients would complete the sale and purchase today. Miss Lam has no objection on this matter."

Mr Leung said it was his practice to make notes about important matters on the file.

12. Thereafter, Mr Leung completed the necessary papers and arranged for cheques to be drawn in favour of the Wing Hang Bank Limited. All the documents were ready by 4 p.m. as appears from the chop endorsed on the plaintiffs' solicitors letter prepared for the purposes completion. The documents with the cheques were put in an envelope and placed in Mr Leung's out tray for delivery to Messrs jesse H.Y. Kwok & Co. by a messenger named Dick. Dick was not called as a witness so that there was no evidence to expalin what happened to the documents between 4 p.m. and 5:24 p.m. and the reasons for the delay.

13. Mr Leung went on to say that Miss Lam telephoned him at about 5:30 p.m. stating that she had instructions from the defendant to forfeit the deposit and that a letter would be forthcoming. A fax to the effect that the agreement had been rescinded and the deposit forfeited was received by Messrs Joseph Chu & Co. at 5:54 p.m. The agreement was rescinded because of the plaintiffs' failure to complete the purchase on time. Messrs Joseph Chu & Co. replied disputing that there had been any breach pointing out that Miss Lam had raised no objection to the delay but that in any event the principle of de minimis applied.

14. Miss Lam testified that she had a telephone conversation at 3 p.m. with Mr Leung who claimed that he had not received the letter with regard to the details for the split cheques. She said she agreed to fax another copy and made arrangements to do so immediately. However, due to delays which appear to have been caused by the fax machine at Messrs Joseph Chu & Co., being engaged, the fax did not arrive until 3:33 p.m. Miss Lam denied that Mr Leung had informed her about any difficulty in observing the time for completion, and denied that she agreed to any late delivery. She disputed the contents of Mr Leung's two conversations that were recorded on the conveyancing file to which I have referred and also denied that she had a telephone conversation with Mr Leung at 2:30 p.m. As the documents had not arrived by 5 p.m., Miss Lam said she telephoned Mr Leung at 5:03 p.m. when Mr Leung informed her that the documents had already arrived and asked her to check. However, upon making a check, she found that the documents had not arrived. Mr Leung denied that he had a telephone conversation with Miss Lam at this time, while Miss Lam denied Mr Leung's allegation that she had a telephone conversation with him at 5:30 p.m. Miss Lam made no record of the telephone conversations that she had with Mr Leung.

15. Miss Lam said that her first knowledge of the defendant's decision to rescind the contract and forfeit the deposit was at 5:50 p.m. when she typed the letter repudiating the agreement that had been prepared by her superior Mr Tse who had conducted an interview with Mr and Mrs Garcia after 5 p.m.

16. Mr Garcia gave evidence that he went with his wife to the offices of Messrs Jesse H.Y. Kwok at 4 15 p.m. on the 12th August in order to execute the assignment. However, as the documents had not arrived by 5 p.m., he said that he and his wife decided between that time and 5:10 p.m. not to complete because he doubted the sincerity of the plaintiffs and by reason of the plaintiffs' breach of the agreement. When he was cross-examined, Mr Garcia gave a further reason for his decision that he and his wife who had vacated the flat had decided to resume possession. In fact he and his family subsequently went back into occupation of the flat in September 1991 and are still living there. Although Mr Garcia said that he told Mr Tse between 5 p.m. to 5:10 p.m. to cancel the contract, in cross-examination he changed his evidence to the effect that he was contemplating taking this action. Mr Tse, in his evidence, did not say that Mr Garcia informed him at the interview between 5 p.m. to 5:10 p.m. that he had decided to cancel the contract, but it appears that he had instructions from him to do so in the telephone conversation that he had with him at 5:45 p.m.

17. Upon the facts, I found Mr Leung to be an honest and reliable witness. Although counsel for the defendant attempted to cast doubt upon the reliability of the two contemporaneous notes made on the conveyancing file, I accept Mr Leung's evidence that they were made immediately after the two telephone calls for they were undoubtedly important and reflect the gist of the conversations that he had with Miss Lam. Although it is of no particular significance, I accept that the first of the two telephone conversations between Mr Leung and Miss Lam was at 2:30 p.m. and not at 3 p.m. as alleged by Miss Lam.

18. Miss Lam, on the other hand, was clearly embarrassed by these proceedings for I am quite satisfied that she had treated Mr Leung's request in a reasonable and responsible manner by raising no objection to the lateness in arrival of the documents for completion. However, faced with the intransigent attitude of Mr Garcia, she found herself in'a compromising position when she had to give evidence which I believe is the reason why she denied having granted the short extension of time for completion.

19. Where the evidence relating to the telephone conversations conflicts, I accept the evidence of Mr Leung and reject that given by Miss Lam. Accordingly, I find that no telephone conversation took place at 5:03 p.m. but accept the evidence of Mr Leung with regard to the telephone call made at 5:30 p.m. I accept Mr Leung's evidence that Miss Lam did not object to the late delivery of the documents for completion.

20. Further, I do not accept Miss Lam's evidence that she was unaware of Mr Garcia's decision to rescind the contract until.she came to type the letter at 5:50 p.m. I am sure that she knew earlier either from Mr Tse or Mr Garcia for this information led to the telephone call which she made to Mr Leung at 5:30 p.m.

21. I found Mr Garcia to be an unconvincing witness, particularly when he said that the plaintiff's lacked sincerity which was a perfectly absurd comment made without. any justification, particularly as the inspection of the property had taken place that very afternoon when-the keys were.handed over and payments were made for the oil exhaust fan and apportionment account. The obvious reason for his decision to rescind was because the value of the property had increased since the date of the sale and purchase agreement. I am further satisfied that he communicated his decision to cancel the agreement to Mr Tse between 5 p.m. to 5:10 p.m. which he later confirmed in the telephone conversation at 5:45 p.m.

22. In the event that Miss Lam had agreed to an extension of time beyond 5 p.m., it was suggested that she had no authority to do so. However, as she was the conveyancing clerk in charge of this transaction, she clearly had ostensible authority to do so, see Uxbridge Permanent Benefit Building Societv v. Pickard [1939] 2 KB 248. Accordingly I reject this submission. Indeed, the request by Mr Leung was not so much for an extension of time in the strict sense, but for an indulgence on the basis that the messenger might be a few minutes late.

23. My attention was drawn by counsel to three Hong Kong authorities where the de minimis rule has been considered when time was of the essence of the contract for the sale and purchase of land. In the first case Kong Yip-hang v. Polypak Limited [1974] HKLR 253, Li J. obiter at p.268 said he would have applied the de minimis rule in favour of the plaintiff where the time was between 10 to 15 minutes late In the second case, G & Y Company Limited v. Kwok Kim Leung and Cheung Wai Ying Eva (unreported) 1989, No. A3586, 2nd July 1991, Liu J. held that the de minimis principle applied where the time for completion had been extended from 3 p.m. to 6 p.m., but the vendor did 'not arrive until 6:35 p.m. At p.17 of his judgment Liu J. said -

"In applying the rule, each case must be judged on its own degree, measure or extent in the particular circumstances. It is really a common sense judgment as to whether the act or omission is of a trifling nature against the given background. The magnitude of the alleged deviation and its consequence are not themselves relevant except as part of the scenario. I also derive much comfort from one of the statements in Halsbury's Laws of England, 4th edn., which are highly-regarded as an accurate source of elementary information. Nothing is added in the 1991 Supplement to its Vol. 9, the last sentence of para. 472 reads : 'In all cases (of performance), 'however, the requirement of exact performance is qualified by the de minimus (sic) rule, that is that minute and unimportant deviations from exact performance will be ignored.'"

In the third case, Chan Chi Tung v. Lam Chor Kuen Kate, (unreported) 1991, No. A3471, 28th October 1992, Deputy Judge Sharwood held that a delay of one hour twenty minutes was not trivial so that the principle of de minimis did not apply. At pp. 7 and 8 Judge Sharwood had this to say :-

"Having considered the authorities, and the submissions, I cannot accept that an hour and twenty minutes is a triviality, a matter of little moment, or 'of a trifling and negligible nature'. In my view, Liu J. took the principle to its outermost limits in the G & Y case. In the event, it is of no assistance to me and must be considered to have been decided on its own particular facts. In the present case the failure by the plaintiff to complete before 1:00 p.m. caused major disruption to the defendant and . necessitated her incurring further legal expenses and making other financial arrangements.

24. In-the last two cases, citations were made by both judges from Margaronis Navigation Agency Ltd. v. Henry W. Peabody & Co. of London Ltd. [1965] 2 QB 430 where the principle of de minimis was considered. The first is from the judgment of Sellers L.J. when he had this to say at p.444

''I think it is a rule of general application. It matters not whether it be a claim or a defence. It matters not the nature of the transaction. It seems to me that in all cases the court is called upon to consider the substance of the matter and will not regard or give effect to what are undoubtedly, in the view of the court, trivialities, matters of little moment, of a trifling and negligible nature.

It would be; in my view, difficult and perhaps undesirable to define the limits of the de minimis rule; certainly I have no' desire to do so.''

The second is from the judgment of Pearson L.J. at p.447 when he said :-

''Once it is appreciated what the test is, namely, whether the de minimis rule applies or not, whether the departure from the precise terms of the obligation is so trivial as to be negligible or whether it has some significance, then the rest becomes a pure question of fact.''

I was also referred to three other authorities by Mr Loughran, counsel for the defendant : A/S Awilco of Oslo v. Fulvia S.p.A. Di Naviqazione of Cagliari The Chikuma [1981] 1 WLR 314, Karangahape Road International Village Ltd. V. Holloway [1989] 1 NZLR 83 and Lowe v. Evans [1989] 1 Qd. R. 295. The Karangahape case related to a contract for the sale of land where time was of the essence when a notice to complete was served by the vendor on the purchaser to complete by 4 p.m. on a specified day. As a result of the purchaser's failure to do so, the contract was cancelled at 4:06 p.m. This case, however, turned on its own facts for there was no evidence that there was any agreement to extend time beyond 4 p.m., nor was the principle of de minimis argued. In Lowe v. Evans there was an agreement to purchase land where time was to be of the essence. The vendor's solicitors were unable to give title to the purchaser's solicitors at the time for completion on the 9th January 1986 at 3:30 p.m. when the purchaser's solicitors purported to terminate the contract by reason of the vendor's breach. However, the vendor's solicitors were in a position to complete later that day, at 4:45 p.m., but the purchaser declined to do so as the contract had already been terminated. With regard to the issue of time, McPherson J. in his judgment at 298 said :-

" The contractual provisions relevant to the determination of this question are c11.22 and 23. So far as material, the former provides:

'Completion shall be effected at such time and place as may be agreed upon by the parties. In the absence of agreement it shall be effected between the hours of 9.00 a.m. and 5.00 p.m...'

Clause 23 provides that:

'Time shall in all cases and in every respect be deemed to be of the essence of the contract.'

    It was the submission of Mrs Mullins of counsel for the first defendant that the provisions of c1.23 were directed only to a date for completion or settlement and not to the precise time of day at which it was due to take place. With that submission I am unable to agree. Clause 23 speaks of 'time' and ascribes to it the quality of essentiality 'in every respect'. There are obvious reasons of convenience and commercial expedience why, instead of leaving it to some unspecified hour between 9.00 a.m. and 5.00 p.m., parties may wish to identify with some precision the time of day at which settlement is to take place and also to enable the contract to be rescinded if that time is not adhered to. Of course, one would not necessarily assume that they intended seconds or minutes to be critical; but the present case is not one in which the precise time was only marginally exceeded. I therefore see no reason why c1.23 making time of the essence should not apply to an hour for completion agreed upon by the parties acting under s1.22. Indeed, the very fact that c1.22 provides for completion between the hours of 9.00 a.m. and 5.00 p.m. unless 'agreed upon by the parties' implies that some time or hour more limited than a day or date is in contemplation."

25. Mr Loughran went on to submit that the de minimis principle does not apply in any event to transactions of sale and purchase for it will necessarily create problems and uncertainty for lawyers who have to advise clients with regard to their rights when the time for completion has expired. In this respect, he relied upon part of the headnote in the Awilco case at p.315 which reads:

''Per curiam. Where shipowners and charterers embody in their contracts common form clauses it is of overriding importance that their meaning and legal effect should be certain and well understood. The ideal at which the courts should aim, in construing such clauses, is to produce a result, such that in any given situation both parties seeking. legal advice as to their rights and obligations can expect the same clear and confident answer from their advisers.''

However this case related to a time charter party where an issue arose as to whether there was a right to withdraw a ship failing punctual payment, while the de minimis principle was not argued.

26. I do not accept Mr Loughran's submission for Margaronis is clear authority for the proposition that the de minimis principle is of general application irrespective of the nature of the transaction so that in my judgment, it includes a contract for the sale and purchase of land. Although I was urged by Mr Loughran not to follow G. & Y., I am satisfied that Liu J.'s analysis of the law was correct.

27. The issue to be determined is whether the plaintiffs, who have at all times been willing and able to complete the purchase, are in breach of the agreement by a rigid adherence to the time set out in the contract without any allowance being given for the slight delay. If the facts had revealed that the defendant had suffered some detriment or liability, as often happens when there are a series of transactions from one sub-purchaser to another, a plea of de minimis would probably be defeated.

28. However, there is no evidence in this case of any detriment suffered by the defendant. The defendant had no other commitment to fulfil following completion by way of any financial obligations as a result of the 24 minutes delay. This case can therefore be clearly distinguished from the facts in Chan Chi Tung v. Lam Chor Kuen Kate. The only inconvenience that would be caused would have been for Mr and Mrs Garcia to return to the offices of Messrs Jesse H.Y. Kwok & Co. to sign the assignment.

29. No specified period can be regarded as falling within the de minimis principle for each case must necessarily depend on its own facts. The facts reveal that the sale was between the plaintiffs and defendant with no intervening transaction. No money was to be received by the defendant for the whole balance was to be paid, as I have said, to the mortgagee. The two cheques drawn in favour of the bank to discharge the mortgage could not have been credited until the day following completion. There was no evidence of any loss or prejudice that could have been suffered by the defendant if completion had taken place at 5:24 p.m. rather than at 5 p.m. I am quite satisfied that the delay was so trivial that the principle of de minimis applies. The period here was trifling and was of a negligible nature. The defendant, accordingly, was not entitled to rescind the agreement and forfeit the deposit so that the plaintiffs are entitled to a decree of specific performance. The counterclaim must necessarily be dismissed..