MA YUK LIN AND ANOTHER v. WONG KIU NGOR

CACV 223/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 223 OF 1998

(ON APPEAL FROM HCA 1590 OF 1998)

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J U D G M E N T

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Leong, J.A.:

1. This is an appeal against the order of Godfrey, J.A. sitting as an additional judge of the Court of First Instance, declaring that the Respondent was entitled to rescind and had rescinded an agreement for the sale and purchase of a shop on the ground floor of No. 6F Nelson Street, Kowloon (the property). The building of which the property formed part belonged to 28 owners. On 21st April 1993, the Building Authority issued to these owners a Building Order (the Order) requiring them to demolish and remove certain structures on the roof of the building. The Order was duly registered against the property in the Land Register by Memorial No. 56677035. Up to the hearing of this appeal, the Order had not been complied with.

2. On 4th March 1997, the 2nd Appellant entered into a sale and purchase agreement with a Turbo Rise Ltd to purchase from them the property. Under clause 20 (vii) of this agreement, the 2nd Appellant acknowledged that the property was subject to the Order and agreed to complete the purchase subject to it without any abatement of the purchase price. Completion was to take place on 28th January 1998.

3. On 5 June 1997, the 1st Appellant who held 9999 of the 10,000 shares of the 2nd Appellant and who was a director of the 2nd Appellant, entered into a Chinese agreement in writing with the Respondent, whereby the 1st Appellant agreed to sell and the Respondent agreed to buy the property at a price of $24 million. Completion was to take place on 28th January 1998, the same day as that for the agreement of 4th March 1997. The agreement made no reference to the Order nor to any sub-sale. Pursuant to the agreement, a deposit of $6 million was paid by the Respondent to the 1st Appellant.

4. In the course of handling the conveyancing, by a letter of 3rd November 1997 solicitors for the Respondent, Messrs W.S. Lo & Yeung raised with solicitors for the 1st Appellant, K. B. Chau & Co. a requisition on the Order. They sought a certified Certificate of Compliance relating the Order.

5. On 31st December 1997, the solicitors for the 1st Appellant wrote back in the following terms:

"We refer to your letter dated 3rd November 1997 and inform you that our client sell the above property to your client as confirmer subject to the terms and conditions of the Agreement for Sale and Purchase dated 4th March 1997 with memorial number 6964816. Under the said Agreement, your client is entitled to purchase the said property subject to the Order Memorial No. 5667035. Your client the Purchaser has agreed and accepted the same upon signing of the Agreement for Sale and Purchase on the 5th June, 1997."

6. It should be noted that the letter did not mention anything about certified Certificate of Compliance relating to the Order.

7. On the same day, the 31st December 1997, solicitors for the Respondent wrote back in these terms:

"We refer to your letter of 31st December 1997, the contents of which we have noted.

1. In the Provisional Agreement dated 5th June 1997, it never mentioned that Ma Yuk Lin sells the above property to our client as confirmer subject to the terms and conditions of the Agreement for Sale and Purchase dated 4th March 1997 with Memorial No. 7219378 instead of Memorial No. 6964816.

2. Under the Sub-sale Agreement for Sale and Purchase, the Purchaser therein named was Talisgold Industrial Limited but not Ma Yuk Lin, therefore the Provisional Agreement should be null and void.

3. Our client has no knowledge that there is an Order Memorial No. 5667035 affecting the above property and our client has never and/or accepted the same upon signing of the Provisional Agreement dated 5th June 1997.

4. Furthermore, it is the Vendor's duty to assign the above property to the Purchaser free from any encumbrances, since the said Order is affecting the whole building, therefore our client is entitled to rescind the said Provisional Agreement and demand the return of all deposits paid under the said Provisional Agreement."

8. On 15th January 1998, solicitors for the Respondent wrote to the 1st Appellant's new solicitors Messrs. Lai & Leung and demanded the return of the deposit.

9. Thereafter there were exchanges of letters between the two firms of solicitors as to why the purchase was called off and explanations were given by the Respondent for cancelling the transaction. On 22nd January 1998, solicitors for the 1st Appellant wrote to the Respondent's solicitors, reiterating that the sale was subject to the Order and that the Respondent had knowledge of it. But in this letter, the 1st Appellant offered to put up HK$100,000 with his solicitors as stakeholder for payment of such costs that might be required to comply with the Order. The sum offered was subsequently raised on 26th January 1998 to HK$960,000 following a surveyor's report on the full costs for complying with the Order. The following day 27th January 1998, solicitors for the 1st Appellant again offered to raise the sum to a reasonable one to cover the costs of complying with the Order. The Respondent did not respond to this letter. No completion took place on 28th January 1998 which was the last date for completion under the Chinese agreement. Thereupon the Appellants commenced an action for forfeiting the deposit and claiming damages. By an Order 14 summons application, the 1st Appellant sought summary judgment for forfeiture of the deposit and damages. On the other hand, the Respondent applied under Order 14 & Order 14A. Of the issues in these Order 14 and Order 14A applications, two were eventually canvassed before and decided by Godfrey J.A. They were:

"(d) Whether the vendor's letter on 31st December 1997 amounted to a repudiation of the agreement of 5 June 1997; and

(e) If so, whether the purchaser's letter of 31st December 1997 in reply amounted to acceptance of the repudiation and the contract was thereby terminated."

10. These being Order 14 and Order 14A applications, no factual issue was or was intended to be raised in the proceedings before Godfrey J.A. The Appellants' Order 14 summons was dismissed by Godfrey J.A. and there was no appeal against this decision.

11. On the two issues in the Respondent's summons, the judge held in effect that by the two letters on 31st December 1998, the vendor had repudiated and the purchaser was entitled to treat the contract as at an end and to the return of the deposit. On page 7 of his judgment, the judge said this:

"The refusal of the vendor's then solicitors (as I read their letter of 31st December 1997 to the purchaser's solicitors) to answer the purchaser's requisition about the order justified the purchaser, in my judgment, in electing to throw up the contract. I regard this letter, which clearly indicated to the purchaser's solicitors that the vendor was holding the purchaser bound to the same terms, including the provisions of clause 20(vii), as those into which the 2nd plaintiff had entered under its own contract of 4th March 1997, as evincing an intention not to be bound by the contract the vendor had actually made with the purchaser, which contained no similar provision, although it might have done. The vendor, no doubt, was willing to proceed with the contract, but only in a manner substantially inconsistent with her obligation to show a title free from defects.

I therefore regard the purchaser as justified in throwing up the contract, having been refused a proper answer to its requisition about the order."

12. Following Active Keen Industries Ltd v. Fok Chi-keong [1994] 1 HKLR 396, the judge further held that if the purchaser had gone on with the contract, the purchaser would have run the risk of having to bear the apportioned cost of removal of the illegal structure when the Building Authority exercised its powers under s. 24 of the Building Ordinance and charged the apportioned costs against the title of the individual owners. He took the view that the Respondent was entitled not to take that risk. As to the offers, he concluded that they came much too late since they were made after the contract had gone off.

13. Mr. Edward Chan, leading counsel for the Appellants contended that for finding repudiation, the court had to consider all the circumstances to see whether a party evinced an intention no longer to be bound by the contract. He submitted that if a party, without manifesting an intention to abandon the contract, took action relying on what it thought to be the terms of the contract, even if mistakenly, it should not be treated as repudiation. In any case, it was submitted that repudiation should only be inferred from clear and cogent evidence.

14. Mr. Chan referred to James Shaffer Ltd. v. Findlay Durham & Brodie Ltd. [1953] 1 WLR 106 for his proposition that a party could not be said to have evinced an intention no longer to be bound by the contract because it raised a question as to its construction and regard must be had to all the circumstances.

15. Mr. Chan submitted that the Appellants had no intention to abandon the contract. The 1st Appellant's letter of 31st December 1998 did not refuse but attempted to answer the requisition. The letter, so Mr. Chan submitted, merely asserted what the Appellants thought to be the terms of the contract i.e. the sale was subject to the Order. The fact that they might have been mistaken as to their rights under the contract was no repudiation. By the letter, the Appellants did not evince any intention not to perform the contract. Their subsequent offer to put up a sum with the stakeholder to cover the possible cost of complying with the Order was indicative of their desire to confirm the contract, not to repudiate it. In any event, so counsel argued, repudiation should not be lightly inferred and no repudiation should have been inferred from that letter. Mr. Chan further submitted that it was wrong to hold the appellants' refusal to answer the requisition as repudiation.

16. Mr. Tang, S.C., counsel for the Respondent, on the other hand, submitted that the judge was correct in deducing repudiation from the letter. Counsel accepted that one must have regard to all the circumstances for repudiation but he said each case must be judged on its own facts. It is evident that no factual issue was canvassed in the present case. The case was argued below on the interpretation of the two letters and whether repudiation on the part of the Appellants and acceptance thereof by the Respondent could and was to be inferred from them. The 1st Appellant's letter of 31st December 1997, it was submitted, amounted to an assertion that the Respondent was obliged to purchase the property subject to the Order and that was a different obligation which gave rise to a repudiation by the Appellants.

17. The law on repudiation is well settled. In James Shaffer Ltd. v Findlay Durham and Brodie Ltd. supra Singleton, L.J. said:

"I go back to the words of Lord Coleridge in Freeth v. Burr '... the real matter for consideration is whether the acts or conduct of the one do or do not, amount to an intimation of an intention to abandon and altogether to refuse performance of the contract. I say this in order to explain the ground upon which I think the decisions in these cases must rest. There has been some conflict amongst them. But I think it may be taken that the fair result of them is as I have stated, viz., that the true question is whether the acts and conduct of the party evince an intention no longer to be bound by the contract.' or in the words of Atkin L.J. in the Spettabile case. After he had cited definitions of repudiation he added, 'They all come to the same thing, and they all amount at any rate to this, that it must be shown, that the party to the contract made quite plain his own intention not to perform the contract.'"

18. In the context of the present case where the Appellants contended their letter of 31st December 1997 was no more than acting on their reasonable and bona fide asserted rights under the contract, though it might have been their erroneous construction of the contract, the following passage in the judgment of Godfrey J.A. in Keung Shiu Tang v. D.H. Shuttlecocks Ltd. [1994] 1 HKC 286 would seem to be appropriate.

"If during the course of the negotiations in these cases over the content of the formal sale and purchase agreement, one party or the other makes demands as to what is to go into the formal sale and purchase agreement which are so unreasonable that he must be taken to be demonstrating an intention no longer to be bound by the contract into which he has already entered, then he may well be held to have repudiated it.

But a repudiation is not to be lightly inferred. There is now a trilogy of cases in which the court has made it clear that the mere fact that you insist on what you think are your rights, even if you later turn out to have been wrong about that, is not to be treated as evincing an intention on your part to repudiate the contract."

19. In my view, the 1st Appellant's letter of 31st December 1997 was neither an answer nor an attempt to answer the requisition raised by the Respondent. No reference had been made to compliance with the Order. This letter went further. It categorically told the Respondent that the sale of the property to her was by way of a subsale, subject to the terms and conditions of the agreement on 4th March 1997, i.e. subject to the Order. In other words the Appellants were saying they were not prepared to complete the transaction free from encumbrance. This was fundamentally different from what they had agreed to perform on 5th June 1997 under the Provisional Agreement. It was not a case of a mistaken notion of the Provisional Agreement, nor a case where the Appellants acted on such a mistaken notion. The Appellants had in fact by that letter intimated they would not answer the requisition and would not do what they were bound to do under the Provisional Agreement.

20. The Respondent had a right as a purchaser to throw up the contract because the Appellants as vendors had failed to answer a query going to the root of title. On this, paragraph 249 of Halsbury Laws of England Volume 42 needs:

"The purchaser has the right to repudiate the contract immediately upon failure by the vendor to perform something which goes to the root of the contract. The right usually arises upon the vendor's failure to perform his obligation to show and prove a good title ... Where the vendor shows that he has no intention of answering a requisition going to the root of the title, it is not necessary for the purchaser to give notice making time of the essence of the contract before repudiating."

21. Clearly, the Appellants had by their letter of 31st December 1997 demonstrated an intention not to be bound by the Provisional Agreement which they had entered into to sell the property free from any encumbrances. That went to the root of the agreement. That was repudiation on their part. The judge was clearly right in finding repudiation by the Appellants.

22. As regards the purchaser's letter of 31st December 1997, Mr. Chan contended that the judge did not specifically find that amount to an acceptance. Although demanding return of deposit is definitely acceptance of repudiation, the letter of 31st December 1997, Mr. Chan said, made no such express demand. The letter denied what the Appellants asserted and it stated no more than the Appellants' obligation to assign the property free from the Order and the Respondent's right to rescind and demand return of the deposit. Counsel submitted that it was, at best, ambiguous and that even if it ever purported to accept the repudiation, no reason was given to render it an acceptance.

23. Mr. Tang on the other hand contended that although no specific finding was made that the Respondent's letter was acceptance of the Appellants' repudiation, that letter was specifically put before the judge for his interpretation. In Mr. Tang's contention, providing that it was clear communication of the decision to treat the contract as at an end, it did not matter if no reason at all had been provided. Reference was made to paragraphs 24-011 of Chitty on Contract:

"24-011 Acceptance of repudiation. Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must accept the repudiation. This is usually done by communicating the decision to terminate to the party in default, although it may be sufficient to lead evidence of an "unequivocal overt act which is inconsistent with the subsistence of the contract, without any concurrent manifestation of intent directed to the other party ..."

24. Mr. Tang submitted that even if the letter of 31st December 1997 did not constitute acceptance of the repudiation on the part of the Appellants, the letter of 15th January 1998 was an unequivocal demand for the return of the deposit and there was a sufficient overt act for terminating the Provisional Agreement.

25. In my view, though the Respondent's letter stating that "our client is entitled to rescind the said Provisional Agreement and demand the return of all deposits paid ..." could have been more elegantly worded, the intention of the Respondent to treat the Provisional Agreement as at an end was undeniable. Having regard to the preceding three paragraphs which refuted what the Appellants asserted to be the terms of the Provisional Agreement, paragraph 4 of the letter clearly meant that because the Appellants would not performing their duty to assign the property free from encumbrances, the Respondent would treat the contract as at an end and demanded the return of the deposit. This was unequivocal conduct on the part of the Respondent to terminate the contract on account of the Appellants' election to perform a different obligation than that which had been contracted for. It was essentially a reading of letters, and the judge's reading of them cannot be faulted.

26. In my view, the Provisional Agreement was terminated. The contract ceased to exist hence. Whatever offer thereafter made by the Appellants to provide for security to cover the possible cost for complying with the Order in future would not have resurrected the contract. It came, as Godfrey J.A. put it, too late.

Liu, J.A.:

27. I agree.

Nazareth, V.-P.:

28. I also agree. The appeal is according dismissed with an order nisi that the respondent is to have his costs of the appeal.