The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 4 of 1997

 

Wellfit Investments Limited Appellant

v.

(1) Poly Commence Limited and

(2) Yorku Development Limited Respondents

 

FROM

 

THE COURT OF APPEAL OF HONG KONG

 

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REASONS FOR REPORT OF THE LORDS OF THE

JUDICIAL COMMITTEE OF THE PRIVY COUNCIL

OF THE 22nd May 1997, Delivered the

25th June 1997

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Present at the hearing:-

Lord Browne-Wilkinson

Lord Lloyd of Berwick

Lord Nolan

Lord Cooke of Thorndon

Lord Clyde

  ·[Delivered by Lord Browne-Wilkinson]

 

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1. The subject matter of this appeal is a sub-contract under which the respondent, Poly Commence Limited ("the Confirmor") contracted to sell to the appellant, Wellfit Investments Limited ("the Sub-Purchaser") an apartment in Hong Kong.  The Sub-Purchaser failed to complete by the time specified in the sub-contract, time being of the essence.  The Confirmor rescinded the sub-contract.  In the action the Sub-Purchaser claims specific performance, a claim upheld by the trial judge, Keith J.  The judge's decision was reversed by the Court of Appeal of Hong Kong (Nazareth V.-P., Godfrey J.A. and Leonard J.).  The Sub-Purchaser appeals to the Board against that decision.  At the conclusion of the hearing their Lordships announced that they would humbly advise Her Majesty that the appeal ought to be dismissed.  Their reasons for their decision now follow.

 

 The apartment was previously owned by Yorku Development Limited ("the Head Vendor") and was subject to two charges.  By a contract dated 16th November 1990 the Head Vendor contracted to sell the apartment to the Confirmor at a price of HK$4,270,000.  The head contract provided that completion should take place on 19th December 1990 before 5.30 p.m., time being of the essence.

 

2. The Confirmor had originally purchased the apartment as a residence for its principal shareholder, Mr. Cheung.  However, Mr. Cheung decided not to live there and as a result the Confirmor entered into a sub-contract dated 8th December 1990 whereby it contracted to sell the apartment to the Sub-Purchaser at a price of HK$4,750,000.  The sub-contract contained the following relevant provisions:-

 

3. Clause 2(b)(ii) provided that where there were subsisting mortgages or it was a sub-sale the vendor (i.e. the Confirmor) could require the Sub-Purchaser to satisfy the purchase price by splitting the purchase monies into three parts providing separate drafts in favour of the mortgagees, the Head Vendor and the Confirmor.

 

4. Clause 3(a) provided that the purchase should be completed "on or before" 19th December 1990 between 10.00 a.m. and 3.00 p.m. which was defined as "the Completion Date".  It further provided that on the Completion Date "the residue of the purchase money shall be fully paid and [the Confirmor] and all other necessary parties (if any) will execute a proper assurance of the said premises to the [Sub-Purchaser] or his nominee or nominees or sub-purchaser or sub-purchasers ...".

 

5. Clause 3(b) provided (so far as relevant):-

"It is hereby expressly agreed by the parties hereto that ... the completion of the sale and purchase shall take place by undertaking in accordance with the Law Society Circular No. 91/82 ..."

 

6. Clause 14 provided that "time shall be of the essence of this Agreement in every respect".

Clause 18 provided "Vacant possession of the said premises to be given to the [Sub-Purchaser] on completion".

Clause 21 provided that the sub-contract was "expressly subject to and with the benefit of" the head contract.

Clause 22 contained a warranty by the Confirmor that the head contract would remain "valid subsisting and binding on and enforceable against" the parties thereto up to and including the Completion Date.

 

7. Clause 24(1) contained an acknowledgement by the Sub-Purchaser that he was aware of the charges on the apartment created by the Head Vendor and provided that the Confirmor would procure the Head Vendor "to discharge the Charges on or before the completion of the sale and purchase at his own costs".

 

8. The Law Society Circular No. 91/82 (referred to in clause 3(b) of the sub-contract) provides for a Hong Kong style completion by undertakings in place of the old style English completion under which the purchase money is paid over in return for the simultaneous handing over of an executed transfer and evidence of the discharge of existing mortgages.  Under the procedure laid down in the Circular, if the transaction had proceeded to an orderly completion the sub-contract would have been completed by 3.00 p.m. by the Sub-Purchaser handing over three drafts, one in favour of the Head Vendor's chargees, one in favour of the Head Vendor and the final draft in favour of the Confirmor.  In return the solicitors for the Confirmor would have given undertakings to hand over within 17 days an assignment executed by both the Head Vendor and the Confirmor and a release or receipt from the chargees.  The Confirmor's solicitors would also have given an undertaking to forward to the Sub-Purchaser's solicitors "forthwith the keys of the above property or the necessary written authority to collect the keys so that possession can be taken without delay".

 

9. The detailed conveyancing of the sub-sale was handled by an assistant solicitor, Miss Cheng, on behalf of the Confirmor and by a Miss Ting on behalf of the Sub-Purchaser.  It is a notable feature of the transaction that the "completion" of the sub-sale was to take place, at the latest, by 3.00 p.m. on 19th December, that is to say 22 hours before the final time at which completion of the head sale could take place.  It was anticipated by all parties that completion of the sub-sale (Hong Kong style) would take place before completion of the head sale so as to enable the Confirmor to finance the whole transaction by utilising the drafts in favour of the chargees and the Head Vendor which would have been provided by the Sub-Purchaser on the completion of the sub-sale.

 

10. In fact things did not proceed smoothly.  The Sub-Purchaser was financing the purchase by means of bank borrowing.  By 2.30 p.m. on 19th December Miss Ting became aware that there was a hitch in the banking arrangements which might prevent completion of the sub-purchase by 3.00 p.m.  Miss Ting then telephoned Miss Cheng.  They gave conflicting evidence as to the contents of their telephone conversation.  The judge found the facts to be that Miss Ting told Miss Cheng that, due to the difficulty  with  the  bank, she might not be able to complete by 3.00 p.m. but would send over the cheques as soon as possible.  To this Miss Cheng responded that Miss Ting should send over the cheques as soon as possible since the Confirmor still had to complete with the Head Vendor.  The judge expressly rejected the evidence of Miss Ting that she had told Miss Cheng that the cheques would be with Miss Cheng by 5.00 p.m.  Following that telephone call, at 3.24 p.m. the Confirmor's solicitors sent a fax purporting to rescind the sub-contract.  At 4.48 p.m. the Sub-Purchaser tendered the cheques required for the completion of the sub-purchase but they were rejected by the Confirmor.  The Confirmor having arranged alternative finance with his bank completed the head contract at 5.30 p.m.

 

11. The Sub-purchaser puts forward its claim to specific performance in three alternative ways.  First, it is said that the telephone conversation between Miss Ting and Miss Cheng constituted a variation of the sub-contract (or at least operated by way of estoppel or waiver) so as to preclude the Confirmor from rescinding the contract on the grounds of the Sub-Purchaser's failure to complete by 3.00 p.m.  Second, it is said that at 3.00 p.m. the Confirmor was itself in breach of its contractual obligations under the sub-contract since at that time it could neither transfer title to the property nor give vacant possession of it.  Thirdly, it is submitted that the Sub-Purchaser is entitled to relief in equity on the grounds that the Confirmor acted unconscionably in rescinding the contract.

 

Variation, waiver or estoppel.

The judge, having made his primary findings of fact as set out above, expressed his conclusions as follows:-

"On these facts, I find that the purchaser's time for completion of the sub-sale agreement was extended from 3.00 p.m. to such time as would not prevent the confirmor being able to complete the principal agreement by 5:30 p.m.  In my view, the receipt by [the Confirmor's solicitors] at 4:48 p.m. of a package containing cheques for the balance of the purchase split as requested together with the assignment duly executed on the purchaser's behalf gave the confirmor sufficient time to complete the principal agreement by 5:30 p.m. had it not purported to rescind the sub-sale agreement.  It follows that the purported rescission of the sub-sale agreement at 3:24 p.m. was [of] no effect, because the extended time for completion of it had not yet expired.  It also follows that it was the confirmor who was in repudiatory breach of the sub-sale agreement in refusing to complete when the cheques and the duly executed assignment were tendered ... at 4:48 p.m."

 

12. It is not clear whether the judge was finding that the sub-contract had been varied or whether Miss Cheng, by telling Miss Ting to send over the cheques as soon as possible, had waived the Confirmor's right to insist on completion by 3.00 p.m. or in some other way estopped the Confirmor from alleging breach of contract by late completion.

 

13. Like the Court of Appeal, and for the same reasons, their Lordships are unable to accept that the telephone conversation operated in any of these ways.  In order for the Sub-Purchaser to succeed on any of these grounds it would have to be shown that Miss Cheng had made, on behalf of the Confirmor, a clear, unambiguous and unequivocal statement that if the cheques were sent after 3.00 p.m. completion of the sub-contract would proceed.  But on the facts found by the judge what she said falls far short of such a test.  Her words are equally capable of meaning "send over the money as soon as you can and we may complete even if you are late".  There is nothing in the judge's finding of primary facts to indicate that the Confirmor would be bound to complete even if the monies were received after 3.00 p.m.  The judge expressly held that there was no agreement as to any final time by which the money had to be received.  It is almost impossible to accept that Miss Cheng was purporting on behalf of her clients to substitute a wholly uncertain time for completion in the place of a fixed time for completion of which time was of the essence.  The only words and conduct proved fall far short of establishing a clear agreement or representation that the Confirmor would accept late completion.

 

Breach of contract by the Confirmor.

The Sub-Purchaser submits that at 3.00 p.m. and also at 3.24 p.m. the Confirmor was itself in breach of the terms of the sub-contract: it was unable to transfer a good title or to give possession to the Sub-Purchaser in return for the purchase price.  It was submitted that, in those circumstances, the Confirmor could not rely on the Sub-Purchaser's breach in failing to pay the purchase monies by 3.00 p.m.: Chong Kai Tai Ringo v. Lee Gee Kee (1997) 1 H.K.C. 359.

 

14. The Confirmor is alleged to have been in breach of clause 3(a) of the sub-contract which required that "on or before" 3.00 p.m. the Confirmor and all other necessary parties "will execute a proper assurance" of the property.  Since completion of the head contract had not taken place by 3.00 p.m., the Confirmor could not have produced such an assurance.  The Confirmor is also alleged to have been in breach of clause 18 of the sub-contract requiring vacant possession to be given "on completion".  Again, the Confirmor could not give vacant possession until after completion of the head contract. This argument depends wholly upon the true construction of the sub-contract.  If the argument is correct, the result would be very surprising indeed.  All parties knew that this was a sub-purchase and that completion of the head contract was not due to take place until after "completion" of the sub-contract.  If the argument were to be correct, the Confirmor by the sub-contract had contractually bound itself to transfer actual title to, and actual possession of, the property at a time when, by definition, it would have no power to do so.  No doubt that could be the result, albeit unintended, if the contract expressly so provided.  But their Lordships would be reluctant to be forced to such an absurd conclusion.

 

15. In fact the sub-contract readily bears a sensible construction.  Clause 3(b) provides for a Hong Kong style completion: "the completion of the sale ... shall take place by undertaking in accordance with the Law Society Circular No. 91/82".  On such a "completion" the purchaser is not entitled in return for the price to obtain (as under an old style English completion) a transfer of the property freed from charges.  Under a Hong Kong style completion the purchaser's only right is to receive personal undertakings from the vendor's solicitors to procure in the future the delivery of a valid transfer, the discharge of the existing mortgages and possession.

 

16. When the sub-contract is construed in the light of the provision for a Hong Kong style completion, it all makes perfect sense.  The sub-contract is made subject to the head contract: clause 21.  The reference in clause 3(a) to the execution of a proper assurance must be read in the light of clause 3(b) as providing for a Hong Kong style completion under which the Sub-Purchaser is bound to accept the solicitor's undertaking to produce such an assurance within 17 days in lieu of an actual assurance at the time of completion.  The splitting of the sub-purchase price so as to require the Sub-Purchaser on completion of the sub-purchase to provide a cheque in favour of the Head Vendor's chargees shows that the obligation in clause 24 to procure the Head Vendor to discharge the charges "on or before completion" cannot mean before 3.00 p.m.  The cheque to be utilised by the Head Vendor to discharge the charges on the property on completion of the head sale only becomes available for that purpose after the "completion" of the sub-sale.  Therefore, in this context, the sub-sale must be "completed" within the meaning of the contract before the completion of the head contract.

 

17. Similar considerations apply to the provisions of clause 18 requiring vacant possession to be given "on completion".  Since a Hong Kong style completion by undertakings is applicable, possession  does  not  have to be given simultaneously with a receipt of the price: Law Society Circular No. 91/82 contains an undertaking by the vendor's solicitors "to forward to us forthwith the keys of the above property or the necessary written authority to collect the keys so that possession can be taken without delay".  This undertaking envisages some postponement in the giving of possession after "completion" in the Hong Kong style.  Therefore the provisions in clause 18 requiring vacant possession "on completion" must be satisfied by the giving of the undertaking thereafter to provide possession.  The only question is whether, by making the keys available immediately "on completion" of the head contract, the Confirmor's solicitors would have honoured their undertaking to make them available "forthwith".  The word "forthwith" is capable of a number of meanings, amongst which is "as soon as practicable" and what is practicable depends upon the circumstances of the case.  In the circumstances of this case it was plainly not practicable to hand over the keys of the property until after the completion of the head contract.  Therefore an undertaking to hand over the keys forthwith took effect as an undertaking to hand over the keys as soon as the head contract was completed.

 

18. For these reasons, which again are broadly the same as those given by the Court of Appeal, their Lordships are of the view that the Confirmor was never in breach of the terms of the sub-contract and this argument also fails.

 

Relief in equity.

Finally, the Sub-Purchaser submits that the court has jurisdiction to relieve against the "forfeiture" consequent upon the rescission of the sub-contract by the Confirmor on the grounds that the Confirmor's conduct was unconscionable or inequitable.  Whether or not the court has such jurisdiction (as to which their Lordships express no view) they can see nothing unconscionable or inequitable in the Confirmor's conduct.  On the judge's findings of fact, the Confirmor had made no clear representation that it would not abide by its contractual rights.  The evidence showed that the reason for fixing completion of the head sale to take place 2 or 22 hours after the completion of the sub-sale was to guard against the possibility of the Sub-Purchaser failing to complete.  In the event of such failure, the Confirmor would have to arrange alternative finance to complete the head purchase, as indeed he did in the present case.  In the circumstances their Lordships can see nothing unconscionable in the Confirmor standing on his contractual rights and proceeding to organise alternative finance for the completion of the head purchase.

 

19. The appellant must pay the respondents' costs before their Lordships' Board.

 

© CROWN COPYRIGHT as at the date of judgment.