Archive for the ‘Time of the essence’ Category

Making time of the essence for completion

September 9, 2015

In Many Gain Investment Ltd v Chan Fai Ho ([[2015] HKEC 1553, CFI) P, a property developer agreed to buy a property from D. P raised a requisition about D’s title and there was a dispute as to whether or not it had been properly answered. This dispute continued up to the contractual completion date of 31st May 2011. The parties agreed to extend the completion date to 14th June 2011. The next day, 15th June, D’s solicitors wrote to P’s solicitors requiring completion by 20th June. Despite this, on 16th June, D entered into an agreement to sell the property to another buyer. P now withdrew the requisition and sought specific performance. The question was whether P’s delay in completing amounted to a repudiatory breach entitling D to rescind.

Time was not expressly of the essence for completion and Anthony To J found that time was not impliedly of the essence in this case ([23]). The question then was whether the letter of 15th June made time of the essence (see United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904). As a matter of construction it did not. Anthony To J preferred P’s interpretation which was that the letter was no more than a demand that P should withdraw the requisition within 5 days ([24] – [27]).

For the sake of completeness, Anthony To J considered whether, if the letter were to be construed as a notice making time of the essence, the 5 day period it specified constituted reasonable notice. He held that it could have amounted to reasonable notice had D taken the necessary steps to make completion possible (including notifying P of the amounts of the split cheques that would be required on completion). The only other step to be taken within that time was that P had to decide whether or not it would insist on the requisition. As D had not taken the steps to make completion possible within 5 days, the 5 day period would not amount to reasonable notice ([33]).

P was granted the order of specific performance that it sought.

Michael Lower


Completion: the duties to deliver executed assignment and to pay the completion monies trigger each other (in the absence of a contrary stipulation)

November 3, 2014

In Chong Kai Tai Ringo v Lee Gee Kee ([1997] HKLRD 461, PC) D entered into a provisional sale and purchase agreement to sell a flat in Hong Kong to P. P was at the end of a chain of sub-sales and, as a result, the purchaser under a contract higher up the chain was to execute the assignment to P. Time was of the essence for completion. The contract included a liquidated damages clause in the event of default by either party. P failed to provide the completion monies by the time stipulated for completion. D argued that this was a repudiatory breach and it purported to accept it. P sought specific performance.

The Privy Council (Lord Hutton giving the only full judgment) held that the obligations to pay the purchase price and to deliver the executed assignment are to be carried out simultaneously (in the absence of an express or implied agreement to the contrary). D was not in a position to deliver the executed assignment by the completion date because it had not arranged for the purchaser higher up the chain to execute the assignment (D anticipated dealing with this after completion). Since it was not ready to complete, P’s duty to provide the completion monies was not triggered.

The result was not to bring the contract to an end but that time ceased to be of the essence  and completion was to take place within a reasonable time. D was not entitled to rescind.

D argued that the liquidated damages clause meant that specific performance was no longer available. The Privy Council declined to consider whether this was true as a general proposition. D’s argument failed because it had not offered to pay the liquidated damages. In that case, the liquidated damages clause did not prevent the award of specific performance.

Michael Lower

‘Hong Kong style’ completion and sub-sales

October 27, 2014

In Wellfit Investments Ltd v Commence Ltd ([1997] HKLRD 857, PC) the Privy Council had to consider the impact of an agreement to effect a Hong Kong style completion and the fact that both parties were aware that the transaction was a sub-sale on the construction of the provisions as to completion in the sub-sale agreement.

The agreement was for the sub-sale of an apartment. Time was of the essence in the agreement. The funds from completion of the sub-sale were to be used to finance completion of the head contract. The sub-sale was to be completed by 3pm on the stipulated date and the deadline for completion under the head contract was two and a half hours later. The sub-contract was ‘subject to and with the benefit of’ the head contract. The sub-contract provided that on completion, the seller would execute a ‘proper assurance’ and give vacant possession. The parties agreed to a ‘Hong Kong style’ completion (on completion, the seller gave an undertaking to forward the executed assignment within 17 days of completion). The sub-purchaser had not provided the completion monies by 3pm and the sub-seller rescinded 24 minutes later. The sub-purchaser sought specific performance.

The buyer’s argument that the deadline had been waived or varied  by virtue of a telephone conversation between the solicitors acting for the parties failed. The words used did not amount to a clear representation that the sub-seller would not insist on its contractual rights.

The buyer argued that the seller was in breach since on completion it would not be in a position to execute a proper assurance or give vacant possession (it could only do this when the head contract was completed). This failed since these obligations were to be interpreted in the light of the agreement to complete by undertakings and because both parties were aware of the sub-sale context and had factored this into their contract.

The sub-purchaser sought relief in equity. This judgment was handed down a few months before Union Eagle. The Privy Council expressed no view as to whether such jurisdiction existed. We had to wait for Union Eagle to learn the answer to this. The Privy Council held that it would not grant such relief even if it had the power to do so. Given the linkage between the sub-contract and the head contract, there was nothing unconscionable in the sub-seller’s insistence on its strict contractual rights.

Michael Lower

Conditions for specific performance

August 10, 2012

In Lau Suk Ching Peggy v Ma Hing Lam ([2010] 3 HKLRD 247, CFA) M Ltd was the owner of a flat. M Ltd was the wholly owned subsidiary of K Ltd. S and K Ltd (‘the sellers’) gave L an option to purchase either the shares of M Ltd or the flat. The option was exerciseable on or before 28th September 2004 and L gave the necessary notice to exercise the option to buy the shares. There were negotiations concerning the terms of the share sale agreement and the completion date but these did not come to a conclusion. The sellers then purported to fix the completion date for not later than 6th October failing which they asserted that the option would lapse. When that date passed, the sellers asserted that the agreement had lapsed. L began proceedings for specific performance. As M Ltd sold the flat during the course of the proceedings, the claim was for damages in lieu of specific performance.

L’s claim succeeded. The contract formed on the exercise of the option was open (no completion date had been specified). Thus, completion had to take place within a reasonable time. The sellers had no right to unilaterally fix the completion date and the court could not do so either. Only when there had been unreasonable delay in completing an open contract could a notice be served to fix a completion date in respect of which time would be of the essence. Where (unlike this case) a completion date had been fixed but time was not of the essence, notice could be served once the completion date had passed. Thus, the sellers committed a repudiatory breach when they purported to treat the transaction as being at an end.

In fact, however, L opted to keep the contract alive by bringing the specific performance proceedings. Was she entitled to succeed? Was she ready, able and willing to complete? Was she ready and able to do whatever the contract required (essentially to pay the purchase price) at the time when she would be called upon to perform her side of the bargain.  In this case there was no completion date so she had to be ready and able at the date of the service of the writ and at the time of the trial. There must be no incapacity to perform and no definite resolve not to perform. L satisfied these requirements. There was no need to show that she had the money in this case since the sellers had made it clear that they would not accept it.

Time of the essence? Contractual interpretation

May 29, 2012

In Intergraph (UK) Ltd v Wolfson Microelectronics plc ([2012] EWHC 528 (Ch)) a lease contained a break clause but the tenant did not comply with the pre-condtitions to be complied with before the break right could be exercised. The lease made time of the essence for exercise of the break right. Nevertheless, the parties agreed amended terms under which the break clause could be exercised. These terms were included in a formal agreement and provided for payment to be made on or before a specified date. By mistake, the tenants failed to make the payment and they immediately offered to make the payment when they became aware of the mistake. The landlords refused to accept. The question was whether time was of the essence for making the payment; it had not been made expressly of the essence. The court held that it was. This was a question of the proper interpretation of the contract. The language and structure of the agreement tied it firmly to the break clause in the lease (where time was expressly of the essence). This interpretation also made the best commercial sense of the agreement.

Time generally of the essence in Hong Kong Conveyancing

May 1, 2012

The time for payment of the initial deposit payable under the terms of a Provisional Sale Agreement is usually of the essence in Hong Kong.

In Sun Lee Kyoung Sil v Jia Weili ([2010] 2 HKLRD 30) the purchaser’s cheque for the initial deposit under a Provisional Sale Agreement bounced. The purchaser had the money but, by mistake, had not transferred it to the right account to be ready to honour the cheque. The next day the purchaser proffered a cashier order for the deposit but the seller refused to accept it, preferring to treat the failure to pay the deposit on the due day as a repudiatory breach. The court decided that he was entitled to do so and, in accordance with the terms of the agreement, to forfeit the deposit. The nature of the subject matter (real estate in Hong Kong) and the surrounding circumstances indicated that time was to be treated as being of the essence and equity could not relieve from the defendant from a duty of strict compliance. In any event, the purchaser had no defence to an action on the cheque (though the seller could not recover twice),

Time of the essence for completion: the common law demands strict compliance

April 20, 2012

Where time is of the essence for completion even a short delay is a repudiatory breach. In the normal course of events, there is no reason for equity to relieve the buyer from this nor from the loss of his deposit (if the contract so provides).

In Union Eagle Ltd v Golden Achievement Ltd ([1997] A.C. 514, PC) the Privy Council heard an appeal from the Hong Kong Court of Appeal. A seller had agreed to sell a flat in Hong Kong. The buyer had paid a 10% deposit. The contract provided that time was of the essence in all respects. It also provided that the deposit would be forfeited if the buyer failed to complete. Completion was to take place by 5pm on the completion date but the buyer’s solicitors arrived 10 minutes after that with the completion monies. The seller rescinded on the grounds of the buyer’s failure to comply with the term of the contract stipulating the time for completion. The buyer sought specific performance. It argued that there was an equitable jurisdiction to relieve against the forfeiture of the equitable interest created by the contract. This failed in the Hong Kong courts and in the Privy Council.

Lord Hoffman gave the only judgment. Authority and policy combined to persuade him that there was no scope for equity to intervene to save the buyer from the breach of contract:

‘When a vendor exercises his right to rescind, he terminates the contract. The purchaser’s loss of the right to specific performance may be said to amount to a forfeiture of the equitable interest which the contract gave him in the land. But this forfeiture is different in its nature from, for example, the vendor’s right to retain a deposit or part payments of the purchase price. So far as these retentions exceed a genuine pre-estimate of damage or a reasonable deposit they will constitute a penalty which can be said to be essentially to provide security for payment of the full price. No objectionable uncertainty is created by the existence of a restitutionary form of relief against forfeiture, which gives the court a discretion to order repayment of all or part of the retained money. But the right to rescind the contract, though it involves termination of the purchaser’s equitable interest, stands upon a rather different footing. Its purpose is, upon breach of an essential term, to restore to the vendor his freedom to deal with his land as he pleases. In a rising market, such a right may be valuable but volatile. Their Lordships think that in such circumstances a vendor should be able to know with reasonable certainty whether he may resell the land or not.’ (at 520)

The case illustrated the need for commercial certainty and to resist the temptation to allow equity to rewrite contracts in the name of fairness (at 519). There was no useful distinction to be drawn for this purpose between ‘commercial’ and other cases, ‘Land can also be an article of commerce and a flat in Hong Kong is probably as good an example as one could find.’ (at 519). Lord Hoffman summed up his position:

‘The fact is that the purchaser was late. Any suggestion that relief can be obtained on the ground that he was only slightly late is bound to lead to arguments over how late is too late, which can be resolved only by litigation.’ (at 523).

The seller was entitled to know with certainty whether he could re-sell or not (at 520). It may be different if there were any question of unjust enrichment or estoppel (at 523).

Michael Lower

Time of the essence?

February 29, 2012

Equity took the view that time is not of the essence for performance of contractual obligations unless the express words of the contract, the nature of the subject matter or the surrounding circumstances indicated to the contrary. After the Judicature Act 1873, this is the common law rule too. Thus, time is not usually of the essence with respect to the timetable in a rent review clause; the right to a review is not lost because of  a delay in taking any step envisaged by the clause.

Rent is a contractual payment for the use of the landlord’s land. There is no legal reason why a rent review cannot operate retrospectively.

United Scientific Holdings Ltd v Burnley Borough Council ([1978] A.C. 904, HL) concerned the rent review provisions in two leases. In each case, there was a failure to strictly adhere to the timetable established by the rent review clauses. The tenants claimed that time was of the essence with regard to each element of this timetable and that the result was that the landlord had lost its right to a review. The tenants also argued that, even if the landlord was entitled to a  review, the reviewed rent would only be payable once it had been fixed; there could be no retrospective obligation to pay the increased rent as from the review date. This, they argued, would run counter to the requirement that the rent be certain.

The tenants failed on both counts. The House of Lords pointed out that equity had taken the line that time is not of the essence for performance of contractual obligations unless the express words of the contract, the nature of the subject matter or the surrounding circumstances indicated to the contrary. After the Judicature Act 1873, this is the common law rule too (Judicature Act 1873, ss. 25(7) and (11) and Law of Property Act 1925, s. 41). Lord Simon of Glaisdale referred to the approach now adopted following Hongkong Fir.

There was nothing here to indicate that time was of the essence. Thus, the landlords could still invoke the rent review clause. The right could only be lost if the delay meant that it would be inequitable (not so here). It might be otherwise in cases where the tenant has a break clause that it can invoke once the review date has passed; this might be a circumstance indicating that time is of the essence.

The contractual provision that required the tenant to pay the arrears (if any) of the increased rent from the review date to the date when the revised rent is ascertained was also lawful. Rent is a contractual payment for the use of the landlord’s land. There is no legal reason why a rent review cannot operate retrospectively.

The nature of the process of fusion begun by the Judicature Acts is a major theme in several of the judgments.

Implied obligation to give reasonable time to comply with ‘split cheques’ stipulation

March 30, 2011

Where a contract obliges a purchaser to pay with split cheques, the seller has an implied obligation to give the buyer the necessary information early enough to give the buyer reasonable time for compliance. If this time is not given, the buyer may be entitled to rescind. If the seller does not give the information early enough and the contract is not rescinded, time will not be of the essence for completion even where the contract states that it is. The buyer will be allowed a reasonable time to complete.

In Kensland Realty Ltd v Whale View Investment Ltd ([2002] 1 HKLRD 87, CFA) a contract for the sale of land required the buyer to pay with split cheques. The necessary information as to the payees and amounts arrived with less than two hours to go before the deadline for completion. Time was expressed to be of the essence. The buyers arrived six minutes late with the cheques and the seller purported to rescind and forfeit the deposit. The Court of Final Appeal held that the sellers had not complied with an implied obligation to give reasonable time to comply with a split cheques requirement. The buyers had by their conduct elected to keep the contract on foot. Nevertheless, the sellers could not insist on strict compliance with the time for completion. There is a principle that prevents parties to a contract from relying on their own wrong. It can take effect either as a principle of construction or as a substantive rule of law. Here the seller was seeking to rely on its own failure to give adequate time for compliance to allow it to invoke the time of the essence clause. This would not be allowed. Instead, the equitable rule applied. Thus, it was enough for the buyer to show that he had completed the transaction, or been ready to do so, within a reasonable time after the stipulated time. The buyer was entitled to rescind and to damages from the seller.