Posts Tagged ‘completion’

Open contracts in Hong Kong

April 6, 2016

Fong Yin Hing v Fong Kwan Pui ([2016] HKEC 740, CFI) concerned an oral agreement by a brother to sell a flat to his sister. The sister drafted a memorandum of the terms of the agreement and the brother signed it. The brother later refused to complete and the sister sought specific performance. One aspect of the brother’s defence was that, following the Court of Final Appeal decision in Kwan Siu Man v Yaacov Ozer, there could be no contract where there was no express agreement as to the completion date. To J. rejected this interpretation of Kwan Siu Man. It is legally possible to enter into an open contract but the courts should not be too ready to find that this has occurred in the context of Hong Kong’s volatile property market. ‘In my opinion, the test is one of intention, i.e. have the parties reached a binding contract for the sale and purchase of that property at that price. If they have, then the other terms can be implied.’ ([79]). Here there was ample evidence that the parties had the necessary intention to be contractually bound.

Although no completion date was specified, the parties had agreed that completion would not take place until after their mother had died (the brother was joint tenant of the flat with the mother). It was to be implied that completion would take place at a reasonable time after the mother’s death. If completion does not take place within that time, the innocent party could issue a notice fixing a new completion date and making time of the essence ([80] referring to Behzadi v Shaftesbury Hotels Ltd and Lau Suk Ching Peggy v Ma Hing Lam). This was not void for uncertainty since it was certain that the mother would die even though the date of death could not be known ([83]).

The memorandum not only recorded the terms of the oral agreement but also the fact that the sister had paid the agreed deposit under the agreement. This did not mean that it was invalid as a memorandum. This was not a case where additional terms had been included in the memorandum casting doubt on whether it was truly intended to record the existence of an alleged oral agreement ([95]).

The oral agreement had been formed and the memorandum recorded it. The memorandum could even be considered as a written agreement. Specific performance was ordered.

Michael Lower

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Contractual obligation to produce an architect’s certificate before completion: an implied term that it will be produced within a reasonable time before completion

February 24, 2016

In Guo Jianjun v Dragon Fame Investment Ltd ([2015] HKEC 1986, CA) S entered into an agreement to sell to P four office units (all on the same floor of the building). The agreement contemplated that there would be a re-partitioning of the office units owned by S. The units to be sold were the units as they would be after the re-partitioning. The contract contained a clause obliging S to obtain the certificate of an ‘Authorized Person’ to confirm the legality of the re-partitioning works. The agreement went on to provide that P would not raise any requisitions, queries or objections concerning the re-partitioning works. The re-partitioning works were carried out soon after the agreement was entered into. S produced an architect’s certificate of compliance. This satisfied S’s contractual obligations but it was produced at 6.07 pm on the completion date. It was common ground that the midnight rule applied. P argued that S was in breach of an implied obligation to produce the certificate at a reasonable time. It rescinded and sought the return of the deposit and damages. S argued that there was no implied term and that it was enough for it to have produced the certificate before midnight on the completion date.

The Court of Appeal (Lam V-P giving the judgment) looked at the English and Hong Kong authorities setting out the modern approach to contractual interpretation. This required the court to look at the rest of the contract and the whole of the relevant context / factual matrix. It also looked at what was said in Belize Telecom concerning the implication of terms (and linking this process to the broader process of contractual interpretation).

The obligation had to be construed in the context of the related clause which barred the raising of requisitions concerning the partitioning. It was also necessary to take account of the obvious commercial purpose served by the obligation: if S did not produce an adequate certificate there could be a doubt as to the legality of the works which could prevent P from giving good title on any future sale. Thus, there was to be implied a term ‘that the certificate would be a proper certificate prepared by an authorized person in good faith’ ([34]).

Given that the architect was commissioned by, and would report to, S P had to be given a reasonable time to assess whether or not the certificate satisfied the contractual obligation. They had to be given a reasonable time in which to do so. A term to this effect was to be implied ([41]).

What was a reasonable time? Had the implied obligation been observed in this case? The court referred to its earlier decision in Summit Link v Sunlink Group:

‘What should be considered as a reasonable time must be considered in the light of the prevailing circumstances, including the parties’ knowledge at the time if it can be proved and what the parties would each be reasonably contemplating at the time.’ (at 735 – 6 per Woo JA).

The court also referred to the headnote to the report of Kensland Realty Ltd v Whale View Investment Ltd ((2001) 4 HKCFAR 381):

‘The time which a vendor must allow, was the time reasonably required by the purchaser to perform its obligations, in relation to completion, in the ordinary course of business. This would include the purchaser’s dealing with bankers and solicitors.’

Lam V-P explained what this meant in the present case:

‘I am therefore of the view that the certificate should have been provided to the plaintiffs’ solicitors within a reasonable time before the end of the office hours [on the completion date]. The reasonable time should be long enough to afford the plaintiff’s solicitors a reasonable opportunity to conduct the checks which are reasonably necessary and to do so in the normal course of business. The time should not be so short that the solicitors would have to stretch all their available resources to the extreme so as to accomplish the tasks.’ ([46]).

Further, ‘one should proceed on the general assumption that purchasers will rely on mortgage financing in a conveyancing transaction’ ([50]).

Production of the certificate after the close of business on the date of completion did not satisfy the reasonable time requirement.

Michael Lower

 

 

 

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