Super Keen Investments Ltd. v Global Time Investments Ltd.

CACV 285/1998 and CACV 346/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEALS NOS. 285 AND 346 OF 1998

(ON APPEAL FROM HCCT NO. 71 OF 1997)

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J U D G M E N T

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Keith JA (giving the judgment of the Court):

Introduction

1. This appeal concerns a large office building in Central. When the property market was on the rise in 1993 and 1994, the site on which the building was to be erected, together with the building itself, was sold a number of times at ever increasing prices. However, by the time the construction of the building had been completed, property prices had fallen, and the present litigation is the aftermath of that slump in the market.

The background facts

(i) The building contract. The building with which the case is concerned is the Kut Kee Building on the corner of Wellington Street and Peel Street. The contract for its construction was between Simpson Development Investment (HK) Ltd ("the developer") and K. & R. Wong Construction Co. Ltd ("the contractor"). It was dated 16 August 1993. The developer and the contractor were described by the trial judge, Findlay J, as "closely related". Indeed, the judge said that

".... Mr Peter Wong, who appears to have been an officer or employee of both companies, acted for the contractor and the [developer] at different times during the construction of the building contract."

The contract provided for the construction of the building to be completed by 30 June 1995, but the contract also permitted that date to be extended by the architect appointed under the contract. The contract named Gordon Yeung & Associates ("Mr Yeung") as the architect.

(ii) The agreements for the sale of the building. By a formal sale and purchase agreement dated 13 December 1993 ("the first agreement"), the developer agreed to sell the site on which the building was to be erected and the building itself (which we shall refer to collectively as "the building" for convenience) to Grand Million Development Ltd ("the Third Party"). The purchase price was $256m. The market was rising at the time, and by a formal sale and purchase agreement dated 8 April 1994 ("the second agreement") the Third Party agreed to sell the building to Global Time Investments Ltd ("the Defendant"). The purchase price was $405m. Within a few days, the building had been sold again: by a formal sale and purchase agreement dated 11 April 1994 ("the third agreement"), the Defendant agreed to sell the building to Super Keen Investments Ltd ("the Plaintiff"). The purchase price this time was $600m.

(iii) The date for completion of the sale agreements. All three agreements provided for the sale to be completed within a specified number of days of written notification that the occupation permit for the building had been issued. Although all three agreements made time of the essence, only the first agreement provided for when the construction of the building had to be completed by. It mirrored the date for the completion of the construction of the building laid down in the building contract. What it provided, in cl. 14, was that:

"....the building to be erected on the [site] shall be completed with Occupation Permit issued on or before 30 June 1995 subject to the usual architect's extension ...." (Emphasis supplied).

The words emphasised are the crucial words on which much of the argument on the appeal has turned.

(iv) The extension of time. On 16 June 1995 (two weeks before the construction of the building had to be completed by), the contractor applied to Mr Yeung for an extension of time of 309 days. On 29 June 1995, Mr Yeung purported to grant an extension of time of 294 days, thereby extending the date for the completion of the construction of the building from 30 June 1995 to 19 April 1996.

(v) The rescission of the agreements. In the meantime, the property market had begun to fall. Indeed, it was common ground that by April 1996 the value of the building was only $290m. The judge expressly found that, not surprisingly, the Plaintiff did not want to pay $600m. for the building. Although he did not say so in terms, it is likely that he thought that the Plaintiff was looking for ways to get out of the deal. Accordingly, on 10 November 1995, and despite the extension of time for the completion of the construction of the building, the Plaintiff's solicitors informed the Defendant's solicitors that if the third agreement could not be completed "within a reasonable time", the Plaintiff would rescind the third agreement. The Defendant did not complete the third agreement within what the Plaintiff claimed was a reasonable time, and on 17 February 1996 the Plaintiff's solicitors notified the Defendant's solicitors that the Plaintiff was rescinding the third agreement. On 11 April 1996, the Defendant's solicitors notified the Third Party's solicitors that the Defendant was rescinding the second agreement.

The nature of the proceedings

2. The Plaintiff had paid to the Defendant a number of deposits totalling $101,612,000.00 under the third agreement. Accordingly, the Plaintiff's claim against the Defendant was for the return of these deposits. For its part, the Defendant had paid to the Third Party a number of deposits totalling $100m. under the second agreement. Accordingly, the Defendant's claim against the Third Party was for their return. For its part, the Third Party claimed that the Defendant had not been entitled to rescind the second agreement. Accordingly, in the Third Party proceedings brought against it by the Defendant, the Third Party counterclaimed against the Defendant. It sought damages for the Defendant's wrongful rescission of the second agreement of $115m., being the difference between (a) the price which the Defendant had agreed to pay to the Third Party for the building, i.e. $405m., and (b) the market value of the building at the time of the Defendant's rescission of the second agreement, i.e. $290m.

3. One of the issues which Findlay J had to decide related to the exterior finish of the building. He rejected the claim which the Plaintiff had made against the Defendant, and which the Defendant had passed on to the Third Party, relating to the exterior of the building, and there is no appeal against the dismissal of those claims. However, Findlay J found in favour of the Plaintiff and the Defendant in their claims for the return of the deposits against the Defendant and the Third Party respectively, and he dismissed the Third Party's counterclaim against the Defendant. The Third Party now appeals against (a) the order that it should return the deposits totalling $100m. to the Defendant, and (b) the dismissal of its counterclaim against the Defendant for damages for the wrongful rescission of the second agreement. The Defendant appeals against the order that it should return the deposits totalling $101,612,000.00 to the Plaintiff, but it only pursues that appeal if the Third Party is successful in its appeal.

The causes of action

4. Findlay J did not find that the Defendant had been in breach of the third agreement, nor did he find that the Third Party had been in breach of the second agreement. Yet he held that the Plaintiff had been entitled to rescind the third agreement, and that the Defendant had been entitled to rescind the second agreement. It was on that footing that he ordered the Defendant to return the deposits totalling $101,612,000.00 to the Plaintiff, and the Third Party to return the deposits totalling $100m. to the Defendant. At first glance, it appears odd that he could find that the Plaintiff and the Defendant had been entitled to rescind the third and second agreements respectively, without finding a breach of contract on the part of the other parties to those agreements.

5. The answer lies in cl. 23(b) of each of the agreements. The clauses were in almost identical terms. We set out below cl. 23(b) of the second agreement, while at the same time reproducing in italics the differences in the third agreement:

"In the event of the [Third Party] [Defendant] becoming entitled to exercise any right of rescission under the [first agreement][second agreement], the [Third Party] [Defendant] shall, within seven (7) days after the [Third Party] [Defendant] becomes aware of the existence of such right, notify the [Defendant] [Plaintiff] in writing of such right, and irrespective of whether or not such notice has been given by the [Third Party] [Defendant], the [Defendant] [Plaintiff] shall notwithstanding any provisions herein contained to the contrary, be entitled to rescind this Agreement by serving written notice of rescission on the [Third Party] [Defendant] ...."

In other words, if the developer was in breach of the first agreement, in circumstances which gave the Third party the right to treat the first agreement as rescinded, the Defendant could rescind its agreement with the Third Party (i.e. the second agreement) and the Plaintiff could rescind its agreement with the Defendant (i.e. the third agreement). Putting it in another way, the Third Party did not have to be in breach of the second agreement to entitle the Defendant to treat the agreement as rescinded. The Defendant could treat the second agreement as rescinded if the Third Party was entitled to treat...