LUNG YUK LUN AND ANOTHER v. GRATEFULFIT INDUSTRIAL LTD

HCMP001497/1991

1991, M.P. No. 1497

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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IN THE MATTER of an agreement for sub-sale and sub-purchase dated 13th March 1991 made between Lung Yuk Lun

and

Lau Wing Kwan Candy as the vendor on one part and Gratefulfit Industrial Limited as the purchaser on the other part

and

IN THE MATTER of Flat E, 29th Floor, Block 1, Belvedere Garden, Phase 3, Tsuen Wan, New Territories

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BETWEEN

LUNG YUK LUN and Plaintiffs
LAU WING KWAN CANDY

AND

GRATEFULFIT INDUSTRIAL LIMITED Defendant

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Coram: Godfrey, J. in Court

Date of Judgment: 29 July 1991

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JUDGMENT

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1. This is a dispute between vendor and purchaser. It arises under a contract dated 13th March 1991. The plaintiffs are the vendorsunder that contract. The defendant is the purchaser. The property the subject of the contract is Flat E, 29th Floor, Block 1, BelvedereGarden, Phase 3, Tsuen Wan, New Territories. The price is $1.57 million.

2. The history may be briefly stated as follows.

3. On 22nd January 1990, an agreement for sale and purchase was entered into concerning this property, and on 22nd December 1990, therewas a sub-sale and sub-purchase agreement made between the purchaser under the agreement of 22nd January 1990 and the plaintiffs(“the vendors”). On 18th February 1991 the vendors mortgaged the property to the Bank of China (“the lender”). (This, as a matterof law, was not a mortgage of the property but of the benefit of the agreement to purchase it.)

4. On 13th March 1991, the vendors entered into the agreement which is the subject of the dispute between themselves and the defendant(“the purchaser”) in the present action. The problem arises because the lender has refused its consent to the sale of what is ineffect the benefit of the agreement of sale and purchase to the defendant. The 4th recital of the agreement of 13th March 1991 mustbe read in full. It reads as follows:-

“4. (a)

By an Equitable Mortgage dated the 18th day of February 1991 made between the Vendor as Mortgagor of the one partand Bank of China (“the Mortgagee”) as lender of the other part (“the Equitable Mortgage”) the vendor has charged his interest inthe said premises and assigned his rights in he Agreement for Sub-Sale and Sub-Purchase to the Lender by way of mortgage to securerepayment of the loan more particularly described in the Equitable Mortgage.

(b)

The Vendor has agreed to apply for and obtain the Lender’s consent to enter into this Agreement in manner hereinafter provided.”

5. Clause 26 of the agreement must also be read in full. It reads as follows: –

“26 (a)

This Agreement is conditional upon the Lender’s consent being obtained by the Vendor to enter into the same. If suchconsent is not obtained within a period of 60 days from the date hereof, this Agreement shall become null and void and shall nottake effect and all monies paid by the Purchaser hereunder on account of the purchase price shall forthwith be repaid to the Purchaserin full but without interest costs or compensation.

(b)

The Vendor shall at his own expense forthwith use his best endeavours to apply for and obtain the Lender’s consentto enter into this Agreement.

(c)

Before such consent is obtained, the Stakeholders [a reference to the firm of P.H. Sin & Co which was appointed to act in thatcapacity] shall not release the purchase money or any part thereof to or on account of the Vendor.”

6. The vendors applied to the lender for the consent in question but it was refused. Under the prompting of the purchaser, they madesome other attempts to obtain the lender’s consent, but they were unsuccessful and the period of 60 days referred to in Clause 26(a)ran out. The vendors claim that, in those circumstances, the agreement has become null and void and cannot take effect. The purchaseraccepts that that would be so if the vendors had used their best endeavours to obtain the lender’s consent. But, said the purchaser,on the evidence before the court it is apparent that the vendors did not use their best endeavours. In particular, says the purchaser,it was prepared to make available the necessary funds to redeem the equitable mortgage and that would have ensured, so it says, thatthe lender would have given its consent to the transaction.

7. For reasons which will appear it seems to me inappropriate to go into the question whether the vendors did or did not, on the evidence,use their best endeavours to obtain the necessary consent. What the purchaser says is that if the vendors did not use their bestendeavours then they should not be held entitled to claim the primary declaration for which they have asked, which is a declarationthat the contract is now null and void. This provision, says the purchaser, was I plainly entered into for the benefit of the purchaseralone. The purchaser is willing to waive the provision and to take an assignment of the benefit of the agreement, irrespective ofthe lender’s consent not having been obtained.

8. The difficulty the purchaser faces, in my judgment, is the explicit provision made by Clause 26(a) of the contract. This contains,as a matter of construction, a condition precedent similar to that under consideration by the Court in Property and Bloodstock Ltd. v. Emerton [1968] Ch. 94 (which I mention not as an authority which resolves the present dispute but simply as an example of the way which the Court construesprovisions of this sort). It will have been seen that in clause 26(a) the parties agreed that the agreement was conditional uponthe lender’s consent being obtained by the vendors to enter into the same. If such consent was not obtained within the period of60 days from the date of the contract, the agreement is to be null and void, and (I emphasize the following words) “not take effect”.The result of this is in my judgment to suspend the contractual obligation specifically to perform the agreement until the consentis obtained and, if not obtained within 60 days, to terminate that obligation.

9. In those circumstances, I have no alternative but to make the declarations sought (including a consequential declaration that theregistration of the contract must be vacated).

10. This in no way shuts out the purchaser’s complaint in this case, that the vendors failed to use their best endeavours to obtain thelender’s consent. That, however, is a matter which must be tested, if at all, in an action for damages for breach of contract. Inthat action, the purchaser would be free to contend that the vendors failed to comply with their obligations to use their best endeavoursto apply for or obtain the lender’s consent. If it could prove that it had suffered some damage as a result, it would be entitledto damages accordingly.

11. It is because I have no desire to pre-empt the conclusions which the Court may reach in such an action that I do not go into thequestion whether or not the vendors did or did not use their best endeavours to obtain the necessary consent. That is in a senseirrelevant to the question I now have to decide, which is whether or not the vendors’ contractual obligation specifically to performthe contract still subsists. The period of 60 days has run out. The consent has not been obtained. The vendors’ obligation specificallyto perform the contract is at an end. The condition is for the benefit of both parties. It is not one of a character which the purchaseris entitled to waive.

12. In these circumstances, I must make the orders for which the vendors ask.

(G.M. Godfrey)
Judge of the High Court

Representation:

Mr.C.Y. Li, instructed by P.H. Sin & Co., for plaintiffs

Ms. Margaret Ng, instructed by Szeto & Yeung, for defendant