CHYE FOOK & ANOR V. TEH TENG SENG REALTY SDN BHD

Abdul Malek J

By a consent order dated 22 February 1988 (encl 17) following a summons for directions (encl 13) filed on 2 January 1988, both parties had asked for the preliminary issue of 'whether the plaintiffs can sue for rescission on the agreement of 8 August 1984 as the house is not completed by 7 August 1986 which is the completion date' be first determined by arguments in open court on a date to be fixed by the senior assistant registrar.

It is necessary to refer to cl 7 of the relevant agreement (bundle A of encl 4) which provides that 'time shall be the essence of the contract in relation to all the provisions of this agreement and in particular to the payment of any instalment of the purchase price or any part thereof and the payment of all moneys due from the purchaser to the vendor under this agreement' (emphasis mine) and to cl 18(1) of the said agreement which states that 'the said building shall be completed by the vendor and vacant possession delivered to the purchaser within twenty-four (24) calendar months from the date of this agreement'.

However, cl 18(2) of that agreement stipulates that 'if the vendor fails to deliver vacant possession of the said building in time the vendor shall pay immediately to the purchaser liquidated damages to be calculated from day to day at the rate of ten per centum (10%) per annum of the purchase price'. It is this particular provision of the agreement that had resulted in this particular preliminary issue having to be determined.

Learned counsel for the defendants had argued that the presence of cl 18(2) demolishes the right of the plaintiffs to sue for rescission while learned counsel for the plaintiffs had submitted that time has been stated to be the essence of all the provisions of the contract and a breach of it entitles the purchaser to rescind. The defendants in their affidavit at encl 7 had admitted that the building was not completed within 24 months and the plaintiffs accept the fact that the completion was in May 1987 and that the certificate of fitness was issued on 9 December 1987 but nevertheless had given notice to the defendants to rescind the agreement on 19 January 1987 which was before the completion of the building.

Learned counsel for the defendants had further submitted that this was not a case where the defendants had abandoned the project or had failed to do the work. He also argued that the agreement was in line with housing regulations as provided in PU(A) 122/82 and that both parties had to adopt the agreement. In the circumstances, he stated that there was no provision in the agreement giving the purchaser the option to terminate especially with the inclusion of cl 18(2) considering the fact that the plaintiffs had given the notice to terminate while the defendants were still performing the contract.

It is relevant at this stage to recapitulate the facts. The agreement had been signed on 8 August 1984 and the completion date was therefore on 7 August 1986 which was exactly 24 months after. The building was not completed on the completion date and the plaintiffs sent a notice to the defendants on 19 January 1987 to rescind the agreement in view of the non-compliance with the two-year period. The building was finally completed in May 1987 and the certificate of fitness issued on 9 December 1987.

Now, it is pertinent to examine the law on this point. In Mayson v Clouet & Anor [1924] AC 980 Lord Dunedin had said 'the law is quite plain. If one party to a contract commits a breach then if that breach is something that goes to the root of the contract, the other party has his option. He may still treat the contract as existing and sue for specific performance; or he may elect to hold the contract as at an end, that is, no longer binding on him—while retaining the right to sue for damages in respect of the breach committed.'

Some nine years earlier in Stickney v Keeble & Anor [1915] AC 386, Lord Parker of Waddington had pragmatically pronounced the principles as follows:

My Lords, in a contract for the sale and purchase of real estate, the time fixed by the parties for completion has at law always been regarded as essential. In other words, courts of law have always held the parties to their bargain in this respect, with the result that if the vendor is unable to make a title by the day fixed for completion, the purchaser can treat the contract as at an end and recover his deposit with interest and the costs of investigating the title.

In such cases, however, equity having a concurrent jurisdiction did not look upon the stipulation as to time in precisely the same fight. Where it could do so without injustice to the contracting parties it decreed specific performance notwithstanding failure to observe the time fixed by the contract for completion, and as an incident of specific performance relieved the party in default by restraining proceedings at law based on such failure.

This is really all that is meant by and involved in the maxim that in equity the time fixed for completion is not of the essence of the contract, but this maxim never had any application to cases in which the stipulation as to time could not be disregarded without injustice to the parties, when, for example, the parties, for reasons best known to themselves, had stipulated that the time fixed should be essential, or where there was something in the nature of the property or the surrounding circumstances which would render it inequitable to treat it as a non-essential term of the contract.

It should be observed, too, that it was only for the purposes of granting specific performance that equity in this class of cases interfered with the remedy at law. A vendor who had put it out of his own power to complete the contract, or had by his conduct lost the right to specific performance, had no equity to restrain proceedings at law based on the non-observance of the stipulation as to time. substantial failure of performance or a breach of an essential term, perhaps what Lord Diplock said in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827 may throw some light on the matter. He had said that 'where the event resulting from the failure by one party to perform a primary obligation has the effect of depriving the other party of substantially the whole benefit which it was the intention of the parties that he should obtain from the contract, the party not in default may elect to put an end to all primary obligations of both parties remaining unperformed.'

Chitty on Contracts, Vol 1, 24th Ed, states at paras 1270-71 that at common law, in the absence of a contrary intention, performance of the contract had to be carried out upon the exact date specified in the contract and a party could treat the contract as at an end if the other party's performance was not completed on a fixed date, since time was of the essence of the contract. However, in equity time was not of the essence of the contract except in three situations, namely, where the parties had expressly stipulated in their contract that the time fixed for performance must be exactly complied with, where the circumstances of the contract or the nature of the subject matter indicates that a fixed date must be exactly complied with and where time was not originally of the essence of the contract but one party had been guilty of undue delay and the other party had given notice requiring the contract to be performed within a reasonable time. It is clear therefore at both common law and equity that the plaintiff had the right to rescind the contract where time is of the essence in the contract.

At this stage of the proceedings, this court was not asked to determine whether the rescission would result in the plaintiffs not being able to receive the liquidated damages but in passing I would say that, as provided by s 76 of the Contracts Act 1950, a party who rightly rescinds a contract is entitled to compensation for any damage which he has sustained through the nonfulfilment of the contract. I had in fact made it clear in my ruling that the plaintiffs' entitlement to liquidated damages if the developer failed to complete within 24 months did not in any way take away the rights of the purchaser to rescind the contract.

There was no evidence as to what stage of building progress the building was at at the completion date but from the photographs taken in July 1987, only the plaintiffs' house had been built out of a row of terrace houses and also no other houses could be seen in the area. Since, from the photographs, the plaintiffs' house appears to be the only house built in the area, it is possible that the construction could have even begun after the completion date. That, however, is of secondary importance.

What is relevant here is that the plaintiffs had entered into a sale and purchase agreement with the defendants to buy the house and had expected to move into the house two years later. They certainly would have made the necessary preparations for this event and any change in plans would have caused them a great deal of inconvenience and expense. Therefore, if the house was not completed on the appointed date and in fact had not been completed even five months thereafter when the notice to terminate was sent to the defendants and was only completed nine months later and the certificate of fitness issued 16 months after the appointed date, the court is of the view that it is within the right of the purchaser plaintiffs to rescind the contract with the defendants based on legal principles and case law.

Consequently, on these facts and having considered the pleadings, affidavits, arguments and authorities, I would answer in the positive as regards the preliminary issue raised. There will be no order as to costs. On their application and in view of the legal questions involved, I also gave leave to the defendants to appeal.