YIU HAU FUNG v. WONG CHO SING AND ANOTHER

HCA 1316/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1316 OF 2012

____________

_______________________________

R E A S O N S   F O R   J U D G M E N T

_______________________________

1. This was an application by the 2^nd defendant (“the vendor”) for summary judgment against the plaintiff (“the purchaser”), alternatively for determination of a question of law under Order 14A of the Rules of the High Court and the striking out of the statement of claim. At the conclusion of the hearing, I ruled in favour of the vendor under Order 14A and dismissed the purchaser’s action with costs. My reasons appear below.

The agreement

2. The parties entered into an agreement in Chinese on 7 February 2010 for the sale and purchase of a property, namely the second floor and roof of Lot No 67 in S D 9, Ma Yau Tong, Sai Kung (“the property”) for $2,090,000.

3. The agreement provided for the payment of:

(i) an initial deposit of 10% on the signing of the agreement;

(ii) a further 10% on or before the completion of the frame structure of the building;

(iii) a further 10% on or before the purchaser “taking possession of the property for decoration”, the purchaser warranting that the decoration time should not be more than two months; and

(iv) a final payment of the balance of $1,463,000 within 30 days upon receipt by the purchaser of a notification that the Hong Kong Government had issued the premium regarding the property.

4. Clauses 3 and 4 of the agreement provided as follows:

“3. In case [the purchaser] fails to pay at the appointed dates the scheduled payments, [the vendor] shall have the rights to forfeit all previous deposits received. And if [the purchaser] has taken possession of and resided at the above property, ([the purchaser]) shall reinstate the Property to its original condition and return the Property to [the vendor]. [The vendor] shall have the right to deal with the Property in any way for sale or self-use and [the purchaser] shall have no objection.

4. If [the vendor] shall resile from the agreement and not sell (the Property) to [the purchaser], save that there is a problem with the right of the Ding or with the previous title deeds, ([the vendor]) shall forthwith compensate the purchaser] the double amounts for deposits ([the vendor]) received (from [the purchaser]).  [The purchaser shall have the right to ask for the refund of all deposits paid to [the vendor] if the Letter of Compliance cannot be issued due to the Ding and the previous title deeds within 24 months from the date of signing of this agreement.”

Background facts

5. After the payment of the third deposit of 10%, the purchaser was given vacant possession in accordance with the terms of the agreement by the vendor providing the purchaser with a set of keys to the property for decoration purposes.

6. The purchaser took possession of the property but by about mid‑March 2012, a dispute arose between the parties with the vendor alleging that the purchaser had engaged unqualified persons to carry out unauthorised building work and the purchaser denying the allegation.

7. In any event, a meeting occurred on 16 April 2012 between the parties.  Whether any agreement was reached at that meeting is disputed.

8. According to the vendor, the purchaser agreed to reply on or before 21 April 2012 as to whether or not she would accept the vendor’s proposal that the purchaser pay the vendor a sum of $300,000 so that the unauthorised works carried out would be rectified by the vendor, failing which the purchaser agreed to terminate the agreement.  Based on the vendor’s case, the vendor’s solicitors sent a letter dated 26 April 2012 (“the April letter”) to the purchaser stating that upon the purchaser’s failure to agree to pay the vendor $300,000 for the reinstatement works, “the [a]greement … is thereby terminated” and that the vendor would refund the purchaser in due course the sums already paid while reserving its rights to claim for reinstatement works in damages.

9. The purchaser’s solicitors replied on 10 May 2012 denying that there was such an agreement or indeed that any unauthorised works had been carried out.  The purchaser’s solicitors gave notice that unless the vendor paid compensation to be agreed and ceased/desisted from further hindrance of the decoration work, proceedings would be commenced for, inter alia, specific performance and injunctive relief.

10. The writ in the present proceedings was issued on 27 July 2012 but not served until 11 October 2012, although it would appear that the vendor became aware of the writ shortly after it was issued.

11. On 11 October 2012, the vendor through its solicitors elected to exercise its rights under clause 4 of the agreement and enclosed a cheque in the sum of $1.254 million, being double the amount of the total deposits received.

12. On the following day, the purchaser’s solicitors wrote stating that clause 4 could not override the purchaser’s right to pursue further damages and specific performance.

13. On or about 22 October 2012, the purchaser presented the cheque for payment.

Clause 4

14. The short question of law that arises is whether, on the true construction of the agreement and given the facts stated above, the vendor was entitled to exercise its rights under clause 4 on 11 October 2012 to terminate the agreement.

15. Mr Yuen, counsel for the purchaser, raised several issues considered under the headings below.

 No exclusion of the purchaser’s right to specific performance

16. It was submitted that as a matter of construction, clause 4 does not exclude the purchaser’s right to specific performance.  Mr Yuen put forward two reasons:

(i) the mere fact that a contract contains a liquidated damages clause is not generally an admission that the parties have agreed that damages are an adequate remedy and that specific performance would, despite such a clause, be granted, if it is the appropriate remedy, citing Godfrey J in Lee Tat Kwong v Choi Pui Kei Stephen & Anor [1991] 2 HKC 109 at 111H; and

(ii) Clause 4 did not contain the ‘magic’ phrase that unambiguously excludes specific performance.

17. As regards the latter, Mr Yuen referred to the decision of Woo J on Cheerup Ltd v Wong Sau Fong [1996] 4 HKC 92. It was said that that case involved a similar provision but went on to provide that the vendor after resiling from the contract “could sell to someone else”. Apparently, that was the so-called ‘magic’ phrase.

18. But in Cheerup, all the judge was saying is encapsulated in the following passage of his judgment (at 104C-D):

“It is not necessary for any particular form of words to be used to exclude the purchaser’s right to specific performance. What is required is a clear intention as can be derived from the terms used in the agreement.”

19. That proposition reflects well-established principles: see, for example, Chong Kai Tai v Lee Gee Kee [1997] 1 HKC 359, at 372B where the Privy Council held that:

“… whether a clause providing for the payment of a liquidated amount barred specific performance was a matter of construction turning on the precise wording of the individual clause.”

20. Thus, it is a matter of construction rather than the use of any ‘magic’ phrase that is determinative.

21. As a matter of construction, clause 4 is an escape clause for the vendor.  Clause 4 caters for two situations, depending on whether the reason for backing out has to do with the “Ding” right or title.  If not,  the vendor is at liberty, at least before completion on payment of the balance, to resile from the agreement and not sell the property to the purchaser.

22. In the present case, it is not suggested that there is a problem with the “Ding” right or title.  If the vendor were to choose to resile from the agreement and not sell to the purchaser, logically it must follow, as night follows day, the vendor would be at liberty to deal as it chooses with the property.  Necessarily, that would be inconsistent with any continuing right of the purchaser to specific performance.  For those reasons, I consider the submission that, in those circumstances, the purchaser’s right to specific performance is not excluded to be untenable.

 Clause 4 right cannot be exercised after delivery of vacant possession

23. It was submitted that it is an implied term that clause 4 cannot be exercised once vacant possession has been given to the purchaser.

24. That there is no scope for such a term to be implied is clear because, first, the provision requiring the vendor to give vacant possession was restricted in time and purpose.  The purpose was to enable decorations to be undertaken by the purchaser for a period not exceeding two months.  Plainly, the type of vacant possession contemplated was not vacant possession for occupation by the purchaser for the rest of the term. 

25. Second, the proposition that there is an implied term based on what is said to be ‘a very important role in a conveyancing transaction’ sits uncomfortably with clause 3. The latter makes it abundantly clear that even after vacant possession has been given and even if the purchaser were residing at the property, on the purchaser’s default in making payment, the purchaser is nonetheless required to surrender vacant possession and to reinstate the property. 

26. In my view, the implied term is inconsistent with the actual provisions of the agreement and is to be rejected.  It is to be noted in passing that, while Mr Yuen took this point in his written submissions, he never pursued it at the hearing.

 Immediacy

27. Briefly put, the point made was that the April letter from the vendor’s solicitors amounted to an exercise of the right under clause 4, the vendor having thereby ‘repudiated’ the agreement.  As the vendor failed to compensate the purchaser immediately, ie at the same time as the ‘repudiation’ when the April letter was sent, it was too late for the vendor to make payment on 11 October 2012.

28. What clause 4 requires is that should the vendor choose to resile from the agreement, he must ‘forthwith’ make the stipulated payment.  The question therefore is whether the April letter amounted to an exercise by the vendor of its clause 4 rights.

29. Again, the answer is clear.  The April letter was written following what, according to the vendor, had occurred at the meeting on 16 April and its consequences.  It was not written in exercise of clause 4 rights.  Further, the vendor has not pursued any claim based on the April events.  The fact that there is a dispute as to what, if anything, was agreed on 16 April is irrelevant since it does not form the basis of any claim on the part of the vendor.

30. The purchaser’s ‘immediacy’ contention has no merit and falls to be rejected.

Conclusion

31. In my view, on 11 October, it remained open to the vendor to exercise its rights under clause 4.  Payment of double the amount of the sums received was made at the same time, thus satisfying the ‘forthwith’ requirement of clause 4.

32. It is common ground that on 22 October 2012 the purchaser cashed the vendor’s cheque tendered on 11 October.  Whether or not the cheque was cashed is of little relevance if, as is my view, the vendor was entitled to exercise its clause 4 rights on 11 October. 

33. To the question of law set out in § 14 above, the answer is in the affirmative and accordingly, the declarations sought in the counterclaim are granted.