MAIN FAITH HOLDINGS LTD v. A K INDUSTRIAL CO LTD

HCA 2122/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2122 OF 2012

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J U D G M E N T

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1. By a provisional sale and purchase agreement dated 14 August 2012 (“the Agreement”) the defendant as vendor agreed to sell, and the plaintiff as purchaser agreed to purchase, the property known as House H10, Stage VI, Marina Cove, 380 Hiram’s Highway, Hebe Haven, Sai Kung, the New Territories (“the Property”) at a price of HK$43,700,000.

2. The Agreement contained the following material clauses:

(i) Clause 2:

“The purchase price of the said premises shall be HK$43,700,000 which shall be paid by the purchaser to the vendor in the manner as follows:

(a) HK$1,500,000 shall be paid upon signing of this agreement as deposit;

(b) HK$2,870,000 shall be paid on or before 28/8/2012 as further deposit;

(c) ...

(d)   HK$39,330,000 shall be paid upon completion on or before 21/9/2012 as balance of purchase price.”

(ii) Clause 3:

“Formal Agreement for Sale and Purchase of the said premises shall be signed on or before 28/8/2012.”

(iii) Clause 9:

“ Should the Vendor after receiving the deposits paid hereunder fail to complete the sale in the manner herein contained the Vendor shall immediately compensate the Purchaser with the sum equivalent to the amount of all the deposits paid as liquidated damages together with the refund of the all deposits(sic) paid and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

(iv) Clause 18:

“ This agreement should be interpreted in the English version in case of ambiguities.”

3. Pursuant to clause 2(a) of the Agreement the plaintiff paid the sum of $1.5 million to the defendant as deposit.  On 17 August 2012 the plaintiff’s solicitors, Fred Kan & Co asked the defendant’s solicitors, Patrick Wong & Co, for the title deeds to the Property. 

4. Between 21 and 27 August 2012 the parties’ solicitors exchanged drafts and comments on the formal sale and purchase agreement to be entered into, but no formal sale and purchase agreement had been signed or agreed at the end of the day, whether by 28 August 2012 or at all.  On 28 August 2012 the plaintiff’s solicitors sent a solicitor’s cheque in the amount of HK$2.87 million, of the same date, to the defendant’s solicitors.  In the same letter the plaintiff’s solicitors chased for the title deeds. 

5. By letter dated 10 September 2012, Fred Kan & Co again chased for the title deeds to the Property and referred to the need to have at least seven working days to peruse the title deeds.  By a chaser dated 14 September 2012 Fred Kan & Co again chased for the title deeds to be delivered by 1:00 pm on 17 September 2012, failing which the plaintiff would have to delay or postpone completion to a date within seven working days after receipt of the title deeds and satisfactory answers to the requisitions.

6. On 17 September 2012 Patrick Wong & Co sent a letter purporting to invoke clause 9 of the Agreement and sent a personal cheque issued by Madam Fong Yee Lan in the amount of $3 million being the initial deposit of $1.5 million plus an identical amount as liquidated damages.  Patrick Wong & Co also returned the cheque for HK$2.87 million stating that it had never been presented for payment and that the defendant had never received that sum.

7. By letter dated 18 September 2012 Fred Kan & Co returned the cheque for $3 million together with the $2.87 million cheque, arguing that it was too late to rely on the escape clause.  Fred Kan & Co also asked for the title deeds. 

8. By letter dated 20 September 2012 Patrick Wong & Co returned (again) the HK$2.87 million cheque and maintained that this amount had actually not been received and the cheque had not been presented to the bank.  However, at the same time, Patrick Wong & Co enclosed a cashier order in the sum of $5.87 million being the total of:

(i)  the initial deposit of $1.5 million;

(ii)  a further sum of HK$4.37 million (being the total of $1.5 million and $2.87 million) as compensation.

9. By a letter dated 21 September 2012, Fred Kan & Co rejected the cashier order and the cheque of $2.87 million and threatened to commence proceedings for specific performance. 

10. By letter dated 25 September 2012 Patrick Wong & Co stated that it was entitled to invoke clause 9 and stated that it was authorised to accept service.  The writ herein was issued on 13 November 2012 claiming specific performance, further or in the alternative, damages.

11. By summons dated 23 January 2013 the plaintiff sought summary judgment for specific performance under the Rules of High Court Order 86.

12. The single issue in this case is whether or not the defendant was entitled to invoke clause 9.  The plaintiff contends that the defendant is not entitled to invoke clause 9 for one or more of the following reasons:

(i)    The defendant is not entitled to invoke clause 9 after 28 August 2012, the date when the formal sale and purchase agreement ought to have been signed in accordance with clause 3 and the date when that obligation was breached.

(ii)   In any event, a vendor is obliged to provide title deeds to the purchaser within a reasonable time before completion and a rule of thumb is 14 days.  By the time the defendant sought to invoke clause 9 (17, alternatively, 20 September) the defendant had long been in breach of this obligation to provide title deeds and by those dates (namely, 17, alternatively 20 September) the defendant was no longer entitled to rely on clause 9.

(iii)   In any event, the defendant had not validly invoked clause 9 because on 17 September it did not tender compensation in the amount of all deposits paid.  It was not entitled to salvage the position on 20 September by making a further tender.

13. These arguments will be addressed in turn. 

14. Clause 9 is in the nature of an escape clause and it is well-established that such clauses have to be strictly complied with if a vendor is to rely on it to get out of a transaction.  There are numerous local authorities in the conveyancing context to this effect but the earliest of them can be traced back to the decision of the Court of Appeal in Man Sun Finance (International) Corporation v Lee Ming Ching, Stephen [1993] 1 HKC, page 113, in particular the judgment of the late Godfrey J at page 125G to H. 

15. In the present context, the word particularly relied upon by the plaintiff is the word “immediately”.  The word has no equivalent in the Chinese version but because of clause 18, the English version prevails and therefore there is a requirement of “immediacy”.  Although clause 18 speaks of “ambiguity”, I believe that there is an “ambiguity” in the context of the present case because there is a doubt as to the meaning of clause 18, whether or not there is indeed a requirement of “immediacy”.

16. Relying on Mr Recorder Edward Chan, SC’s decision in the case of Man Wing Fan, Stephen & Anor v Susanna Ho, HCA3724/1997, Mr CY Li, SC, argued that the word “complete” in clause 9 does not only mean the act of executing the assignment but may include any other act which the parties had agreed to do before to complete the sale.  At paragraph 33 of the judgment the learned Recorder said:

“I agree with the views of Findlay J that in the context ‘complete the sale in a manner herein’ would mean ‘to do what else is required of him under the agreement leading to the final act’. However, in my view, what is required of the vendor (and for that purpose also the purchaser) to do must mean what is required of him as a matter of contractual obligation.”

17. Building on that, Mr Li argued that since clause 3 of the Agreement imposed an obligation to sign a formal agreement on 28 August 2012, and the defendant had not done so in the face of reasonable amendments proposed by the plaintiff in correspondence, 28 August 2012 was the date when the defendant failed to complete the sale in the manner provided in the Agreement.  But the defendant had not immediately paid double compensation to the plaintiff.  Therefore, Mr Li argued, it was not open to the defendant to invoke clause 9 subsequently by letters dated 19 September or 20 September, long after the date when it became in breach.

18. Mr Li further submitted that the defendant was in breach by not signing the formal sale and purchase agreement on 28 August because all the amendments proposed by Fred Kan & Co were reasonable ones which should have been accepted by the defendant.  In any event, even if it is a case where both parties can be said to be in breach (in the sense that neither side had tendered to the other side a signed version of a formal sale and purchase agreement in the form suggested by Cheung CJHC in the case of Yuen Pok International Enterprise Limited v Valle [2012] 3 HKC 314), that does not affect the clause 9 analysis because what mattered for clause 9 purposes was whether the defendant was in breach and not whether the plaintiff was also in breach.

19. Mr Allen Lam contended that “fail[ing] to complete the sale in the manner herein contained” in the context of clause 9 must mean a repudiatory breach which evinces an intention not to abide by the terms of the Agreement.  He further submitted that, in any event, even if there had been a repudiatory breach by the act of not signing the formal sale and purchase agreement or in failing to provide title deeds, the plaintiff had not accepted that repudiatory breach but had continued to press for performance.  In these circumstances the Agreement continues to be in existence and it was still open to the defendant to perform (or to breach) at a subsequent time, thereby triggering clause 9.

20. Mr Li, SC retorted that repudiatory breach (and termination of a contract by reason of repudiatory breach) is a separate concept from whether or not a party can invoke clause 9 and that it is perfectly open for a purchaser to decide to keep a contract alive despite repudiation and press for performance, while at the same time for a vendor to have lost the right to invoke clause 9 if he had not paid double compensation immediately upon the earliest breach.

21. Much the same arguments are made in respect of the other subsequent breach by the defendant, namely, the failure to provide title deeds in good time.  Mr Li, SC argued that a rule of thumb is 14 days prior to the contractual completion date, but in any case by 17 September 2012 the time for performing this obligation to provide title deeds in good time or in reasonable time had long passed (at least in the absence of any evidence from the defendant that the title deeds were so thin that they could easily be perused within an extremely short time).  Therefore, the defendant had (again) failed to complete the sale in the manner contained in the Agreement without immediately paying double compensation.

22. Mr Lam retorted that the plaintiff, by continuing to press for the title deeds despite the delay, had waived whatever repudiatory breaches that have been committed and therefore the Agreement remained alive.  He argued that the only significance of a delay then is that time for completion is correspondingly extended or postponed and the defendant could not take advantage of his own wrong (for example, by only seeking to exercise clause 9 within the extended completion period which was only brought about because of the defendant’s own default in providing title deeds too late; but that was not what the defendant was seeking to do.)  Mr Lam argued that otherwise the road is all clear for the defendant to exercise clause 9 by letters dated 17, alternatively, 20 September.

23. I have considered these competing arguments with some care but despite the simplicity of the way Mr Li had put the argument based on Mr Recorder Edward Chan, SC’s argument as to the meaning of “fail to complete the sale in the manner herein contained”, I am not convinced that I can summarily reject Mr Allen Lam’s argument in the context of a summary judgment application.

24. In any conveyancing transaction the Agreement would provide expressly or impliedly for a number of obligations or steps to be complied with by the vendor, or by the purchaser, leading ultimately to “completion” in the sense of signing the assignment.  Mr Li’s argument, taken to its logical end, would mean that as long as one can identify a breach of some provision of the parties’ agreement which need not be expressed (for example, an implied term as to providing title deeds in reasonable time) and which need not even be repudiatory and where the defendant had not tendered double compensation immediately upon such breach (which might have come and gone without much fanfare and without anyone even realising that it had come and gone) the defendant cannot subsequently invoke clause 9.

25. While the decision of Mr Recorder Edward Chan, SC, is entitled to great respect, I do not think that its application in a “successive breach of contract” case such as the present has been tested.  I would not shut Mr Lam out on the first two grounds raised by Mr CY Li, SC. 

26. As a matter of completeness, in the statement of claim the plaintiff has asserted that it was the common intention of the parties that clause 9 would not survive beyond 28 August 2012.  The point had not been developed much in oral or written submissions but I would not accede to that argument for Order 14 purposes anyway.  It probably matters very little whether one calls it a point of construction or a point about the implied term; these two concepts very often merge into one another.

27. The argument would be that it is a legal consequence of the wording of the Agreement that the defendant can no longer rely on clause 9 after 28 August.  28 August has two lines of relevance in the present case.  One is that it is a date by which the formal sale and purchase agreement had to be signed. Second, it is also the date by which the second deposit had to be paid. Insofar as the significance of the date of 28 August lies in the fact that it is a date on which the formal sale and purchase agreement had to be signed and that there was a breach of that obligation after that, I have already dealt with this above.

28. But insofar as it is intended to suggest that separate from the point about breach, 28 August is the date for payment of the second deposit and that somehow parallels can be drawn with cases such as Yuen Pok, I think it is arguable that on a proper interpretation of the Agreement as a whole, it does not have the effect that clause 9 became “spent” after 28 August.  In the Yuen Pok case the point turned (among other things) on the fact that in that case the relevant clause (clause 7) referred to refunding the initial deposit and compensating a further sum equivalent to the initial deposit (thereby negativing any possibility that the clause could survive 19 April when a further deposit was supposed to have been paid). In the present case, clause 9 is not tied in with any particular deposit, and indeed refers to “deposits” in the plural.

29. I now come to the last point of contention between the parties, namely, whether the defendant had validly invoked clause 9 on 17 September, alternatively, 20 September. The 17 September letter only enclosed the cheque for $3 million.  This is notwithstanding the fact that on 28 August the plaintiff’s solicitors had sent a cheque in the amount of $2.87 million to the defendant’s solicitors.  According to the defendant’s solicitors, the cheque had not been presented. 

30. I need not and will not go into the reasons, or the possible reasons, why the defendant or its solicitors had not presented the cheque which had been given to them on 28 August. Mr Lam had not positively argued that the cheque was not a valid tender. In any event, the objective fact is that the cheque had been received by the defendant without demur on 28 August.  Leaving aside the point (see Sihombing and Wilkinson’s Hong Kong Conveyancing Law and Practice, Volume 1A, Part XIV, page 50) that usually it would be an implied term in conveyancing transactions that a solicitor’s cheque could be tendered, the defendant had never objected to the fact that the tender was by solicitor’s cheques.  Courts are generally unsympathetic towards attempts to object to mode of tender which are made long after the event.  In the present case I have no difficulty in deciding, even summarily, that the defendant had lost whatever right it may have in objecting to the mode of tender by a solicitor’s cheque.  The upshot is therefore that the $2.87 million was received by the defendant on 28 August and it was up to it whether to present the cheque.  Even if it chose not to receive the cheque, this cannot detract from the fact that the money must be regarded as having been received by it on 28 August.  Any attempt to invoke clause 9 should therefore be accompanied by a refund of (i) $1.5 million plus (ii) an immediate double compensation in the amount of $1.5 million plus $2.87 million totalling $4.37 million.  But the defendant failed to tender this amount of double compensation and so the 17 September letter failed to strictly comply with the requirement of clause 9.

31. Mr Lam argued that since the plaintiff had decided to keep the contract alive despite the 17 September letter, and so the contract remained alive so as to enable the defendant to invoke clause 9 again by the 20 September letter which was accompanied by a tender of the correct amount, something which the defendant was entitled to do in the absence of any provision that clause 9 can only be invoked or attempted to be invoked once.

32. I reject this argument.  Quite apart from anything else, it would render the “immediacy” requirement meaningless.  A party who failed to immediately tender the correct amount upon evincing an intention not to perform can, at some later time, re‑tender the correct amount as a new attempt to invoke clause 9.  The court must look at the reality. The reality is that the 17 September notice is a clear indication that the defendant was not going to proceed with the sale.  It was a renunciation of the Agreement.  It also was an invalid attempt to comply with clause 9.  Any subsequent tendering of the correct amount must be regarded as an attempt to plug the gap three days later, which would not have been done “immediately”.  The matter cannot turn on whether the draftsman of a subsequent letter had the ingenuity to word the letter as if it was a self-standing (or fresh) act of breach or invocation of clause 9.

33. Put in another way, if the subsequent attempt had been worded, “I’m very sorry for not tendering the whole sum at the time I announced my intention not to perform three days ago, here is a cheque for the full sum to plug the gap”, it would have plainly fallen foul of the immediacy requirement.  The situation cannot be different if the draftsman of the letter had simply pretended that the earlier renunciation had not taken place at all and had blandly asserted ‘I now exercise my clause 9 right again’.

34. In any event, on the facts of our case the 20 September letter does, in terms, refer to the 17 September letter, thereby indicating that it was intended to be part of the attempt constituted by the 17 September letter, rather than as a “self-standing” fresh invocation irrespective of the 17 September letter.  But I do not need to rest my decision on the fact of this reference back to the 17 September letter in the 20 September letter.

35. It may be that there was only a three-day gap between 17 and 20 September, but the clause is there to be complied with.  “Immediately” means “immediately”.  It may not mean 24 hours, it may not mean on the same day, but certainly it cannot mean three days later.  The requirement for “strictness” in compliance, I reckon, arises from the fact that even though such an escape clause has been described in the cases as an “alternative mode of performance”, it is not what one would regard to be the normal mode of performance.  The person seeking to invoke it is trying to escape from a concluded contractual deal.  The late Godfrey J in the Man Sun decision, which I referred to earlier, at page 125, letter G, referred to the party seeking to rely on such a clause to be a “defaulting party”.  It is therefore readily understandable why the law requires such a person to comply “strictly” with the escape clause, failing which he should not be allowed to escape from the consequences of a contract that he had entered into.

36. I should add that even though Mr Recorder Anderson Chow, SC, in the decision of Wise Think Global Limited v Finance Worldwide Limited, HCMP 571/2010 observed by way of obiter at paragraph 30 that:

“I see no reason in principle why an invalid exercise of the right under clause 7 would preclude a further valid exercise of such right in future assuming that what is done is otherwise sufficient to comply with the requirements of that clause.”,

I would not regard that to stand in the way of my ruling in favour of the plaintiff.  The remark by the learned Recorder was obiter and discussion did not take place in the context of the peculiar factual scenario such as that which occurred in the present case.

37. For the above reasons I accede to the plaintiff’s application for summary judgment.  Subject to any arguments which may be put before me, I will make an order in terms of the minutes of the judgment attached to the summons which I can find in bundle A, page 34 to 36.

(Submissions on costs)

38. I will give an order in terms of the minutes attached to the summons save and except that for clause 5 of the minutes I will replace it by, “Let the plaintiff’s costs of this action and the costs of this application be paid by the defendant to the plaintiff, to be taxed if not agreed, including any costs reserved”.

(Discussion re counter-claim)

39. Order in terms of Draft minute of judgment with amendment, counter-claim dismissed with costs.