CHEUK TZE KWOK v. LEUNG YIN KING AND ANOTHER

1991 No. A4387

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J U D G M E N T

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1. This is an appeal by the Defendants against the order of a Master dismissing the defendants' summons for striking out of the Plaintiff's amended Statement of Claim and for dismissal of the action.

2. The Plaintiff's claim is for specific performance of a provisional sale and purchase agreement made between the parties on 15th March 1991, whereby the Plaintiff as purchaser and the Defendants as vendors agreed to the sale and purchase of a flat. The dispute between the parties centres upon the following clauses in the agreement:

"6. Should the Purchaser fail to complete the purchase in the manner herein contained the deposit shall be forfeited to the Vendor and the Vendor shall then be entitled as his absolute discretion to sell the said premises to anyone he thinks fit and the Vendor shall not sue the Purchaser for any liabilities and/or damages caused by the Purchaser's default of this agreement.

7. Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained the Vendor shall immediately compensate the Purchaser with a sum equivalent to the amount of the initial deposit as liquidated damages together with the refund of the initial deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.

11. This agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto."

3. Clauses identical to clauses 6 and 7 were recently subject of a decision of the Court of Appeal in Wong Lai Fan v. Lee Ha (1991) No. 175 (Civil) given on 24th January 1992 and as yet unreported. At p.13, Nazareth J.A. giving the judgment of the court said:

"As we have indicated, in our judgment, upon its true and proper construction clause 7 provides the vendor with the option of immediately paying the amount stipulated instead of completing. In our view that effect or intention is plain and, moreover, sufficiently clear to dispose of or meet the contra proferentem rule, and the necessity for clarity in the limitation or exclusion of liability and ordinary remedies (see Szymonowski and Company v. Beck and Company [1923] 1 KB 457) both of which were mentioned in Fong Yee Lan and relied upon by Mr. Lui.

In our judgment, therefore, it is clear from its wording, particularly in its context, that its effect is that upon the vendor compensating the purchaser with the amount stipulated immediately upon her refusal to complete the sale in the manner provided, it is not open to the purchaser to take any action to claim damages or to enforce specific performance."

4. The agreement between the parties was to be completed on or before 30th April. On the evidence before me (which is a matter of dispute, which I cannot resolve at this stage and which I accept for the purpose of this appeal in the Plaintiff's favour), the Defendants indicated on 24th March that they wished to be released from the agreement. By letter dated 20th April, the Plaintiff's solicitors rejected the Defendants unilateral termination of the agreement, and advised them that the Plaintiff would institute proceedings for specific performance of the agreement. The Defendants' solicitors replied on 23rd April indicating that their clients relied upon clause 7. If the matter rested there, quite clearly the Plaintiff has no basis for a claim against the Defendants for specific performance, or any other remedy, in view of the decision of the Court of Appeal.

5. In his affirmation of 3rd March 1992, however, the Plaintiff says this:

"3.    On the 15th March 1991, I met the first-named Defendant at the Tsuen Wan Branch office of Centaline Property Agency Ltd. for the purpose of signing a provisional sale and purchase agreement. At the same meeting were Chan Sai Heung (my friend who would provide part of the purchase money), Chan Sai Ling (Chan Sai Heung's sister) and a Miss Cheung of Centaline. I had been told before the meeting by Chan Sai Ling who arranged the deal that this was an absolutely binding sale offered by the Defendants.

4.     The said meeting was held in an office during which Miss Cheung went in and out of the office to prepare the written agreement. I informed the first-named Defendant that because I was in need of cash in the amount of about HK$300,000.00, I had planned to sell a larger unit (which I had in the same building) and to buy back a smaller one in the same development. I told her that I sold the larger unit about 10 days ago and had been desperately looking for a smaller unit there. I then confirmed with the first-named Defendant that this had to be an absolutely binding sale and there was to be no backing off. The first-named Defendant agreed by nodding and assuring us that this was indeed so. This understanding was further confirmed expressly by Chan Sai Ling and Miss Cheung during the said meeting in the presence of all.

5.     Miss Cheung then produced a Centaline standard form agreement for both parties to sign. I asked that there should be a clause specifying that this was to be an absolutely binding sale. But Miss Cheung assured us that this was unnecessary because the effect of the form of her company was that it would be an absolutely binding agreement and no party could be released of his obligation to sell or to buy without consent of the other party. I therefore signed the provisional sale and purchase agreement produced to us by Miss Cheung, relying on the first-named Defendant's assurance that this was to be an absolutely binding sale and that the said standard form agreement represented our said mutual understanding."

6. For the plaintiff, Mr. Lo submitted that there was a collateral contract between the parties upon which the Plaintiff can rely, notwithstanding the terms of the agreement and the construction placed upon clauses 6 and 7, and notwithstanding the conflict between that construction and the collateral agreement. He referred to Chitty on Contracts para. 853:

"853    Collateral contracts. Even though the parties intended to express the whole of their agreement in a particular document, extrinsic evidence may nevertheless be admitted to prove a contract or warranty collateral to that agreement. The reason is that "The parol agreement neither alters nor adds to the written one, but is an independent agreement." Such evidence is certainly admissible in respect of a matter on which the written contract is silent. In a number of older cases it was stated that evidence of such a contract or warranty must not contradict the express terms of the written contract. However, more recently, the courts have admitted evidence to prove an overriding oral warranty or to prove an oral promise that the written contract will not be enforced in accordance with its terms. Thus in City of Westminster Properties (1934) Ltd. v. Mudd the draft of a new lease presented to a tenant contained a covenant that he would use the premises for business purposes only and not as sleeping quarters. The tenant objected to this covenant, and the landlords gave him an oral assurance that, if he signed the lease, they would not enforce it against him. The tenant signed the lease, but later the landlords sought to forfeit the lease for breach of this covenant. Harman J. held that the oral assurance constituted a separate collateral contract from which the landlords would not be permitted to resile. The collateral contract or warranty may be oral even though the main contract is one which is required by law to be in or evidenced by writing."

7. Relying upon that paragraph, Mr. Lo said that the position is at least arguable, that the facts which are in dispute must be resolved at trial, and that the matter is not suitable for striking out.

8. Mr. Chan for the Defendants relied upon the following paragraph in Chitty which reads:

"854 "Entire agreement" clauses. The practice has developed of including in written agreements of a formal character an "entire agreement" clause, for example, "This Agreement contains the entire and only agreement between the parties and supersedes all previous agreements between the parties respecting the subject-matter hereof; each party acknowledges that in entering into this Agreement it has not relied on any representation or undertaking, whether oral or in writing, save such as are expressly incorporated herein." The effect of such a clause will necessarily depend upon its precise wording. But it is submitted that, in principle, an "entire agreement" clause will render inadmissible extrinsic evidence to prove terms other than those in the written contract."

9. Mr. Chan said that none of the cases referred to in the footnote to para. 853 of Chitty involved an entire agreement clause. He said that this is not a case of misrepresentation, that the contract is one which is required to be in writing, that the Plaintiff does not allege that he did not read the agreement, and that accordingly clause 11 of the agreement should be given its full force and effect.

10. Mr. Lo's submission is not without substance. It is instructive to look at one of the cases upon which Chitty relies for stating that the courts have admitted evidence to prove an overriding oral warranty. For example, Mendelssohn v. Normand Ltd. (1970) 1 QB 177. In that case the defendant garage was unable to rely upon an exception clause on a parking ticket to avoid liability because, before the ticket was issued to the plaintiff, a parking attendant had promised to lock the plaintiff's car, and there was implied a promise to see that the contents of the car were safe. At p.183, Lord Denning M.R. said:

"Such a statement is binding on the company. It takes priority over any printed condition. There are many cases in the books when a man has made, by word of mouth, a promise or a representation of fact, on which the other party acts by entering into the contract. In all such cases the man is not allowed to repudiate his representation by reference to a printed condition, see Couchman v. Hill [1947] K.B. 554; Curtis v. Chemical Cleaning and Dyeing Co. [1951] 1 K.B. 805; and Harling v. Eddy [1951] 2 K.B. 739; nor is he allowed to go back on his promise by reliance on a written clause, see City and Westminster Properties (1934) Ltd. v. Mudd [1959] Ch. 129, 145 by Harman J. The reason is because the oral promise or representation has a decisive influence on the transaction-it is the very thing which induces the other to contract-and it would be most unjust to allow the maker to go back on it. The printed condition is rejected because it is repugnant to the express oral promise or representation. As Devlin J. said in Firestone Tyre and Rubber Co. Ltd. v. Vokins & Co. Ltd. [1951] 1 Lloyd's Rep. 32, 39: "It is illusory to say: 'We promise to do a thing, but we are not liable if we do not do it'." To avoid this illusion, the law gives the oral promise priority over the printed clause."

At p.185, Phillimore L.J. said:

"The submission which Mr. Yorke made is that but for the conversations which Mr. Mendelssohn had with the employee of the defendants it is obvious that he would have made other arrangements or perhaps he would not have left the car there at all. He was clearly concerned about his luggage, and it seems to me that he was induced to leave the car there by a firm promise that it would be locked. Whether you regard that promise as a representation or whether you regard it as a collateral term of the contract, or whether you regard the contract as being partly oral and partly in writing in the shape of the ticket, it seems to me it can make no real difference. It is quite clear that if it was really a representation, then, on the authority of Curtis v. Chemical Cleaning and Dyeing Co. [1951] 1 K.B. 805, the defendants could not in such circumstances, namely, the representation being made and believed, rely upon their exemption clauses. In the words of Denning L.J. in that case at p.808:

"In my opinion any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption. If it conveys a false impression, that is enough. If the false impression is created knowingly, it is a fraudulent misrepresentation; if it is created unwittingly, it is an innocence misrepresentation; but either is sufficient to disentitle the creator of it to the benefit of the exemption."

Likewise if this undertaking formed part of the contract, in my judgment the matter comes within the decision of Devlin J. in Firestone Tyre and Rubber Co. Ltd. v. Vokins & Co. Ltd. [1951] 1 Lloyd's Rep. 32. In particular I would refer to the passage at p.39 to which Lord Denning M.R. has already alluded. In my judgment the submissions which Mr. Yorke has made are correct and he is also entitled to say that if you have an express undertaking, as here, followed by printed clauses, the latter must fail in so far as they are repugnant to the express undertaking."

11. I am satisfied that where there is evidence of a collateral agreement or warranty or some form of promise, which indicates that a written agreement does not constitute the complete agreement and understanding between the parties, it would be wrong to strike out a plaintiff who seeks to rely upon such matters in addition to any written agreement. It would be wrong to deny such plaintiff his day in court. The implications of such generosity on the part of the courts are, however, horrendous. The floodgates argument, which Mr. Chan touched upon in his submission, is a potent one. Written agreements will more and more come under attack and, I think it not an exaggeration to say, will soon become not worth the paper they are written on. If a person freely signs a document which states in certain terms that the document constitutes the entire agreement between the parties, it seems to me wrong that he should be permitted to go behind that document other than on serious grounds, such as fraudulent misrepresentation. I am of the opinion, therefore, that the Plaintiff here must be bound by the terms of the written agreement.

12. The present case can also be resolved by a different route. Accepting for the purpose of this appeal the Plaintiff's evidence, I am satisfied that there is here no collateral agreement or warranty between the parties. There was, in my judgment, an agreement between the parties reached orally which agreement was immediately reduced into writing. Regrettably that written agreement does not properly or effectively express the true agreement between the parties. The terms were simply written down wrongly. It is not a question of the agreement having expressed only part of what was orally agreed between the parties. The agreement does not, as it were, leave a term in suspension. What it does leave is the opportunity for the Plaintiff to seek rectification of the agreement, if his version of the events is true, or the possibility of a claim against the estate agent who provided the form of agreement and mistakenly represented the true meaning thereof.

13. I turn to Mr. Lo's second argument, which was that the words "fail to complete" in clause 7 so qualified the clause that it did not become effective until the date of completion provided for in the agreement. Until that date, clause 7 could not be invoked and the Defendants' attempt to rely upon it was premature. Mr. Lo said that, even after the Defendants repudiated the agreement in March, the Plaintiff was still entitled to wait until the formal completion date to see whether or not the Defendants would complete. He said it was possible that, upon reflection and upon legal advice, the Defendants might change their mind and proceed with the sale. Suffice it to say that I told Mr. Lo that I found the argument to be untenable, a view from which I do not resile. Given the construction which must now be put upon clause 7, the clause constitutes a form of "get out". If a vendor chooses to "get out" of the agreement, I can see no reason on the face of the agreement or otherwise why he should have to wait until the date of completion. An agreement in these terms may be discharged by one of two methods. First, by going through with the transfer of the property. Second, by paying a sum of money. If the vendor chooses to discharge the agreement by way of the second method, I cannot see that there is any constraint of time upon him save that he must immediately make payment of the specified sum.

14. In the circumstances, I am satisfied that the Plaintiff does not have a claim which should go for trial. The claim is, in the light of the recent decision of the Court of Appeal, an abuse of process or vexatious. Accordingly, the appeal must be allowed. The amended Statement of Claim is struck out and the action is dismissed. I make an order nisi for costs in favour of the Defendants.