WONG WAI CHI ANN AND ANOTHER v. CHEUNG KWOK FUNG WILSON AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This action by the Plaintiffs as owners of a Flat 21A, Woodbury Court in Discovery Bay concerns its proposed but abortive sale to the Defendants in 1991. The Third Party were the solicitors to the Plaintiffs at the material time.

2. The Plaintiffs claim against the Defendants the vacating of the registration by the Defendants of the Provisional Agreement against the property, forfeiture of the initial deposit of $50,000 paid by the Defendants upon the signing of the Provisional Agreement, and damages for being unable to realise on sale the value of the property. Although there are two Plaintiffs it is the First Plaintiff who was the active one involved in all the relevant stages of the transaction.

3. In their counterclaim the Defendants seek specific performance of the Provisional Agreement, damages in lieu as an alternative, alternatively damages for breach of the Provisional Agreement and loss of a bargain. The Plaintiffs or their agents hold $119,000 being the total of the two deposits paid by the Defendants.

4. As a consequence of the counterclaim the Plaintiffs commenced Third Party proceedings against their solicitors claiming an indemnity in respect of any damages they may be adjudged to be liable to pay to the Defendants, and the loss of the value of the property as well as the sum of money which the Plaintiffs paid to another prospective purchaser which with whom they also signed a Provisional Sale and Purchase Agreement. Although the Defence and Counterclaim was served in May 1991, and the Reply and Defence thereto in June 1991, over two years elapsed before the Plaintiffs decided to embark upon Third Party proceedings, against their former solicitors, in my view a surprising and unexplained delay given what was involved and contended for.

5. I propose to deal with the chronology on the material matters which are within a very short time scale.

6. On the 29th of March 1991 the first Provisional Sale and Purchase Agreement was signed. A deposit of $20,000 was paid in cash to the Plaintiffs. It is essentially agreed that the Plaintiffs were looking for a larger deposit initially but the Defendants had only that amount with them on that date. Although the First Plaintiff was concerned to secure a larger deposit she nonetheless signed the agreement although intending to have it increased if at all possible.

7. Somehow she was able to persuade the Defendants to sign a second agreement on the 5th of April whereby a further $30,000 was handed over by them to make up the total of the initial deposit. There were some other variations from the original agreement quite apart from the obvious consequential reduction in the amount of the further deposit to be paid. These then were the advancing of the date for the signing of the Formal Sale and Purchase Agreement from the 29th of April to the 23rd of April and the putting back of the completion date from the 14th of June to the 23rd of June.

8. This agreement also referred for the first time to the existing problem (though it turned out not to be a problem) of the tenant in the flat to be sold. It was anticipated by clause (iii) that the Plaintiffs would have the tenant's Notice or Deed of Surrender by the 15th of April with the date for vacant possession on it. It is agreed by all parties that the meaning of that particular clause is:

9. Returning to the chronology, the Plaintiffs did not in fact receive the Notice of Surrender until the 22nd of April. This appears at page 19 of Bundle B. The notice was drafted giving the 22nd of June as the date for vacant possession - logically enough two months after the date of the notice. I am told by the First Plaintiff, and there is no challenge or controversy about this, that the tenant having drafted the notice said he could give vacant possession earlier, namely on the 13th of June, and so the date on B19 was altered. However it was thought that a new notice would look better. So B20 came into being. Consequently completion could be earlier than the 23rd of June now, but the Defendants had the option of either date.

10. Between the 22nd of April and 26th of April there is substantial conflict of evidence but it is clear that on the 26th of April the Plaintiff's solicitors sent to the Defendants' solicitors (who on the same day notified the former that they were instructed on behalf of the latter) the formal Sale Agreement. On the 30th of April the Agreement was returned amended. The engrossed formal agreement incorporating accepted amendments was then sent to the Defendants' solicitors on the 1st of May. It was returned, signed by the Defendants (and their friend Mr. Lum as a third purchaser), with a cheque for $69,000, the further deposit, on the 2nd of May and a receipt signed for the cheque. Unfortunately the cheque was dishonoured, but replaced by a cash deposit in the same sum which was accepted by the Plaintiffs' solicitors. As between the Plaintiffs and Defendants the fact of dishonour became irrelevant and I am satisfied that the reasons for the dishonour were straightforward and not indicative of any insolvency on the part of the Defendants. I bear in mind that events were moving with some rapidity. There matters rested for a while until on the 18th of May the Plaintiffs' solicitors wrote to the Defendants' solicitors saying that the Plaintiffs refused to sell the flat. On the 20th of May the Provisional Sale and Purchase Agreement was registered against the property on behalf of the Defendants. What had happened to bring this about?

11. Before going to the events of the last week or so of April and the evidence of the First Plaintiff and the Defendants about them, it is necessary to consider the fact that on the 14th of May, four days before the letter from the Plaintiffs' solicitors to the Defendants saying that the Plaintiffs would not now sell, the Plaintiff entered into a Provisional Sale and Purchase Agreement to sell the flat to Prime March Ltd. at a price that was appreciably higher - $1,370,000 as against $1,190,000. That agreement can be seen at B123. Because of the registration of the Provisional Agreement by the Defendants the Plaintiffs could not go ahead with that sale and had to pay $70,000 compensation to Prime March as well as return the deposit of $70,000. Although I do not need to consider it, the First Plaintiff nonetheless proceeded to sell her own flat, 12D, Woodgreen Court to Prime March for $1,395,000 which flat was similar to if not identical to the flat 21A Woodbury Court, the subject of this action.

12. Why had the First Plaintiff got herself into this position? Was it due to any fault on the part of the Defendants which could properly and sensibly give her a cause of action against them?

13. The First Plaintiff said that having obtained the Notice of Surrender from the tenant on the 22nd of April she instructed her agent from Jean Paul International to collect it from her and take it to her solicitors that day. On the 23rd of April, the day after the notice had been obtained and signed, she said she stayed at home, expecting the Defendants to sign the formal agreement and for her solicitors to inform her, no doubt by telephone, that they had done so. She heard nothing so assumed the Defendants had not signed. Why should she have made this assumption, if indeed she did? I cannot understand. But in any event her oral evidence is in conflict with her written Statement, but more particularly with the answers to certain interrogatories.

14. As to the Notice of Surrender she said in her oral evidence that she did not inform the Defendants. Yet the admitted fact at A65 says "the Plaintiffs informed the Defendants on or before the 26th of April." Mr. Siu has sought to argue that that fact as drafted should read "the Plaintiffs' solicitors informed the Defendants solicitors". I cannot accept that explanation. This document was drafted by solicitors. It was in response to a request to admit that specific fact. The admission falls short of meeting the request fully because it does not admit that this information was conveyed by the formal handing over of a copy of the agreement. On this topic I have also heard the evidence of Mr. Lum for the Defendants, who said that on the 26th of April he collected the Notice from the estate agents. I accept his evidence. But the date of receipt of the Notice by the Defendants is of very limited significance.

15. No formal agreement for sale would be signed by the Defendants until they were certain that they were going to get vacant possession on completion. The date 23rd of April, although the date for the signing for the formal agreement in the Provisional Agreement was not a realistic date as events turned out. The First Plaintiff's evidence as to her expectations on the 23rd of April is not acceptable in the light of the inconsistencies between her oral evidence and her statement, and her evidence about the telephone call from Miss Leung from her solicitors, on the 29th or 30th of April - the solicitors suggest the call was in fact on the 1st or 2nd of May.

16. In her statement, B page 5 para. 16, the 1st Plaintiff says that because she received no communication from the Defendants, her agents or her solicitors, she assumed the sale had fallen through. How she could have make this assumption escapes me. She had not contacted the Defendants to tell them she had the Notice of Surrender and that it would be sent to her solicitors; she had not contacted her solicitors to inquire whether matters had gone ahead on the 23rd of April. She made no contact with either of them at all until the end of April when, on her version, the solicitors contacted her. (I ignore for the moment the admitted fact as to the Plaintiffs informing the Defendants of the Notice of Surrender on or before the 26th of April). From the 23rd of April she says she then proceeded to look for an alternative buyer. If that is so she certainly did not tell her solicitors, or ask them if she was free to do so. If she had, I anticipate they would have been astonished and advised her firmly that she could not do so without causing real troubles for herself.

17. But what of the position of the Defendants? I am satisfied that the date for the signing of the formal agreement was not a strict term of the contract with which the failure to comply was or would be a breach entitling either party to repudiate the agreement. Not only is this clear from the attendant circumstances, particularly what transpired as late as the 22nd of April, but also from the way the solicitors for the respective parties conducted themselves. The correspondence made no mention of the 23rd of April being a material date.

18. Both firms of solicitors wrote to the other on the 26th of April. Both confirmed the binding nature of the Provisional Agreement of the 5th of April 1991. The draft Formal Agreement was sent, returned, amended, engrossed and sent back, and returned signed by the Defendants and Mr. Lum (as third purchaser) with a cheque for the further deposit of $69,000 on 2nd of May 1991. That cheque was in fact dishonoured but replaced by cash which was accepted. It then remained only for the Plaintiffs to sign the Formal Agreement.

19. The First Plaintiff was clearly asked to make arrangements to sign it. She received a telephone call from Miss Leung. That is common ground. The date is not agreed. But she could not receive such call until the agreement was received. She is in my view mistaken as to the date of the call but it is her own evidence as to that conversation which is important. In answer to Mr. Shum (for the Defendants) she said:

"When I refused to go on with the sale on the 29th of April, the deed of surrender and the date of completion had nothing to do with it. It was because I had not got the $69,000 further deposit."

To Miss Wong (for the Third Party) she said:

"She asked me to go to the office and sign a formal agreement. So I asked her if the $69,000 was there. If it had been paid (to me) I would go up to sign. (She told me) as soon as I signed the agreement I would have the $69,000. Miss Leung explained to me the $69,000 could not be released until they had (seen) the documents - title deeds."

Then came a sentence which I consider encapsulates the First Plaintiff's attitude -

20. "Whether I accept her explanation is a matter for me."

21. What was this explanation? I need to refer to the First Plaintiff's statement at B6 para. 17. She says Miss Leung informed her that the delay had been caused by the HK Bank in not forwarding documents to her, and she had consequently been unable to forward documents to the Defendants' solicitors, and the $69,000 could not be paid over until they had seen them. For some reason, entirely unexplained, the First Plaintiff took the view that "the Defendants were unreasonably delaying provision of the further deposit money." I am not in any event satisfied that the First Plaintiff's recollection of what Miss Leung had told her about the bank is correct. The Plaintiffs had yet to sign an authority for the documents to be released by the bank.

22. The First Plaintiff wanted the money to put down as a deposit on a restaurant venture. She went on to say that she was not prepared to sign without release of the $69,000. She assumed - and she had assumed a number of matters already - that Miss Leung "understood that she was not to proceed with the sale". I am satisfied that that was not only an erroneous assumption but also that there was no basis for it, and that Miss Leung fully expected the Plaintiffs to come in to sign the document. When the First Plaintiff eventually, on or about the 14th of May 1991, contacted Miss Leung and asked the firm to act in the sale of the property to Prime March, that was the first indication that Miss Leung had of the Plaintiffs' changed intentions. Very properly she declined to act. That approach by the First Plaintiff is also indicative of the fact that she was in no way dissatisfied with her solicitors conduct of matters.

23. Until the Plaintiffs signed the Agreement there was nothing further to communicate to the Defendants' solicitors. The next contact was the letter of the 17th of May from the Defendants' solicitors, followed by that of the 18th of May from the Plaintiffs' solicitors, returning the $69,000 further deposit in the form of a cheque and the first dishonoured cheque, and stating that the Plaintiffs refused to sell the property. The rest is well-known and constitutes these proceedings.

24. In the light of those circumstances the Plaintiffs are clearly in breach; even if the date, the 23rd of April 1991 in the Provisional Agreement was a term of the contact, with time being of the essence, which I reject, the breach was clearly waived by the Plaintiffs solicitors on the 26th April and by what followed.

25. Mr. Siu, on behalf of the Plaintiffs, has argued that the fact that the correspondence leading up to the signing by the Defendants of the formal agreement is headed "subject to contract" means that the Plaintiffs could withhold their signature to the agreement without there being a breach on their part. I do not accept that. Both parties' solicitors were proceeding on the basis that the Provisional Agreement was a binding contract for sale and purchase. The expression "subject to contract" relates only to the terms of the formal agreement for sale. It cannot be construed to mean that the Plaintiff could simply change her mind about the sale with impunity. That would make a nonsense of the premise upon which both parties had embarked.

26. On behalf of the Defendants, Mr. Shum has directed my attention to a number of authorities including Yiu Yau Ping v. Fong Yee Lau 1991 2 HKLR 167 C.A., Man Sun Finance International Corporation v. Lee Ming Ching 1993 HKC 113 (C.A.) and DH Shuttlecock Ltd v, Keung Shiu Tang 1993 HKC. They confirm my conclusion that the Provisional Agreement is a binding agreement with the clause as to the date for signing the formal agreement as a target date, not a condition of the contract, that time was not of the essence. The further deposit was not payable until both parties had signed the agreement. It was in fact sent with the agreement signed by the Defendants, with their letter of the 2nd of May 1991, on the basis that the Agreement for Sale would be returned duly signed by the Plaintiffs within five days. Clearly the deposit could not be released by the Plaintiff's solicitors to her.

27. It follows that the Plaintiffs action against the Defendants fails. There was no breach by the Defendants.

28. The Defendants counterclaim, inter alia, specific performance of the agreement. As I have already found, there was breach of the agreement on the part of the Plaintiffs. What does the agreement itself provide for as remedies for such breach?

29. Term 3 of the Provisional Agreement states that if the Vendor (Plaintiffs) is in breach it will have to repay the Purchaser the deposit and an equivalent sum as liquidated damages. There is also a term setting out the remedies of the Vendor if the Purchaser is in breach. Neither term excludes any other right or remedy.

30. There is a line of authorities which are reviewed by Yeung J. in The Thompsett Mind Limited v. Triumph Field Ltd March 1993 and he sets these out at page 4 of his judgment. In that case the terms upon which the Vendor relied in order to escape an order for specific performance were identical to the terms of the Provisional Agreement in this case.

31. The Court of Appeal in Wong Lai Fan v. Lee Ha 1992 1 HKLR 125 held that parties to such an agreement may limit their damages for non-completion provided that a correct formula is adopted. In that particular case there was a specific clause excluding further rights or remedies beyond the liquidated damages in the form of an additional sum equivalent to the deposit, also to be returned. The clause was:

"And the Purchaser shall not take any further action to claim for damages or to enforce specific performance."

It is not necessary for me to review all the authorities. Their import is clear as is to be appreciated by the words of Bokhary J.A., in Lau Yuet Ming v. Yeung Wai Leung HCA No. A4014 of 1991 :

"First I would have thought it is necessary to bear in mind that people are to be kept to their bargains. Secondly, it is to be borne in mind, that any clause which seeks to modify the prima facie legal right of a party to a contract is to be construed strictly."

There is no word in the terms in the Provisional Agreement which limits the remedy to the return of the deposit plus liquidated damages in a like sum. The expression "liquidated damages" does not provide such a limit; the word "only" does not appear. I am satisfied that the terms do not exclude the willing, ready and performing purchasers, from their remedy of specific performance, which I accordingly declare that they are entitled to.

32. They also claim damages for breach of the Provisional Agreement on the basis that they have been deprived of the use and enjoyment of the property since on or about the 13th of June 1991. Had completion taken place then they would have had the freedom to let the premises had they so wished. I do not know if that was the intention. The Plaintiffs were certainly in receipt of rents for periods of time after June 1991. The Defendants had to continue to pay rent or mortgage payments on the property or properties they occupied from 1991 onwards today. I am satisfied that they are entitled to damages in principle under this head, but these need to be assessed. They are presently unquantifiable. Against whatever losses they can prove must be set off the amounts of interest which they would have had to pay under the mortgage which was required by them to purchase the property. They have been saved from paying such sums. Furthermore if they have sold their residences in the intervening period as the market has risen so as to realise a profit, such profit would have to be brought into account to be set off against their losses provable against the Plaintiffs.

33. Judgment will be entered for the Defendants on the Claim and Counterclaim; the Provisional Agreement of the 5th of April 1991 is to be specifically performed; the Defendants are entitled to damages for breach of the Provisional Agreement to be assessed with liberty to apply.

34. The Defendants are to have their costs of the Claim and Counterclaim to be paid by the Plaintiffs to be taxed if not agreed.

35. The Defendants' costs of the aborted conveyancing thrown away by the Plaintiffs breach, and incurred between the 26th of April and the 20th May 1991 are to be paid by the Plaintiffs and to be taxed if not agreed.

36. The Defendants' costs of the first day of this trial incurred by reason of the application for security for costs are to be treated as the costs of the first day of this action and to be paid by the Plaintiffs for the reasons which will appear hereafter.

37. I now turn to the Third Party proceedings which I can review in shorter form, bearing in mind that the Plaintiffs were in breach of the agreement. The Plaintiffs, I am satisfied acted in breach of the agreement without informing their solicitors what they wanted to do and without seeking advice from them.

38. Through an acquaintance they had instructed the Third Party to act for them. The Provisional Agreement had been passed to the solicitors. As soon as they knew the identity of the Purchasers' solicitors, the Third Party forwarded the draft agreement. The timing of the correspondence shows that they acted expeditiously throughout. In order to forward the draft agreement on the 26th of April they must have carried out the searches against the property before that day. They also knew of the existence of the Plaintiffs mortgage with the HK Bank. Whether or not they knew of the existence of the Notice or Deed of Surrender by the tenant is not clear. The evidence is that the Defendants received it from the Plaintiffs' agents on or about the 26th of April.

39. The telephone conversation of Miss Leung with the Plaintiffs which took place, as I find, on or about the 2nd of May is the important stage. I am satisfied on the Plaintiffs' own evidence that she was asked to come in and sign the agreement and that the $69,000 further deposit could not be released to her until after she had done so. It is equally clear that the First Plaintiff regarded the release to her of that further deposit as a "sine qua non". She said she would not sign until the money was released to her but I am satisfied that she led her solicitors to believe that she would come in at sometime. She did not tell them that the transaction was at an end as far as she was concerned, though somewhat impetuously she set about finding a replacement purchaser, or at least made herself open to other offers and in due course one materialised which she accepted.

40. She did not tell her solicitors that they were no longer to proceed with the sale. Had she done so I am satisfied that they would have given her firm advice both in that regard and in relation to any new purchaser she found; and as a consequence she would not have signed the Provisional agreement with Prime March Ltd. on the 14th of May from which action her troubles stem. The fact that the Third Party declined to act for her in respect of that transaction is confirmation of my findings in relation to what she did and did not say to Miss Leung, and how matters stood on the 2nd of May.

41. Reliance is placed by Mr. Siu upon the fact that the Plaintiffs were not informed of the dishonour of the cheque. However this was immediately replaced by the sum in cash and I am satisfied that the explanation for the dishonour was a proper and acceptable one and that no reasonable solicitor would have treated the dishonour as a breach. In fact the sum of money was not due for payment until both sides had signed the agreement. It was in any event to be held by the Vendor's solicitors as stakeholders.

42. Mr. Siu also raises what appears to be a contradiction between what the Plaintiffs say Miss Leung told them about the bank's failure to provide documents earlier, and the fact that there is a letter from the Third Party to the bank dated the 7th of May asking for the documents. Whilst I am satisfied that there was some discussion about the bank and documents, on the 2nd of May, it is equally clear that the Plaintiffs had to sign an authority for them to be released by the bank in any event, and there is an unsigned authority in the papers dated 7th of May. The Plaintiffs had to make the necessary visit to be solicitors office to sign that as well as the formal agreement. In my view the Plaintiffs misunderstood what was explained about the question of documents, bank involvement and deposit release.

43. Since I am satisfied that the Third Party did not neglect the Plaintiffs' interest in respect of the date 23rd of April as the date for signing the agreement which was not a term of the contract; that they did not ignore or reject specific instructions not to continue with the sale and purchase transaction, because none were given; that the Plaintiffs failed to visit the solicitors office as they were reasonably expected to do, and therefore left the Third Party in a position where they were unable to tell the Purchasers precisely what the position was; and that the Plaintiffs went off, "on their own bat" and signed a Provisional Sale Agreement with Prime March Ltd. on 14th of May 1991 without reference to their solicitors, there was no breach of contract, or breach of duty or negligence on their part in their conduct of the matter on behalf of the Plaintiffs.

44. Mr. Siu sought also to argue that the letter of the 26th of April 1991 from the Third Party to the Defendants' solicitors constituted novation of contract of which the Defendants were in breach by reason of the dishonour of the cheque and the making of the letters "subject to contract". I cannot accept that and do not need to repeat my reasons which are set out already in respect of the various points.

45. The Plaintiffs' claim for an indemnity against the Third Party fails. The Third Party proceedings are dismissed with costs.

46. Finally there is the question of the Third Party's application for security for costs which involved the whole of the first day scheduled for the trial of this action. The application was rendered necessary because of the late disclosure of the First Plaintiff's residence outside the jurisdiction. Documents in the proceedings, which had been sworn by her, purported to show her residence in Hong Kong. This fact was obviously misleading. Mr. Siu had sought to argue on the hearing of the application, that the Third Party should have been alerted to the fact of her residence abroad by the attestation being in California. I do not consider that argument is a valid one. Many people in the course of a holiday or business trip abroad have to attest to documents - particularly perhaps from Hong Kong. Quite apart from that, the Plaintiffs' current solicitors ignored a letter of the 23rd of January asking for confirmation of what counsel on behalf of the Plaintiffs had revealed to the Judge about her present residence. They could, and in my view should, have dealt with that properly. It may well have resulted in a sensible proposal and obviated the need for a specific application. I bear in mind that, although I was going to allow three days for the security money to be raised, it was in fact available the following morning. The Third Party shall have the costs of and occasioned by their application but the costs of the hearing of the application itself shall be absorbed in the costs of the trial itself with that day being the first day of the trial, the costs of which are to be borne by the Plaintiffs.

47. The orders I make are orders nisi but I trust are clear enough so as to avoid any other costs being incurred by a further attendance. If any problem arises I will entertain written representations.