WISE THINK GLOBAL LTD v. FINANCE WORLDWIDE LTD

Press Summary (English)

Press Summary (Chinese)

FACV No. 3 of 2013

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 3 OF 2013

(ON APPEAL FROM CACV NO. 10 OF 2011)

_____________________

_____________________

________________________

J U D G M E N T

________________________

Mr Justice ChanAg CJ:

1. I agree with the judgment of Mr Justice Litton NPJ and the orders proposed by him.  I would only add one observation.

2. Many people in Hong Kong sell or purchase real estate by first entering into a provisional agreement.  Such an agreement is to all intent and purposes binding on the vendor and purchaser, subject to escape clauses allowing the parties to withdraw from the transaction by forfeiting whatever deposit (or deposits) which has (or have) been paid or by paying double the amount which is equivalent to the deposit (or deposits) paid.  The parties may also move on (if so agreed) to the next step by signing a formal agreement and finally to completing the transaction.  By way of contrast to the situation in England, this would give the parties both protection and flexibility, subject of course to the other terms of the provisional agreement.  It is thus of crucial importance that the provisional agreement is as clear as it should be.  However, it is most unfortunate that the one in the present case, which, I understand, is one of the standard form agreements commonly in use, should contain blatant discrepancies between the Chinese and English versions.  This is highly unsatisfactory as it will only give rise to confusion and unnecessary litigation.

Mr Justice Ribeiro PJ:

3. I agree with the Judgments of Mr Justice Litton NPJ and Lord Millett NPJ.

Mr Justice Litton NPJ :

Introduction

4. This case concerns, once again, a provisional agreement for the sale and purchase of real estate and in particular with an escape clause in that agreement.  Ultimately, it turns upon the peculiar facts of this case.

5. The facts, in brief, are these.  By a provisional agreement signed by three parties — the vendor, the purchaser and the real estate agent — dated 31 December 2009, the vendor agreed to sell and the purchaser agreed to buy the ground floor of Block C, Nos. 301, 301A-C Prince Edward Road West, Kowloon, for $18 million upon the terms of that agreement.  Completion was due to take place on 26 February 2010.  The real estate company was brought in as a party to ensure that commission is paid: There are elaborate provisions for payment of commission to the agent in any event: Irrelevant for the purposes of this case.

6. Clause 2(a) provided for the payment of an initial deposit of $500,000.  By clause 2(c) a further deposit of $3.1 million was to be paid “upon signing of the Formal Agreement for Sales and Purchase on or before 13 January 2010.”  Clause 2(d) required payment of the balance of $14,400,000 at the vendor’s solicitors’ office upon completion on or before 26 February 2010.

7. Clause 2 goes on to say that the deposits “shall be paid to the vendor’s solicitors as stakeholders who may release the same to the vendor provided that the balance of the purchase price is sufficient to discharge the existing legal charge/mortgage”.

8. The provisional agreement provides “escape clauses” for both parties.

9. Clause 6 says that if the purchaser fails to complete the purchase “in the manner herein contained” all the deposit paid pursuant to clause 2 would be forfeited to the vendor and the vendor would be free to resell the premises, and the vendor shall not then “sue the purchaser for any liabilities and/or damages or to enforce specific performance”.

10. Clause 7, as translated from the Chinese version[1], provides as follows: Should the vendor after receiving the deposit (deposits) paid fail to complete the sale in the manner contained in the agreement, the vendor “apart from refunding the total amount of the deposit paid, (shall) compensate the purchaser by a payment of an equivalent amount”.

11. Shortly after the provisional agreement was signed and the deposit of $500,000 paid, the parties’ solicitors entered into correspondence regarding the formal agreement.

12. On 12 January 2010 the vendor’s solicitors sent to the purchaser’s solicitors a re-engrossed formal agreement in duplicate and asked that it be duly signed by the purchaser and attested, and returned together with the purchaser’s solicitors’ cheque for $3.1 million “drawn in favour of our client being the further deposit payable by your client to ours on or before 5:00pm on 13 January 2010”.

13. As mentioned in para 7 above, the provisional agreement required the deposits to be paid to the vendor’s solicitors as stakeholders. Thus it was that the next day (13 January) the purchaser’s solicitors forwarded the formal agreement duly signed and attested, together with a cheque for $3.1 million drawn in favour of the vendor’s solicitors “as stakeholder being further deposit and part payment of purchase money….”.  The letter went on to say:

“Please note that the said Agreement for Sale and Purchase and the said cheque are sent to you against your firm’s undertaking to return us one part of the said Agreement duly signed by your client(s) and attested by you for our further handling within three (3) working days from the date of this letter.”

14.  Pausing here, it was plainly in the purchaser’s expectation that the vendor would sign the formal agreement which had been engrossed by its own solicitors after correspondence as to its terms with the purchaser’s solicitors.  The re-engrossed formal agreement had been forwarded with an express request that it be signed by the purchaser, and returned before 5:00pm on 13 January 2010.  The formal agreement provided for a whole range of matters absent from the provisional agreement: For instance, who bore the risk regarding the premises before completion; procedures and time limits for requisitions and objections in respect of title; the receipt of government notices or requirements that might affect the use and enjoyment of the property, etc.  These are important matters which go to ensure that, come the day for completion (26 February 2010), the vendor would give good title to the purchaser, and the purchaser would have quiet enjoyment of the property.  These are matters of interest to both parties.

15. Hence the addendum in the purchaser’s solicitors’ letter of 13 January quoted in paragraph 13 above.  The cheque for $3.1 million was tendered on condition that the vendor would sign the formal agreement and its solicitors would return it to the purchaser’s solicitors within three working days.  If this had happened then, of course, the parties’ relationship thereafter would have been governed by the terms of the formal agreement and the provisional agreement would cease to have force.

16. The next day (14 January) the vendor’s solicitors forwarded a draft power of attorney, as provided for by clause 15 of the provisional agreement, to enable the purchaser to enter into a new tenancy on the vendor’s behalf, prior to completion.  (The sale under the provisional agreement was subject to an  existing tenancy).  The draft power of attorney, slightly amended, was returned to the vendor’s solicitors the following day.  In the meanwhile, the cheque for $3.1 million in the vendor’s solicitors’ hands was cashed.  Plainly, at that stage, the vendor evinced every intention of carrying the transaction to its completion in accordance with the provisional agreement.

17. The vendor did not comply with the condition under which the cheque for $3.1 million was tendered.  No formal agreement bearing the attested signature of the vendor was returned.  There was further correspondence resulting in a letter from the vendor’s solicitors dated 28 January 2010 to the effect that they had been instructed (1) to return the formal agreement unsigned by the vendor and (2) to forward their cheque for $3.1 million being the refund of the further deposit. This led to more correspondence, after the purchaser’s solicitors had rejected the tender of the refund cheque for $3.1 million, insisting upon performance by the vendor and asking for the title deeds for perusal.

18. Eventually, on 10 February 2010, the vendor’s solicitors wrote to say that the vendor was relying on clause 7 of the provisional agreement (see para 10 above), enclosing (1) a cheque for $3.1 million and (2) a cheque for 1 million “being the refund of initial deposit and liquidated damages payable by our client to your client as per clause 7 of the Provisional Agreement”.

The Proceedings

19. The purchaser brought proceedings in the High Court seeking an order for specific performance. These proceedings were heard by Mr Recorder A Chow, SC who, by his judgment of 23 December 2010, granted the purchaser’s claim.  In essence his conclusion was as follows:

(1) As a matter of fact (§§24 and 28 of the Recorder’s judgment) the further deposit of $3.1 million was paid to and accepted by the vendor.

(2) For the vendor to rely on the escape clause (clause 7) it had to compensate the purchaser by an amount equivalent to the “total amount of the deposit paid”.  This meant an amount equivalent to the initial deposit ($500,000) and a further $3.1 million.  The tender of the cheques referred to in para 18 above was deficient.  Simply to return the further deposit was not enough to satisfy the requirement in clause 7.

20. The recorder noted (§30) that counsel for the purchaser had conceded that the escape clause was exercisable at any time up to the date of completion (26 February 2010); he did not therefore need to consider whether the option to terminate had by implication expired on 13 January 2010 when, if the formal agreement had been signed by both parties, clause 7 and all the other clauses in the provisional agreement would have been extinguished and subsumed.

21. The vendor appealed to the Court of Appeal.  By a majority (Tang VP, Kwan JA, Yuen JA dissenting), the vendor’s appeal succeeded and the order for specific performance as made by the Recorder was discharged.  In essence, the reasoning of the majority was this: The escape clause (clause 7) was exercisable by the vendor at all times until the parties signed the formal agreement; if the purchaser had paid the further deposit, the formal agreement not having been signed, the vendor would have been obliged to compensate the purchaser by a like amount in order to resile from the agreement; but, in the circumstances of this case, the further deposit had not been paid; hence the tender of the cheque by the vendor’s solicitors referred to in para 18 above satisfied the requirements of clause 7; the vendor was discharged from further performance of the contract.

Was the further deposit paid in terms of clause 7?

22. Ms Audrey Eu SC, counsel for the vendor, says this: The two events as provided for by the provisional agreement, the payment of the further deposit and the signing of the formal agreement by both parties, were “linked”; the payment of the further deposit was conditional upon the vendor signing the formal agreement (the purchaser having already signed); this condition was never fulfilled, therefore the further deposit could not be regarded as having been paid.

23. Is this right?  The crucial question in this case is not whether, as a matter of legal analysis, the two events provided for in the provisional agreement were “linked”, but whether the trial judge was correct in finding, as a matter of fact, that the further deposit was paid to and accepted by the vendor (see para. 19(1) above).  If it was, then the vendor could only escape from performance if it paid the amount of the further deposit (and the initial deposit) in compensation in terms of clause 7.  This turns upon what the solicitors did on their respective clients’ behalf on 13 January and the days thereafter.

24. Here, from inception, the parties envisaged the involvement of solicitors.  Clause 5 of the provisional agreement so provided. In conveyancing in Hong Kong, solicitors are needed to ensure that good title is shown before completion and good title passes on conveyance.   The parties were not engaged in hostile proceedings.  The solicitors were there to help them carry out their bargain.  The system operates upon trust.  The words used by the purchaser’s solicitors when delivering the signed agreement and the cheque over to the vendor’s solicitors, as quoted in para 13 above, are more or less in standard form[2]. What they were saying to the other side, in effect, was this: “Three working days provide ample time for you to get your client’s signature on the agreement and have it returned to us; you will, of course, not cash the cheque unless you can do this.”

25. When the vendor’s solicitors cashed the cheque the next day, they were representing in effect that they were in a position to fulfill the condition; that is to say, to return the signed agreement to the purchaser’s solicitors within the three working days referred to in the letter of 13 January.  Good faith between solicitors mandated the vendor’s solicitors to return the cheque, or at any rate retain it unpresented for payment, if they were unable to comply with the condition.  They were throughout the vendor’s agents.  They received the cheque not only as stakeholder but also as the vendor’s agents.  At the point when the cheque was cleared and credited to the solicitors’ account, the further deposit was received and paid within the meaning of clauses 2(c) and 7 of the provisional agreement.  

26. It must equally be assumed that the vendor’s solicitors were acting on instructions when, on the next day, they forwarded the draft power of attorney to the purchaser’s solicitors.  The fact that at some point of time thereafter the vendor decided not to sign the formal agreement is neither here nor there.  There could not have been the least doubt as to what the purchaser’s solicitors did: Their letter of 13 January said clearly that the cheque for $3.1 million drawn in the vendor’s solicitors’ favour (as required by the provisional agreement) was “further deposit and part payment of purchase money”, treating those solicitors as stakeholder and as agent for the vendor, which they plainly were.  This disposes of a point made by Ms Eu SC to this effect: The provisional agreement says nothing about the solicitors acting as the vendor’s agent; clause 2 specifically says that the further deposit was to be paid to them “as stakeholders”; the solicitors received the cheque and put the money in their “stakeholder’s account”; they held the money in that capacity; hence, it was never received by the vendors. Mr Edward Chan SC, counsel for the purchaser, counters the argument thus: The only way whereby the further deposit could have been paid was to pay it to the solicitors as stakeholders; that is what clause 2 says; the payment went towards the purchase price; it follows that the payment was received by the vendor through its agents the solicitors.  This is plainly correct.

27. No court could have compelled the vendor to put pen to paper.  What happened was that, having received the further deposit, they put their own solicitors in the embarrassing position of having to tell the purchaser’s solicitors that the condition in the letter of 13 January could not, after all, be fulfilled: The solicitors did this, without apology, on 28 January: see para 17 above.  But this could not alter what had already occurred.  The further deposit had been, in the words of the Recorder, “paid to and accepted by the defendant” (§28).

The Undertaking

28. It is here that I must respectfully differ from the majority of the Court of Appeal.  Tang VP said (§52) that the question was whether “the payment was conditional”.  Ms Eu, SC, counsel for the vendor, formulated the question in the same way.  That, with respect, does not fully encompass the facts of this case.  The letter of 13 January referred to an undertaking to be given, or deemed to be given by the vendor’s solicitors.  What undertaking could those solicitors sensibly have given?  What undertaking could the purchaser’s solicitors have rationally been seeking?  It could not have been to get the vendor to put pen to paper.  If a court cannot so compel, how could a solicitor have done the same?  As the cheque was made payable to the vendors’ solicitors, the only undertaking those solicitors could have given was this: To cash the cheque only if they could, within three working days, return the signed agreement to the purchaser’s solicitors.  It is only in this sense that the “payment was conditional”.  The cheque was tendered conditionally to the vendor’s solicitors upon the understanding that they would not cash it unless they were able to return the signed agreement to the purchaser’s solicitors within three working days.  This was the only undertaking they could have given.

Conclusion

29. It follows from what is said above that the appeal must be allowed and the judgment of the Recorder restored.  The further deposit was paid. The vendor never compensated the purchaser by tendering sums equivalent to all the deposits paid as required by clause 7 of the provisional agreement.

30. Before concluding this judgment I would make this observation: The formal agreement is an important document for the reasons outlined in para 14 above, particularly for the purchaser who would wish to ensure that there is no blemish on the vendor’s title.  It is also important for the vendor as it is the “trigger point” for him to receive a substantial further deposit.

31. This case turns on its own facts.  It would be a rare case that a further deposit, to be paid upon the signing of the formal agreement, is found to have been paid without that document having been signed.  Once the formal agreement is signed by both parties then of course the provisional agreement is, in the words of Godfrey J in Man Sun Finance v Lee Ming Ching Stephen [1993] 1 HKC 113 at 125D, superseded.  It entirely falls away.  The escape clauses would no longer be operable.

32. Yuen JA in her dissenting judgment seems to have adopted this approach: The payment of the further deposit was upon terms that the vendor would sign the formal agreement; the vendor accepted the payment; he was bound to sign the formal agreement; the provisional agreement with the escape clause would then have been superseded;  the vendor cannot profit from his own default by treating the escape clause in the provisional agreement as if still valid; equity would intervene and compel the vendor to sell the property (§61.2, 65.3, 66, 72.3).

33. This smacks of the maxim in equity: Equity treats as done which ought to be done.  The specific performance which the learned Justice of Appeal would have ordered would then have been performance under the formal agreement, not the provisional agreement as ordered by the Recorder.  The point, superficially attractive, was not pursued by Mr Chan SC.  I say no more about it.

Order

34. The date for completion (26 February 2010) has long gone. I would order:

(1) that the provisional agreement should be specifically performed and carried into execution to the extent that the purchase price is $18 million;

(2) that within 14 days of the handing down of this judgment the appellant lodges with the Registrar an agreed form of the order for specific performance;

(3) that in default of agreement each party be at liberty to lodge with the Registrar its form of order, within 28 days of the handing down of this judgment, for this Court to determine without further hearing the appropriate form of order.

35. As to costs, I would make an order nisi

  (1) that the Recorder’s order for costs be restored;

  (2) that the appellant be awarded costs in the Court of Appeal and in this Court.

  (3) If any party seeks a different order, written submissions be served on the other party and lodged in Court within 14 days of the handing down of this judgment, with liberty to lodge and serve further written submissions within 14 days thereafter.

Mr Justice Bokhary NPJ:

36. Doing so within the terms agreed and not by recasting them, the courts strive to uphold the substance and reality of the bargain between contracting parties. The bargain between the parties to this contract for the sale of land was one whereby the parties had, not unusually, matching opportunities to back out before a formal agreement for sale and purchase was entered into.  For the vendor, the price of backing out was the return of what had been paid by way of deposit plus a sum equal thereto.  And for the purchaser, that price was the forfeiture of what has been paid by way of deposit.  In this connection, the Chinese version of the provisional agreement for sale and purchase is apt to cover everything paid by way of deposit.  And it is provided that in the event of any conflict between the English and Chinese versions, the Chinese version shall prevail.

37. It is obvious that the parties’ opportunities to back out were meant to match.  They would not match if the vendor, having called upon the purchaser to sign the formal agreement for sale and purchase and provide a further deposit, could, after the purchaser has done so, back out merely by returning the initial deposit, paying a sum equivalent thereto and returning the further deposit but not paying a sum equivalent thereto.  That is because once the purchaser had signed the formal agreement for sale and purchase and paid the further deposit, it was exposed to forfeiture of the further deposit as well as the initial deposit if it were to back out.

38. Despite the ability with which Ms Audrey Eu SC for the vendor argued to the contrary, I am of the view that the vendor’s solicitors must sensibly be taken to have received the further deposit for their client and not merely as stakeholder for both parties.

39. The vendor could have backed out by returning the initial deposit, paying a sum equivalent thereto, returning the further deposit and paying a sum equivalent thereto.  It was not entitled to back out merely by returning the initial deposit, paying a sum equivalent thereto and returning the further deposit but not paying a sum equivalent thereto.  That is what it purported to do.  Its refusal to complete exposed it to an order for specific performance under the provisional agreement for sale and purchase.  The order for specific performance made at first instance should not have been set aside on intermediate appeal.

40. I agree with Mr Justice Chan PJ and Mr Justice Litton NPJ, and would allow this appeal so as to order specific performance by way of a formal order in terms either agreed by the parties or, failing such agreement, fixed by the Court after considering written submissions.  There should, I agree, be an order nisi awarding the purchaser costs here and in the courts below.

Lord Millett NPJ:

41. The vendor's solicitor normally has no authority to commit his client to a binding contract for the sale of land, and there is no evidence that he had such authority in the present case. But he had authority to accept a deposit from the purchaser. When he received the letter of 13th January 2010 (which he received in his capacity as solicitor for the vendor for at that stage he had no other) he had a choice. He could accept the payment or refuse it. He could refuse it by returning the cheque or keeping it and not cashing it; or he could refuse it by cashing it and informing the purchaser's solicitor that he was holding the money to his order pending his own client's decision whether or not to sign the formal contract.

42. Alternatively he could accept the money on behalf of his client by simply cashing the cheque. This would not commit his client to sign a formal contract, for he had no power to do this; but the money was paid as a deposit and if he accepted it at all he was bound to accept as such, thereby increasing the penalty payable by his client should he choose to resile from the provisional contract.  What he could not do was accept money which had been paid as a deposit and treat it as something else.

43. I too would allow the appeal.

Mr Justice Chan Ag CJ:

44. The appeal is allowed unanimously and the Court makes the orders set out in paras 34 and 35 above.