LAM TAM YI AND ANOTHER v. CHAK WAI MAN

1991, No.A3482

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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Judgment

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1. This is a purchaser's action for specific performance. The agreement relied on by the purchaser is an agreement in Chinese writing entitled "Provisional Sale and Purchase Agreement" dated 1st March 1991 made between the 1st plaintiff (as purchaser) and the defendant (as vendor). By this agreement the vendor agreed to sell and the purchaser agreed to purchase property known as Unit F, 2/F, Block 4, Laguna City, Cha Kwo Ling Road, Kwun Tong, Kowloon ("the property"). The agreement provided among other things as follows :-

(a) The purchase price was to be HK$1,050,000;

(b) HK$30,000 was to be paid as an initial deposit by the purchaser to the vendor upon the signing of the agreement;

(c) The purchaser was given the right to appoint a nominee to take up the formal agreement for sale and purchase of the premises and upon such nomination, the vendor was to execute the formal agreement in favour of the nominee;

(d) The formal agreement was to be signed on or before 11th March 1991, at which time a further deposit of HK$75,000 would be paid to the vendor;

(e) Completion was to take place on or before 28th March 1991.

2. Upon the signing of this agreement the purchaser paid the HK$30,000 initial deposit to the vendor and, some time before 11th March 1991, the purchaser, through his solicitors, informed the vendor's solicitors that he would appoint the 2nd plaintiff, his mother, as his nominee to take up the formal agreement.

3. The purchaser gave evidence that on 11th March 1991 he was informed that the formal agreement which was being prepared by the vendor's solicitors was not yet ready and would not be made available by the vendor's solicitors for signature until the next day. There is some dispute about this, but it does not matter, for on 12th March 1991 the vendor's solicitors in fact tendered to the purchaser's solicitors a formal sale and purchase agreement.

4. The purchaser's mother signed the formal agreement and paid the further deposit of $75,000 to the vendor. But, by a letter dated 18th March 1991, the vendor, through his solicitors, repudiated the contract by informing the purchaser's mother that the vendor did not want to proceed with the sale of the property; and they returned the $75,000.

5. The only other matter to which I need to refer is an exchange of letters between the purchaser's solicitors and the vendor's solicitors, the first being a letter of 7th March 1991 from the purchaser's solicitors to the vendor's solicitors and the second being a letter of 12th March 1991 which was the letter under cover of which the vendor's solicitors sent to the purchaser's solicitors the formal sale and purchase agreement. In the first of these letters, the letter of 7th March 1991 from the purchaser's solicitors to the vendor's solicitors, the purchaser's solicitors said this :-

"We must stress that nothing herein or in the said provisional agreement for sale and purchase shall be binding upon our client unless and until a formal agreement for sale and purchase shall have been duly signed by our client".

That letter was headed "Subject to Contract". The second letter, the letter of 12th March 1991 from the vendor's solicitors to the purchaser's solicitors, was also headed "Subject to Contract" and ended with the following :-

"Nothing herein or in the agreement for sale and purchase shall be binding on our client unless and until the formal agreement for sale and purchase has been duly signed by our client".

6. On these facts, the purchaser says that he is entitled to a decree of specific performance. The vendor says otherwise. The vendor says that the provisional sale and purchase agreement is not a concluded and binding agreement for the sale and purchase of the property; and adds that, if it was, then the exchange of letters of the 7th March 1991 and the 12th March 1991 operated as a rescission of the agreement so that there is now no longer any agreement of which specific performance can be decreed. (It is, of course, clear that if this is wrong and if specific performance is to be granted there will have been a considerable delay in completion. As to that, the purchaser says he is entitled to damages for the delay. The purchaser says that the damages ought to be calculated by reference to the familiar provision, which the provisional sale and purchase agreement contained, that in the event of the vendor's failure to complete the purchaser should be entitled to the return of the initial deposit plus another sum of the same amount, making a total of $60,000. I regard this as quite untenable. The provision to which I have referred is in my judgment intended to cover the position where the vendor repudiates the contract; not where the vendor has been guilty of delay in completing it. Accordingly, if I decree specific performance of the provisional sale and purchase agreement, the order will have to contain provision for an enquiry as to the damages suffered by the purchaser by reason of the delay.)

7. I return to the substantive questions raised by the vendor, that is to say, whether the agreement was binding at all, and if so, whether it has been rescinded.

8. In my judgment, this particular provisional sale and purchase agreement was intended to take effect and did take effect as an immediately binding agreement for the sale and purchase of the property. It is true that it looked to the execution of a formal sale and purchase agreement and the terms of such an agreement will have to be settled by the court in case the parties differ. But the formal agreement will contain no more than what is required by the provisional agreement and such other terms as may be implied by law in order to give effect to that provisional agreement. There is accordingly here no question, in my judgment, of want of certainty of terms; nor do I regard the fact that pursuant to the express provisions in that behalf contained in the provisional sale and purchase agreement, the purchaser has nominated his mother to take up the contract, creates any difficulty which would enable the vendor to ride free from what would otherwise be his contractual obligation to sell the property to the purchaser.

9. As to the matter of cancellation, I accept the submission made by counsel for the purchaser to the effect that the two letters to which I have referred, namely the letter of 7th March 1991 and the letter of 12th March 1991 each operated unilaterally. It would, in my judgment, be wrong to treat these two letters as having evidenced or created an agreement of a consensual character between the vendor and the purchaser that the provisional sale and purchase agreement should stand rescinded. The vendor's solicitors wished to protect the vendor by providing that nothing that they did was to prejudice the vendor's interest and the purchaser's solicitors were trying to do the same for the purchaser. It is true that, in the purchaser's solicitors' letter, the solicitors went so far as to say not only that nothing in the correspondence between the solicitors should create any binding contract but also that nothing in the provisional sale and purchase agreement itself should operate as a binding contract, But that addition, in my judgment, could have no effect if (as I have already found) a binding contract had by then already come into existence.

10. For the reasons I have stated, I propose to make a decree of specific performance in this case. The order will include provision for an enquiry for damages as to the delay.

11. The principle on which I have proceeded is to be found in a case in the Privy Council to which I think it would be useful to refer. The case is Daiman Development Sdn. Bhd. v. Mathew Lui Chin Teck and Anor. [1981] 1 MLJ 56. That case contains some valuable guidance on the matters with which this sort of case is concerned. Sir Garfield Barwick, tendering the advice of the Privy Council, says this (at p.58) :-

"The question whether parties have entered into contractual relationships with each other essentially depends upon the proper understanding of the expressions they have employed in communicating with each other considered against the background of the circumstances in which they have been negotiating, including in those circumstances the provisions of any applicable law. Where they have expressed themselves in writing the proper construction of the writing against that background will answer the question. the purpose of the consideration is to determine whether the parties intend presently to be bound to each other or whether, no matter how complete their agreements might appear to be, they do not so intend until the occurrence of some further event, including the signature of some further document or the making of some further arrangement. The question is one as to expressed intention and is not to be answered by the presence or absence of any particular form of words."

It will have been noted that, despite the liberal sprinkling of the words "subject to contract" over the subsequent correspondence between the solicitors, these words significantly do not appear on the provisional sale and purchase agreement itself.

12. What might properly be included in the formal sale and purchase agreement to be executed is a question which can be judicially resolved by this court in the event of objection by the purchaser to any term or condition included by the vendor's solicitors in the formal sale and purchase agreement. Once it is decided, as I have decided, that the provisional sale and purchase agreement is not itself an agreement subject to contract, the obligation under it is to sign a contract of sale which implements a sale for which agreement has already been made.

13. I therefore propose to make an order decreeing specific performance and directing, if the purchaser wants it, an enquiry whether a good title can be made to the property; and in case it appears that a good title can be made to the property, an order that interest be computed (at a rate which I shall discuss with counsel) on the purchase money to the day when the purchase money ought to have been paid according to the terms of the agreement. I shall also order an enquiry whether the purchaser has sustained any, and if so, what damages by reason of the delay of the vendor in completion of the agreement; and I shall make such consequential orders as may be required to give effect to the decree.