EARNEST ENTERPRISES LTD v. YIP FUNG

HCMP 2207/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2207 OF 2011

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J U D G M E N T

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1. These proceedings concern the sale and purchase of the property known as Flat A, 11th Floor, Fu Hop Factory Building, Nos 209 and 211 Wai Yip Street, Kowloon, Hong Kong (“the property”).

2. The parties entered into a provisional agreement for sale and purchase in Chinese on 6 July 2010 (“the agreement”).  By the agreement the plaintiff, as purchaser, purchased from the defendant, as vendor, the property for the sum of HK$4,100,000. 

3. It was agreed that an initial deposit in the sum of HK$200,000 should be paid immediately upon signing of the agreement and that a further deposit in the sum of HK$210,000 shall be paid “upon or before the signing of Formal Sale & Purchase Agreement ie, 20th day of July 2010”.  The balance of the purchase price was to be paid on completion, which was stated to be on 6 October 2010.  It was also provided that the deposits payable under the agreement namely, the initial deposit and the further deposit, should be kept by the defendant’s solicitors as “custodian” which I take to mean as stakeholders. 

4. Importantly, the premises were to be sold to the plaintiff free from all encumbrances or debts.  That is provided for in clause 3 of the agreement.

5. A further deposit of HK$210,000 was made by the plaintiff to the defendant, through solicitors, on 20 July 2010. Although a formal agreement for sale and purchase was signed by the plaintiff, the defendant has never signed a formal sale and purchase agreement.  Despite that, it is clear on the authorities that the agreement is a binding agreement.

6. Thereafter, the defendant asked the plaintiff, through solicitors, to extend the completion date.  There were a number of extensions of time granted for the completion of the sale and purchase. It was agreed by the solicitors that, save for the postponement of the date of completion, the terms and conditions contained in the agreement remained unchanged. 

7. It was also discovered that the property was subject to three encumbrances which had to be discharged by the defendant before completion.  These encumbrances were identified in a letter dated 30 September 2010 sent by the defendant’s solicitors to the plaintiff’s solicitors. 

8. On the correspondence before the court, it is clear that the final date for completion that had been granted by the plaintiff was 12 August 2011.  By a letter dated 22 July 2011, the plaintiff’s solicitors wrote to the defendant’s solicitors asking for the discharge of the encumbrances and stating that completion would take place on 12 August 2011. Suffice it to say, the defendant did not complete on that day.  There was no reply to the solicitors for the plaintiff’s letter of 22 July 2011.

9. On 3 November 2011, the plaintiff instituted these proceedings to seek specific performance of the agreement. The plaintiff also seeks damages in addition to, or in lieu of, specific performance. 

10. By the affirmation of Anne Chung Mei Han, filed on behalf of the defendant on 2 February 2012, the defendant raises a number of matters in opposition to the plaintiff’s claims. 

11. I agree with Mr Cheung, counsel for the plaintiff, that some of the factual allegations made by Ms Chung are irrelevant.  For instance, it is said that the defendant would not complete the sale if the sale proceeds were insufficient to repay all of his debts, and certain conversations between an estate agent and the defendant are mentioned which, in my view, are irrelevant to the agreement. 

12. It seems to me that the real defence that is sought to be raised on behalf of the defendant is a reliance on clause 7 of the agreement.  Clause 7 provides as follows:

“Should the Vendor fail to complete the sale and purchase in accordance with the terms of this agreement after receiving the initial deposit, the Vendor, in addition to refunding all the deposit(s) paid by the Purchaser shall also pay a sum of the same amount to the Purchaser as compensation. Other than these, the Vendor shall be responsible for paying/refunding the stamp duty of this agreement but the purchaser shall not further take action against the Vendor for any liabilities, including other damages and specific performance.”

13. At paragraph 18(4) of the affirmation of Anne Chung Mei Han, she says this:

“It is therefore crystal clear that the only available remedy to the Plaintiff for the Defendant’s failure to complete is (i) to return double amount of initial deposit to the Plaintiff, and (ii) to pay the reimbursement of stamp duty of the Property. I did not know the further deposit had been delivered to Cheung, Chan & Chung, in this regard, the further deposit will be refunded to the Plaintiff.”

14. Up to that date, no payment had been tendered by the defendant to the plaintiff.  However, on 10 February 2012, the defendant’s solicitors wrote to the plaintiff’s solicitors, informing them that the defendant would be relying on clause 7 of the agreement.  By that letter, they offered to pay the initial deposit and the further deposit, namely the total sum of HK$410,000, and they also offered to pay compensation with a sum equivalent to the amount of the initial deposit, namely HK$200,000, and the reimbursement of the stamp duty of the property. 

15. In my judgment, it was much too late in the day for the defendant to rely on the provisions of clause 7 so as to avoid liability for specific performance of the agreement.  In any event, the offer was not an offer to pay double the amount of the deposits that had been paid by the plaintiff to the defendant.  It seems to me that if the defendant wished to rely on clause 7, it was incumbent on him to refund both the initial and further deposits and to pay compensation to the plaintiff in a sum which was equivalent to the total amount of the initial and further deposits.  That has never been done by the defendant. 

16. In Wise Think Global Ltd v Finance Worldwide Limited, HCMP 571/2010, 23 December 2010, a similar situation was dealt with by Mr Recorder A Chow, SC.  He also held that if the defendant wished to rely on a similar clause to resile from the transaction, it was required to refund both the initial and further deposits and to pay compensation to the plaintiff in the sum equivalent to the total amount of the initial and further deposits.  And as the defendant in that case did not do that, he could not rely on clause 7 to resile from the transaction.

17. In KSDY International Company Limited & Anor v Honway (China) Limited, HCA 4514/2002, 23 March 2006, before Deputy High Court Judge Muttrie, it was held that in order to avoid liability for specific performance of the primary obligation under a sale and purchase agreement to accept full payment and assign the property to the purchaser by the exercise of the option provided by a clause similar to clause 7 of the agreement, the defendant had to perform the alternative obligation of returning the deposit and payment of compensation strictly in accordance with the terms of the agreement.  That would require the actual payment of the compensation as well as the return of the deposit.  It is clear that the option to be exercised by the vendor must be exercised before the time of completion. 

18. Clearly, that has not been done in this case and, in my judgment, the plaintiff is entitled to judgment for specific performance and damages to be assessed.

19. There is no merit in the defences raised and I give judgment to the plaintiff as I have indicated.

20. I give judgment to the plaintiff for an order of specific performance of the agreement.  I also make an order that the plaintiff is entitled to damages to be assessed by a master in addition to specific performance.  I also make an order that the costs of the proceedings be costs to the plaintiff, such costs to be taxed if not agreed.