AU WING CHEUNG v. ROSERIC LTD.

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J U D G M E N T

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Nazareth, J.A.:

1. By his Statement of Claim the Plaintiff sought specific performance and other relief in relation to a sale and purchase agreement which he alleged the Defendant refused to perform.' It related to ground floor shop premises at 26 King Kwong Street, Happy Valley, Hong Kong.

2. On 29th April 1991 the Plaintiff took out a summons under Order 86 RSC for summary judgment. About 3 1/2 months later, on 19th August 1991, the Defendant took out a summons under Order 18 rule 19 RSC to strike out the Plaintiff's Statement of Claim. Both applications came before Master Jones on 22nd August 1991. He dismissed the Defendant's summons to strike out and granted the Plaintiff an order for specific performance together with other associated relief.

3. The Defendant appealed to the High Court and on 19th December 1991, Kaplan J. allowed the appeal, and set aside the order for specific performance. The Plaintiff now appeals to this Court against the order made by Kaplan J.

4. The facts are as follows. On 13th February 1991 the Plaintiff, the Defendant and the estate agency they employed ("Kinwell") entered into an agreement ("the Provisional Agreement") by each executing Kinwell's printed form of contract. It was in Chinese. Separate translations, which were not identical, were put into evidence at the Order 86 hearing by the parties. However, Mr. Edward Chan, Q.C. who appeared for the Plaintiff before Kaplan J. and also before us, helpfully invited the Judge to consider the matter on the Defendant's version. It provided for the following matters, the sale and purchase through Kinwell; the purchase price of $2.88 million and the payment thereof in the following way: $80,000 as the provisional deposit on signing the Provisional Agreement, $280,000 on signing the formal Sale and Purchase Agreement and the balance of $2.5 million on completion of the sale and purchase i.e. 21st February 1991; the agreement of the purchaser to purchase with the existing tenancy of which details were recorded; Kinwell to receive $28,800 as commission on the signing of the Provisional Agreement; that if either party failed to comply with the Provisional Agreement, that party would have to pay Kinwell $28,800 to compensate it for loss (clause 8); each party to appoint and pay its own solicitors, the appointed solicitors being named; stamp duty to be paid by the purchaser; and for the matters in the following more important of the several clauses of the Agreement:

"5. If the Purchaser fails to fulfill the terms of this Agreement and as a consequence this Agreement cannot completedly smoothly, the deposit money already paid shall be forfeited by the Vendor, and the Vendor has the right to resale the said premises to any persons.

6. If the Vendor after receiving the provisional deposit does not comply with the terms of this Agreement to sell the said premises to the Purchaser, then apart from the Vendor returning to the

    Purchaser the deposit money paid, (the Vendor) shall compensate the Purchaser for his loss an amount equivalent to the like amount.

10. Before the Vendor and Purchaser go to the Solicitors to sign the formal Agreement for Sale and Purchase, this Provisional

      Agreement for Sale and Purchase is legal and is a document with legal binding force.

11. Regarding the time (and) date stated in this Agreement, both the

      Purchaser and Vendor shall adhere to comply."

5. On 19th February 1991, six days after the Agreement was signed, the Plaintiff's solicitors sent to the Defendant's solicitors by fax and by hand a letter upon which the matters in dispute have come to center. It was headed "Subject to Contract" and framed in the following terms:

"Re: Ground Floor of No. 26 King Kwong Street, Hong Kong.

    We have received instructions from our client, the intended Purchaser, in purchasing the captioned premises from your client, the Vendor thereof, on major terms and conditions as set out in the Schedule annexed hereto, subject to contract.

    Kindly take you client's instructions thereon and let us have your draft agreement for Sale and Purchase relating to the above premises for our approval on behalf of our client as well as all the relevant title deeds and documents for our personal soonest possible.

    Nothing herein shall bind our client unless and until the agreement for Sale and Purchase relating thereto has been signed by our client and all parties concerned."

6. The Schedule annexed contained more or less, though not all, the matters agreed in the Provisional Agreement.

7. The Defendant's solicitors sent a reply by hand the next day, 20th February 1991:

"Re: Ground Floor of No. 26 King Kwong Street t Honq Kong.

We thank you for your letter of 19th instant upon which we have taken our client's instructions. Our client agrees to your client's interpretation of the events that negotiation is still ongoing and no agreement had been reached before the signing of the agreement for Sale and Purchase. Our client hereby notify your client through your goodself that it had withdrawn from further negotiation with your client. In the circumstances, we enclose our client's cheque in the sum of HK$80,000^.00 being refund of the money previously received from your client. This transaction will be regarded as fallen through."

8. The Plaintiff's solicitors, responded the same day by fax:

"Re: Ground Floor of No. 26 King Kwong Street, Hong Kong.

    We are in receipt of your letter faxed to us dated the 20th instant, the contents of which are noted.

    It is astonishing and amusing that you would have construed our letter of 19th instant in such a way. In any event, we wish to remind you that our respective clients have signed a Provisional Agreement on the 13th day of February 1991 which is still valid and binding. It is expressly provided in the said Provisional Agreement that in addition to the return of the initial deposit paid by the Purchaser, the Vendor shall in the event of his failure to sign the formal agreement for Sale and Purchase pay damages to the Purchaser.

    Since the formal agreement for Sale and Purchase is to be signed tomorrow as agreed by our respective clients, we shall be obliged if you will send to us your draft agreement without further delay."

9. There was then in the next three days a minor flurry of exchanges, with each side presenting its own view, which culminated in the filing of the Plaintiff's Statement of Claim on 12th March 1991.

10. Dr. Fong, a director of the Defendant affirmed that as a result of the letter of 19th February, the Defendant on the 20th February entered into a binding agreement with River Development Ltd. ("West River") to sell the said premises to it for $3:02 million. He further affirmed he entered into that agreement in reliance upon the representation contained in the Plaintiff's solicitors letter dated 19th February to the effect that the agreement was subject to contract and thus not legally binding. He said that without that representation he would not have entered into the agreement with West River. Since April 1991, he added, West River had in fact been in occupation of the premises paying a monthly rent of $25,000. This was done, Dr. Fong said, to mitigate the Defendant's loss.

11. By its Notice of Appeal the Plaintiff seeks to have the order of Kaplan, J. set aside on three grounds:

(1) That the Judge erred in failing to hold that the Provisional

      Agreement was a binding sale and purchase agreement.

(2) That the Judge erred in holding that the Provisional Agreement was affected by the correspondence between the two sides' solicitors after its execution.

(3)    That the Judge erred in holding that the Defendant had shown triable issues arising out of the solicitors' correspondence after the execution of the Provisional Agreement.

12. It is not disputed that judgment under order 86 should be given only if "a plain case and ought not therefore to be tried" Bigg v. Boyd Gibbin Ltd. (19711 1 WLR 913 at 915 per Russell, L.J.).

13. In his judgment the Judge did not decide the issue of whether the Provisional Agreement was a binding sale and purchase agreement, as he chose to address first the effect of the correspondence and decided the appeal before him in that context. In the way the appeal to this Court was argued, the effect of the Plaintiff's solicitors' letter of 19th February emerged as a key factor, heavily relied upon by Mr. Warren Chan for the Defendant.

He points to the first paragraph:

"We have received instructions from our client, the intended Purchaser, in purchasing the captioned premises from your client, the Vendor thereof, on major terms and conditions as set out in the Schedule annexed hereto, subject to contract."

14. The Schedule he submits lists all the major terms and conditions in the Provisional Agreement. In fact it does not; clauses 5, 6, 8 and 10, and particulars of the existing tenancy are omitted. But that in my view is not material to the consideration of the point Mr. Warren Chan makes. He submits that the effect of the first paragraph is a representation that the major terms and conditions of the Provisional Agreement, and therefore the Agreement itself, is subject to the signing of formal agreement of sale and purchase. The third paragraph of the letter of 19th February reads: "Nothing herein shall bind our client unless and until the Agreement for Sale and Purchase thereto has been signed by our client and all concerned". Mr. Warren Chan contends that it submission, in particular because "herein" embraces terms and conditions in the Schedule.

I have no hesitation in rejecting hose submissions on the wording of the first and third paragraphs of the letter of 19th February, a fortiori in the context of the associated circumstances. These and the Provisional Agreement itself envisage the execution of a formal agreement, to which objective the letter of 19^th February is clearly directed. In that light, for the Plaintiff to represent that the Provisional Agreement was not binding until the formal contract was signed, would be irrational. But there would be good reason for the Plaintiff to ensure that changes or additions put forward for consideration were not taken as agreed or as altering the Provisional Agreement except in the formal context of the final contract. Indeed the Defendant exhibited letters of other Hong Kong solicitors in which that object was dealt with in express terms. I have little doubt that in their use of the words "subject to contract" and Nothing herein shall bind our client" the Plaintiff's solicitors meant no more than to secure that object. In the circumstances it seems to me that the Defendant has seized upon the words specified and has sought to misconstrue them to secure an additional profit by sale to a third party.

15. In the light of these conclusions I turn address those points arising out of the Appellant of appeal as were pursued.

Whether the Provisional Agreement was binding

16. Prima facie the Provisional Agreement, particularly in the light of clause 10, is a binding agreement (see e.g. Fong Yee Lan v. Yiu Yan Ping Civil Appeal No. 128 of 1991 pp. 9 to 12). However Mr. Warren Chan submits that it is not, on two grounds.

The Defendant's state of mind

17. First, that the letter of 19th February evidences the Defendant's state of mind i.e. that when he signed the Provisional Agreement he never had any intention of entering into binding relations. Thus Mr. Warren Chan submits neither party believed that there was a binding contract and consequently there was no binding contract (Chitty on Contract, 25th Ed., Vol. 1, p. 94, para. 129; Waddams, The Law of Contracts, pp. 109-110). Quite apart from the difficulty of escaping the clear language of the Provisional Agreement, there is simply no evidence, that the Plaintiff did not intend the Provisional Agreement to be a binding agreement. I cannot see that it is proper that the Defendant should have or that any purpose would be served by affording him an opportunity to cross-examine the Plaintiff on his state of mind having regard to the letter of the 19th February 1991 as contended for by Mr. Warren Chan. I accordingly reject the submission that neither the Defendant nor the Plaintiff had an intention to enter into or believed there was a binding contract.

Omission of fundamental term

18. Second, Mr. Warren Chan submits, the Provisional Agreement cannot be a binding agreement because there is a fundamental matter left undecided (per Lord Denning, M.R. in Courtney & Fairbairn Ltd. v. Telairi Brothers (Hotels) Ltd. [1975] 1 WLR 297 at 302A-B). He puts his submission in the following way. The Provisional Agreement provided for the sale of "Shop No. 26 on Ground Floor of No. 26 King Kwong St., Happy Valley, Hong Kong". He points to the absence of any discussion between the Plaintiff and the Defendant about the unexpired term of the Crown Lease. If, he asks, the unexpired term was only a year or a few months, would the Plaintiff nevertheless still be bound to buy? What he contends is that the Provisional Agreement should have specified the actual unexpired term. I find no merit whatsoever in this absurd submission which, incidentally, would mean that probably the vast bulk of provisional estate agency agreement in Hong Kong would not be binding. The reference to the shop in my view clearly identified the property and in the circumstances and context cannot mean other than the interest the vendor had.

19. I reject the submission that the Provisional Agreement was not binding and proceed to Mr. Warren Chan salternative submissions made on the assumption that it was binding Variation of the Provisional Agreement

Variation of the Provisional Agreement

20. Again, founding upon the letter of 19th February, Mr. Warren Chan submits that it was in the nature of an offer to vary the Provisional Agreement, which the Defendant accepted by its solicitors' letter of '20th February 1991. When the Plaintiff's statement that the major terms and conditions were subject to contract was agreed in that letter, he contends that the variation became mutual (Chitty on Contract,. 26th Ed., Val. 1, p. 999, para. 1592). Upon the conclusion on the letter of the 19th February that I have already expressed, it is plain that this submission must also fail.

Estoppel

21. Mr. Warren Chan submits further that in any case the Plaintiff is estopped from asserting that the Provisional Agreement is binding. He relies upon the following passage from the judgment of Lord Denning, M.R. in Amalaamated Investments Property Co. v. Texas Commerce Bank [1982] 1 QB 84 at 121:

"If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it - on the faith of which each of them - to the knowledge of the other - acts and conducts their mutual affairs - they are bound by that interpretation just as much as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not - or whether they were mistaken or not - or whether they had in mind the original terms or not. Suffice it that they have, by the course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it."

The interpretation, Mr. Warren Chan relies upon, is that referred to in the letter of 19th February, coupled with the Plaintiff's state of mind, i.e. that he did not have the intention to enter into a binding contract. There is no evidence whatever of such a state of mind; quite the contrary. Moreover the one-off statements in the letter of 19th February 1991 (which in any case, as I have indicated, do not in my view suggest such a state of mind) also do not amount to a course of dealing in terms of Lord Denning's dictum. The submission accordingly fails. I would add nonetheless that I am far from persuaded that it is plain that the Defendant acted in reliance of such a representation as suggested, or that the loss the Defendant might suffer if specific performance were now ordered, can be said to be detriment resulting from the Plaintiff's representation, given that the facts plainly point to the contrary.

Judge's discretion

22. Finally Mr. Warren Chan submits that specific performance is a discretionary remedy and the court may refuse to grant it on the various grounds specified at pp. 151-200 of the 4th Ed. of Spry's Principles of Equitable Remedies.

23. The trial judge in that context concluded his recitation of the facts and the somewhat narrower submissions below in the following way:

"after giving this matter the most anxious consideration, I find myself unable to say that this is such a plain case and that there ought to be no trial. In view of my decision which is based on the events of the 19th-20th February 1991, it would not assist to venture an opinion as to whether or not the Provisional Agreement was a binding agreement for the Sale and Purchase of these premises. This is a matter which together with the other points raised will have to be decided by the trial judge."

24. As to the events of the 19th-20th February 1991, I accept Mr. Edward Chan's submission that the Defendant has not discharged the threshold onus referred to by Hunter, J.A. in Bhagwandas Kewalaram Muriani v. Bank of India [1990] 1 HKLR 586, in that its evidence that the Plaintiff had no intention of entering a binding contract is incredible by reason of its inherent implausibility and also inconsistency with the Provisional Agreement.

25. This being a matter to be decided upon the affidavits and documentary evidence, this Court is as well placed as the Judge to assess the evidence. For the reasons I have given, I am satisfied that this is plainly a case in which there is no defence and that summary judgment under Order 86 ought to be entered. I would accordingly allow the appeal, set aside the order made by Kaplan, J. save as to costs which he gave to the Plaintiff, and order that judgment be entered for the Plaintiff for specific performance of the Provisional Agreement upon terms as to which I would hear counsel, West River apparently being still in occupation.

Power, J.A.:

26. I agree.

Mortimer, J.:

27. I have had an opportunity of considering my Lord's judgment in draft. I entirely agree with both his conclusions and the reasons for them. For those reasons I also respectfully differ from the conclusions of the Learned Judge below as to the arguable effect of the Respondent solicitor's letter of 19th February headed "subject to contract". In my judgment, not only does this letter not have the legal effect contended for but it is not fairly arguable that it does have such effect. The Respondent's other submissions were not considered by the Learned Judge but were advanced before this Court. Despite Mr. Warren Chan's attractive efforts none of them discloses a defence, a fairly arguable point, or an issue which ought to be tried. In the end, the Appellant's case is plain. There is no defence. The Respondent is not "shut out" from trial for there is nothing to try. The Appellant's case should no longer be delayed. I also would allow the appeal.