TSING LUNG INVESTMENT CO LTD v. YU SAI KIN

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H E A D N O T E

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The vendor under an agreement for sale and purchase of a flat in a building in the course of construction claimed interest on unpaid purchase money from the day after the date of the agreement.

HELD : (dismissing the vendor s claim) that interest under the contract did not become payable until the expiration of the vendor's notice to the purchaser to complete the agreement

Per curiam : The form of contract used in the present case full of lawyer's gobbledegook and urgently is need of revision. It was hoped the Law Society's Committee on Land Law and Conveyancing would consider urging solicitors to use in the future a simple and modern form of agreement for the sale and purchase of a flat in a building in the course of construction.

1989, M. P. No. 131

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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IN THE MATTER OF eighteen equal undivided 14,835th parts or shares of and in ALL THOSE pieces or parcels of ground registered in the District Land Office Tusen Wan as Section B of Tsing Lung Tau Lot No. 60 (Flat "B" on the 20th Floor of Block No 10 of Hongkong Garden, Phase II, Tusen Wan, New Territories) ("the said Property")

and

IN THE MATTER OF an Agreement for Sale and Purchase made between the Plaintiff and the Defendant and Fester Corporation Limited dated the 19th day of April, 1988 ("the said Agreement")

and

IN THE MATTER OF Section 12 of the Conveyancing and Property Ordinance, Chapter 219, the Laws of Hong Kong ("the said Ordinance")

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J U D G M E N T

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Godfrey, J. This is a dispute between vendor and purchaser. The partes are willing to complete the sale and purchase, but completion is held up because the vendor says that under the contract the purchaser is liable to pay interest on the unpaid balance of purchase money; the purchaser does not agree.

1. The property the subject of the contract is a unit in a new development. It is Flat B, 20/F, Block l0, Hong Kong Garden (Phase II), Tsuen Wan, New Territories.

2. I can begin the story on 5th January 1988. That was the date on which the occupation permit affecting Block 10 was granted.

3. On 19th April 1988, the parties entered into the contract for the sale and purchase of the property. On 6th December 1988, the Registrar General consented (subject to certain conditions) to the assignment of certain units in the new development (including the property) prior to the vendor's compliance (which would otherwise have been required) with the conditions of the new grant affecting Block 10.

4. On 19th January 1989, differences having arisen between the parties, the vendor instituted these proceedings by an originating summons which did not directly raise the point now in issue.

5. No certificate of compliance with the conditions of the new grant has yet been given. But the parties are, as I understand it, agreed (arid anyway I hold) that after 6th December 1988 the vendor was in a position validly to assign the property to the purchaser. On 3rd February 1989, the vendor sent (for the first time) copies of the occupation permit dated 5th January 1988, and of the Registrar General consent dated 6th December 1988, to the purchaser; and gave notice to the purchaser to complete within 14 days. The vendor demanded interest on unpaid purchase money claiming that such interest was due from the purchaser from the day after the date of the contract. The purchase disputes the vendor's claim to such interest and the real issue I now have to decide is which of them is light.

6. The determination of this issue entails an examination of the contract.

7. The contract is dated 19th April 1988 (as I have said) and is made between the plaintiff (the vendor) and the defendant (the purchaser). There is a third party, Fester Corporation Limited, called in the contract 'The Financier' but it plays no further or other part in the story; and I need not refer to it again.

8. The contract contains a definition clause and I must read four of the definitions:

"The Building" means the buildings now under construction or such other building or buildings hereafter to be constructed on the land in accordance with the building plans and intended to be known as 'Hong Kong Garden' (phase II)

"The certificate of compliance" means the certificate (if any )which is required as a pre-requisite to the Vendor assigning the premises the subject matter of this Agreement to the Purchaser without commiting any breach of the terms and conditions of the said Crown Grant.

"Consent" means the consent of the Registrar General (Land officer) required for the sale or other disposal of the land or any interest therein under the said Crown Grant.

"The Relevant Building" means Domestic Blocks number 10, 11 and 12 in the Building."

9. The contract recites that Consent for the vendor to enter into Agreements for sale and purchase to sell individual shares of and in the land and in the Relevant Building to be erected thereon had been obtained. (The "Relevant Building" was in fact Block 10).

10. Clause 2 of the contract provided that the purchase price, HK$952,565, should be paid by the purchase to the vendor's solicitors as stakeholders in the manner set out in the First Schedule. This immediately presents a difficulty. A provision for payment, not just of the deposit, but the whole of the purchase price to a stakeholder is an extraordinary provision. I suspect (and, indeed, I hope) that this was a mistake; however, nothing turns on it. The First Schedule, after providing for the payment on 19th April 1988 of the usual 10% deposit provided that the balance of the purchase money should be paid on 20th April 1988; and it provided that if the purchaser should fail to pay the said balance of the purchase money on the due date thereof, such unpaid balance of the purchase money should carry interest at the rate of 1% per month from the due date thereof until the actual date of payment.

11. It is to be noted that, on the face of  it, the parties have solemnly provided for the payment of 10% of the purchase price on the date the contract was made and then for payment of the balance the day afterwards. This absurdity is, I suspect, caused by the mindless use of a standard form of contract in prolix and confusing terms, a form which is desperately in need of revision. Such a contract can easily be framed in language a layman can understand (compare the latest editions of the National Conditions of Sale, or the Law Society's Conditions of Sale, in use in England and Wales). But such contracts in Hong Kong are all too often framed in terms so convoluted that even the solicitors who use them clearly do not understand what they are doing. This is just the sort of thing which gives the law, and lawyers, a bad name.

12. It is, I suppose, possible in theory that a vendor and purchaser might choose to agree on a bargain for the sale of a flat in a building still in the course of construction under which the whole of the purchase money is to become payable, not when the vendor is ready to give possession of the new flat to the purchaser, but on the day after the parties sign the contract. I entertain the gravest doubts whether the vendor and purchaser here intended to enter into so lunatic an arrangement. However, this is not an action to rectify the contract, and I must put such doubts out of my mind.

13. I must give the provisions of the First Schedule their natural and ordinary meaning, however bizarre the result, unless there is something somewhere else in the contract which rescues the position. Fortunately, there is.

14. Clause 2 (ii) of the contract provides:

    "In the event of the purchaser being required pursuant to anything contained in the said First Schedule to pay any part of the purchase price on or following the granting of an occupation permit and the Vendor not being at that time in a position to validly assign the said premises to the Purchaser whether by reaons of the non-availability of the Certificate of Compliance of for any other reason then the purchaser shall not be considered to be in breach of his obligations in that behalf if he fails to make payment of such part at that time and the time for payment of the sum or sums payable shall be postponed until the Vendor is in a position to assign and has given a seven days notice in wiriting to the purchaser accordingly Provided Always that nothing in this sub-clause (ii) shall relieve the Purhcaser from any agreement to pay interest (at not more than 2% above the prime rate specified by the Hong Kong and Shanghai Banking Corporation form time to time) on the sums or sums payment of which has been postponed in accordance with the provisions of this sub-clause but in the event of the purchaser being obliged to pay interest as aforesaid he shall be entitled to take delivery and possession of the said premises and if the Vendor shall not be in a position to deliver such possession or if the Purchaser does not wish to take delivery and possession of the said premises than no interest shall be payable and this provision shall override any agreement to the contrary."

  This provision, despite its turgid aid tortuous drafting is in the end, capable of being giving a sensible meaning and of being applied to the facts of the case. It means that, notwithstanding the provisions of the First Schedule, the purchaser did not, in the events which happened, become obliged to pay the balance of the purchase money on 20th April 1988. His liability to do so did not arise until 14 days after the date of the notice, 3rd February 1989, given by the vendor to the purchaser, to which I have already referred. (Under the contract, it could have been a 7 days notice; but in fact it was a 14 days notice.) Accordingly, in my judgment, interest did not begin to run against the purchaser until 17th February 1989.

15. In order to come to this conclusion, I have chosen to give a purposive construction, rather than a literal one, to the ungodly jumble of words to be found in clause 2 (ii) of the contract. The pity of it is that the whole object could have been so easily expressed in simple language. What the draftsman was trying to do comes through eventually, hard though he seems to have tried to disguise his intentions. He knows that you cannot be sure, with a building in the course of construction, exactly when the flats in it will be ready for occupation. So you cannot sensibly provide, in an agreement for sale and purchase, for a filed date for completion of the bargain. A problem may arise for the vendor with the occupation permit (it would not in fact have arisen here, because the occupation permit happened to have been granted before the date of the contract). A problem may arise for the vendor with the certificate of compliance (in the present case, any risk of this was eventually eliminated when consent to assign was obtained from the Registrar General in advance of the certificate of compliance). And there may be other problems which will delay the date when the vendor is in a position to complete. Plainly, until the vendor is in a position to complete, the purchaser cannot be expected to part with the balance of the purchase money. The draftsman provides for all this (and for much else); and in particular he has succeeded in providing (in my judgment, correctly) that no interest shall be payable in any event until the vendor is in a position to give the purchaser possession of his new flat. The twists and turns the draftsman goes through to get there almost defy analysis; but, in my judgment, he gets there in the end.

16. I propose to dismiss these proceedings (which are, in a number of respects, defective) with costs. I cannot part from the case without expressing the hope that the Law Society's Committee on land law and conveyancing will consider urging solicitors to use in the future a simple and modern form of agreement for the sale and purchase of a flat in a building in the course of construction. The one used or misused in the present case is full of lawyer's gobbledegook and is a disgrace to the profession.