AU WING CHEUNG v. ROSERIC LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. On 22nd August 1991 Master Jones ordered that the Provisional Agreement dated 13th February 1991 referred to in the Statement of Claim be specifically performed. The Defendant, the Vendor, under the agreement, now appeals.

2. This application for specific performance was made under the provision of Order 86 of the Rules of the Supreme Court which permits a Plaintiff who claims, inter alia, the specific performance of a contract for the purchase of land or assignment of a lease to apply to the Court for judgment;

"On the ground that the Defendant has no defence to the action."

3. Order 86 is the equivalent to Order 14 in cases where specific performance of an agreement relating to an interest in land is claimed.

4. Russell L.J. (as he then was) said in Bigg v. Boyd Gibbin Ltd. [1971] 1 WLR 913 & 915:

"With the matter being dealt with under Order 86 it is, I think, right to say that an order should be made only if the Judge thinks it is a plain case and ought not therefore to be tried."

5. The question on this appeal is, therefore, whether in the light of the various contentions put forward, this is such a plain case that it ought not to be tried.

The facts

6. The Plaintiff, the Defendant and Kinwell Estate Agency Co. all signed Kinwell's printed form of contract on 13th February 1991. This document is in Chinese and I have been provided with two certified translations of it which are not identical. Mr. Edward Chan Q.C. for the Plaintiff, in a sensible endeavour to limit the areas of dispute,   invited me to consider this case on the basis of the version which the Defendant proposes and which appears at pages 52-56 in the bundle.

7. The agreement recites:

8. The purchase price was agreed at $2.88M.$80,000 was to be paid on the signing of this Provisional Agreement. $280,000 was to be paid "upon the signing of the formal agreement for Sale and Purchase as balance of the first payment. The formal agreement for Sale and Purchase should be signed on or before the 21st February 1991."

9. It was provided that $2.592M should be paid on completion which was agreed to be on or before 17th April 1991.

10. There were also provisions which provided for the payment of Kinwell's commission, and also provisions dealing with the forfeiture of the Plaintiff's deposit if he failed to fulfil the terms of the agreement.

11. Clause 10 is agreed by both sides to be important. It provides:

"Before the Vendor and Purchaser go to the solicitors to sign the formal agreement for Sale and Purchase the Provisional Agreement for Sale and Purchase is legal and is a document with legal binding force."

12. The translation of Clause 11 is somewhat cryptic and provides:

"Regarding the time (and) date stated in the agreement both the Purchaser and Vendor shall adhere to comply."

13. Six days later on the 19th February 1991, the Plaintiff's solicitors wrote to the Defendant's solicitors by fax and by hand a letter headed "Subject to Contract" in the following terms:

14. The Schedule referred to the matters agreed in the Provisional Agreement but Mrs. Clough for the Defendant contended that it went somewhat further.

15. The very next day the Defendant's solicitors replied in the following terms:

16. The Plaintiff's solicitors rejoined immediately in the following shocked terms:

 

        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."

17. Dr. Fong, a director of the Defendant's has affirmed that on 20th February, the Defendant entered into a binding agreement with West River Development Ltd. to sell the said premises for $3.02M. He further affirmed  that he entered into this agreement on 20th February in reliance upon the representation contained in the Plaintiff's solicitors letter dated 19th February to the effect that the agreement with the Plaintiff was subject to contract and thus not legally binding. He says that without that representation he would not have entered into the agreement with West River. Since April 1991, West River have in fact been in occupation of the premises paying a monthly rent of $25,000. This was done, he says, to mitigate the Defendant's loss.

Issues

18. The first issue which I was asked to decide was whether the Provisional Agreement was in fact a binding agreement for the Sale and Purchase of the property. If I felt any reasonable doubt about the matter then Mrs. Clough submitted that the appeal must succeed.

19. If contrary to her submission that the Provisional Agreement was not binding, she put forward a number of agreements based upon the above exchange of correspondence which she submitted gave the Defendant one or more arguable defences, and on that basis too she submitted that the appeal should also be allowed.

Was the Provisional Agreement a binding contract for the Sale and Purchase of the premises.

20. In view of the fact that great reliance is placed upon the correspondence which took place after the 13th February 1991, I think it more appropriate to consider the submissions based on that before considering whether the Provisional Agreement is binding. I say that for this reason. If the points based upon the correspondence lead to an arguable defence then there is little point in me commenting upon the validity or otherwise for the Provisional Agreement which will be a matter for the trial judge. This is especially so because of the differences in the translation which may entail a cross-examination of the translators if the matter does go to trial.

The Defence based upon the correspondence

21. The first argument raised by Mrs. Clough is that even if the Provisional Agreement was binding, there is nothing to stop the parties mutually agreeing to treat the contract as subject to contract and this is what the correspondence shows.

22. Mr. Edward Chan Q.C.'s ingenious reply to this point is that he agrees that this can be done but it has to be done by a binding agreement and that did not happen here because the letter dated 19th February was expressed to be subject to contract, and could not itself be the basis of an acceptance by the Defendant.

23. Mrs. Clough's second point was that the terms of the letter dated 19th February were misleading, and did mislead the Defendant who in reliance upon it went and entered into a binding agreement with West River. She puts her case fairly and squarely on estoppel and says that I can find all the ingredients for estoppel, namely representation, reliance and detriment.

24. She relied upon the well known case of Amalgamated Investment Property Co. v. Texas Commerce Bank [1982] Q.B. 84.

25. She follows this argument by submitting that the Court should refuse specific performance because the Defendant has been misled as to the effect of the Provisional Agreement, and the Plaintiff through his solicitors has contributed to this mistake. She cited passages from Snell's Principle of Equity pages 598-603 and Chitty on Contract paragraph 372.

26. She invites me to ignore the possibility that the Plaintiff's solicitors might have acted without instructions because if they did, he would have a remedy against them.

27. Mr. Chan answered the estoppel point by submitting that if the Defendant was always of the view that the Provisional Agreement was not binding, how could he have been misled by what was said by the Plaintiff's solicitors.

28. Although this last point is an attractive one, it is necessary to bear in mind certain observation by Robert Goff J. (as he then was) in the Texas Bank case at pages 104-5:

"Second, it is, in my judgment, no bar to a conclusion that the other party's conduct was so influenced, that his conduct did not derive its origin only from the encouragement or representation of the first party. There may be cases where the representee has proceeded initially on the basis of a belief derived from some other source independant of representor, but his belief has subsequently been confirmed by the encouragement or representation of the representor. In such a case, the question is not whether the representee acted, or desisted from acting, solely in reliance from the encouragement or representation of the other parties; the question is rather whether his conduct was so influenced by the encouragement or representation (I take the word "influenced" from the judgment of Bowen L.J. in Edgington v. Fitz Maurice [1885] 29 Ch.D 459, 48l) that it would be unconscionable for the representor thereafter to enforce his strict legal rights."

29. Mrs. Clough also submitted that it might well be necessary for the parties to give evidence about their state of mind as at 13th, 19th and 20th February. This she submitted could only be done by oral evidence at trial.

30. In the Court below, the Defendant's main contention had been that by the letter dated 19th February, the Plaintiff repudiated the Provisional Agreement which repudiation the Defendant accepted. Although not abandoning the point completely, Mrs. Clough did little more than mention it and I do not think it is a good argument, because it seems fairly clear to me that the Plaintiff never had any intention to repudiate the agreement whatever might have been said by the solicitors, and whatever might be the legal conclusion stemming from the words used by them. His proceeding by writ thereafter and this specific performance application is some indication that he did not have such an intention.

31. I have only attempted to outline the major points raised by both sides. I was supplied with very useful written arguments and I was referred to various authorities.

32. Although I have some sympathy for the Plaintiff for the predicament in which he finds himself, 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.

33. I, therefore, propose to allow the appeal and set aside the order for specific performance.

34. Both parties agreed that the present situation was most unsatisfactory and in the event that I gave leave to defend, I was invited to order a speedy trial. The Court does not make orders for speedy trials save in the most exceptional circumstances. I am, however, quite satisfied That the circumstances of this case justify such an order. The question of title to these premises must be sorted out quickly. Both the Plaintiff and West River are entitled to know where they stand as soon as possible. I, therefore, order a speedy trial and further order that a summons for directions be taken out as soon as possible returnable before me, so that I can make the appropriate directions for a speedy trial. The Defendant, I think, needs leave to file a new defence and counterclaim and no doubt the Plaintiff will wish to reply. I doubt that further discovery is necessary as it seems that all relevant documents have been disclosed in the various affidavits sworn in these proceedings.

35. I note that Mrs. Clough also withdrew her appeal against the Master's refusal to strike out the Statement of Claim under Order 18 Rule 19, and I order that the Defendant should pay the costs on that abandoned appeal.

                    I have already heard the parties on costs based upon all possible permutations. In the Court below Mr. Martin Lee Q.C. rested his case on repudiation, an argument which did not feature large in Mrs. Clough's submission. I have, therefore, allowed the appeal on very different arguments to those placed before the Master. Mr. Chan asked me to reflect this fact in my order for costs. I agree with him and propose to do just that. The justice of this case requires an order for costs in cause both here and below with a certificate for two Counsel for the Plaintiffs.