SHUM SIU YUK AND ANOTHER v. LIU TSIN WAI AND ANOTHER

1991, No. A8202

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. By a Chinese agreement in writing dated 24 July 1991, the defendants agreed to sell a flat to the first plaintiff (P1). An initial deposit of HK$50,000 was paid. Pursuant to the said agreement, a formal contract was to be signed on 31 July 1991, at which time a further deposit of HK$50,000 was payable. It was a term of the agreement that P1 could "purchase the aforesaid property by an attorney or nominee. The vendor shall not be entitled to object."

2. On 31 July 1991, the said further deposit and a formal contract of sale signed by the second plaintiff (P2) were sent to the defendants' solicitors.

3. Earlier that day, P1 had completed a document described as a "Nomination", wherein she nominated.P2 "to accept the said Agreement and to take up the formal Agreement for Sale and Purchase", and declared that all deposits had been paid by P2, and that "henceforth all the estate right title benefit and interest of and in the said property including the deposit paid under the said Agreement shall be vested in the said Chin Lai Kuen".

4. In effect, therefore, P1 was purporting to unilaterally assign to P2 all her rights under the said Chinese agreement. A copy of the document was not sent to the defendants' Solicitors on 31 July.

5. In the event, the defendants refused to sign the formal agreement which had been signed by P2. On 8 August 1991, the defendants' solicitors declared the initial deposit forfeit, alleging that Pl was in breach of the Chinese agreement by failing to sign the formal agreement before 31 July. As they put it in their letter of 8 August 1991:

"Therefore, our client is entitled to treat it as a breach of the Preliminary Agreement and the initial deposit of HK$50,000 is thereby forfeited."

6. PI and P2 now sue for specific performance, alternatively damages for breach of contract.

7. The defendants aver that Pl was not entitled to nominate a third party to replace her as the purchaser under the Chinese agreement. But even if P1 was entitled to do so, it was an implied term of the Chinese agreement that any nomination should be delivered together with the formal contract on 31 July 1991. Since P1 did not comply with the conditions of the Chinese agreement, the initial deposit was liable to be forfeited.

8. Alternatively, the defendants aver that even if P1 was entitled to nominate P2, which is denied, the fact is that P1 did not nominate P2 at all, but in effect purported, to assign her interest under the Chinese agreement to P2.

9. In their reply, the.plaintiffs deny any implied term requiring delivery of the nomination. They claim that the defendants solicitors knew that P2 was the nominee of P1 "prior to or upon the delivery of the formal Sale;and Purchase Agreement on the 31st July, 1991".

10. The plaintiffs called Eric Fung Shun Sum, a conveyancing clerk employed by their solicitors in July 1991. He said that he knew that Pl.proposed to nominate P2 to sign the formal agreement. He dealt with Miss Leung, a conveyancing clerk employed by Y.H. Lau & Co., the solicitors then acting for the defendants, and eventually she sent him a draft agreement. He told her that P1 "had nominated a nominee" to sign the agreement, and they agreed that he would put in the purchaser's name. On 30 July, he made P2 the purchaser, and on 31 July, P1 and P2 came to his office. P1 signed a document described as a "Nomination", and P2 signed the formal agreement. The balance of the deposit and the signed agreement were then sent to Y.H. Lau & Co. on 31 July 1991.

11. On 2 August 1991, Y.H. Lau & Co. wrote informing that they had no further instructions to act for the vendor and the aforesaid deposit and agreement were returned. He then communicated with Yaddy Cheung & Co., who claimed to be the new solicitors for the defendants, and he sent the deposit and the signed agreement to this firm. However, on 6 August, he received a letter from Yaddy Cheung & Co. stating that they had no further instructions to act for the vendor. once again, the deposit and the agreement were returned.

12. On 8 August, Edmond H.C. Wong & Co. yet another firm of solicitors, wrote that they had instructions to act for the vendor, and that the initial deposit of $50,000 was forfeited to the vendor as P1 had not signed the formal agreement on or before 31 July 1991.

13. In cross-examination, he opined that it was not in general necessary to send a copy of a written nomination, although solicitors often asked to see this document. In any event, such requests were always made before assignment. In this case, completion was scheduled for 31 August, 1991. He thought that P1 was entitled to nominate anyone she liked, and he didn't expect that Miss Leung would require to see the document at that time, i.e. on 31 July 1991.

14. Both defendants gave evidence. D1 said that Miss Leung asked her to sign, on the basis that it did not matter who the purchaser was, but she refused because the purchaser's name was different. D2 said that her mother, D1, decided not to sell.

15. On behalf of the defendants, it was submitted that P1 did not nominate P2, but purported to assign her rights to P2. The so-called nomination was therefore not within paragraph 4(3) of the Chinese agreement, which states as follows:

"3. The purchaser can purchase the aforesaid property by an attorney or nominee. The vendor shall not be entitled to object."

16. It was submitted that Pl was thereby required to remain as purchaser, and to retain the beneficial ownership. It was submitted that the contra proferentum.rule should be applied.

17. In my view, these submissions are entirely misconceived. I am satisfied that P1 was either entitled to purchase herself, or to arrange for someone else to be the purchaser, whether as nominee or independent party. Paragraph 7 of the Chinese agreement states as follows:

"7. After any change of party or after attending the solicitors, this contract will have no effect and it shall be returned to Fu Ching Realty Company."

18. This paragraph clearly contemplates a "change of party". It states that if there is such a change, the   Chinese agreement will have no further effect. In other words, the new party will sign the formal contract and thereafter P1 will have nothing further to do with the transaction.

19. In my view, therefore, paragraph 4(3) taken together with paragraph (7) of the Chinese agreement means that Pl, the purchaser can not only purchase by an attorney or nominee, but that he can also find another purchaser. Otherwise, paragraph 7 is meaningless. If P1 is obliged to remain as purchaser, how can there be a "change of party"?

20. If the above interpretation is correct, then the defendants were not justified in refusing to sign, because there was a change of party and all deposits had been paid.

21. If, on the other hand, such interpretation is too wide, then P1 would be obliged to remain as purchaser, albeit that she would be entitled to purchase by an attorney or nominee. But she would still be contractually bound to complete, whatever name appeared in the formal contract. In those circumstances, the only effect of the"Nomination", a unilateral declaration by P1 would be to inform the defendants that P2 was in fact the nominee. It could not effect the contractual relationship between P1 and the defendants, whatever its effect on the relationship between P1 and P2. The defendants could still look to P1 to complete. A novation would not have taken place, because the defendants did not consent

22. I can find no basis for implying a term in the Chinese agreement to the effect that a purchase by a nominee requires a written nomination to accompany the signed formal contract. It is likely that in any given case, a solicitor acting for a vendor would be concerned to ensure that a nominee had been duly authorised, at some stage prior to assignment. I would expect it to be a matter of greater concern to the purchaser's solicitor. In the present case, the very fact that Miss Leung sent a formal agreement to Mr. Eric Fung with the purchaser's name left blank, suggests that she was both aware that the named purchaser would be someone other than Pl, and fully accepted it Indeed, she advised her client, D1, to sign and told her that it didn matter who the purchaser was she was not concerned,at that stage to ensure that the named purchaser had been authorised by P1

23. I find for the plaintiff. Accordingly,there will be a decree for specific performance of the Chinese agreement.

24. I will hear counsel on costs.