NEW CHAMPION (HONG KONG) LTD v. TREBLE & TRIPLE LTD

HCA2691/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2691 OF 2008

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J U D G M E N T

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Introduction

1. This action concerns a failed conveyancing transaction between the parties.  The defendant purchaser failed to complete a sub-sale and purchase agreement of a property having paid an initial deposit and a further deposit.  The plaintiff vendor claims damages for breach of agreement and an indemnity.  For its part, the defendant contends that the plaintiff is not entitled to sue it for any liabilities and/or damages or to enforce specific performance.  In the alternative, the defendant claims that the plaintiff was in breach and it counterclaims for repayment of the deposits and damages. 

Background facts

2. On 26 March 2007, the plaintiff entered into a Sale and Purchase Agreement with a property developer to purchase an uncompleted property in a development in Cyberport, namely Flat A, on 43rd, 45th and Flat Roofs, Tower 3, Bel-Air together with Car Parks Nos. 60 and 61 on level 8 (“the Property”) for $36,390,000. 

3. By a Provisional Agreement for Sale and Purchase (“Provisional SPA”) dated 9 November 2009, the plaintiff sub-sold the Property to the defendant for $45,600,000.  Upon the signing of the Provisional SPA, the defendant paid an initial deposit of $2,219,000. 

4. Although no formal sale and purchase agreement was signed thereafter, the defendant did pay the plaintiff a further deposit of $4,621,000 on 23 November 2007. 

5. Approximately one year later, the developer gave notice to the plaintiff to complete the sale of the Property on or before 12 December 2008.  The plaintiff duly notified the defendant in turn to complete the sub-sale of the Property on or before that date. 

6. However, completion of the sale of the Property never took place. 

7. On 12 December 2008, the plaintiff’s solicitors complained to the defendant’s solicitors about the failure to complete and said :

“… our client shall claim against your client for all losses and damages suffered by our client as a result of your client’s breach and shall further require your client to indemnify our client for all losses and damages claimed by the Head Vendor, Hong Kong Cyberport (Ancillary Development) Ltd..  And in the meantime, our client reserves all rights under the said Provisional Agreement for Sale and Purchase.”

8. The defendant’s solicitors responded to that letter on 15 December 2008 saying :

“According to Clause 7 of the Provisional Agreement for Sale and Purchase dated 9 November 2007 of the Premises, which provides as follows, your client is only entitled to forfeit the initial deposit of the purchase price in the event that our client does not complete the purchase of the Premises …

We are instructed to request and demand your client to pay to us on behalf of our client the sum of HK$4,621,000 … by Thursday 18 December 2008, failing which our client shall commence legal proceedings against yours without further notice, in which case your client will be liable for additional interest and costs.”

The relevant terms of the Provisional SPA

9. The Provisional SPA included the following terms as to the price of the Property and its payment. 

“2. The Purchase price of the said premises shall be HK$45,600,000 which shall be paid by the Purchaser to the Vendor in the manner as follows :

(a) Initial deposit shall be paid upon singing of this Agreement in the sum of HK$2,219,000

(b) Upon singing of the Formal Agreement for Sale and Purchase on or before 23 November 2007 further deposit shall be paid in the sum of HK$4,621,000

…

(d) Balance of purchase price shall be paid upon completion on or before 3pm within 14 days from the date of the notice of issuance of occupation permit issued by the Developer at Vendor’s solicitors in the sum of HK$38,760,000.

…”

10. Clause 5 of the Provisional SPA provided :

“The Vendor is selling as confirmor.”

11. Clause 7 of the Provisional SPA, against which there appears the marginal note “Purchaser fails to perform”, provided :

“Should the Purchaser fail to complete the purchase in the manner herein contained, the initial deposit shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the said premises to anyone he thinks fit and the Vendor shall not sue the Purchaser for any liabilities and/or damages or to enforce specific performance.”

12. Clause 8 of the Provisional SPA, against which there appears the marginal note “Vendor fails to perform”, provided :

“Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

The history of the proceedings

13. The plaintiff commenced this action on 19 December 2008 claiming, amongst other things, rescission of the Provisional SPA, damages and an indemnity against any claim that the developer might bring against it.  The defendant filed a Defence and Counterclaim in which it denied liability to the plaintiff and counterclaimed for a declaration that it had, by the service of its pleading, rescinded the Provisional SPA and was relieved of all liability and obligations thereunder and repayment of its deposits, alternatively damages. 

14. On 24 March 2009, the plaintiff issued a summons under O. 14, O. 14A and O. 15, r. 16 against the defendant.  For its part, the defendant issued a similar summons on 28 April 2009.  At the hearing before Master J Wong, leave was granted to each party to amend their respective summonses to add a marginal reference to O. 86. 

(1) The questions posed in the plaintiff’s summons were :

“Q1:  Whether in light of the undisputed facts of the case the right of the Plaintiff to claim damages against the Defendant is affected by Clause 7 of the Provisional Sale and Purchase Agreement dated 9 November 2007 when neither the Plaintiff nor the Defendant has triggered the operation of the clause.

Q2:    That if the said question be answered in the negative, then interlocutory judgment be entered for the Plaintiff against the Defendant for the declaration and indemnity in the terms of the Statement of Claim and for damages for breach of the contract dated 9 November 2007 and made between the Plaintiff and the Defendant, mentioned in paragraph 9 of the Statement of Claim, to be assessed, and for interest as therein claimed to be assessed, and costs to be taxed.

Q3:    If the question be answered in the positive then the action be dismissed and that the Plaintiff do pay the Defendant’s costs thereof.”

(2) The questions posed in the defendant’s summons were :

“Q1:  Whether under Clause 7 of the Provisional Agreement for Sale and Purchase dated 9 November 2007, the Plaintiff (vendor) is entitled to claim the relief, if at all, as pleaded in the Statement of Claim filed herein. 

Q2:    Whether under Clause 7 of the Provisional Agreement for Sale and Purchase dated 9 November 2007, the Plaintiff (vendor) was entitled to retain the Further Deposit of HK$4,621,000.”

15. The summonses were argued before Master J Wong who, by a Decision dated 17 November 2009, answered the questions of law posed by the respective O. 14A summonses in favour of the defendant. 

(1) The Master answered the questions posed in the plaintiff’s summons as follows :

“A1:   The operation of Clause 7 only requires the failure of the Defendant (the Purchaser) to perform, and nothing further.  Once it happens, the initial deposit is forfeited to Plaintiff (the Vendor).  It shall then be entitled to sell the Property, but not sue for damages or specific performance.

A2:    Not applicable.

A3:    The Plaintiff’s claim shall be dismissed with costs to the Defendant for the answers as provided under Q1.”

(2) The Master answered the questions posed in the defendant’s summons as follows :

“Q1:  No.

Q2:    No.”

16. By his Amended Order dated 10 February 2010, Master Wong ordered that :

(1) the plaintiff’s application be dismissed;

(2) the whole of the plaintiff’s claim in this action be dismissed;

(3) judgment be entered for the defendant against the plaintiff for a sum of $4,621,000 being part of the counterclaim herein, together with interest thereon at the best lending rate quoted by the Hong Kong and Shanghai Banking Corporation Limited, i.e. 5% from 12 December 2008 to the date hereof and thereafter at judgment rate until full payment and costs of the counterclaim; and

(4) the plaintiff pay the defendant the costs of and incidental to the entire action including the costs of the two applications and all costs reserved to date. 

The issues in the appeal and the parties’ respective contentions

17. It was common ground that the appeal turns on the interpretation of clause 7 of the Provisional SPA. 

18. The defendant’s case is that pursuant to clause 7 of the Provisional SPA, the plaintiff was neither entitled to claim the relief in this action nor to retain the further deposit of $4,621,000. 

19. For its part, on the construction of clause 7, the plaintiff contends that clause 7 only operates when it is triggered and that it is only triggered when alternative performance is rendered by the purchaser, that is to say, by the purchaser foregoing the initial deposit on or before the date when the primary obligation is due.  The plaintiff maintains that, since the defendant did not forego the initial deposit, alternatively did not do so in time, it did not trigger the operation of clause 7. 

20. The defendant’s alternative case is that the plaintiff was in breach of the Provisional SPA by failing to enter into a formal sale and purchase agreement so that it is entitled to recover both the initial deposit and the further deposit paid under the Provisional SPA. 

21. Finally, the defendant denies that the damages claimed by the plaintiff were within its contemplation and are therefore not recoverable. 

The proper construction of clause 7

22. The Provisional SPA is in a form typically used by estate agents in Hong Kong.  Clauses 7 and 8 of the Provisional SPA are part of the printed terms of the proforma provisional agreement.  Together these clauses are referred to as “escape clauses” the effect of which is, in certain circumstances, to enable the parties respectively to resile from the transaction. 

23. It was common ground between the parties that clauses of this nature have to be construed strictly : see Lee Yuet Ming v Yeung Wai Lun & anor, HCA4014/91, unrep., 4.9.92 at p. 2 and Trivest Investment Ltd v Fako Properties Ltd, HCA2945/1994, unrep., 1.8.94 at p. 6. 

24. It was also contended, on behalf of the plaintiff, that clauses of this nature should also be construed applying the rule that a deed or other instrument should be construed more strongly against the grantor or maker of it (i.e. the contra proferentem rule).  In this regard, Ms Audrey Eu SC, leading counsel for the plaintiff, relied on Wong Lai Fan v Lee Ha [1992] 1 HKLR 125 at p. 133.  In that case, the issue was the construction of an “escape clause” in favour of the vendor, where Nazareth JA (as he then was), giving the judgment of the Court of Appeal, said at p.133 :

“    As we have indicated, in our judgment, upon its true and proper construction clause 7 provides the vendor with the option of immediately paying the amount stipulated instead of completing.  In our view that effect or intention is plain and, moreover, sufficiently clear to dispose of or meet the contra proferentem rule, and the necessity for clarity in the limitation or exclusion of liability and ordinary remedies (see Szymonowski and Company v Beck and Company [1923] 1 KB 457) both of which were mentioned in Fong Yee-lan and relied upon by [counsel for the purchaser].”

25. Ms Eu also relied on the Court of Final Appeal decision in Carewins Development (China) Ltd v Bright Fortune Shipping Ltd (2009) 12 HKCFAR 185 at §§47 to 56 to like effect as regards the need for clarity in the limitation or exclusion of liability and ordinary remedies and the application of the contra proferentem rule in such cases. 

26. Reliance on the contra proferentem rule was disputed by Mr Clive Grossman SC, leading counsel for the defendant.  Mr Grossman submitted that the rule only applied to remove, and not to create, a doubt or ambiguity.  He submitted there was no doubt or ambiguity in the wording of clause 7 and so no room for its operation here. 

27. In my judgment, whether the contra proferentem rule applies or not will depend on the existence of some doubt or ambiguity in the wording of the clause to be construed, in this case clause 7 of the Provisional SPA.  I do not read the Court of Appeal’s judgment in Wong Lai Fan as indicating that the contra proferentem rule is a starting point in the exercise of construction.  As for Carewins, that case concerned the ambit of an exclusion clause purporting to relieve a carrier from liability for misdelivery.  The whole context of the case was very different to the present case and, although it provides a salutary reminder of the need for clarity if there is to be a limitation or exclusion of liability and ordinary remedies, I do not consider it provides any further assistance in the present case. 

28. I turn then to the proper construction of clause 7.  Ms Eu submitted that clauses 7 and 8 are obviously intended to be mirror image clauses to create similar rights in both the vendor and the purchaser in the case of their non-performance of the Provisional SPA.  She submitted that the law on escape clauses was most succinctly summarised in See To Keung v Sunny Way Ltd [2009] 5 HKLRD 300 where Yuen JA held (at §4(c)) :

“In most provisional agreements there is an ‘escape clause’, ie a clause allowing a party who wishes to resile from the transaction within a short period of time after the provisional agreement to ‘buy his way out’:

·    In the case of a vendor, he agrees to return the initial deposit to the purchaser, doubled by a sum of equal amount which he must pay the purchaser (double deposit).

·    In the case of a purchaser, he forgoes the initial deposit.

This has also been referred to as ‘alternative performance’ an alternative to specific performance of the sale and purchase.  Where the vendor seeks to rely on the escape clause by paying double deposit, he must do so in strict compliance within the time allowed by the provisional agreement (Lee Ming Ching Stephen v Man Sun Finance (International) Corp Ltd [1993] 1 HKC 113).”

29. I respectfully agree with the passage quoted above.  However, I shall have to return to other parts of Yuen JA’s judgment below in considering the plaintiff’s submissions as to the proper construction of clause 7 of the Provisional SPA. 

30. Ms Eu developed her argument by reliance on the decision of the Court of Appeal in Man Sun Finance (referred to by Yuen JA in See To Keung) where Godfey J (as he then was) held, at pp. 118F-H and 120D, that an escape clause in favour of the vendor required it to elect to render alternative performance on the day when performance was due.  Thus, she submitted, the pair of escape clauses were conditional upon the obligation being observed in time and, if such obligation is not observed, the defaulting party cannot escape liability by virtue of the escape clause. 

31. I shall consider first the element of timing inherent in Ms Eu’s submission.  It was her submission that the effect of Man Sun Finance and See To Keung was that the alternative performance could only be rendered by the defendant up to the date of completion but not beyond that date. 

32. It is important, in my judgment, to keep the wording of the relevant clause being construed firmly in mind.  I do not think the case of Man Sun Finance assists the plaintiff here.  The clause under construction in that case (also clause 8) was being construed in the context of a provisional agreement which started by requiring (in clause 1) the vendor and purchaser to complete the formal agreement for sale and purchase in respect of the sale of the premises in question on or before 3 April 1992.  It was in respect of that particular obligation that the escape clause provided a means of alternative performance.  Clause 8 provided :

“In the event the vendor is unable or unwilling (for whatever reasons) to enter into formal agreement for sale and purchase with the purchaser and all deposits already paid shall be double refunded to the purchaser without interest, otherwise the purchaser reserves the right to buy the premises.”

Thus, Godfrey J held (at p.118F-H) that the vendor must, on the day when performance was due, either enter into the formal agreement or refund double the deposit.  The date in question was specified in the provisional agreement as 3 April 1992 and so, on that day, the vendor had to do one or other act.  Thus, when the vendor did not tender the double deposit to the purchaser until several days after that date (on 22 April 1992), it was held that the vendor could not avail himself of the escape clause since, on its proper construction, the clause provided a date on or before which the alternative performance of tendering the double deposit had to be rendered.  This was similarly the position in the case of KSDY International Co. Limited and Anor v Honway (China) Limited, HCA4514/02, unrep., 23.3.06. 

33. The wording of clause 7 in the present case is very different.  There is no obligation in the Provisional SPA for a formal sale and purchase agreement to be entered into.  As Yuen JA held in See To Keung at §4 :

“(a)  A provisional agreement is immediately binding on the parties.  Although it provides for a formal sale and purchase agreement to be signed, such formal agreement would only be to incorporate the express terms of the provisional agreement, to express any implied terms, and to add any new terms that may subsequently be agreed (Chu Wing Ning v Ngan Hing Cheung (unrep., HCA 9409/1991, [1992] HKLY 603)).

(b)   Accordingly it is perfectly possible for the parties to proceed to completion without a formal agreement being signed.  However if no formal agreement is signed because one party has insisted on the inclusion of a clause that is unreasonable, that insistence may be regarded, depending on the individual circumstances, as conduct evincing an intention no longer to be bound by the terms of the provisional agreement (DH Shuttlecocks Ltd v Keung Shiu Tang [1994] 1 HKC 286).”

(Emphasis in original)

Therefore, the condition on which the alternative performance had to be rendered in Man Sun Finance is not present in this case. 

34. Furthermore, the condition on which the escape clause may operate in this case is in the event the purchaser should “fail to complete the purchase in the manner herein contained”.  The “manner herein contained” being limited to the provisions of the Provisional SPA merely required the defendant to pay the further deposit upon the signing of the formal sale and purchase agreement on or before 23 November 1997 and then to pay the balance of the purchase price upon completion.  The defendant did duly pay the further deposit on 23 November 1997, although it may not strictly have been obliged to do so on a strict construction of clause 2(b) of the Provisional SPA, and so it remained the case that the defendant might “fail to complete the purchase in the manner herein contained” merely by failing to pay the balance of the purchase price on the date of completion.  As events transpired, that is exactly what the defendant did in this case on 12 December 2008, which was the date for completion. 

35. In my judgment, clause 7 did not cease to be effective once the date of 12 December 2008 had passed, as was inherent in the plaintiff’s contention.  The wording of clause 7 is, in my opinion, very clear and is that the purchaser’s initial deposit will be forfeited to the vendor in the event the purchaser fails to complete the purchase in the manner stipulated in the Provisional SPA.  The phrase “the initial deposit shall be forfeited to the Vendor” is cast in the passive voice and does not, in my judgment, require any positive act on the part of the purchaser.  I do not read Yuen JA’s reference in See To Keung at §4(c) to “alternative performance” as requiring a positive act on the part of the purchaser in order to avail itself of the benefits of an escape clause such as clause 7.  In my opinion, Yuen JA was using that expression as a label to describe the alternative mode by which the purchaser’s contractual obligations might be fulfilled. 

36. I would add that I do not consider that Yuen JA’s reference to the escape clause allowing a party to resile from the transaction “within a short period of time” purports to impose a temporal limit on the operation of an escape clause.  That phrase is to be understood in the context of comments by Yuen JA as to the normal manner in which escape clauses of this nature operate.  Normally, the provisional agreement is followed by a formal sale and purchase agreement in which escape clauses are not included so that the means of resiling from the transaction are usually only available between the signing of the provisional agreement and the signing of the formal agreement.  There is nothing in See To Keung, in my judgment, that precludes the continued operation of an escape clause in a provisional agreement where no formal agreement is entered into. 

37. Returning to the failure to complete in the present case, this was constituted, in my judgment, by the defendant’s failure to pay the balance of the purchase price on 12 December 2008.  This is what the plaintiff’s solicitors complained of in their letter of that date (referred to in §7 above).  It was not necessary, in my opinion, for the defendant to do anything further for clause 7 to operate.  The initial deposit it had paid stood forfeit to the plaintiff.  The defendant could no longer maintain any claim to that sum of money and the plaintiff was then absolutely entitled to treat it as his own.  Hitherto the sum would have been held by the plaintiff’s solicitors as stakeholder pending the completion of the sale.  Upon the forfeiture of the initial deposit, the plaintiff would have been at liberty to call on its solicitors to pay over that sum to it absolutely and without any condition.  This is, in substance, what the defendant’s solicitors communicated to the plaintiff’s solicitors in their reply letter of 15 December 2008 (referred to in §8 above) which was sent on the Monday following the 12 December 2008 deadline for completion. 

38. The only authority cited to me by either party which concerned an escape clause in favour of a purchaser rather than a vendor was that of Lo Lai Ching v Ma Kam Fai, HCA17193/1999, unrep., 15.1.00.  In that case Cheung J (as he then was) considered a clause similar to clause 7 in this case.  On the facts of the case before him, Cheung J held that “provided that the obligation is observed, the other party is not entitled to insist on other remedies”.  At p.4 of the judgment he said :

“In principle, I see no difference that the previous cases were all about vendors exercising their right under such clauses and the present case in which it was the purchaser who chose to exercise the right under Clause 7.”

It was submitted by Ms Eu that the reference to the purchaser choosing to exercise his right under the clause demonstrated that a positive act was required.  I do not read the case as standing as authority for such a construction of clause 7.  Cheung J referred to the purchaser exercising his right because of the facts in that case which were that, on a date before a further deposit was required to be paid, the purchaser informed the vendor of his decision to terminate the agreement.  It does not follow, in my opinion, that a purchaser seeking to rely on clause 7 or, to use Ms Eu’s expression, “to invoke” that clause must do any positive act before he can rely on it. 

39. I would add that I have not lost sight of the way in which the defendant has pleaded its case in the Defence and Counterclaim.  The primary case in its pleading is that the agreement was breached by the plaintiff so that it is entitled to recover all the deposits paid, including the initial deposit.  It is only in the alternative, on the pleaded case, that the defendant relies on clause 7 to contend that all that the plaintiff is entitled to retain is the initial deposit.  This pleaded case is inconsistent with the position adopted in the submissions made on behalf of the defendant before me.  Mr Grossman’s primary case in the hearing before me is that clause 7 operates to restrict the plaintiff’s claim (see §13 of defendant’s Skeleton Submission) and its contention that the plaintiff was in breach of agreement is only referred to as a further alternative (see §26 of the defendant’s Skeleton Submission).  I do not consider that the defendant’s inconsistent pleaded position affects the position here. The defendant’s solicitors’ letter of 15 December 2008, which pre-dated the Defence and Counterclaim, clearly proceeded on the basis that the defendant’s position was that it had no claim to the initial deposit, which stood forfeit to the plaintiff, and could only seek to recover the further deposit.  In any event, the pleaded position cannot, in my view, affect the proper construction of clause 7. 

40. I return to Ms Eu’s contention that clauses 7 and 8 are mirror image clauses and that the defendant’s construction of clause 7 lacks mutuality and so therefore should be rejected. 

41. In this regard, Ms Eu relied on the discussion in Sir Edward Fry’s The Specific Performance of Contracts (6^th Ed., 1921) at §142 of the three categories of cases in which the payment of a sum of money may be provided for in the event of non-performance.  That paragraph of the text states :

“142. From what has been said it will be gathered that contracts of the kind now under discussion are divisible into three classes :

(i)  Where the sum mentioned is strictly a penalty – a sum named by way of securing the performance of the contract, as the penalty in a bond:

(ii)  Where the sum named is to be paid as liquidated damages for breach of the contract:

(iii) Where the sum named is an amount the payment of which may be substituted for the performance of the act at the election of the person by whom the money is to be paid or the act done.

  Where the stipulated payment comes under either of the two first-mentioned heads, the Court will enforce the contract, if in other respects it can and ought to be enforced, just in the same way as a contract not to do a particular act, with a penalty added to secure its performance or a sum named as liquidated damages, may be specifically enforced by means of an injunction against breaking it.  On the other hand, where the contract comes under the third head, it is satisfied by the payment of the money, and there is no ground for the Court to compel the specific performance of the other alternative of the contract. …”

42. This passage was also referred to in Wong Lai Fan (at p. 130), it being argued in that case that the escape clause was within category (i) or (ii) and therefore such that specific performance must be granted, since it was only cases within category (iii) where that remedy was excluded.  Although that argument was rejected, the Court of Appeal observed (at p. 132) that “mutuality lends some support to the construction that produces it and conversely, its absence militates against a construction that does not produce it”. 

43. Ms Eu submitted that the plaintiff’s interpretation of clause 7, which required the doing of a positive act by the purchaser on or before the date for completion fit perfectly with the “rule of mutuality” and that, on the other hand, the interpretation contended for by the defendant created “huge inequality”.  She argued that the defendant’s construction would mean that “the maximum loss of the purchaser is always fixed as the deposit and no specific performance could ever be ordered against it while the vendor is in a much more vulnerable position and susceptible to be liable for damages or specific performance”.  Hence, she submitted, there was no mutuality. 

44. I would accept that where two clauses are intended to operate together or reciprocally that mutuality may support the correctness of a particular construction and likewise militate against a construction that does not give rise to mutuality.  But, in my judgment, one must be careful not to exaggerate this proposition or elevate it to the level of a hard and fast rule.  It is quite possible that a provisional sale and purchase agreement may be entered into in which, for one reason or another, there is only one escape clause for either the purchaser or vendor.  Furthermore, the construction of clauses 7 and 8 does not require, in my opinion, complete symmetry of time and action for the clauses to operate mutually.  It is to be noted that the condition triggering the operation of the two escape clauses is expressed slightly differently.  In the case of the purchaser, it is when he fails “to complete the purchase” and, in the case of the vendor, it is when he fails “to complete the sale”.  Their respective obligations at completion are necessarily different and this is reflected in the language of the two clauses respectively.  As far as time is concerned, as at the date of completion (at the latest), the vendor must pay double the initial deposit to resile from the agreement.  This is not materially different, in my view, to the provision in clause 7 that causes the initial deposit to be forfeited to the vendor upon the purchaser failing to complete the purchase.  As far as the alternative performance is concerned, the vendor will necessarily have to do a positive act in returning the initial deposit and the same amount again but that is simply due to the circumstance that, if the vendor wishes to resile from the obligation to complete the sale, he must do this alternative act.  As a matter of plain construction of clause 7, however, it is not necessary for the purchaser to do anything other than fail to complete the purchase, whereupon the initial deposit stands forfeited to the vendor. 

45. The construction of clause 7 which I consider to be correct is supported, in my opinion, by the following passage in Wong Lai Fan at p. 131.  There, the Court of Appeal held :

“    The manifest reason, it seems to us, is that the vendor, being in possession of the purchaser’s deposit, has only to forfeit it, whereas the purchaser for his part might well have to take legal action to recover the amount of his deposit, which necessitates express clarification that it is only further or other action that is barred.  This different formulation of clauses 6 and 7 is also entirely consistent with, and indeed indicative of a mutual intention to limit, as it were, the total price to be paid for non-completion by either party at the interim or provisional, pre-formal sale and purchase agreement stage to an amount equal to the initial deposit; …”

46. This passage demonstrates, in my view, the passive nature of the forfeiture of a deposit.  There is no suggestion that the purchaser has to do anything to bring about the forfeiture other than to fail to perform by completing the purchase.  This is also reinforced by the Court of Appeal’s approach to the construction of the words “fail to complete” at p. 132 :

“    On its plain and ordinary meaning, failure includes all failure howsoever caused, i.e. including refusal.  We can find nothing in the agreement, nor is there anything in the judgment, to warrant the construction that ‘failure’ was not to include refusal (nor, we might add, has any justification emerged in the appeal before us).”

47. I acknowledge that the result of my construction of clause 7 is that the defendant in this case has been able, in effect, to reserve the right to buy the Property for a relatively low sum (representing just under 5% of the total price).  But equally, the vendor retained the right to resile from the transaction by paying the same sum by way of alternative performance by returning the initial deposit and the same sum in addition.  So both parties have, in this case, retained the right to escape from the transaction relatively cheaply.  Clearly, this entitlement may have worked to the disadvantage of the plaintiff here.  Had circumstances been different, the disadvantage might have been that of the defendant.  But the answer to these and similar disadvantages in other cases is for the parties to a provisional sale and purchase agreement either to limit the time during which the escape clauses can operate, or to delete the escape clauses altogether, or to sign a formal sale and purchase agreement which, as I have noted above, would normally not include escape clauses.  In the present case, it is not an answer to the perceived unfairness of clause 7 to ignore its clear wording or to attempt to read into it words which are not there. 

Other issues

48. In the light of my conclusion as to the proper construction of clause 7 of the Provisional SPA, it follows that I would dismiss the plaintiff’s appeal.  It is therefore not strictly necessary to consider the other issues raised in the context of the plaintiff’s application for summary judgment. 

49. However, for the sake of completeness, I shall briefly state the conclusions I would have reached on the two further issues raised.  The first is whether the plaintiff was in breach of the Provisional SPA by failing to enter into a formal sale and purchase agreement.  The second issue is whether the head agreement between the plaintiff and the developer of the Property was within the contemplation of the defendant. 

50. As to the first issue, I would not have held that any triable issue was raised in relation to the defendant’s contention that the plaintiff was in breach of the Provisional SPA by not signing a formal agreement.  It is now settled that it is perfectly possible for parties to proceed to completion without a formal agreement : see See To Keung at §§4(a) and (b).  In any event, the correspondence shows that the plaintiff provided a draft formal agreement to the defendant before the target date for its signature.  Moreover, no complaint was ever raised by the defendant as to the lack of any formal agreement.  The defendant paid the further deposit notwithstanding the absence of a formal agreement.  I do not consider that the defendant has discharged its burden of showing there is a triable defence on the basis that the plaintiff is in breach of the Provisional SPA in failing to sign the formal agreement. 

51. As to the second issue, I would similarly not have held that the plaintiff’s claim for loss of profit on the sale of the Property was outside the contemplation of the defendant.  The terms of the Provisional SPA make it clear that it was the common understanding of the parties to it that the purchaser was selling as confirmor.  Moreover, the head agreement was registered and the defendant was in due course served with a copy of the notice of completion issued by the developer.  In my view, the fact that the plaintiff was sub-selling the Property and that it might suffer a loss of profit in the event the defendant did not complete the purchase was reasonably within the parties’ contemplation at the time they entered into the Provisional SPA. 

52. Therefore, had I not held in favour of the defendant on the proper construction of clause 7, I would have not have been dissuaded from granting summary judgment to the plaintiff on its claim on the basis of the arguments raised by the defendant on these two issues. 

Disposition and costs

53. For the reasons I have stated above, however, I consider that the defendant’s construction of clause 7 is correct so that the questions posed in the parties’ respective O. 14A summonses were correctly answered by the Master and I would affirm the order he made. 

54. The appeal must therefore be dismissed. 

55. I see no reason why costs of the appeal should not follow the event and I make an order nisi that the plaintiff pay the defendant the costs of the appeal to be taxed, if not agreed.