WONG HIU PING v. CHAN YEE MAN AND ANOTHER

1991, No. A6082

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Headnote

Property Law - Specific Performance ordered of a "Provisional Agreement for Sale & Purchase".

1991, No. A6082

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. The plaintiff sues for specific performance of an agreement alleged to be one whereby the defendants, as vendors, agreed to sell to the plaintiff a property in Mei Foo Sun Chuen.

2. The document concerned is on a form headed Wong Tai Real Estate Decoration Co. It is called a "Provisional Agreement for Sale and Purchase" and is dated the 19th March 1991. There then appears, under the heads "Purchaser's Data" and "Vendor's Data" the personal particulars of the plaintiff and the 1st defendant respectively.

3. There are thereafter boxed subheadings which the case warrants be set out in full : -

"Property affected

1/F., Block C, 46 Broadway Street, Mei Foo Sun Chuen, Kowloon.

Agreed purchase price

HK$2,480,000

Terms of payment

1. An initial deposit of HK$80,000.00 (by the Hong Kong and Shanghai Banking Corporation Limited Cheque No.193628) shall be paid by the Purchaser to the Vendor upon the signing hereof.

2. A further deposit of HK$168,000.00 (by Cashier Order/Cheque) shall be paid by the Purchaser to the Vendor upon the signing of the formal Agreement for Sale and Purchase at Messrs Paul Kwong & Co., solicitors on the 5th day of July 1991.

3. The remaining sum of HK$2,232,000.00 (by Cashier Order/in cash) shall be paid by the Purchaser to the Vendor on or before the 10th day of August 1991 whereby the Vendor shall deliver vacant possession of the said property to the purchaser.

Terms of this agreement

1. The Vendor and Purchaser shall on the 10th day of July 1991 enter into a formal Agreement of Sale and Purchase at Messrs Paul Kwong & Co., Solicitors. Should either party hereto fail to comply with the same without the prior consent of the other party, the defaulting party shall be deemed to have been in breach of this agreement.

2. Should the Vendor be in breach of this agreement after receiving the said initial deposit, the Vendor shall be liable to repay the said initial deposit to the Purchaser together with an additional sum equivalent to the said initial deposit as compensation. In this event, the Vendor shall also pay to our company a sum of HK$24,800.00 as handling charges.

3. Should the Purchaser be in breach of this agreement after paying the said deposit, the said initial deposit shall be absolutely forfeited by the Vendor and the Purchaser shall at the same time pay to our Company a sum of HK$24,800.00 as handling charges.

4. The Purchaser shall upon the signing of the said formal Agreement for Sale and Purchase pay to our Company a sum of HK$24,800.00 as brokerage.

5. The said initial deposit so received by our Company on behalf of the Vendor shall be subject to the receipt by the Vendor of the same and the signing by the Vendor of this agreement.

6. Apart from the costs of the said formal agreement to be paid by both parties hereto individually, all other costs of and incidental to the preparation and completion of the subsequent Assignment together with stamp duties thereon shall be solely paid by the Purchaser save and except the costs of Reassignment by the Vendor.

Remarks

The purchase price includes five sets of air-conditioners and one refrigerator."

4. The form is then signed by the plaintiff, the 1st defendant and the agent. In the end there is no contest that the 1st defendant also signed as agent for the 2nd defendant who, with her, jointly owns the property.

5. The document is in English and Chinese. The Chinese part has been completed. The English version of Clause 2 speaks of a liability to pay the initial deposit plus an equivalent sum "as liquidated damages". The Chinese, it is agreed, and so certified by a Court Translator, actually is "as compensation" as I have quoted above from that translation.

6. As relevant, the document came into being in the following way. On the evening of its date, viz. the 19th March 1991 the plaintiff visited the 1st defendant at the premises accompanied by a representative from the agent. She liked the premises and there was a discussion about price. The 1st defendant wanted $2.5m. Some bargaining then followed resulting in the plaintiff telephoning her husband who then came to the premises, inspected them and put a counter offer of $2.48m. That was accepted by the 1st defendant after she had made a telephone call to her husband in that regard. There is no context that a deal as to price was there and then struck.

7. The estate agent then returned to her office to fetch the agreement form. When she came back she asked the plaintiff's husband how much deposit he was prepared to pay upon signing the Provisional Sale and Purchase Agreement and the date he would pay the remainder of the 10% deposit required. He gave the 5th July 1991. The 1st defendant agreed the deposit arrangements and the date for signing the formal agreement and those particulars were inserted in the contract form as was the name of the Purchaser's solicitors - the 1st defendant saying she later would advise who her solicitors were to be. The date for delivery of vacant possession and completion was agreed at the 10th day of August 1991. The agent then completed the blanks in the form relating to default, the agreement, as there had been, that air-conditioners and a refrigerator were included in the sale and. then the whole agreement was read by the agent to the parties who read it themselves as well. The agent then asked if they understood Clauses (2), (3) & (4) of the terms of agreement and, when they said they did, signed at the agent's request, as regards the plaintiff expressly in the margin against Clauses (3) & (4) and, as regards the 1st defendant, against Clause (2). Thereafter a cheque for the initial deposit of $80,000 was handed over and that was that.

8. On the 14th April 1991 the 1st defendant. telephoned the plaintiff and told her that they were not now going to sell the premises and offered to refund the deposit plus an additional $80,000 as compensation in accordance with the agreement. That was refused as it was also when the 1st defendant repeated her proposition to the plaintiff's husband that same day.

9. There are differences as to what the 1st defendant offered as her reason why she was not going to proceed. The plaintiff and her husband have it that she told them both that the price of flats had gone up (as it seems was the case) and that she wanted another $200,000 in consequence. The 1st defendant maintains that she told them that their plan to emigrate to America had been postponed and that they now required the premises in which to continue to reside.

10. I need only shortly state that on this matter I believe the plaintiff and her husband. It serves no purpose to expound my reasons as it is settled that the reason for failing to proceed is of no consequence. (Wong Lai Fan v. Lee Ha (1992) 1 HKLR 125 at page 132; Abdul Cader Abdeen v. Abdul Careem Mohammed Thaheer (1958) AC 116 PC at page 125).

11. The first matter to be decided is whether there exists an unconditional agreement for sale and purchase such as entitles the plaintiff to have specific performance of it.

12. Mr Thomas for the defendants at the opening of the case amended his defence wih leave to include what has been called his "First Defence", i.e. that the defendants made no outright promise to sell their property; that there is no obligation now upon them to do so and there is no agreement for sale and purchase upon which specific performance can be had.

13. His "Second Defence" is that whatever the agreement be, the parties clearly stipulated in Clauses (2) & (3) of the "Terms of Agreement" the obligations each would owe to the other (and to Hong Tai Real Estate Decoration Co.) in the event that either party failed to enter into the contemplated formal agreement for sale and purchase at the agreed time and place and that those obligations are the only liability that one owes to the other if the obligation in Clause (1) is breached.

14. As to the "First Defence". Mr Thomas places reliance upon the very recent decision in Yeung Siu Hong v. Chan Siu Mee Sandie HCA No. A3354 of 1991 in which Godfrey J., in construing substantially similar provisions to those before me, concluded the document to be more an agreement to agree and one not in itself enforceable as a contract for sale and purchase.

15. The learned judge considered, on the facts before him, that there were 3 options :-

1. that the prelimiary agreement operated as a note or memorandum of an agreement already concluded orally between the vendor and the purchaser;

2. that by signing the document the parties concluded an immediately binding agreement in writing for the sale and purchase of the property (albeit a "provisional" agreement, pending signature of a further more formal agreement for sale and purchase) but with each party having a right to withdraw on making payment of a sum of money to the other; and

3. that the agreement was not an immediately binding agreement for sale and purchase at all but simply an agreement to agree, coupled with an agreement on the steps to be taken, and the payments to be made, prelimiary to the constitution of an agreement for sale and purchase (and with additional terms providing for what was to happen if no such agreement was in fact concluded).

16. It was this last option which the learned judge found to be the correct analysis. He said at page 15 : -

"Once the true nature of the prelimary agreement in this case is appreciated, everything else falls into place. It was, in truth, a step in the negotiations for the sale, which were not to be concluded until the formal sale and purchase agreement was signed. The vendor was therefore entitled to withdraw from the sale at anytime, provided that he did so before he signed the formal sale and purchase agreement. That is what happened. The purchaser, there being no concluded agreement for the sale and purchase, has nothing of which she can claim specific performance, and nothing the registration of which she is entitled to maintain at the Land Office."

17. He concluded on the facts of the case before him, that his 3rd option was correct.

18. I find however that I cannot, in this case, accept the proposition that all that was agreed was that there be an agreement related to the property at some certain future stage with provision for breach of that undertaking.

19. It is true, and indeed a powerful argument in his favour, as Mr Thomas submits, that the provisional agreement (as in Yeung's case) does not recite or express either an agreement for sale and purchase or an exchange of promises to sell and purchase when one might expect that if indeed the primary obligation undertaken was indeed to do just that something along those lines would appear.

20. It is also true that it would necessarily be the case that in a formal document prepared by solicitors, there would be important promises not, at the preliminary stage, settled or agreed by the parties. I speak of the usual provisions relating to title, notices, insurance, etc. etc. normally contained in a properly drawn agreement for sale and purchase. It is also the case that the evidence is that both parties intended to have legal advice before signing the formal agreement for sale and purchase.

21. What is a "formal agreement for sale and purchase"? The 1st defendant calls it a "proper agreement". The Concise Oxford Dictionary has "formal" meaning "precise", "regular". Mr Thomas submits that it means a complete and binding agreement. That may well be so in the sense of completeness.

22. If the parties contemplated a "formal agreement" as they clearly did in this case then that, it seems to me, means that, incorporating the settled terms, there was to be a document setting out and regulating with more precision their agreement and that the present agreement, a temporary one, was intended to deal with the interim by regulating their obligations and liabilities in the meantime.

23. What then was their agreement embraced by the interim agreement? Was it an agreement for the sale and purchase of the property or simply an agreement to agree about that - which is no agreement at all. Godfrey J. held, on the facts before him, that no concluded agreement had been reached for sale and purchase prior to the signing of the provisional agreement and that therefore it did not operate as a note or memorandum of an agreement already concluded orally between the parties. He gave his reasons, one of which was that there was no recital of the prior oral agreement in the prelimary agreement. It clearly would have been better had such an agreement been recited in this case. The fact is it was not and I put that on the scales.

24. On the facts before me, however, I am driven to the conclusion that there was a concluded oral agreement for sale and purchase between the parties. The evidence is that the sale had been agreed. I find the manifest intention of the parties was that the property be sold for the agreed price on the agreed conditions. All the essential terms were settled. Indeed it is the 1st defendant's evidence that by the time she signed the document all the terms had been agreed and that it included whatever details the parties wanted. The parties and the property are clear as also the price and the method of paying it. Material matters such as the date of completion and vacant possession were settled as also liability for costs and duties and even what chattels were included in the sale. In my view, it is a logical conclusion that the parties were even in agreement that whatever provisions were to be in the formal agreement (although they did not necessarily know what they individually may be) they were to be such provisions as are usually in such documents.

25. The essential terms of the agreement are set out in the provisional agreement. The document therefore evidences the agreement in such manner as to satisfy the provisions of s.3 of the Conveyancing and Property Ordinance, Cap.219 and it does not matter that it does not expressly recite the prior oral agreement for sale and purchase - although as I have said it would have been much better if it had. It is worthy of note however that it is nonetheless, entitled "Agreement for Sale and Purchase" albeit a "Provisional" one.

26. What then is the effect of my finding that there had been a concluded agreement for sale and purchase? It is this. Had Mr Thomas made out his "First Defence", there would have been nothing upon which the plaintiff could claim specific performance. The plaintiff would have failed to prove an obligation undertaken by contract to sell the property. Once a contract for sale and purchase is held to be in existence however, there arises a prima facie right to specific performance which can only be denied in this case if it can be shown that, under the terms of that contract, the plaintiff is not entitled to such relief.

27. The conditions set out in the Provisional Agreement for Sale and Purchase are to be given their full effect. There is an agreement to enter into a formal agreement. The provisional agreement remains effective until the formal agreement is drawn up and signed (Branca v. Cobarra (1947) 1 KB 854). I found the position then to be as Scholes J. put it in Chan Yock Kwong v. Wong Hee Mao [1962] HKLR 480 at p.492 :-

"In my opinion, from a reading of the agreement, the full terms of the transaction were agreed between the parties, which agreed terms were to be reduced into a more formal shape, and it is to be noted that the parties themselves admitted that the agreement accurately set out what they had agreed, and in my view, as the formal agreement, which was to supersede the present agreement has never been signed, the present agreement remains operative and I am satisfied and find that it is a binding contract."

28. There is a binding contract in this case and the only issue that then remains is whether or not the purchaser is entitled to specific performance of it.

29. That takes me to the defendant's "Second Defence". It is submitted, correctly, that it is open to the parties to make agreements that will contain not only their primary obligations to one another, but also the secondary obligations which will exists in the event that there is a breach of the primary obligations (Photo Producers Ltd v. Securicor (1980) AC 827). The submission then is that the parties clearly stipulated in Clauses (2) & (3) what obligations each would owe to the other (and to Hong Tai Real Estate Decoration Co.) in the event that either party failed to enter into the contemplated formal Agreement of Sale and Purchase at the agreed time and place. It is then submitted they thereby evinced their intention that those obligations should be the only liability of the one to the other if the obligation in Clause (1) were breached.

30. The agreement sets out in simple terms that a failure to enter into a formal agreement gives rise to a breach of the provisional agreement. If the vendors are in breach, they become liable to repay the deposit plus a like amount as compensation. That is clear.

31. I must also say that I see merit in the argument that the setting out of the liabilities that one owes to the other in the event of a breach is evidence going towards establishing that it was intended they be the only obligations. But it is evidence only in that direction and falls short, in itself, in my view, of affirmatively establishing that fact as would be the case with the addition of a few simple words declaring that to be so, for example, as were used in the agreements referred to in Wong Lau Fan v. Lee Ha (supra) and Kentex Investment Ltd v. Hui Lap Ping Sam HCMP No.3447 of 1991.

32. I accept that Godfrey J. is correct when he said in Lee Tai Kong v. Choi Pui Kee HCA No.A2338 of 1991 at page 4 :-

"The mere fact that a contract contains a liquidated damages clause, or a clause of a similar nature, is not generally an admission that the parties have agreed that damages are an adequate remedy, or that one party has an option to pay or perform. Specific performance will, despite such a clause, be granted, if it is the appropriate remedy. The relevant principles have long ago been settled and are restated with conspicuous clarity in Sir Edward Fry's classic work on The Specific Performance of Contracts, 6th Edition (1921) Chapter 3. As Sir Edward Fry there points out at page 65 ..."

33. In Wong Lai Fan v. Lee Ha, the Court of Appeal held that the parties to a provisional agreement may limit their damages for non-completion "provided a correct formula for drafting is adopted".

34. In that case the relevant Clause read as follows :-

"7. 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 sum equivalent to the amount of the initial deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance."

The Court said at page 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.

In our judgment, therefore, it is clear from its wording, particularly in its context, that its effect is that upon the vendor compensating the purchaser with the amount stipulated immediately upon her refusal to complete the sale in the manner provided, it is not open to the purchaser to take any action to claim damages or enforce specific performance."

35. The question for me is whether Clause (2) is expressed in such terms as to clearly exclude the right to claim specific performance. There are no words of any type limiting remedies exclusively. to those set out in the contract. The words that are used merely establish and record a liability to repay the deposit with a sum as compensation. The provision creates or confirms one liability and liquidates the sum to satisfy it. It does not, however, take any other liabilities or obligations away. A clearly expressed exclusion of a liability is required and that does not exist in this case.

36. Mr Thomas submits I am bound by the Privy Council decision in Abdul Cader Abdeen v. Abdul Careem Mohamed Thaheer. He examined the decisions of 4 judges of this Court who ruled specific performance on contracts with essentially the same provisions as those with which I am concerned. They are as follows: "Lau Yuet Ming v. Yeung Wai Lun and Anor HCA No.A4014 of 1991 (Bokhary J.) Ma Li Sha v. Tsang Sui Sin HCA No.A2362 of 1992 (Wong J.) Wong Shiu. Hung v. Kwok Sing Leung and Anor HCA No.A2516 of 1991 (Keith J.) and Wong Pui Ching v. Wu Mei Fong and Ors HCA No.3343 of 1991 (Deputy Judge Jones). Those cases, he argues, were decided in ignorance of Cader's case or distinguished from it with unconvincing and erroneous reasoning.

37. I trust that Mr Thomas will not concluded I have not considered his argument carefully if I do not, for the sake of brevity at least, here set out his arguments and what - for whatever that may be worth - I think of them. Suffice it to say that I have come to the decision I have for the reasons I have already stated. I must say in passing however, that I draw some strength from the fact that other judges have arrived at the same conclusion albeit, in some cases, via a rather different route.

38. I need however deal with the submission that I am bound by Cader's case. That was a case on appeal from the Supreme Court of Ceylon (as it then was) and the provision for construction was, although in different words, in my view, substantially the same as the provision with which I am concerned. The applicable law, however, was Roman - Dutch law under which every party who is ready to carry out his term of the bargin prima facie enjoys a legal right to demand performance by the other party and this right is subject only to the overriding discretion of the court to refuse the remedy in the interest of justice in particular cases.

39. Wong J. said in Ma Li Sha v. Tsang Sui Sin that the ratio to be deduced from the judgment seems to suggest that the parties had agreed to forego this right by making provisions in the contract for what was described as a substituted obligation.

40. I do not differ with that view but I prefer to approach Cader's case this way. Under our system the only common law remedy for breach of contract lies in damages and specific performance is an equitable remedy having at its roots the exercise of a judicial discretion. Specific performance is not available as a right as under the Roman - Dutch system.

41. For my part I have considerable difficulty when, in most cases, save only some good reason to exercise a discretion to the contrary, the fact is that specific performance as a reality is customarily granted, grasping why the distinction in the system should be of such consequence in the Board's decision. The position in theory on the one hand under Roman - Dutch law and in practice under the English law seems to me to be not all that different as to the end product.

42. The fact remains however that the Privy Council saw the difference as fundamental to the extent that that difference was, as I read the judgment, the prime reason for upholding the appeal. Given that that is a correct assessment of the thrust of the judgment, it follows that it cannot be the case that I am bound by the decision because the principal reason for it is the very opposition of the Roman - Dutch law to the English law in this regard. I am not bound by the Board's decision and for the reasons given, I can gather little assistance from it.

43. I make an order for specific performance. The defendants are to pay the plaintiff's costs. Liberty to the parties to apply for further consequential orders or directions.