XCHRX LO LAI CHING v. MA KAM FAI

HCA17193/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.17193 OF 1999

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J U D G M E N T

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Appeal against Master's decision

1. This is the defendant's appeal against the decision of the master granting summary judgment in favour of the plaintiff.

The cheque : defendant's case

2. The plaintiff sued on a cheque of $80,000 drew by the defendant in favour of the plaintiff. According to the defendant, the facts relating to the drawing of the cheques are these : the parties entered into a provisional agreement for the sale and purchase of a residential property for $3,300,000 ("the Agreement"). Clause 2 of the Agreement provided that an initial deposit of $20,000 was to be paid by the defendant to the plaintiff on the signing of the Agreement. A further deposit of $80,000 was to be paid on or before 21 October 1999. A further deposit of $230,000 was to be paid upon the signing of the Formal Agreement on or before 1 November 1999. Balance of the purchase price was to be paid on 31 December 1999. The defendant issued a cheque of $20,000 for the initial deposit on 16 October 1999. For convenience sake, he also issued on the same date another cheque for $80,000 and post-dated it to 21 October 1999. This would be the further deposit payable if he proceeded with the purchase of the property from the plaintiff.

3. On 20 October 1999, the defendant decided not to proceed with the purchase. Through the estate agent, the defendant informed the plaintiff of his decision to terminate the Agreement and asked the plaintiff to return the cheque of $80,000. The plaintiff refused to do so.

Plaintiff's version

4. The plaintiff on the other hand stated that he insisted to receive $100,000 as initial deposit for the Agreement. But the defendant said that he did not have sufficient money at that time and he suggested giving the plaintiff a cheque of $20,000 for initial deposit and a post-dated cheque of 21 October 1999 for $80,000 as the balance of the initial deposit. It was in consideration of the post-dated cheque that the plaintiff entered into the Agreement with the defendant.

Triable issue

5. The defence of the defendant is one of total failure of consideration for the cheque. This in turn depends on whether he could properly terminate the Agreement and had in fact done so before the deposit of $80,000 was due on 21 October. What the plaintiff said about the deposit was contrary to the express terms of the Agreement. In my view, there is a triable issue on the circumstances in which the cheque was drawn.

6. Clause 7 of the Agreement

Clause 7 of the Agreement provides that :-

"Should the Purchaser fail to complete the purchase in the manner herein contained, the 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."

Construction

7. There is a long line of decisions dealing with similar clauses. One does not need to go through them other than to refer to Man Sun Finance (International) Corp v. Lee Ming Ching Stephen [1993] 1 HKC 113 in which the Court of Appeal clearly recognised that the vendor and the purchaser are entitled to agree among themselves on the payment of compensation or forfeiture of the deposit when they chose not to proceed with the agreement. In such circumstances, provided that the obligation is observed, the other party is not entitled to insist on other remedies, see also Wong Lai Fan v. Lee Ha [1992] 1 HKLR 125 and Cheerup Limited v. Wong Sau Fong, HCA4461 of 1992.

8. Ultimately the decision of a case will depend on the wording of the clause in question. In Wong Shui Hung v. Kwok Sing Leung [1992] 2 HKC 369, the court held that the clause in that case was not sufficiently wide enough to exclude specific performance. 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.

Taking advantage of one's own wrong

9. Miss Au, solicitor for the plaintiff, referred to Beitel v. Sorokin, 38 D.L.R. (3d) page 455 in which Clement JA of the Alberta Supreme Court of Canada referred to the ordinary rule of construction that where it is stipulated that a contract shall be void on the happening of a certain event, a party who himself brings that event about cannot insist on putting an end to the contract for, if he were allowed to do so, he would be taking advantage of his own wrong.

10. Miss Au submitted that what the defendant was trying to do in this case was to take advantage of his own wrong. But as Prowse JA stated in the same case at page 461 :-

"This is not an absolute rule of construction but as Sir Montague E. Smith stated in Davenport v. The Queen (1877), 3 App. Cas. 115 at p.129 : '... the intention to exclude it should be clearly established', and the intention of the parties to exclude it must be found in the language used and, if found, effect must be given to it...."

11. A similar view was also expressed by the judge in Mickelfield v. S.A.C. Technology Ltd [1990] WLR at 1002.

12. In this case, Clause 7 expressly provides that the vendor (plaintiff) shall not sue the purchaser (defendant) for "any liabilities and/or damages or to enforce specific performance". These are extremely wide exclusions and all that the vendor is entitled to is to forfeit the deposit of $20,000.

Appeal allowed

13. In my view, what the defendant had said clearly constitutes an arguable defence to the plaintiff's claim. The appeal is accordingly allowed and the judgment is set aside. The defendant is given unconditional leave to defend.