Cheung Yun Ho and Another v. Wong Kwan Cheung and Another

IN THE COURT OF APPEAL

1994, No. 2
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

1. This is the judgment of the court on an appeal from an order of Mr. Justice Leong dated 23 December 1993, by which (reversing a decision of Master Woolley dated 24 November 1993) the judge gave the defendants in the action unconditional leave to defend it.

2. The action is a purchaser's action for specific performance of a so-called provisional Agreement for Sale and Purchase dated 29 June 1993 ("the Agreement"). The purchasers applied to the court on 2 September 1993 for summary judgment, under the provisions in that behalf contained in Order 86 of the Rules of the Supreme Court, on the basis that the vendors plainly had no defence in the action.

3. The issue then is whether the vendors do have a defence to the action. The defence which the vendors claim to have, as we understand it, is that the purchasers failed on 6 July 1993 to pay to the vendors a sum of HK$158,000 payable by the purchasers to the vendors on that day pursuant to one of the provisions of the Agreement; that time was of the essence of that provision; that the failure to make the payment was a breach of contract; that the breach of contract was so serious a breach as to amount to a repudiation of the contract by the purchasers; that the vendors have accepted the repudiation; that accordingly the contract is now at an end; and that the vendors had therefore the right to forfeit the initial deposit of HK$100,000 paid by the purchasers to the vendors upon the signing of the Agreement, which the vendors purported to do on 7 July 1993.

4. The material facts are not in dispute.

5. The Agreement was in the Chinese language and was in a form propounded by a firm of brokers (misleadingly called agents) called Fortune Realty Company, upon whose letterhead it appears.

6. Forms like these are primarily designed to ensure that the brokers obtain their commission no matter what difficulties the parties may encounter in negotiating the terms of the formal Sale and Purchase Agreement which these provisional forms of Agreement for Sale and Purchase always contemplate.

7. The purchasers under the Agreement are Cheung Yun Ho and Kuang Sau Chun (the plaintiffs in the action and the appellants before us). The vendors are Wong Kwan Cheung and Wong Yuet Man (the defendants in the action and the respondents before us). The Fortune Realty Company is also a party to the Agreement. Neither the vendors nor the purchasers have taken any point on the fact that the Agreement contains nothing explicitly demonstrating that this was intended to be an immediately binding contract for the sale and purchase of land; and we are therefore content to assume for present purposes that this form does have the effect of constituting such a contract, although it recites only that the vendor has instructed the agent to sell the property to which it relates and that the purchaser has instructed the agent to purchase the property through the services rendered by the agent.

8. Clause 1 of the Agreement refers to the property the subject of the contract, which is Flat D, 9th Floor, Block 2 and Car Park No. B 63, Cheerful Park, Sheung Shui in the New Territories.

9. Clause 2 states the purchase price, which is HK$2,580,000.

10. Clause 3 sets out the payment terms. Its terms are important for present purposes and we shall set it out in full as it has been translated:

"3. Payment terms:

(a) The Purchaser shall pay to the Vendor a deposit in the sum of Hong Kong Dollars one hundred thousand only upon the signing of this Agreement. A further deposit in the sum of HK$ (crossed) shall also be paid to the Vendor on or before (crossed) day (crossed) month (crossed) year (crossed).

(b) The Purchaser shall on or before 6th July, 1993 sign the formal Agreement for Sale and Purchase at the Purchaser's Solicitors Messrs. Ng, Lie, Lai & Chan and pay the further deposit in the sum of HK$158,000 to the Vendor's Solicitors Messrs. Karbhari & Cham. The Vendor shall on or before 6th July, 1993 sign the formal Agreement for Sale and Purchase.

(c) The Purchaser and the Vendor shall on or before 10th September, 1993 execute the Assignment. The Purchaser shall at the same time pay the balance of purchase price in the sum of HK$2,322,000 to the Vendor's solicitors."

11. The Agreement contains other terms common in agreements of this nature to only one of which we need refer. That is clause 11, and again we shall set it out in full as it has been translated:

"11. Should the Purchaser fail to perform this Agreement, the deposit shall be forfeited to the Vendor. This Agreement shall become null and void save and except Clauses 5 and 11. Both parties then guarantee not to sue the other party and the Agent for any damages or liabilities and the Vendor is entitled to sell the Property to anyone."

12. It will be remembered that the Agreement was made on 29 June 1993 and that the critical date provided in the Agreement for the concurrent acts (1) the payment of the further deposit of HK$158,000; and (2) the signing by both parties of the formal Sale and Purchase Agreement, was 6 July 1993.

13. Why so short a time is so often allowed in these agreements for the negotiation of the formal Agreement for Sale and Purchase can only be a matter for speculation. But it is perfectly clear that this practice frequently gives rise to difficulties. What happened in this case was not untypical.

14. The formal Sale and Purchase Agreement did not, of course, exist in any shape or form on 29 June 1993, when the provisional Sale and Purchase Agreement was entered into. Somebody had to bring a first draft of it into existence (although the provisional Sale and Purchase Agreement says nothing about this). The person who would be and is expected to produce the first draft of the formal Sale and Purchase Agreement is the vendor. It is the vendor who is selling the property. To do this, and then to negotiate its terms with the purchaser, naturally takes time.

15. Now, in the present case, the vendors' solicitors supplied the first draft of the formal Sale and Purchase Agreement to the purchasers' solicitors as late as 5 July 1993. According to the Statement of Claim (and it appears to be undisputed), the draft formal Agreement for Sale and Purchase did not reach the purchasers' solicitors for approval until near the close of business on that day.

16. How can it seriously have been expected that the solicitors for the purchasers, acting in their clients' best interests, should consider the form of formal Sale and Purchase Agreement submitted by the vendors' solicitors; take their clients' instructions upon it; return the formal Sale and Purchase Agreement with amendments for consideration by the vendors solicitors; agree the final terms; and get their clients to sign an engrossment, all in the space of some 24 hours? It is nonsense. In these circumstances, it seems to us most unlikely that the parties intended that time should be of the essence of these arrangements, notwithstanding the finding of the judge to that effect (on which basis his decision to give the vendors unconditional leave to defend the action appears to have turned). But we are content to assume for the purposes of the present case, without finally deciding, that time was of the essence of these arrangements, as the vendors contend.

17. On this assumption, the purchasers are placed in an impossible position. Are they supposed, as the vendors' solicitors in this case (as in so many other cases) seem to think, to come up with the money on the critical date notwithstanding that the terms of the formal Sale and Purchase Agreement have not been agreed by the deadline? Are they supposed to come up with the money even though the vendor has not signed any form of Sale and Purchase Agreement himself? (In this particular case, it is the fact that the vendors themselves never, before the expiration of the deadline, signed any form of formal Sale and Purchase Agreement.)

Plainly, we think, purchasers cannot be so obliged. The purchasers here, on all the evidence, did more than enough to comply with their obligations and to secure this contract. They tendered the further deposit on 7 July 1993, although, even then, the terms of the formal Sale and Purchase Agreement had not been agreed and accordingly no such Agreement had been signed.

18. In these circumstances, it seems to us to be quite wrong to suggest that the purchasers repudiated the contract. On what possible ground can it be said the purchasers evinced an intention not to be bound by the contract? These purchasers, quite clearly, did intend to be bound by the contract, and indeed were anxious to secure their bargain. This court has repeatedly inveighed against the practice of solicitors acting for vendors trying to take advantage of these badly drafted forms of provisional Sale and Purchase Agreements in order to threaten the purchaser with the forfeiture of his deposit unless he signs on the dotted line whatever form of Sale and Purchase Agreement the vendor insists on and however little time the purchaser and his solicitors are given to consider their position.

19. The purchasers, then, did not, in the view of this court, repudiate the contract at all. The vendors repudiated it, by purporting as they did, as soon as the deadline expired, to forfeit the purchaser's initial deposit and call the contract off. The purchasers refuse to accept this repudiation. They insist on the remedy of specific performance to which they are, in the view of this court, clearly entitled. The vendors have not shown any defence to the action. They plainly have none. This is a proper case for a decree of specific performance under the provisions of Order 86 of the Rules of the Supreme Court. We propose to allow the appeal; reverse the judge; and restore the order of the Master (who made such a decree) accordingly. The vendors must pay the purchasers' costs here and below.