WISE THINK GLOBAL LTD v. FINANCE WORLDWIDE LTD

CACV 10/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 10 OF 2011

(ON APPEAL FROM HCMP NO. 571 OF 2010)

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JUDGMENT

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Hon Tang VP:

Introduction

1.  By a Provisional Agreement for Sale and Purchase in a printed form and in both English and Chinese ("the Provisional SPA")[1], the Plaintiff ("the Purchaser") agreed to buy from the Defendant ("the Vendor") the Ground Floor of Block C, Nos. 301 and 301A-C, Prince Edward Road West, Kowloon, Hong Kong (the "Property").  The purchase price was HK$18,000,000 of which an initial deposit of HK$500,000 was paid upon the signing of the Provisional SPA.

2.  Several clauses in the Provisional SPA are important and are set out below:

"成交價及 付款方法 Purchase Price and payment	2.    該物業之成交價為港幣 The purchase price of the said Premises shall be HK$            18,000,000-            which shall be paid by 買方須按下列方式付款予賣方： the Purchaser to the Vendor in the manner as follows: (a)   在簽訂此合約之同時即付臨時定金港幣 Initial deposit shall be paid upon signing of this Agreement in the sum of HK$           500,000-               (b)   於下述日期或以前須加付定金，即 Further deposit shall be paid on or before      ‑‑‑‑‑‑‑‑‑‑‑‑‑–       金額港幣 in the sum of HK$              ‑‑‑‑‑‑‑‑‑‑‑‑‑–        (c)   在簽訂正式買賣合約之時，即 Upon signing of The Formal Agreement for Sale and Purchase on or before          13/1/2010         或以前須加付定金港幣 further deposit shall be paid in the sum of HK$3,100,000- and
成交日期 Completion date	(d)   完成交易日期定於 Balance of purchase price shall be paid upon completion on or before             26/2/2010         或以前，並在賣方之代表律師行付清樓價餘款為港幣 at the office of the Vendor's solicitors in the sum of HK$         14,400,000- *  除第6條規定外，上述(a) / (b) / (c)條文所列之各項定金，須由賣方之律師行以保管人身份加以保管， Subject to clause 6 hereof, the deposits payable under (a) / (b) / (c) above shall be paid to the Vendor's solicitors as 並在確保該樓價餘款足夠清還現存之按揭及債務時，方可將該定金轉交賣方。 stakeholders who may release the same to the Vendor provided that the balance of the purchase price is sufficient to discharge the existing legal charge/mortgage.
買方悔約 Purchaser fails to perform	6.    ……如買方未能履行此合約之條款完成買賣，賣方除將買方依據第2條規定已支付之所有定金沒收外， Should the Purchaser fail to complete the Purchase in the manner herein contained, all the deposit paid pursuant to clause 2 hereof shall be forfeited to the Vendor 並有權將該物業再行出售予他人； and the Vendor shall then be entitled at his absolute discretion to sell the said Premises to anyone he thinks fit. 買方須負責繳付此合約之厘印費，惟賣方不可再為此向買方追究任何責任或要求任何賠償或特定履行。 The Purchaser shall be liable to pay the stamp duty of this agreement and the Vendor shall not sue the Purchaser for any liabilities and/or damages or to enforce specific performance.
賣方悔約 Vendor fails to perform	7.    如賣方在收取定金後，不依此合約之條款完成買賣， Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, 則賣方除須退還買方所付之定金全數外，並須以同等數目之金額賠償予買方 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 另負責繳付／退還此合約之厘印費； and the reimbursement/payment (as the case may be) of stamp duty of the said Premises 惟買方不可再向賣方追究任何責任，包括其他賠償或特定履行。 and the Purchaser shall not take any further action to claim for damages or to enforce specific performance. ……
解釋 Interpretation	14.  此合約以　中／英　文本為準。 This Agreement should be interpreted in its Chinese / English version in case of ambiguities.
備註 Remarks	15.  賣方在簽訂正式買賣合約之同時，賣方須簽署一份授權書給買方，授權買方代表賣方與租客釐訂及簽署新的租約         "

3.  It will be noted that in Clause 14, the parties have struck out the Chinese character “英”and the English word "English", so that it reads:

"14.   此合約以　中／英　文本為準。

This Agreement should be interpreted in its Chinese / English version in case of ambiguities."

4.  Clause 15 was added and was in Chinese only.  The translation reads:

"15.   When signing the Formal Agreement for Sale and Purchase, the Vendor shall sign a Power of Attorney to the Purchaser, authorize the Purchaser to sign a new tenancy agreement with tenants on behalf of the Vendor.  (both signed)"

Correspondence

5.  As is usual in this kind of cases, the solicitors for the parties, Messrs Gallant Y T Ho & Co ("GYTH") (for the Vendor) and Messrs Edward Ko & Co ("EK") (for the Purchaser) entered into correspondence relating to the Formal Agreement for Sale and Purchase ("Formal SPA").  

6.  By letter dated 11 January 2010 GYTH enclosed a draft Formal SPA for approval and asked that if approved, it should be treated as engrossment and be returned duly signed by the Purchaser together with the further deposit.  It ended with a standard statement:

"Without prejudice to any previous agreements entered into between our respective clients, we stress that nothing contained herein and none of the terms and conditions contained in the said draft Agreement shall be binding on our client unless and until a formal Agreement for Sale and Purchase shall have been signed by our client and returned to you."

7.  By letter dated 12 January 2010, GYTH sent to EK:

"… the re-engrossed Agreement for Sale and Purchaser (in duplicate) in respect of the Property for your client's signature.  Please return the same to us duly signed by your client and attested together with your cheque for HK$3,100,000.00 drawn in favour of our client being the further deposit payable by your client to ours on or before 5:00 p.m. on 13^th January 2010."

8.  By letter of 13 January 2010, EK returned the re-engrossed Formal SPA together with a cheque for $3,100,000 and stated:

"… with our cheque in the sum of HK$3,100,000.00 drawn in favour of 'Gallant Y.T. Ho & Co.' as stakeholder being further deposit and part payment of purchase money of the said premises payable by our client under the said Agreement, receipt whereof kindly acknowledge.

Please note that the said Agreement for Sale and Purchase and the said cheque are sent to you against your firm's undertaking to return us one part of the said Agreement duly signed by your client(s) and attested by you for our further handling within three (3) working days from the date of this letter."

9.  On 14 January 2010, GYTH enclosed a copy of a draft power of attorney[2] for the comments of EK.  On 15 January 2010, the draft power of attorney, after slight amendment, was returned to them for their further action.

10.  On 21 and 26 January 2010, EK wrote to record that more than 3 working days had passed and that they had not received the duly signed Formal SPA and that they would hold GYTH:

"… liable for all loss which we or our clients may sustain as a result of your failure to comply with your undertaking."

11.  On 26 January 2010, EK again wrote to record that GYTH had breached their undertaking and they:

"… expressly reserve all our/our client's rights to report the matter to the Law Society of Hong Kong for their handling and to take such legal action as may be appropriate."

12.  GYTH replied by letter dated 28 January 2010 as follows:

"We refer to your letters of 13^th January 2010, 21^st January 2010 and 26^th January 2010.

We are instructed to return to you herewith the following:-

(1)   Agreement for Sale and Purchase (in duplicate) of the Property signed by your client and attested by you; and

(2)   Our cheque in the sum of HK$3,100,000.00 drawn in your favour for your client being the further deposit therefor."

13.  On the same day EK replied and stated:

"… We understand that our cheque ('our Cheque') for the Sum has been presented for payment and cleared.  Furtherance, the sending of the Formal Agreement and the Sum to you are subject to your firm's undertaking ('the Undertaking') to return to us one part of the Formal Agreement duly signed by your client and attested by you within 3 working days.  So far, we have not received your contrary to the Undertaking.  By virtue of your presentation of our Cheque for payment, you have accepted the Undertaking by such conduct aforesaid.  However, you have in breach of the Undertaking failed to return one part of the duly signed Formal Agreement to us within the prescribed time.

However, our client is surprised to note from your Letter that you were instructed to return the Formal Agreement which has not been signed by your client; and your cheque for the Sum to us.

We are instructed that by virtue of clause 5 of the Agreement and clause 6(a) of the Formal Agreement, we return your said cheque and the Formal Agreement (in duplicate) for your handling.  Please arrange for your client to sign (and attested by you) and return to us one part of the same for our further action within 3 days from the date hereof.

In the meantime, please also let us have all the relevant title deeds and documents for our perusal.

Please be informed that the issuing of this letter does not constitute any waiver by our client/us, our client/we hereby expressly reserve all its/our rights as well as the rights to hold you liable for indemnifying for all consequential loss and damages resulting from your breach of the Undertaking."

14.  By letter dated 1 February 2010 GYTH explained:

"(1)    … our client has chosen not to sign the (Formal SPA) and … We have no control as to the breach of our client of the Provisional Agreement and the situation is that clause 7 of the Provisional Agreement comes into play and governs the parties' position.  As the Formal Agreement has never been signed by our client, your client is yet to rely on clause 6(a) of the Formal Agreement.

(2)     As regards the purported further deposit in the sum of HK$3,100,000.00 ('the Sum'), you must note that we have all along been holding the same as stakeholders.  The law is that the Sum is still stakeholders' money and only forms part of the purchase price upon signing of the Formal Agreement by the parties.  As the Formal Agreement is not signed, it is nothing improper to return the Sum to you and your client as the transaction is now fallen through.

While we note that we are unable to perform the undertakings imposed in your letter dated 13^th January 2010, we are obliged to return to you herewith the Formal Agreement (in duplicate) signed by your client and our cheque for the Sum for your handling.  Please acknowledge receipt."

15.  EK replied on 5 February 2010:

"We are instructed that by virtue of our client's signing of the formal agreement for sale and purchase ('the Formal Agreement') of the Property and paying the further deposit in the sum of $3,100,000 ('the Sum') on 13 January 2010, our client did fulfill clause 2(c) of the provisional agreement and the payment term of further deposit and in part payment of the purchase price in the Formal Agreement.

Notwithstanding you have alleged that as your client has chosen not to sign the Formal Agreement and clause 6(a) is yet to apply, we are instructed that clause 5 of the provisional agreement provides such provision. We are therefore instructed to return your cheque for the Sum.

……

As to your last paragraph of your Letter, it has been clearly indicated in our previous letter to you dated 28 January 2010 that you have committed a breach of the Undertaking."

16.  The last letter I need to refer to is dated 10 February 2010 from GYTH, which insisted that Clause 6(a) was not applicable but Clause 7 was and:

"In the circumstances, we are instructed as follows:-

(1)   Our cheque in the sum of HK$3,100,000.00 drawn in your favour is enclosed herewith being the return of the Sum.

(2)   Our cheque in sum of HK$1,000,000.00 drawn in your favour is enclosed herewith being the refund of initial deposit and liquidated damages payable by our client to your client as per clause 7 of the Provisional Agreement."

The Trial

17.  On the basis of such evidence the matter went to trial before Recorder Anderson Chow, SC, who agreed with the Purchaser's contention that under Clause 7 the Vendor was obliged to pay a sum equivalent to the initial deposit of $500,000 as well as the further deposit of $3,100,000 and that since the Vendor had failed to do so, the Vendor could not rely on Clause 7.  The learned Recorder ordered specific performance in favour of the Purchaser. 

The Appeal

18.  On appeal, the Vendor was represented by Mr Johnny Mok, SC (together with Mr Jenkin Suen) and the Purchaser by Mr Edward Chan, SC and Mr Allen Lam.

19.  As the correspondence[3] show the Vendor purported to invoke Clause 7 by paying a compensation equivalent to the initial deposit.  The only issue on appeal is whether the learned Recorded was right that the Vendor was obliged also to pay the equivalent of the further deposit. 

20.  In order to decide whether Clause 7 required compensation which included the further deposit, it will be necessary to consider whether, and if so, when the further deposit was payable under the Provisional SPA.  And in any event, whether the further deposit had been paid under the Provisional SPA. 

Were the parties obliged to sign a formal SPA?

21.  Clause 2(c) is relevant.  It does not in terms require the parties to sign a formal SPA.  It provides that "Upon signing (a formal SPA) … on or before 13/1/2010" a further deposit of $3,100,000 "shall be paid". 

22.  In New Champion (Hong Kong) Ltd v Treble & Triple Ltd, HCA 2691/2008 (unreported, dated 21 July 2010), Fok J (as he then was), was concerned with a similar provision.  There, the purchase price was HK$45,600,000 of which HK$2,219,000 was to be paid upon the signing of the provisional SPA, and

"2(b) Upon singing [sic] 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 … shall be paid upon completion …"

23.  Fok J said:

"33.   … There is no obligation in the Provisional SPA for a formal sale and purchase agreement to be entered into. …"

24.  In Man Wing Fun Stephen and Anor v Ho Ching Yee Susanna¸ HCA 3724/1997 (unreported, dated 25 February 1999), Recorder Edward Chan, SC was concerned with a provisional SPA which had similar provisions.  The learned Recorder said:

"31.   It is now well settled that a clause in the form of clause 2 of the present case did not have any effect of imposing any legal or contractual obligation on the part of either the vendor or the purchaser to enter into a formal sale and purchase agreement (see Man Sun Finance (International) Corporation v Lee Ming Ching Stephen [1993] 1 HKC 113 at 124, Luxebond Investment Ltd. v Super Asian Investment Ltd. [1998] 2 HKC 308). …"

25.  With respect, I agree with Fok J and Recorder Edward Chan.  I am of the view that the parties were not obliged under the Provisional Agreement to enter into a Formal SPA. 

When or upon what event was the further deposit payable.

26.  The language of Clause 2(c) is clear.  The further deposit was to be paid "Upon signing" of the Formal SPA.  This view is amply supported by the following authorities.

27.  In Yiu Yau-ping v Fong Yee-lan [1992] 2 HKLR 167 this Court was concerned with a provisional agreement which provided:

"2.     The purchase price of the said premises shall be HK$4,320,000.00 which shall be paid by the Purchaser to the Vendor in the manner as follows:

(a)     HK$300,000.00 shall be paid upon signing of this agreement as initial deposit.

(b)     HK$132,000.00 shall be paid upon signing of formal agreement for sale and purchase on or before 28th March 1991 as balance of deposit."

28.  Nazareth JA (as he then was), giving the judgment of the Court, said at page 175:

"As to the first, it seems to us that on any reasonable reading of Clause 2(b) of the Provisional Agreement, its clear intention is that $132,000 ‘shall be paid on the signing of [the] formal agreement’ with the 28th March 1991 as the target date. It is consistent with that intention that payment is linked rather more directly to the signing of the formal agreement rather than the target date mentioned. … As a matter of construction, we do not accept that Clause 2(b) required the payment of $132,000 to be made on or before 28th March 1991 if that turned out not to be the date of signing of the formal agreement."

29.  Mr Chan has referred us to See To Keung v Sunny Way Ltd [2009] 5 HKLRD 300, another decision of this Court.  But See To Keung turned on the special wording of a clause, and where

"… On appeal, the parties agreed that the proper translation of the Chinese version of cl.2(b) should be: 'Upon signing the Formal Agreement for Sale and Purchase or before, that is [on] 8 November 2004, further payment of deposit in the sum $2.48 million'. …"

30.  On the basis of the language of that clause, Yuen JA[4] said:

"18.   … The obligation on the defendant was thus to pay the further deposit of HK$2,480,000 on 8 November 2004 irrespective of whether a formal sale and purchase agreement was signed on that date."

31.  The observations of Yuen JA made earlier in her judgment are also relevant. She said:

"4. As I understand it, the law relating to provisional sale and purchase agreements (as they are generally drafted) may be summarized as follows:

(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 (Keung Shiu-tang v DH Shuttlecocks[1994] 1 HKC 286).

(c) In most provisional agreements there is an 'escape clause' i.e. 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 (Man Sun Finance (International) v Lee Ming-ching Stephen [1993] 1 HKC 113).

(d) If the provisional agreement provides that 'upon signing the formal sale and purchase agreement, a further deposit of $X shall be paid', the purchaser is not obliged to pay the further deposit if the formal agreement is not signed (Link BrainLtd v Fujian Finance Co Ltd[1990] 2 HKLR 353; Yiu Yau-ping v Fong Yee-lan [1992] 2 HKLR 167; Health Link Investment Ltd v Pacific Hawk Investment Ltd [1995] 1 HKC 249).  These are all Court of Appeal judgments binding on this court.  It may be thought that in such a situation, the vendor is in an unfavourable position compared with the purchaser.  The purchaser would have the property 'reserved' under an agreement binding on the vendor and he can wait until close to completion date before he decides (after considering the state of the market) whether to complete or not.  If the purchaser is a 'two-dollar' company and decides not to complete after all, all that it loses would be the initial deposit.  The disadvantage to the vendor is obvious.  Of course, that is a good reason for vendors to insist on a larger initial deposit, but it is in the nature of 'initial' deposits that they are relatively small sums, especially if there is an escape clause involving the payment of double deposit or forfeiture of the initial deposit.

(e) However, this is all subject to the true construction of the agreement made between the parties in the individual case."

32.  In Link Brain Ltd v Fujian Finance Co Ltd [1990] 2 HKLR 353, the provisional agreement expressly required the signing of a formal sale and purchase agreement:

"… within 7 days of the receipt of the Sale and Purchase Agreement by the purchaser's solicitors. …"

and that an installment of 14% of the purchase price was by clause 4 payable to the vendor's solicitors "upon signing the Sale and Purchase Agreement".

33.  Clough JA, giving the judgment of the court, said at page 364E:

"Clause 4(b) requires that the relevant payment be made by the purchaser 'upon signing the Sale and Purchase Agreement'.  It seemed to us that this language was clear and unambiguous and could only mean that no payment could be required under this clause unless and until the Sale and Purchase Agreement had been signed. Clause 6(a) requires the Sale and Purchase Agreement to be signed within seven days of the receipt of the Agreement by the purchaser’s solicitors; but we could see no reason why clause 4(b) should therefore be construed as providing for the making of the relevant payment on the 31st January 1989 whether or not the Sale and Purchase Agreement had been signed."

34.  Health Link Investment Ltd v Pacific Hawk Investment Ltd [1995] 1 HKC 249, another decision of this court, was to similar effect[5].

The Construction of Clause 7

35.  The English version reads:

"7. …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."

36.  The Chinese version:

"7. …則賣方除須退還買方所付之定金全數外，並須以同等數目之金額賠償予買方".[6]

37.  Whilst the English version uses the expression "the initial deposit", the Chinese version of Clause 7 uses the expression "the total amount of deposit paid".

38.  The English version of Clause 7 presents no difficulty.  It states clearly that the Vendor could avoid e.g. specific performance by paying the equivalent of the initial deposit as compensation.

39.  It is useful to compare Clause 6[7] which covers the situation where it was the purchaser who fails to complete.  Normally, one would expect these clauses to be mirror images.  But the English version of Clause 6 is clearly different from the English version of Clause 7.  It provides that in the event of the purchaser's failure to complete "all the deposit paid pursuant to clause 2 hereof shall be forfeited to the Vendor" (my emphasis).

40.  The Chinese version of Clause 6 is identical in meaning and effect and equally explicit.  It provides for the forfeiture of

“6. …賣方除將買方依據第2條規定已支付之所有定金沒收…”.

41.  As I have said the English version of Clause 7 is clear.  It refers to the initial deposit, and that is the measure of the compensation payable.  The Chinese version does not in terms refer to the initial deposit.  It uses the expression "the total amount of deposit paid".  Unlike the Chinese version of Clause 6, it does not mention Clause 2.  I do not believe that is a critical difference.

42.  Mr Chan submitted that since the parties had agreed that in case of ambiguity the Provisional SPA should be interpreted in its Chinese version, the Vendor was liable to refund all the deposits paid and not merely the initial deposit.

43.  I agree.  The expression “所付之定金全數” clearly meant all the deposits paid.  In my view although the parties were not obliged to enter into a Formal SPA, and that the further deposit was only payable upon the signing of the Formal SPA, if the further deposit had actually been paid, it would be covered by the Chinese version of Clause 7, and the compensation payable under Clause 7 must include the further deposit as well.

44.  In New Champion (Hong Kong) Ltd, it was the purchaser who had failed to complete.  There too, the parties had not entered into a formal SPA. But as Fok J noted:

"4. Although no formal sale and purchase agreement was signed (after the Provisional SPA)[8], the (purchaser) did pay the plaintiff a further deposit of $4,621,000 on 23 November 2007."

45.  There, Clauses 7 and 8 of the provisional SPA covered default by the purchaser and the vendor respectively.  They expressly provided for the forfeiture or refund of the initial deposit.  The vendor's argument that under Clause 8, it was entitled to forfeit not just the initial deposit but also the further deposit was rejected by Fok J because of the language of the relevant clause. Moreover, Fok J went on to say:

"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." 

46.  With respect, I agree.

Had the further deposit been paid?

47.  The critical question in the present appeal is whether the further deposit had been paid.  New Champion (Hong Kong) Ltd provided an example where a further deposit was actually paid although it might not have been payable.  So here, if the further deposit had been paid, then under Clause 7, the compensation payable by the Vendor would have to include the further deposit.

48.  Mr Edward Chan submitted that it had been paid.  He relied on the EK's letter of 13 January 2010[9], which sent a cheque for HK$3,100,000 together with the engrossed Formal SPA to GYTH

"… against your firm's undertaking to return us one part of the said Agreement duly signed … and attested … within three (3) working days from the date of this letter."

49.  Mr Edward Chan rightly did not contend that payment was made on 13 January 2010, nor when the cheque was cashed.  Plainly no undertaking had been given.  Nor could it be deemed to have been given.

50.  However, he submitted that payment must be deemed to have taken place upon the expiration of 3 working days, in the absence of any indication from GYTH that the required undertaking would not be forthcoming. 

51.  Mr Chan also relied on Clause 2 which provided that the further deposit

"… shall be paid to the Vendor's solicitors as stakeholders who may release the same to the Vendor provided that the balance of the purchase price is sufficient to discharge the existing legal charge/mortgage."

52.  Mr Chan submitted this clause shows that payment to GYTH as stakeholder could be a payment to the Vendor.  I do not believe this clause helps.  The question is not whether payment to GYTH as stakeholders could amount to payment to the Vendors.  It could.  The question is whether the payment was conditional and the condition had been satisfied. 

53.  Mr Chan submitted that payment was made in terms of the undertaking spelled out in the letter of 13 January 2010.  He relied on the language of the letter of 13 January 2010.  He accepted that the payment was not unconditional. Nor had it become unconditional upon receipt by GYTH, or when the cheque was cashed by GYTH.  Mr Chan accepted that GYTH could cash the cheque, contact their clients with a view to the signing of the Formal SPA, and when they realized their client would not do so, they could inform EK that they were not in a position to give an undertaking.   However, Mr Chan added, provided that all these took place within 3 working days.

54.  According to his submission, the expiration of 3 working days was the earliest time at which the undertaking could be deemed to be given.  He also submitted that immediately after the deemed giving of the undertaking the undertaking could be said to have been broken.  That is because the undertaking was to return the duly signed and attested documents within 3 days.

55.  The artificiality of this submission is obvious.  With respect, I reject it. 

56.  Mr Chan also submitted that the payment should be regarded as having been made against GYTH giving the undertaking sought, and the undertaking must be deemed to have given on the expiration of the 3 working days, and it was not a condition of the payment that the Formal SPA be duly signed, attested, and returned.  The payment was made merely upon GYTH's undertaking to do so. 

57.  It is obvious that on 13 January 2010 when the cheque for HK$3,100,000 was sent it was sent pursuant to Clause 2(c).  In other words, it was meant to be payment "upon signing …".  The undertaking sought was a result of the Hong Kong conveyancing practice designed to avoid the physical and simultaneous exchange of the cheque and the signed and attested Formal SPA.  The payment was never meant to be independent of the delivery of the signed and attested document.  I do not believe, for example, that the Vendor could refuse to sign the Formal SPA but treated the further deposit as having been paid.  Mr Chan submitted that the Purchaser could waive the execution of the Formal SPA.  But he agreed that a unilateral payment would not suffice.  The submission was made in passing and not properly developed.  I will not deal with it since the correspondence show that there was no waiver at any material time[10].

58.  Furthermore, although the language of the undertaking could be improved, I believe that it was its essence that the Formal SPA should be signed, attested and returned.  A mere undertaking by solicitors to do so, for which the solicitor responsible might be subject to disciplinary action was not sufficient. 

59.  For the above reasons, I would allow the appeal and make an cost order nisi in favour of the Defendant with certificate for 2 counsel.

Hon Yuen JA:

60.  With great respect to the other members of this court, I would dismiss this appeal. 

Overview

61.1  As I shall seek to explain below, the issue in this case is not whether the further deposit of $3.1m was payable.  In my view, the crux of the matter isthat the Vendor through its solicitors accepted payment of the further deposit (having called for it and having agreed the terms of the Formal SPA). 

61.2   The parties having contracted that the further deposit was to be paid “upon signing of the Formal Agreement for Sale and Purchase”, once the Vendor decided to accept payment, it was bound to sign the Formal SPA.  And since the Formal SPA superseded the Provisional SPA (see cl.27), the “escape route” provided by cl. 7 of the latter document was no longer available to the Vendor.  The Vendor was therefore bound to sell the property.

61.3   Even if that view was not correct and the “escape route” in the Provisional SPA was still available, on the construction of the prevailing Chinese version, the Vendor could only have availed itself of it by paying double “the total amount of deposit paid by the Purchaser” (“買方所付之定金全數”).  The Purchaser having paid the total amount of $3.6m as deposit, the Vendor would have to pay double this sum if it wished to resale from the sale.  The Vendor did not do so. 

61.4   I would therefore agree with the learned Recorder that the Purchaser is entitled to specific performance.

Provisional SPA

62.1  I would first like to say a word about provisional SPA’s.  The courts have over the years construed various forms of provisional SPA’s written in English, and the way in which certain standard provisions should be construed has been settled by the courts in a number of authorities. 

62.2   However in recent years, bilingual forms of provisional SPA’s have been adopted by estate agents.  Sometimes the Chinese wording is different from the English wording.  Sometimes the positioning of the blanks for sums to be filled in may make the meaning of the clause in the English and Chinese versions quite different.  

62.3   Where the English version is said to prevail, there should be little difficulty with construction by reason of the authorities.

62.4   However where the Chinese version is said to prevail, the parties and the courts must be careful before adopting a construction which is based on authorities on the English version only. Cases such as See To Keung and the present appeal have shown that standard provisions in English have been “translated” in different ways in Chinese, to different effect. 

62.5   With more and more bilingual versions being used, I hope the estate agent industry would consider promoting a standard form where the English and Chinese versions would bear the same meaning so that unnecessary problems over language would no longer arise.

63.  As for the Provisional SPA in the present case, the intention of the parties as expressed in cl.14 is that in the event of any conflict between the two versions, the Chinese version should prevail.  I note that that was common ground between the parties and was also the view of the learned Recorder (see para.11 of his judgment).

Construction of cl.2(c)

64.1  The next question is whether there were any conflicts between the English and Chinese versions.  I shall deal first with cl.2(c).

64.2   The learned Recorder held that cl.2(c) should be construed in the same way as cl.2(b) in See To Keung. With great respect to the learned Recorder, I do not agree.  

64.3   In See To Keung, the prevailing Chinese version of cl.2(b) provided:

“於簽訂正式買賣合約之時或之前，即2004年11月8日加付訂金港幣 …”

The English translation of the words above (agreed by the parties in that case), is as follows:

“Upon signing the Formal Agreement for Sale and Purchase or before, that is [on] 8 November 2004, further payment of deposit ... shall be made”. (Emphasis added).

This court held, construing the words above, that the purchaser was obliged to pay the further deposit on 8 November 2004, whether that was the date on which the Formal SPA was signed, or before that document was signed.

64.4   However, cl.2(c) in the present case is different from cl.2(b) in See To Keung.  The positioning of 即 (“that is”) and 或之前 (“or before”) in our case makes it clear that whether in the English or Chinese versions, the payment of further deposit was intended to be done simultaneously with the signing of the Formal SPA.                

65.1  Where the parties have signed a clause in a provisional SPA stating that “upon signing the formal sale and purchase agreement on or before [date], the further deposit of [$X] shall be paid”, this court has held in a number of judgments that the two obligations were “linked”, to be “simultaneously performed”, and “mutually dependent on each other” (Link Brain Ltd v Fujian Finance Co Ltd [1990] 2 HKLR 353; Yiu Yau-ping v Fong Yee-lan [1992] 2 HKLR 167; Health Link Investment Ltd v Pacific Hawk Investment Ltd [1995] 1 HKC 249).

65.2   Thus, as there is no obligation on either party to sign the formal SPA, the further deposit would not be payable if the Formal SPA is not executed.

65.3   In my view, it follows as night follows day, that where the terms of the formal SPA are agreed and a vendor accepts payment of the further deposit, he has placed himself under an obligation to sign the formal SPA, as that was what the parties had agreed as reciprocal obligations.

65.4   Put another way, the options open to the parties to a provisional SPA would generally be these:

(A)    the parties choose to maintain their rights and obligations under the provisional SPA only (most of which contain “escape clauses”) and these are maintained until completion (unless the “escape route” is used in the meantime to terminate the agreement);

(B)     the parties choose the “formal SPA” route (payment of the further deposit and execution of the formal SPA, usually not containing “escape clauses”) thereby superseding the provisional SPA.  The parties are then governed by the terms of the formal SPA until completion. 

65.5   This is the choice that was referred to at the hearing of the appeal as “the fork in the road”.  Once the parties have gone down the formal SPA route, there is no turning back.   

Facts of this case

66.  In the present case,

(1) the parties (through their respective solicitors) agreed the terms of the Formal SPA,

(2) the Vendor called for the payment of the further deposit,

(3) the Purchaser executed the Formal SPA and tendered payment of the further deposit, and

(4) the Vendor accepted payment. 

In my view, it is clear from these 4 steps that the parties had gone down the “Formal SPA route”, and the Vendor was bound to sign the Formal SPA as the reciprocal obligation for accepting payment of the further deposit. 

67.1  1   Step (1) cannot be disputed. The parties through their respective solicitors had agreed the terms of the Formal SPA. 

67.2   I think Step (2) is similarly clear.  The Vendor had (by its solicitors’ letter of 12 January 2010) called for payment of the further deposit. 

67.3   As part of the Vendor’s arguments before us, leading counsel referred to the usual sentence at the end of that letter, that the terms of the Formal SPA would not be binding until it was signed by the Vendor.  However that does not detract from the point I shall discuss later - that the Vendor was bound to sign the Formal SPA when it accepted payment as these were agreed to be reciprocal, simultaneous events.    

Purchaser’s tender of the further deposit

68.1  As for Step (3), it is not disputed that the Purchaser executed the Formal SPA. 

68.2   Further I think it cannot be disputed that the Purchaser had also tendered payment in accordance with the terms of the Provisional SPA. 

68.3   It is true that the further deposit was tendered by way of a solicitors’ cheque drawn in favour of the Vendor’s solicitors as “stakeholder”, but this was in accordance with what the parties had agreed in the contract, as follows (cl.2): 

“Subject to clause 6 hereof [Purchaser’s failure to perform], the deposits payable under (a)/(b)/(c) above shall be paid to the Vendor’s solicitors as stakeholders who may release the same to the Vendor provided that the balance of the purchase price is sufficient to discharge the existing legal charge/mortgage”. (Emphasis added).

68.4   The sum was not tendered as earnest money, nor was it payable under any separate arrangement between the Purchaser and the Vendor’s solicitors.  It was payable only in exchange for execution of the Formal SPA.  It was referable only to the Vendor’s demand (made through its solicitors the previous day) for “further deposit”, and it was expressly tendered as such.

68.5   It should be noted that no undertaking was sought from the Vendor’s solicitors to return the further deposit.

68.6   It is clear also that for its part, the Vendor clearly understood and accepted that the sum had been paid as “further deposit”.  Thus in its letter dated 28 January 2010, the Vendor’s solicitors sent to the Purchaser’s solicitors a cheque in the same sum “being the further deposit”.

Vendor’s acceptance of the further deposit

69.  Step (4) is also clear, that the Vendor through its solicitors accepted payment of the further deposit.  The cheque was cleared and funds transferred the next day.  It was only 15 days later that the Vendor sought to renege from the transaction, saying that it had not signed the Formal SPA, and seeking simply to return the funds.

The undertaking

70.1  There was much argument before us about the undertaking sought from the Vendor’s solicitors, in exchange for which the Formal SPA was delivered to the Vendor’s solicitors and the cheque for the further deposit was tendered.

70.2   Before considering the undertaking in this case, one must first go back to general principles.  It has been said by the Privy Council that, in the context of a contract for the sale of land, it is a

“common-sense principle that, in the absence of an agreement for credit, the purchase money is not handed over to the vendor ... except in exchange for the delivery of the subject matter of the sale, whether it is a loaf of bread or a parcel of land” (Edward Wong Co Ltd v Johnson Stokes & Master [1984] 1 AC 296 at 303H - 304A).

That was of course said in the context of completion, but the same common-sense principle must apply where a substantial further deposit is paid by a purchaser in exchange for the vendor’s signed Formal SPA.  As all the authorities referred to in para. 64.1 have held, the signing of the Formal SPA and the payment of the further deposit are intended to be reciprocal (“linked”, “simultaneous”, “mutually dependent”) acts.    

70.3   The original English style of conveyancing required a simultaneous handing over by the purchaser’s solicitors of the purchase price (or in our case, the further deposit), in return for the handing over by the vendor’s solicitors of the documents of title (or in our case, the Formal SPA signed by the vendor). See Edward Wong p.305A        

70.4   The Hong Kong style of conveyancing relies on the use of undertakings between solicitors, whereby the purchaser’s solicitors send the purchase price to the vendor’s solicitors, on the latter’s undertaking to send within a specified period of time documents executed by the vendor .  As the Privy Council said in Edward Wong, the Hong Kong style of conveyancing “is peculiarly well adapted to the conditions in Hong Kong.  It has obvious advantages to both solicitors and their clients.  Their Lordships intend to say nothing to discourage its continuance” (p.306E). 

70.5   It is not necessary to examine why on the particular facts of Edward Wong, the embezzlement of the purchase price by the vendor’s rogue solicitor led to a successful claim in negligence against the mortgagee’s solicitors.  What is relevant to our case is that their lordships held that if the solicitor giving the undertaking had authority from his client to receive the purchase price (or in our case, the further deposit), the purchaser would be in the “favourable position which he ought to occupy when he parts with his money, that is to say, he would have an unanswerable claim against the other side for specific performance of that party’s obligation to execute the appropriate assurances” (p.308 A-B, emphasis added).    

70.6   As pointed out earlier, the Vendor’s solicitors here did have authority to receive the deposits, albeit under the condition stipulated in the “stakeholder” part of cl.2.          

71.1  I have referred to Edward Wong to show that when a vendor’s solicitor is authorized by his client to receive funds, the undertaking the solicitor gives to send documents duly executed by his client binds his client to execute them.  At risk of repeating myself, it gave the Purchaser “an unanswerable claim against the other side for specific performance of that party’s obligation to execute the appropriate assurances” (p.308 A-B).

71.2   In my view that accords with common sense and justice.  Where there is an agreement where the Purchaser’s payment of money and the Vendor’s execution of documents are intended to be reciprocal acts, the Purchaser is entitled to be handed the Vendor’s executed Formal SPA when he parts with his money.  The Purchaser parted with his money to acquire a property, not for an opportunity to complain to the Law Society against the Vendor’s solicitors for breach of undertaking. 

71.3   Further in my view, cl.2(c) having stipulated that the payment of the further deposit is simultaneous with the signing of the Formal SPA, the time specified in the undertaking does not extend the time for the Vendor to sign the Formal SPA.  It is simply an indulgence given to the Vendor’s solicitors to deliver the signed Formal SPA.

71.4   The Purchaser’s solicitors’ letter of 13 January 2010 supports this understanding.  It said:

“Please note that the said Agreement for Sale and Purchase and the said cheque are sent to you against your firm’s undertaking to return us one part of the said Agreement duly signed by your client(s) and attested by you for our further handling within three (3) working days from the date of this letter”.

The 3 working days refer to the return of the signed and attested Formal SPA.     

72.1  On receipt of this letter the Vendor’s solicitors did not reply in so many words “we give the undertaking”, but that is clear from their acceptance and retention of the Purchaser’s signed Formal SPA and the cheque for the further deposit.  Those items were delivered to them “against” the undertaking, meaning one act in exchange for another.  The Vendor’s solicitors had apparent authority to act for the Vendor.  If they had no instructions to give the undertaking binding their client to sign the Formal SPA, they should not have taken delivery of those documents, or should have returned them immediately.    

72.2   In my view, it would not do for them even to hold on to the Formal SPA and the cheque, and then only return them at the expiry of 3 days.  The common-sense principle is that, even for the purchase of a loaf of bread, money is not handed over except in exchange for the delivery of the goods.  There is no reason why the Purchaser should have parted with its money and - having signed the Formal SPA - bound itself to the purchase of the property for a period of time, whilst the Vendor kept the Purchaser in suspense and kept its own options open (over a period of 3 days, 15 days, or even all the way till completion) by not signing the Formal SPA.  There is simply no provision in the agreement that permitted that.  On the contrary, the parties had agreed in cl.2(c) that the obligations of payment and execution were to be “simultaneously performed”.

72.3   In the present case, once the cheque was deposited, there could not have been any doubt at all but that the Vendor was obliged to specifically perform its part of the reciprocal obligations, i.e. sign the Formal SPA.

73.1  Even if the view I have expressed above was incorrect, and that somehow the Formal SPA did not supercede the Provisional SPA (despite the express provision in cl.27), in my view the Vendor could not resile from the agreement except upon paying double the “買方所付之定金全數” (“total amount of deposit paid by the Purchaser”). 

73.2   Unlike the English version of cl.7, it is not limited to the “initial deposit”.  That sum ($500,000) paid at the signing of the Provisional SPA was referred to as “臨時定金” (cl.2(a)). 

73.3   There is therefore a clear difference in the terms used in cl.2(a) and cl.7 of the Chinese version when referring to the “initial deposit” and the “total amount of deposit paid”.  Applying generally applicable canons of construction, the Vendor could only have used cl.7 to avoid specific performance if it paid the Purchaser double the sum of $3.6m, being the total amount of deposit paid. The Vendor did not do so.  Accordingly even on that scenario, cl.7 had not been engaged. 

74.  I would dismiss the appeal with costs to the Purchaser (Respondent).

Hon Kwan JA:

75.  I have had the benefit of reading in draft the judgment of the Acting Chief Judge and agree with him the appeal should be allowed for the reasons given by him. I wish to add a few words of my own.

76.  The learned recorder held that on a proper construction of clause 2(c) of the Chinese version of the Provisional Agreement, the purchaser was required to pay the further deposit either upon the signing of the formal agreement for sale and purchase, which was scheduled to take place on 13 January 2010, or before that date, so that the further deposit was payable at the latest on 13 January 2010 independently of the signing of the formal agreement. He regarded this provision as similar to clause 2(b) considered in See To Keung v Sunny Way Ltd [2009] 5 HKLRD 300.

77.  I do not agree with this interpretation of the Chinese version of clause 2(c), which appears to be a literal reading of the provision. In my view, the whole of the phrase “即13/1/2010或以前” [translated as “that is 13/1/2010 or before”] should be read as referring to the time for the signing of the formal agreement. In other words, there is no difference in meaning between the Chinese version and the English version, which reads: “Upon signing of the Formal Agreement for Sale and Purchase on or before 13/1/2010 further deposit shall be paid in the sum of HK$3,100,000.”

78.  For the above reason, See To Keung v Sunny Way Ltd is distinguishable.

79.  The recorder further held that the further deposit was actually paid and received, even if it were only payable as a matter of contract upon the signing of the formal agreement. The arguments advanced by the purchaser in this court that payment of the further deposit should be regarded as having been made against the undertaking deemed to have been given and broken by the vendor’s solicitors were not made in the court below.

80.  I agree with the reasoning of the Acting Chief Judge that the plaintiff’s arguments should be rejected. The undertaking sought by the purchaser’s solicitors could not be regarded as having the effect of unilaterally altering the contractual provision that the further deposit was payable upon the signing of the formal agreement.