KENTEX INVESTMENT LTD. v. HUI LAP PING SAM

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J U D G M E N T

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1. This is a dispute between vendor and purchaser. The vendor has thought better of the contract into which it entered and .wants to be shot of it, paying the purchaser, by way of compensation, the amount of his initial deposit back and an additional sum of the same amount The purchaser wants specific performance of the contract.

2. The contract, a provisional sale and purchase agreement, is on a standard form used by Easy House Properties Ltd. (which calls itself "a realty service company"). The contract is dated 2nd July 1991. The subject property is Unit 814, 8th Floor, Block F, Kornhill, Quarrybay, Hong Kong. The purchase price is $1.655M. The vendor is stated as being one Poon Wing-kin, but it is common ground that the vendor was in fact Kentex Investment Limited, for and on behalf of whom the provisional agreement was signed by Poon Wing-kin. Kentex Investment Limited is the plaintiff in the action. Hui Lap Ping Sam, the purchaser, is the defendant.

3. The contract contains three clauses, I, II, and III, relating to "Terms of Payment". Clause I reads:

"The Purchaser has, on the signing of this Provisional Sale and Purchase Agreement, paid an initial deposit of HK$20,000 to the Vendor (or the Vendor's attorney) of which payment the Vendor (or the Vendor's attorney) hereby acknowledges receipt."

Clause II reads :

"The Vendor and the Purchaser shall on or before 11th July 1991 sign the Formal Sale and Purchase Agreement at their respective solicitors and whereupon the Purchaser shall pay the further deposit of $145,500 by way of cashier order or Solicitors cheque to the Vendor's Solicitors."

Clause III reads

"The remaining sum of $1,489,500 by Cashier Order/in cash shall be paid by the Purchaser to the Vendor on or before 3rd September 1991 whereby the Vendor shall deliver vacant possession of the said property to the Purchaser."

4. The contract contains further provisions described as "Terms of this Agreement". These provide :-

"(1) The Vendor and the Purchaser agree that they shall sign a Formal Sale and Purchase Agreement on or before 11th July '1991 at their respective Solicitors and if one party shall fail to sign the Formal Sale and Purchase Agreement without the consent of the other, the failing party shall be deemed to have repudiated this Agreement.

(2) The Purchaser shall upon the signing of the said formal Agreement for Sale and Purchase pay to our Company a sum of HK$16,550 service charge.

(3) Should the Vendor be in breach of this Agreement after receiving the said initial deposit, the Vendor shall be only liable to repay the said initial deposit to the Purchaser together with an additional sum equivalent to the said initial deposit as liquidated damages. In this event, the Vendor shall also pay to our Company a sum of $16,550 as Vendor and Purchaser service charges. The Vendor shall reserve the right to deal with the suit property. In any event, the Purchaser shall not proceed'with any claims.

(4) Should the Purchaser be in breach of this Agreement after paying the said initial 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$16,550 as service charge and the Vendor shall be entitled to resell the said property without consent of the Purchaser.

(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) Both parties shall bear any costs of their appointed Solicitors firm and the stamp duties thereon shall be solely paid by the Purchaser. Both the Vendor and the Purchaser declare that the terms set out overleaf also form part of the Agreement."

    (The terms "set out overleaf" concern Easy House Properties Ltd's so-called service charge and nothing turns on them for the purposes of this action.)

5. On the date for the signing of the formal Agreement for which the Provisional Sale and Purchase Agreement provided, the vendor refused to do so, claiming to have an option instead to be entitled to pay to the purchaser twice the initial deposit and thereby buy for itself the right to call off the contract.

6. The purchaser accepts that the question is whether the purchaser's right to claim specific performance has been taken away by the terms of the contract into which the purchaser chose to enter. The purchaser says (and I agree) that clear words are necessary to take away the purchaser's right to specific performance

7. Each case of this nature naturally requires the court for this purpose carefully to consider the terms of the particular contract before the court. Earlier cases may be of some assistance but cannot, be used as more than guides to the right answer. In this field, there are at least three recent decisions of respectively Leong, D.J., Mayo, J. and myself. Of these cases, one at least has gone to the Court of Appeal and judgment was given in it on 24th January 1992. That is Wong Lai-fan v. Lee Ha (1991) CA 175, (unreported), in which the Court of Appeal accepted that it was possible for a purchaser, to enter. into a contract which did deprive him of what would otherwise have been his right to specific performance. It held, in that case, that that is what had happened, upholding the decision of Mayo, J. who had come to the same conclusion. It mentioned (though without comment) my own case, in which I had come to a similar conclusion.

8. For the purchaser here, it is argued that the case before the Court of Appeal is distinguishable. In that case, the obligation of the vendor to pay compensation to the purchaser was described as "immediate" (a similar expression was used in my own case). That, says the purchaser here, distinguishes those two cases from the present case. I accept that that is a distinction but it is, in my judgment, a distinction without a difference. Even if the, word "immediately" is not used, the obligation, as Counsel for the vendor pointed. out in argument; must be an obligation to pay the compensation within a reasonable time. If the vendor fails to pay the compensation within a reasonable time, then, given that he had otherwise had an option to perform the contract by payment of compensation rather than by specifically performing it, he would lose that option; and he would again become bound to submit to a decree for specific performance.

9. It was also urged on me by the purchaser that if the vendor is held to have the option for which he contends, of performing the contract by paying compensation rather than by submitting to specific performance, that results in a lack of mutuality; for the purchaser has no such option. He has to perform the contract specifically . whether he wants to or not. That, says the purchaser, militates against the construction which gives the vendor the alleged option. I agree. A contract for the sale of land ought to contain mutual obligations. But it is perfectly possible for the parties to contract otherwise and the only question I have to consider is whether that is what they did, in fact, do here. So I am thrown back once more on the simple question ! Were the words used here clear enough to express an intention on the part of both parties that the vendor should have the right, if he chose, to call off the contract on paying compensation and thereby avoid having specifically to perform the contract?

10. I have no doubt that the words in this case are clear enough to do this. When the contract provides (as it does in our case) that "Should the vendor be in breach of this Agreement after receiving the said initial deposit, the vendor shall be only liable to repay the said initial deposit to the purchaser together with an additional sum equivalent to the said initial deposit as liquidated damages", it does, in my judgment, clearly give the vendor the option, despite being in breach of contract, to confine the purchaser in that event to the one remedy for which the contract provides, namely, a claim for his deposit back with an additional sum equivalent to it as compensation. The matter isiput, I think, beyond doubt by the final sentences of clause III : "The Vendor shall reserve the right to deal with the suit property. In any event, the purchaser shall not proceed with any claims." Obviously, this does not preclude the purchaser from claiming the compensation and the initial deposit. But it does, in my judgment, preclude the purchaser from any other claims; including any claim for specific performance.

11. For these reasons, and with some reluctance, I must uphold the vendor's contention and declare that the vendor, on payment of the initial deposit and the equivalent sum as compensation, was entitled to call off the contract.

12. I add only this : In my view, provisional sale and purchase agreements in this form are a snare for purchasers. They give the vendor the right either to perform the contract or call it off as he chooses on paying a comparatively small sum by way of compensation, namely double the amount of the initial deposit (which, as the initial deposit itself is often quite small, is not particularly significant). The purchaser, on the other hand, is himself bound himself to perform the contract specifically. He cannot call off the contract; he must go ahead with it. Whether purchasers who enter into this form of agreement appreciate what they are doing, I do not know. I would hazard a guess that many of them do not.

13. Unfair forms of contract such as these, forced on purchasers by vendors, requires (as it seems to me) some attention from all those concerned with conveyancing in Hong Kong. These are not matters for me. All I can do is to construe whatever documents come before me to be construed according to their tenor. As I have said, I have no doubt that the present case is one in which the vendor did reserve the right to call off the contract on paying compensation, thus debarring the purchaser from the remedy of specific performance which he would otherwise have had. The vendor succeeds and I shall make an appropriate order accordingly.