|
HCMP001024/1991
HEADNOTE
Provisional Contract for the sale & purchase of property - Effect of an Agreement between the parties to provide for financial compensation in the event of either of the parties thereto failing to fulfill their contractual obligations - Held - If the clause is drafted in a suitable manner such an Agreement can be upheld.
IN THE SUPREME COURT OF HONG KONG
HIGH COURT
MISCELLANEOUS PROCEEDINGS
___________
|
IN THE MATTER OF a Provisional Agreement for Sale and Purchase dated the 13th day of March 1991 made between Wong Lai Fan of the one part and Lee Ha of the other part for the sale of All Those 93 equal undivided 700,000th parts or shares of and in The Remaining Portion of Inland Lot No.8566 (Flat 1609, 16th floor, Block J, Kornhill, Hong Kong).
and
IN THE MATTER OF the Conveyancing and Property Ordinance, Cap. 219 of the Laws of Hong Kong.
|
___________
BETWEEN
|
WONG LAI FAN (a female)
|
Plaintiff
|
|
AND
|
|
|
LEE HA
|
Defendant
|
___________
Coram: The Hon. Mr. Justice Mayo in Chambers
Date of Hearing: 25 September 1991
Date of Handing down of Judgment: 8 October 1991
___________
JUDGMENT
___________
1. The plaintiff was the vendor of the suit premises by virtue of a Provisional Agreement dated the 13th March 1991 and the defendant was the purchaser.
2. By this originating summons the vendor is seeking a declaration that she has effectively rescinded the said Provisional Agreement and that its registration at the Land Office by the purchaser should be vacated.
3. There would not appear to be much in dispute on the facts of the case. The parties take issue on the construction of the said Provisional Agreement and its legal effect.
4. Two cases have recently come before the courts where similar agreements were considered and opposite conclusions were reached by the two judges seized of the cases. I will be dealing with these cases in some detail later in this judgment.
5. Mr. E. Chan appeared for the vendor. With respect I am in agreement with his submission that there are four clauses in the Provisional Agreement which are important for the purposes by this case. They are clauses 1, 2, 6 & 7. For the sake of convenience I reproduce these.
|
"1 |
The Vendor shall sell and the Purchaser shall purchase all that Flat 1609 Blk. J Kornhill, Quarry Bay (hereinafter called the said premises) through the Agent subject to the terms and conditions herein contained.
|
|
2 |
The purchase price of the said premises shall be HK$2,450,000.00 which shall be paid by the Purchaser to the Vendor in the manner as follows:
|
|
(a)
|
HK$80,000.00 shall be paid upon signing of this agreement as initial deposit.
|
|
(b) |
HK$165,000.00 shall be paid upon signing of formal agreement for sale and purchase on or before 3.4.91 as balance of deposit.
|
|
(d) |
HK$2,205,000.00 shall be paid upon completion on or before 22.4.91 as balance of purchase price. |
|
6. |
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 as 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 caused by the Purchaser's default of this agreement.
|
|
7 |
Should the Vendor after receiving the initial deposit paid hereuder 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 as liquidated damages together with the refund of the initial deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance. |
6. It will be noted that the Agreement is not in the form of the type often adopted by potential vendors and purchasers of being "subject to contract". The scheme envisaged is that both parties are permitted to withdraw from their contractual obligations if the payments referred to are made. It is contemplated that if the arrangement is proceeded with a formal sale and purchase agreement is to be entered into on or before the 3rd April 1991 with the target completion dated being set for 22nd April.
7. It is common ground that the vendor endeavoured to withdraw from the sale. Her solicitors wrote a letter in these terms on the 4th April.
|
" |
Mr. Yau Cheuk Chuen
c/o M/s Charles Yeung Clement Lam & Co.
10th floor, Wing On Life Building,
22 Des Voeux Road Central, Hong Kong.
|
|
|
3rd April, 1991. |
|
Your Ref. LF/59582/L/91
|
|
|
Messrs. T.L. Ip & Co., Solicitors, 16th floor, Kincheng Bank Bldg., 51-57 Des Voeux Road Central, Hong Kong.
|
|
|
Attn.: Miss Lily Fenn.
|
|
Dear Sirs,
Re: Flat 1609, 16th floor, Block J, Kornhill, Hong Kong
|
I am the lawful attorney of Wong Lai Fan, the owner of the above property.
|
|
|
I refer to the Provisional Agreement for Sale and Purchase dated the 13th day of March, 1991 in respect of the above property.
|
|
|
I am understand that you are the solicitors acting for the Purchaser Lee Ha.
|
|
|
Pursuant to the said Provisional Agreement for Sale and Purchase, I sent you herewith a cheque for HK$160,000.00 and payable to your client Lee Ha being the refund of the initial deposit and a sum equivalent to the amount of the initial deposit as liquidated damages in full and final settlement of the said Provisional Agreement for Sale and Purchase. Kindly acknowledge receipt.
|
|
|
Yours faithfully,
|
|
|
sgd.
|
|
|
YAU CHEUK CHUEN"
|
|
8. The purchaser's solicitors replied to this letter in the same day as follows.
"Our Ref.: LF/59582/L/91
4th April 1991
|
Mr. Yau Cheuk Chuen, c/o Messrs. Charles Yeung
Clement Lam & Co.,
10th Floor,
Wing On Life Building,
22 Des Voeux Road Centra,
Hong Kong.
|
|
|
Dear Sirs,
|
|
|
Re:
|
Flat 1609, 16th Floor, Block J, Kornhill, Quarry Bay, Hong Kong.
|
|
|
We refer to your letter dated the 3rd instant and your cheque for the sum of HK$160,000.00 enclosed.
|
|
|
We are instructed by our client that he does not accept the owner's reputiation of the Agreement for sale and purchase dated the 13th March 1991 in respect of the above property, and our client would insist on specific performance of the said Agreement. Herewith your said cheque for your disposal.
|
|
|
We are further instructed to inform you that the said Agreement has already been registered in the Land Office to prevent the owner from re-selling the same to another person.
|
|
|
In the meantime, please confirm whether you have authority to accept service of the Writ and let us have a certified true copy of the owner's Power of Attorney created in your favour.
|
|
|
Please sign the formal Agreement for Sale and Purchase today at the office of Messrs. Leong, Lam & Co. to avoid unnecessary litigation.
|
|
|
Yours faithfully,
|
|
|
|
Sgd.
|
|
|
Encl. cheque |
|
|
|
LF/jl(C2) " |
|
|
10. In my view the first question which has to be posed is whether it was indeed the intention of the parties to extinguish their common law rights and equitable remedies. I have no doubt that if a correct formula of drafting is adopted this can be achieved. Abdul Cader Abdeen v. Abdul Careem Mohamed Thaheer [1958] AC 116, a Privy Council case, is clear authority for this.
11. The next question to ask is whether clauses 6 & 7 do achieve this. Deputy Judge Leong considered identical clauses in Fong Yee Lan v. Yiu Yan Ping unreported being action number 3299 of 1991. He came to the conclusion that the clauses did not extinguish these rights. His reasoning was along these lines at p. 8 of his judgment.
|
" The main purpose of the provisional agreement is for the defendant to sell his property and the plaintiff to buy it. In the absence of clear and unambiguous expression in the agreement, it would be absurd to assume that the parties to an agreement of this nature would have intended that one party may be at liberty to wilfully resile from his primary obligation under the agreement at any time by simply paying back the deposit paid initially on signing the agreement together with an additional equivalent amount. To do so would be to reduce the agreement to a declaration of intent.
|
|
The intention of the parties must be that they never contemplated that the defendant's deliberate refusal to complete would be covered under Clause 7. To construe otherwise would be inconsistent with the object of the agreement.
|
|
The defendant had committed a breach of his primary obligation in refusing to complete the sale before the completion date of 10th May 1991. The plaintiff is entitled to sue for the breach either for damages or for specific performance. The defendant cannot say that the date for completion has not yet arrived and therefore the plaintiff cannot ask the court for relief. The authority for that is to be found in the Privy Council case of Hasham and Zenab (1960) AC 316 where it was held that in equity, all that is required is to show circumstances which will justify intervention by a court of equity and specific performance may be obtained." |
12. With the greatest respect to the learned judge, I do not think that this reasoning can withstand logical analysis.
13. It is not possible to discern the "main purpose" of the provisional agreement without having regard to the full terms of the document. There is certainly more to the document than an agreement for the sale and purchase of the property.
14. I would also accept the submission made by Mr. Chan that little purpose is served by attempting to glean the motives of the vendor in deciding not to continue with the sale of the property. The fact of the matter is that she did fail to enter into the formal sale & purchase contract and it matters not whether this was due to "refusal", "neglect" or "default" as referred to earlier in the judgment.
15. The central issue is whether the relevant wording of the clauses is such as to extinguish the parties' common law rights and equitable remedies. I do not think that this issue is directly addressed in the judgment.
16. Godfrey, J. had to consider a similar type of clause in Lee Tat Kwong v. Choi Pui Kei, unreported being case no. 2338 of 1991.
|
The actual wording of the clause was:-
|
|
"If the Purchaser does not within the stipulated time go to the solicitors office to deal with the procedures, the vendor is entitled to forfeit the provisional deposit, and further has the right to resell the property or retain it for his own use. If the vendor in breach of contract failed, within the stipulated time, to go to the solicitors' office to deal with the procedures, the vendor shall compensate the purchaser by twice the amount of the provisional deposit in the total sum of HK$40,000.00 and the purchaser is not entitled to dispute that. If the vendor in breach of contract failed immediately to compensate (the purchaser) by the amount of the deposit, the purchaser shall be entitled to take legal action to enforce the purchase by specific performance, and also to claim for any loss consequential thereupon." |
17. The learned judge did consider whether the clause had the effect of excluding the operation of specific performance. He said this on p. 4 of his judgment.
" 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 adquate 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 p. 65) :
|
"S.S. 140... where a contract is substantially performed by the payment of a sum of money, the Common Law remedy being adequate, Equity will not interfere. Hence, in cases where there is added to the contract a clause for the payment of a sum of money in the event of non-performance, the question arises whether the contract will be satisfied by the payment or whether it will not. In the former case, Equity will not interfere; in the latter, it may.
|
|
|
S.S.141 The question always is, What is the contract? Is it that one certain act shall be done, with a 'sum annexed, whether by way of penalty or damages, to secure the performance of this very act? Or is it that one of two things shall be done at the election of the party who has to perform the contract, namely, the performance of the act or the payment of the sum of money? If the former, the fact of the penal or other like sum being annexed will not prevent the Court's enforcing performance of the very act, and thus carrying into execution the intention of the parties : if the latter, the contract is satisfied by the payment of a sum of money, and there is no ground for proceeding against the party having the election to compel the performance of the other alternative." |
|
18. I accept that the test is as propounded in Fry.
19. Adopting the criteria to the present case it is clear to me that there was mutuality in the operation of the clauses and clearly an attempt was being made by the parties to provide for a financial solution to the problems which would be encountered if either of the parties opted not to enter into the formal sale and purchase agreement.
20. Godfrey, J. came to the conclusion that the clause which was before him was in sufficiently clear terms to confer upon the vendors an option to decide whether or not to go ahead with the contract and if not to pay the moneys referred to in clause 11.
21. In my opinion, the effect of clauses 6 & 7 is very similar to the clause which was considered by Godfrey, J. and I can see no good reason for coming to a different conclusion to the one he did.
22. The next question which arises is whether on the wording of the clauses the vendor can insist upon the purchaser accepting the compensation which was tendered by the vendor's solicitors to the purchaser's solicitors on the 3th April.
23. Mr. Litton, who was representing the purchaser submitted that clause 7 as drafted only provided for the vendor to make a financial offer to the purchaser if she decided not to proceed and that it was in no way incumbent upon the purchaser to accept this offer if he did not wish to do so. It was open to him to decline the offer and insist upon specific performance. He went on to argue that if the agreement was as contended by the vendor it would be necessary to read into clause 7 words such as
" The purchaser is bound to accept such sum in full discharge of all his rights under the agreement including any right to claim damages or to enforce specific performance."
24. I do not accept the validity of this contention. This is a highly artificial argument. If the clause is read and construed in a manner that does not do violence to its overall effect it is clear to me that what the parties contemplated was that the payment of the moneys would absolve the party paying it from further action, such as an action for specific performance or damages. In other words the purchaser had to accept the payment in full discharge of the vendor's obligations under the agreement.
25. The final matter I will consider is Mr. Litton's submission that on the facts of this case the vendor had failed to "immediately compensate" the purchaser as she was required to do under clause 7. I regret that I do not see any merit in this submission. The cheque was sent on the next day after the expiration of the time allowed for entering into the formal sale & purchase contract and no objection was taken by the purchaser's solicitors on this ground when they rejected the vendor's payment on the same day. In the surrounding circumstances, the payment was tendered as soon as practicably possible.
26. For the reasons I have given I propose granting to the vendor the relief she seeks in the originating summons.
27. Subject to the order for costs made by Bokhary, J. I order that the vendor is to have her costs and there will be a certificate for two counsel.
28. I have been informed that it is a fairly common practice to incorporate clauses of the nature above described in provisional contracts. It is accordingly a matter of some public interest that my judgment should be made public. I have been informed by the parties that they have no objection to this being done and I order that this judgment can be made available to the public.
|
(Simon Mayo)
|
|
Judge of the High Court
|
Representation:
Mr. Edward Chan, Q.C. & Mr. Alan Leong (Charles Yeung Clement Lam & Co.) for the Plaintiff.
Mr. Henry Litton, Q.C. & Mr. K.L. Liu (T.L. Ip & Co.) for the Defendant.
|