PONG YEE LAN v. YIU YAU PING

Civil Appeal No 128 of 1991

Headnote

Provisional sale and purchase agreement, whether

(i)    a binding contract or merely illusory because only some terms specified;

(ii)    non-payment of second deposit and non-execution of formal sale and purchase agreement by date specified, constituted a breach of contract entitling Vendor to forfeit initial deposit and resist specific performance.

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J U D G M E N T

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Nazareth, J.A. (giving the judgment of the Court):

1. The Appellant ("the vendor") was the registered owner of residential premises consisting of a flat and parking space ("the property") at Fa Po Street, Kowloon. He entered into a provisional Agreement to sell the property to the Respondent ("the Purchaser"). Subsequently he changed his mind and made it plain he would not complete. The Purchaser commenced action for an injunction to restrain the Vendor from selling the property, for specific performance of the Provisional Agreement and for damages for breach. She then applied under Order 86 of the Rules of the Supreme Court for summary judgment which was entered by Deputy Judge Leong, as he then was, on 21st July 1991. The Vendor now appeals against that judgment.

2. The matter arose in the following way between the Vendor, the Purchaser and the property agency concerned ("Centerline"). The Provisional Agreement, which was dated 22nd March 1991, was entered into after negotiations conducted through Centaline, without the vendor and Purchaser meeting each other. Its material provisions were in the following terms:

"THIS AGREEMENT made the 22nd march 1991 between Yiu Yau Ping ... (hereinafter called "the Vendor") of the first part and Fong Yee Lan ... (hereinafter called "the Purchaser") of the second part and Centaline Property Agency Limited ... (hereinafter called "the Agent") of the third part.

Now it is hereby agreed as follow

1.     The vendor shall sell and the Purchaser shall purchase all that Flat 5A      Village Gardens, 21 Fa Po St. Kln, with one car park $32. ..

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.

    (d)      HK$3,888,000.00 shall be paid upon completion or before 10th May 1991 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 hereunder 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.

8.     In consideration of the service rendered by the Agent, the agent shall after this agreement be entitled to receive HK$43,200.00 from,  the Vendor and HK$43,200.00 from the Purchaser as commission such commission shall be paid not later than 28th Mar. 1991

9.     If in any case either the Vendor or the Purchaser fails to complete the sale and purchase in the manner herein contained the defaulting party shall compensate at once the Ayent $86,400.00 as liquidated damages."

Receipt of the initial deposit of $300,000, which was paid on the signing of the Provisional Agreement on 22nd March 1991, was endorsed on the Provisional Agreement.

3. The nature of some of the subsequent exchanges between the Purchaser's and Vendor's solicitors is of some relevance. It commenced with a letter from Messrs. Ng & Shum, the purchaser's solicitors, on 26th March to the Vendor's solicitors in the following terms:

	26th March 1991
	SUBJECT TO CONTRACT
	BY FAX & BY HAND
Dear Sirs,

 

Re:

Flat 5A Village Gardens 21 Fa Po Street ;with one Car Park No.32, Kowloon.

 

We have instructions to act for the intended purchaser of the above property and are given to understand that you act for the Vendor herein and that the terms and conditions of the proposed sale and purchase, as we are informed, are as follows: -

1. Purcnase Prise:	HK$4, 320,000.00
2. Deposit:	HK$432,000.00 payable by signing of the Agreement for Sale and Purchase (HK4300,000.00 has already been paid by our client to your client direct
3. possession:	Vacant possession together with furniture and/or fixtures to be delivered by your client to our client on completion
4. Completion:	On or before 10th May 1991
5. Legal Costs:	Each party shall pay its own Solicitors' costs and disbursements payable on this transaction
6. Stamp Duty and Land Registration Fee :	All Stamp Duty and Land Registration Fee Payable on the Agreement and the subsequent Assignmentshall be borne and paid by our client alone
7. Others:	Free from all incumbrances

In this connection, kindly take your client's instructions in respect of the move terms. If the same are agreeable to your client, please let us have your draft Agreement for Sale and Purchase for our approval on behalf of our client together with all the title deeds and documents relating to the said property for our perusal at your earliest convenience.

We would stress that there is no binding force upon our client until and unless a formal Agreement for Sale and purchase shall have been signed by the parties concerned.

Yours faithfully,"

4. The vendor's solicitors replied on 27th March in the following terms:

"We refer to your letter of 26th March 1991 and send you herewith the draft Agreement for Sale and Purchase (in duplicate) of the above property together with the relevant title deeds as set out in the Schedule annexed hereto for your perusal and approval on behalf of your client. The said documents are sent to your against your strict undertaking to hold the same to our order and to forthwith return the said documents to as on demanet."

5. On 28th March 1991, the date by which it was contemplated $132,000 would be paid upon signing of the formal agreement for sale and purchase, the Purchaser's solicitors sent two letters separately to the Vendor's solicitors, the first in the following terms accompanying the Purchaser's cheque for the sum of HK$132,000:

    "We refer to your letter of even date together with enclosures.

    As your draft Agreement has just reached us at 9:51 a.m. this morning, we have not been given sufficient time to approve the same.

     However, to snow sincerity in the purchase, we are instructed to send you herewith our client's cheque for the sum of HK$132,000.00 as earnest money payable to your firm against your firm's personal undertakings: -

1.    Not to release the said sum of HK$132,000.00 to your client until and unless an Agreement for Sale and Purchase on the terms and conditions agreed by both parties shall have been duly signed by the parties concerned and subject to the terms and conditions therein contained; and

2. To return to us the said sum of HK$132,000.00 FORTHWITH upon our request should the said parties have failed to enter into a formal Ag reement for Sale and Purchase on such terms and conditions acceptable to both parties

  Kind acknowledge receipt.

Yours faithfully."

And later the second letter in the following terms:

"Further to our letter of the 28th instant, we return you herewith the said draft Agreement for Sale and Purchase approved by us for and on our client's benalf as amended in red for your cons ideration/comment.

we reiterate the last paragraph of our letter dated 26-3-1991."

6. On 2nd April 1991, the Vendor's solicitors replied claiming that under the Provisional Agreement the $132,000 was to be paid unconditionally, and that in view of the Purchaser's failure to pay that further deposit and to enter into the agreement for sale and purchase, the Vendor was entitled to forfeit the deposit money already paid by the Purchaser and to resell the property. They also returned the Purchaser's cheque for HK$132,000. The Purchaser's solicitors wrote back on the same day, likewise rejecting the vendor's solicitors's views, objecting to the forfeiture, and sending back the cheque for $132,000. There was then other correspondence between them in a similar vein of which only the following need be mentioned. On 3rd April the Vendor's solicitors again returned the Purchaser's cheque. On 9th April the Vendor's solicitors sent two copies of the formal sale and purchase agreement, which ran to some 15 pages of textscript to the Purchaser's solicitors asking them to return the agreement duly executed and attested together with their cheque for $132,000 as the deposit payable by the Purchaser upon signing of the agreement. The Purchaser's solicitors complied on the same day.

7. On 30th April the Vendor's solicitors wrote to the Purchaser's solicitors in the following terms:

"We have just received our client's instructions that he has decided not to proceed with the sale of the above property.

    We are also instructed to return to you herewith the Agreement for Sale and Purchase (in duplicate) and a cheque for the sum of HK$132,000.00 being refund of the further deposit paid by your client and held by us as stakeholders.

Kindly acknowledge receipt by signing and returning to us the plicate copy of is letter."

Before, and again after that letter, Centaline staff informed the Purchaser that the Vendor was prepared to refund the $300,000 deposit and in addition to pay $200,000 or negotiate some compensation. The Purchaser declined the offer, and on 20th May 1991 took out her summons under Order 86 for summary judgment, with the successful result mentioned.

8. The Vendor appealed initially upon grounds concerned with the construction of Clause 7 of the provisional Agreement, upon which he contended that the Judge erred. However, at the commencement of the hearing of the appeal before this Court, the parties each without objection from the other, with the leave of this Court, amended their grounds. The Vendor introduced the following new grounds:

" 1. That as a matter of law the agreement dated 22nd March 1991 was incomplete, an illusory contract, and therefore not specifically. enforceable, and the Judge accordingly erred in the Order he made.

2. Further or alternatively, that the Plaintiff (Respondent) failed to pay the balance of deposit of HK$132,000 and failed to sign a formal agreement for sale and purchase of the property on or before 28 March 1991 and accordingly the deposit of HK$300,000 paid on 22 March 1991 was liable to be forfeited under clause 6 of the agreement. The learned Judge failed to give effect to the provisions of the agreement."

9. The purchaser for her part in her original Respondent's Notice specified two grounds upon which she intended to rely. The first concerned the interpretation of Clause 7. The second was that:

"Even if, which the Plaintiff noes not accept, on its true construction, Clause 7 of the said Provisional Agreement gave the Defendant an option, if he should fail to complete the sale, to immediately compensate the Plaintiff with a sum equivalent to the amount of the initial deposit as liquidated damage together with the refund of the initial deposit, only if the Defendant has duly exercised that option that the Plaintiff's right to claim specific performance and/or damages would be lost."

with the leave mentioned, she introduced the following additional ground:

"On the facts the Defendant had failed to make immediate payment to the Plaintiff and thus Clause 7 does not apply."

10. The Vendor's initial grounds in substance rested upon the contention that on its true and proper construction Clause 7 in effect provided the Vendor, upon a failure to complete, with an option to pay an amount equal to the initial deposit of $300,000 as liquidated damages in lieu of the specific performance sought by the Purchaser. The evidence shows clearly that no such payment was made. Indeed the Judge made an express finding that no such payment had been made. Perhaps, therefore, it should not have been,surprising that Henry Litton, Q.C., for the Vendor did not pursue the initial grounds. It is accordingly not necessary to deal with the Judge's construction of Clause 7, in substance that the limitation of remedies in Clause 7 does not extend to willful refusal to complete. It must be said, however, that that construction cannot stand in the light of the subsequent judgment of this Court, differently constituted as to one member, in Wong Lai ran v. Lee Ha Civil Appeal No. 175 of 1991, upon a provisional agreement made on a Centaline printed form in identical terms.

11. Turning then to the Vendor's first new ground of appeal, Mr. Litton approached this upon two bases. First, that the agreement was incomplete. He relied upon the following statement of law in paragraph 261 Volume 9 of the 4th edition of Halsbury's Laws of England:

"To constitute. a binding contract there must be a concludes bargain, and a concluded contract is one which;settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties."

Before leaving that paragraph it is helpful to refer to the following statements which it also incorporates:

"On the other hand, an agreement may be complete although it is not worked out in meticulous detail. Indeed, the parties may make it clear that, whilst they intend subsequently to enter into a detailed formal agreement, it is their intention that the provisional agreement be immediately binding. However, whether or not the parties intend a subsequent formal agreement, an outline agreement may achieve sufficient certainty for that agreement to be complete by reason of the maxim that that which is capable of being made certain is to be treated as certain:昮or instance, because the details not settled ... may be determined by recourse to implied terms, or usage, or by means of reference to a third party; or because extrinsic evidence renders certain that which the terms of the written agreement between the parties left in doubt ..."

Returning to Mr. Litton's submission, he pointed to the following respects in which he submitted the Agreement was deficient:

(a)     whether the premises were to remain at the Vendor's risk until 10th May 1991

(b)     who was to pay the registration fees;

(c)     what "as is" means e.g. whether the Vendor was to carry out repairs prior to May 1991, and

(d)     whether the $132,000 to be paid oil 28th March 1991 was to be part deposit or held by the Vendor's solicitors as stakeholders.

These, he submitted with reference to the words of Sir John Pennycuick in Bushwall properties v. Vortex [1976] 1 WLR 591 (CA) at 599, are not matters of machinery. On the other hand it is apparent from the facts of that case, that the matter addressed there was "a point of substance ... which if left uncertain would render the contract as a whole uncertain and for that reason unenforceable." That, plainly, is far from being the position nere. As to (a), it is implied by law that the property would be at the purchaser's risk (see Farrand, Contract and Conveyance, 4th edition, p. 167). proceeding to (b), the question of who is to pay the registration fee is hardly a matter of substance such as likely to render the contract uncertain. Registration is not required by law, and in the ordinary way the person who procures registration would pay; indeed, we are told, the purchaser has agreed to pay. Turning to (c), as to the meaning of "as is" and who should pay for repairs before 10th May 1991, the completion date, this must be a matter of construction or determination for tile Court (see Farrand, pp. 170-172). And finally, as to (d), i.e. whether the $132,000 was to be held by the Vendor's solicitors as stakeholders, and the matter of provision of title deeds which was also raised in association, these also are matters of construction and determination by the Court in accordance with the terms of the Agreement and with the practice of solicitors; the practice in Hong Kong, we are told, is for the Vendor's solicitors to send the title deeds with their first letter. All the foregoing can be seen to be matters not of such substance as, if left uncertain, would render the agreement as a whole uncertain; and to be matters of machinery, moreover matters that can be determined and resolved by the ordinary means indicate in the latter passage cited from paragraph 261 of Volume 9 of Halsbury's Laws of England, 4th edition. We are satisfied, notwithstanding some language of a tentative or provisional nature used by the parties' solicitors to which Mr. Litton pointed, that the foregoing matters are not matters of a sort that rendered the Agreement uncertain.

12. Turning to the other basis upon which Mr. Litton advances the Vendor's first new ground, i.e. that the Agreement was illusory and not a concluded or binding agreement, he points again to Bushwall Properties, to the materially different nature of which we have already referred, and also to Lee-Parker v. izzet (No. 2) [1972] 2 All ER 800 at 830 G, in which the Provisional Agreement was clearly a conditional agreement, moreover with the condition being at large. We accordingly do not find these authorities helpful. Ultimately, as Mr. Litton readily conceded, the question of whether the Provisional Agreement was a concluded agreement is to be decided upon its own terms and circumstances. It is implicit in his judgment that the Judge found that there was a concluded agreement. In our view, the terms of the Psrovisional Agreement, including clause 9 which we have not mentioned, and the related circumstances leave no room for any other conclusion.

13. That a provisional agreement calls for a formal agreement that will supercede it, is not inconsistent with the former being a binding agreement (see Chan Yock Kwong v. Wong Hee Mao [1962] HKLR 480 at 487-492; Branca v. Cobarro [1947] 1 KB 054). Indeed, on all the evidence and indications available to us, such provisional agreements are common. Similar "open contracts" containing only the bare minimum in the way of essential terms are no less valid because other rights and duties are to be found in the general law, the decisions of the courts, usage etc. (see Farrand pp. 77 and 83). We find no merit in the Appellant's first ground which we reject.

14. We turn then to the Vendor's second new ground i.e. that the purchaser failed to pay HK$132,000 and failed to sign the formal agreement on or before 23th March 1991. In the way this ground was argued, it seems to us to involve three propositions. First, that it was an obligation in the nature of a condition that payment of the $132,000 be made, and the formal agreement be executed by 20th March 1991. Second, that such payment was not made in the manner contained in the Provisional Agreement because the Purchaser attached to it a requirement that the amount be held by the vendor's solicitors as stakeholders. And third, that the Purchaser failed in not procuring or ensuring the execution of the formal agreement by 28th March 1991.

15. 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 $1.32,000 "shall be paid on the sighing 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. Moreover, given all the matters that would have to be dealt with in the six days between the signing of the Provisional Agreement at the Centaline property Agency on 22nd March and 28th March, which would undoubtedly have been in the contemplation of the parties, particularly Centerline, and ;:high in the event they were not able to conclude; the parties are most unlikely to have intended execution of the formal agreement by 28th March to be a condition of tile contract. It follows from such construction of Clause 2(b), that even if payment of the $132,000 by 28th March 1991 were a condition resulting from the "expectation of the Vendor" as Mr. Litton put it, it is highly unlikely to have been intended to be a condition independent and in advance of execution of the formal agreement. 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 28tih march 1991 if that turned out not to be the date of signing of the formal agreement.

16. Proceeding to the second proposition, the formal agreement has.never been signet by the Vendor. Therefore, upon the foregoing construction of Clause 2(b), there cannot be a failure to pay $132,000 in advance of the signing of the formal agreement. While that disposes of the second proposition, we pause to observe that it comes ill from the Vendor, whose solicitors introduced the provision calling for the Vendor's solicitors to hold the $132,000 as stakeholders in the. first draft of the formal agreement they sent to the Purchaser's solicitors, to claim that payment of the $132,000 subject to that requirement is not in the manner contained in, and that it constituted a breach of, the Provisional Agreement.

17. Finally, as to the third proposition, the Provisional Agreement does not stipulate who should prepare the formal agreement. We are told without dissent that in accordance with local usage it would be for the Vendor's solicitors to do so. In fact, they did, but, as mentioned, they sent the formal agreement to the Plaintiff's solicitors on 28th March 1991! Yet the Purchaser's solicitors contrived to return it on the same day, even with some amendments. While determination of that question is a matter for the trial Judge, we feel bound to say that on the evidence to claim that the Purchaser failed to procure the execution of the formal agreement by 28th March 1991 is a travesty of the facts, which point to such failure being rather on the part of the vendor.The draft formal agreement being different from the Provisional Agreement, the Purchaser was entitled to decline to sign it and to suggest amendments. In our view, therefore, it would be wrong to regard the Purchaser as having failed to sign the formal agreement on or before 28th March 1991 or at all. The Vendor's second new ground also fails.

18. It follows that the Provisional Agreement was a binding agreement; also that the Purchaser did not fail to pay the balance of deposit or to sign a formal agreement within the scope of clause 6, and therefore that the Vendor cannot under that clause forfeit the initial deposit of $300,000.00, or take legal action for damages or specific performance. Mr. Robert Tang, Q.C. for the Respondent did not pursue the first two grounds in the Respondent's Notice, and it is accordingly not necessary to address them or Mr. Tang's further submissions on variation and waiver of obligations under clause 2(b).

19. We accordingly dismiss the appeal and order, nisi, that the Purchaser is to have her costs of the appeal.