SEE TO KEUNG AND ANOTHER v. SUNNY WAY LTD

CACV 25/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 25 OF 2006

(ON APPEAL FROM HCMP NO. 3292 OF 2004)

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J U D G M E N T

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Hon Rogers VP :

1. I have had the advantage of reading the judgment in draft of Madam Justice Yuen.  Not only has that judgment clarified the meaning of the provisional sale and purchase agreement but the parties have helpfully agreed the appropriate translation of the relevant parts.  I therefore have full confidence in concurring with Yuen JA’s judgment and the order proposed.

Hon Yuen JA:-

2.  This was an appeal from a judgment of Mr Recorder Fok SC given on 15 December 2005 whereby the recorder gave judgment in favour of the defendant on the hearing of an Originating Summons.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

3.  On 9 October 2004 the plaintiff (as vendor) and the defendant (as purchaser) signed a provisional agreement (“the provisional agreement”) for the sale and purchase of three shop premises namely Shops 1, 2 and 3 of Windsor Mansion, 17 Austin Avenue, Kowloon (“the Property”). 

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

(1)	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 HCA 9409/1991, unrep.)
(2)	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).
(3)	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 v Lee Ming-ching Stephen [1993] 1 HKC 113).
(4)	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 (Fujian Finance Co Ltd v Link Brain [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 “2-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.
(5)	However, this is all subject to the true construction of the agreement made between the parties in the individual case.

5.  In the present case, the provisional agreement was in the form of an estate agent’s printed standard form agreement.  In the normal way, that agreement was on a form printed with appropriate spaces for the relevant details to be inserted.  The printed form was “bi-lingual” in that it could be completed either in Chinese or in English.  The parties chose to fill it in in Chinese and, although the English printed words were left, clause 13 made it clear that the agreement would be interpreted in its Chinese version in case there were ambiguities.  Clause 13 provided: “13. 此合約以英文/中文為準。” which may be translated as “This agreement should be interpreted in its English/Chinese version in case of ambiguities.”

6.  Clause 2 provided:

“該物業之成交價為港幣$29,800,000.00。買方須按下述方式付款予賣方。
The purchase price of the said premises shall be $__________ which shall be paid by the Purchaser to the Vendor in the manner as follows:
(a)	於簽訂本合約之同時即付臨時訂金港幣500,000.00。
	Initial deposit shall be paid upon signing of this Agreement in the sum of HK$_____________.
(b)	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$2,480,000.00。
	Upon signing of the Formal Agreement for Sale and Purchase on or before _____________ further deposit shall be paid in the sum of HK$ ________________.
(c)	______________ 或之前再付訂金餘款港幣 ____________。
	Further deposit shall be paid on or before ________________in the sum of HK$ __________________ .
(d)	於交易完成之時或以前，即2005年4月28日在賣方之代表律師行付清樓價餘款港幣 $26,820,000.00。
	Balance of purchase price shall be paid upon completion on or before ____________________  at Vendor’s solicitors in the sum of HK$ ______________________.”

7.  It may be supposed that the draftsman of this “bi-lingual” agreement intended both versions to mean the same (subject to the overriding clause 13).  The question is whether his intention was achieved.  There was no certified English translation of the Chinese version of the provisional agreement and at trial, both parties were content to assume that the English version and the Chinese version had the same meaning.  The learned  Recorder proceeded accordingly. 

8.  Shortly prior to the hearing of the appeal, this court drew the parties’ attention to the following more literal translation of sub-clause 2(b):

“Upon signing the Formal Agreement for Sale and Purchase or before, that is [on] 8 November 2004, further payment of deposit in the sum of HK$2,480,000.” (Emphasis added)

The parties accepted that to be an appropriate translation.    

9.  This led to a new ground of appeal advanced by counsel for the plaintiff with the emphasis on the date (8 November 2004) being the focal point of the payment obligation, rather than the event (signing of the Formal Agreement).  Counsel for the defendant accepted that we could proceed on the new ground of appeal. 

10.  Coming back to the provisional agreement, sub-clause 2(d) of the agreement provided that at completion, the balance of the purchase price in the sum of HK$26,820,000 should be paid.  It should be noted that completion was to take place 6 months after the signing of the provisional agreement.

11.  There was no provision in the agreement for “escape”, i.e. for the parties to resile from the provisional agreement on payment of double deposit or foregoing the initial deposit.

12.  As the deadline set by sub-clause 2(b) of the provisional agreement approached, the solicitors acting for the defendant requested that the Formal Sale and Purchase agreement to be executed should contain a provision relating to the tenancy of one of the shops.  On the day when the Formal Sale and Purchase Agreement was due to be signed and the further deposit of $2.48 m. paid, namely 8 November 2004, the defendant’s solicitors wrote to the plaintiff’s solicitors alleging that there had been an anticipatory breach of the agreement because the tenant had moved out of that particular shop.  The further deposit was not paid.

13.  The plaintiff’s solicitors extended the time for payment of the further deposit on three occasions, the final deadline expiring at 5 p.m. on 17 November 2004 (in the first letter giving that deadline, the month was wrongly stated as being October but that was an obvious mistake and was corrected on the following day).  The further deposit was not paid.

14.  On 26 November 2004 the plaintiff’s solicitors wrote to the defendant’s solicitors terminating the provisional agreement.  Despite the fact that the plaintiff’s solicitors indicated in a letter of 29 November 2004 that the plaintiff might still consider proceeding under the terms of the provisional agreement if the further deposit were paid immediately, there was no attempt by the defendant to pay the deposit until nearly a month later.

15.  Following well-established cases, the Recorder held that the parties  were not obliged to sign a Formal Sale and Purchase agreement.  At paragraph 35 of the judgment he said:

“Mr Li, counsel for the Plaintiffs, accepts that the further deposit was only payable on the signing of the Formal Agreement. His acceptance of this point is consistent with a number of authorities that have made it plain that the payment of a further deposit upon the signing of a formal sale agreement is linked to the signing of the formal agreement rather than to the date by which that document is to be signed: see Fujian Finance Co. Ltd. v. Link Brain Ltd. [1990] 2 HKLR 353 per Clough JA at 364E-F; Yiu Yau-ping v. Fong Yee-lan [1992] 2 HKLR 167 at 175 (lines 12-28); and Health Link Investment Ltd. v. Pacific Hawk Investment Ltd. [1995] 1 HKC 249 at 254A-B (per Litton JA) and 256D-G (per Nazareth VP). ”

16.  In this respect it has to be noted that the Recorder was treating the relevant term of the provisional agreement, i.e. sub-clause 2(b), as being:

“(b)  Upon signing the Formal Agreement for Sale and Purchase on or before 8 November 2000 further deposit shall be paid in the sum of HK$2,480,000.”

17.  The English version of the provisional agreement, which the parties treated as being applicable, did indeed make it clear that the further deposit was payable only on the signing of the Formal Agreement.  As already indicated there are a number of cases where a similar form of wording has been so interpreted.

18.  However, reading the Chinese agreement (the English translation as accepted by the parties before this court being set out at para 8), what is important is the sense that the Chinese words of the agreement convey.  The meaning of the Chinese version (“於簽訂…之時或之前，即2004年11月8日“) is clear.  The further deposit must be paid on 8 November 2004, that date being on or before the signing of the Formal Sale and Purchase Agreement.  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.

19.  My construction of the provisional agreement in its Chinese version is supported by the fact that if the provisional agreement were to be interpreted as not requiring the further deposit to be paid if there were no Formal Agreement, there would then be a shortfall in the payment of the purchase price: since sub-clause 2(d) provides for the payment of only $26,820,000.  Counsel for the defendant submitted that it would then be necessary to implyinto clause 2(d) an increase of the balance of the purchase price to read $29,300,000 instead of $26,820,000.  But no implication would be necessary on my construction of clause 2(b). 

20.  Further, although this is only an observation, in the context of an agreement where the purchase price is nearly $30,000,000 and completion is six months away, it would be surprising if a deposit of only $500,000 (less than 1.7%) were to be provided for, particularly in the case of an agreement where there is no opportunity for the vendor to extricate himself from the contract by payment of double deposit. 

21.  It follows from the above reasons that the defendant was in breach of the provisional agreement when it failed to pay the further deposit on 8 November 2004 or on the postponed dates.  It only tendered payment after the agreement was terminated.  It is clear that failure to pay the further deposit was a repudiatory breach of the agreement.  In those circumstances the plaintiff was entitled to judgment.

22.  I would therefore allow the appeal, set aside the judgment of the Recorder and give judgment in favour of the plaintiff for the relief prayed in the notice of appeal.  As for costs I would give an order nisi that the defendant pay the plaintiff the costs of the appeal but given the way the case was run below, there should be no order as to the costs below.

Hon Stone J:

23.  I am constrained to agree with the judgment of Yuen JA upon the construction issue.

24.  When I first read these papers, I formed the view that the judgment of the learned Recorder at first instance was impeccable, and ought to be upheld.

25.  Somewhat unsatisfactorily, it transpires that argument in the court below was based upon the assumption that the English and Chinese versions of the relevant term of the provisional agreement, that is sub-clause 2(b), were in like form, whereas this appears not to be the case, as Yuen JA has pointed out.

26.  In the circumstances, it is difficult to disagree with the construction placed by Yuen JA upon the Chinese words of the agreement, as now translated (vide paragraph 8 of her judgment), albeit I have the uneasy feeling that in fact this was not the subjective intention of these parties.

27.  Be that as it may.  As matters now stand, I agree that this appeal must succeed, for the reasons given by Her Ladyship.

28.  I would however respectfully differ upon the issue of costs.

29.  In these very particular circumstances, it strikes me that the appropriate costs’ order, both here and below, should be no order as to costs, and for my part I would propose an order nisi to this effect.