MA LI SHA v. TSANG SUI SIN

1992, No. A2362

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. In early March, 1991, the defendant, Mrs. Tsang Sui Sin, was eager to sell her property at Flat F, 12th Floor, Nelly Heights, Belair Gardens, Shatin, New Territories in order to realize some cash to help her husband out of financial difficulty in his business. She instructed a Miss Wong of the Hong Kong Property Exchange and Associates to find a buyer.

2. The plaintiff was among one of several prospective purchasers and she was taken by Miss Wong to view the flat on the evening of 12th March 1991. The plaintiff was interested to buy and after some discussion, an oral agreement was reached whereby the defendant would sell and the plaintiff would buy the property for $1,000,000.00. Arrangement was made for both parties to meet at 10 a.m. the next day at the office of the estate agent to sign the provisional sale and purchase agreement. This they did and an initial deposit of $10,000.00 was paid.

3. The defendant gave evidence with a view to support her defence of mistake. She said that she read the document before she signed it and Miss wong, the estate agent also read and explained it to her with particular emphasis on clauses 3 and 4. It was her understanding and this was confirmed and highlighted by Miss Wong that her liability under clause 3 was to pay the purchaser twice the amount of the deposit plus the agent's commission if she decided not to sell before the signing of the formal sale and purchase agreement. In regard to clause 4, she would be entitled to forfeit the deposit and the plaintiff would pay the agent's commission if the latter failed to complete the transaction. In the event the transaction did not go through, both parties could not sue each other and the matter would not be pursued further. It was under this mistaken belief resulting from reading the document herself and what Miss Wong told her that she signed the provisional agreement.

4. After signing the provisional agreement, she started to look for a smaller flat of about 400 square feet. To her astonishment, the property market had risen so rapidly and sharply that a flat of that size would cost at least $1,200,000.00. She had hoped that the proceeds of sale of her flat would leave $100,000.00 to $200,000.00 to help her husband out after paying for the smaller flat. This was now not possible and she decided to call off the deal.

5. The plaintiff did not call evidence.

6. On 19th March, solicitors acting for the defendant sent to solicitors for the plaintiff a draft agreement for sale and purchase, which was duty signed by the plaintiff and attested. It was returned to the solicitors for the defendant together with a cheque bearing the date of 21st March 1991 for $90,000.00 representing the balance of the 10% deposit required to be paid by the plaintiff on signing the agreement for sale and purchase.

7. This agreement was not signed by the defendant and on 25th March her solicitors wrote to solicitors for the plaintiff informing them that the defendant was not prepared to complete the transaction and a cheque for $20,000.00 was enclosed which was the refund of the initial deposit and an additional sum of $10,000.00 as liquidated damages in pursuance to clause 3 of the provisional sale and purchase agreement.

8. Through her solicitors, the plaintiff wrote to solicitors for the defendant on 27th March which reads:

" We refer to your letter of 25th instant delivered to us and we are surprised to note the contents thereof.

We are instructed that your client has been in breach of the Provisional Agreement dated 13th March 1991 and that our client requires specific performance of the sale and purchase provided for in the Provisional Agreement. Our client reserved all his rights and remedies against your client.

In the circumstances, your cheque for the sum of HK$20,000.00 is returned to you herewith.

Yours faithfully etc."

9. A writ was issued by the plaintiff on 4th April, 1991 claiming for specific performance and/or damages and other reliefs.

10. There was a counterclaim by the defendant but it was abandoned at the outset of the trial.

11. It is now conceded by Mr. B.K. Ho for the defendant that there is a binding contract between the parties. The issues to be determined are therefore:

(1)    What is the true construction of clause 3 of the provisional sale and purchase agreement?

(2)    Was there such a mistake as alleged by the defendant so that the agreement should be set aside?

12. Clause 3 of the Provisional Sale and Purchase Agreement which was signed and dated 13th March, 1991 reads:

"Should the Vendor be in breach of the Agreement after receiving the said initial deposit, the Vendor shall be 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 the company the sum HK$10,000.00 as Vendor and Purchaser service charges."

13. Mr. Lo for the plaintiff relied heavily on the decision of Bokhary J in Lam Yuet Ming v Yeung Wai Lun and Chan Cheung Yip, Action No. A4014 of 1991. In that case, the wording of the clause (also clause 3) that called for interpretation is identical in all respects with the wording of clause 3 in the instant case. The learned judge there referred to general principles on specific performance on contracts and equitable remedies and went on to review the decisions in Wong Lai Fan v Lee Ha, Civil Appeal No. 175 of 1991 (unreported) and Kentex Investment Limited v Hui Lap Ping Sam, Miscellaneous Proceedings No. 3447 of 1991 (unreported).

14. In the first case, which went on appeal to the Court of Appeal from a decision of Mayo J., the clause reads:

"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."

15. The clause in the second case, which is a decision of Godfrey J., is in these terms:

"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 deposit 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."

16. The difference between the wordings in the two cases referred to above and Lam Yuet Mina v Yeung Wai Lun and Chan Cheung Yip and the instant case becomes apparent even at first sight and that is why Bokhary J. was prompted to conclude:

"It seems to me that what the clause in the present case says is simply this. If the Vendors are in breach of this agreement, then the purchaser's right is either to insist on specific performance or to accept the repayment which the Vendor is liable to make."

17. Mr. B.K. Ho submitted that the distinction drawn by Bokhary J. is too fine and artificial and was impossible to be understood by men in the street. In this connection, he placed reliance on the decision of the Privy Council in Adbul Cadar Abdeen v. Abdul Careem Mohamed Thaheer [1958] A.C. 116 in which the word "only" was not used in the clause and where specific performance was refused. The

wordings in that case were:

"In the event of the purchaser being ready and willing to complete the said sale in terms hereof and the Vendors failing, refusing, or neglecting to execute ... the deed of transfer then ...the Vendors shall ... pay to the purchaser a sum of $s.15,000 as liquidated and ascertained damages and not as penalty."

The case of Abdul was not cited to Bokhary J. nor was it cited before Godfrey J. Mr. Ho, however, accepted that it would have made no difference in so far as Godfrey J. was concerned as he would have reached the same conclusion. In Wong Lai Fan v. Lee Ha, Nazareth J.A. said at p. 10 of the judgment:

"It is not disputed that the parties to such an agreement may so limit their damages for non-completion 'if a correct formula of drafting is adopted' as Mayo J. put it, citing Abdul Cader Abdeen v Abdul Careem Mohamed Thaheer (19581 AC 116."

18. It must not be overlooked that Abdul was decided according to Roman-Dutch law under which every party who is ready to carry out his term of the contract prima facie enjoys a legal right to demand performance by the other party; and this right is subject only to the overriding discretion of the court to refuse the remedy in the interests of justice in particular cases. The ratio to be deduced from the judgment seems to suggest that the parties had agreed to forego this right by making provisions in the contract of what was described as substituted obligation. Support of this view is to be found in the third and fourth paragraphs at page 116 of the judgment of Lord Keith of Avonholm who said:

"First, where the right in general of a party to insist on specific performance of his contract or to claim damages is so clear under the Roman-Dutch law, their Lordhsips have difficulty in appreciating why the parties should introduce into the contract the detailed and meticulous provisions of clauses 8 and 9 merely to fix the amount of damages in the event of the court finding itself unable or unprepared to give decree of specific performance.

Secondly, the general framework of the contract suggests that clauses 7, 8 and 9 were designed to introduce modifications of what would otherwise be, subject to certain minor conditions, the unqualified obligation to sell or cause to be sold the property in question. Clause 7 is a clear modification of the legal consequences ordinarily following on a contract of sale and clauses 8 and 9 are capable of a similar interpretation. Each of the clauses relates to a specific event or events which may follow the signing of the contract and provides for the consequences to follow thereon."

19. Clause 8 of the contract may be rather similar to our clause 3 but if the whole contract in Abdul is to be read in its entirety the picture painted there is quite different. There were clear modifications of the legal consequences and specific events were spelled out in separate clauses with what type of consequences to follow. Abdul has initially caused me some anxiety but after a careful consideration and analysis of the judgment, it is clear that the parties had intended to exclude from the contract their legal right for specific performance.

20. At p. 4 of the judgment of Godfrey J. in Lee Tat Kwong v Choi Pui Kei, Action No. 2338 of 1991 (unreported), which was cited with approval by the Court of Appeal in Wong Lai Fan v Lee Ha, the learned judge said:

" 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 adequate 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."

Godfrey J. then went on to recite S.S. 140 and S.S. 141 from Fry which I do not think I need repeat. Two other short but useful passages can also be found in the judgment of Godfrey J. in Kentex. At the bottom of p. 4:

"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."

At the top of p. 5, he said:

"Each case of this nature naturally requires the court for this purpose carefully to consider the terms and 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."

Godfrey J. concluded:

"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."

21. The words that existed in Kentex and Wong Lai Fan are not present in Lam Yuet Ming and the instant case. The question is whether in this case, as in Lam Yuet Ming, that clear words exist to take away the purchaser's right to specific performance and on the authorities the answer must be that there are no such clear words. In my judgment, the distinction drawn by Bokhary J. is valid and the conclusion which he arrived at is correct and I see no reason for me to depart from it. I would, for the reasons advanced, construe clause 3 in this case in the same way that Bokhary J. construed the identical clause in Lam Yuet Ming.

22. I turn now to the plea of mistake raised by the defendant as an alternative defence. On the basis of the evidence given by Mrs. Tsang, Mr. B.K. Ho advanced a bold and imaginative proposition. He submitted that if both the vendor and purchaser understood, either as a result of reading the document and/or as a result of having been misled by Miss Wong, the estate agent, that clauses 3 and 4 imposed only financial obligations as specified in these clauses without any right on either side to sue for other reliefs, both parties would not be entitled to specific performance because they were labouring under a fundamental mistake when they signed the agreement. He further submitted that unusual consequences would result because the plaintiff did not testify. If her understanding was not the same as that of the defendant and believed that she was entitled to specific performance, it would result in a situation that there was no contract because there was no consensus, no meeting of the minds at the time of the signing of the provisional sale and purchase agreement. In other words, the plaintiff and the defendant were never ad idem.

23. Mr. B.K. Ho tried to draw support from the decision of the Court of Appeal in Solle v Butcher [1950] 1 K.B. 671.

24. The facts were that the plaintiff and the defendant were partners in a business of estate agents. In 1931 a dwelling house had been converted into five flats and in 1938 flat No. 1 was let to a tenant for three years at an annual rent of £140. In 1947 the defendant took a long lease of this building in which substantial structural and other alterations and repairs were carried out. In the same year, flat No. 1 was let by the defendant to the plaintiff at an annual rent of £150. The plaintiff and the defendant both believed that the standard rent did not apply because of the substantial structural alterations and repairs. In fact it was the plaintiff who informed the defendant that the rent was not controlled.

25. Subsequently the plaintiff sued the defendant in the county court alleging that the standard rent of £140 a year still applied and claimed recovery of the amount of rent which he had overpaid.

26. The defendant alleged that he had acted on the plaintiff's oral assurance that the rent was not controlled by any previous letting and pleaded (1) common mistake of fact; (2) innocent material misrepresentation; and (3) estoppel and he claimed rescission of the lease.

27. The judge found that the alterations had not changed the identity of the flat and the standard rent of £140 a year was still to be charged. He further held that there was no common mistake of fact made by the parties, though possibly there was one of law since both parties imagined that the Rent Restrictions Act did not apply.

28. On appeal it was held that the lease must be set aside; by Bucknill L.J. that there had been a common mistake of fact; and by Denning L.J. (as he then was) on the ground that the parties had executed the lease under a common mistake in that each thought that the flat was not tied down to the controlled rent of £140 a year whereas in fact it was. Denning L.J. had this to say:

"A contract was liable in equity to be set aside, if the parties were under a common misapprehension either as to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault."

Two old decisions in Lansdown v Lansdown [1730] Mos 364; 2 Jac & W 205 and Cooper v Phibbs (1867) L.R. 2 H.L. 149, 170 were cited by Denning L.J. in his judgment. Looking at the facts of those two cases, it is clearly right that equity should interfere to cancel the documents in the first case and to set aside the lease in the second as to do otherwise would have resulted in injustice and inequity.

29. Jenkins L.J. in Solle v Butcher dissented from Bucknill L.J. and Denning L.J. He supported the decision of the county court judge and considered that the mistake there was a mistake of law.

30. But the majority clearly took the view that the mistake was a mistake of fact as it can be seen from the judgment of Bucknill L.J. at p. 685:

"The second question then arises for decision: was this mistake a question of fact or a question of law? In my opinion it was a question of fact, and the principle applies to this case which was laid down by Lord Westbury in his speech in Cooper v Phibbs where he said: "If parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is, that that agreement is liable to be set aside as having proceeded upon a common mistake'"."

31. I fail to see how Solle v Butcher can assist the defendant in this case. None of the three tests laid down by Denning L.J. has been satisfied. The construction of clauses 3 and 4 is clearly a question of law and if there has been any mistake, which, in my judgment, there was none, it was at best a mistake of law and not of fact. Moreover there could not have been any misapprehension on the part of the plaintiff or even the defendant. The plaintiff agreed to buy at a price that was accepted and the defendant was at that time anxious to sell, so anxious to the extent that she was desperate as Mr. Lo puts it, because she wanted to help her husband out of financial difficulty in his business. The real reason that caused the defendant to change her mind was the sudden, unexpected and drastic upsurge of property price. She wanted to sell but at a higher and better price. The last paragraph of the letter from her present solicitors to solicitors for the plaintiff dated 9th May 1991, perhaps tells the true story. It reads:

"We would put on record that our client recently has received an offer to purchase the above property and would suffer substantial losses if your client insists on her claim in the above action which we consider as wrongful etc."

32. At p. 2 of the judgment in Lam Yuet Ming, Bokhary J. said:

"Now, what are the principles which underlie situations as this? First of all, I would have thought, it is necessary to bear in mind that people are to be kept to their bargains. Secondly, it is to be borne in mind that any clause which seeks to modify the prima facie legal right of a party to a contract is to be construed strictly. Thirdly, as against all of the foregoing, it has to be accepted that if a clear modification appears, then that modification must be given full effect."

I adopt and fully agree with what has been said.

33. There would be an order for specific performance to the plaintiff with costs.