LAI TAI HO v. WONG KAM LIN MARY

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This is an action for specific performance of a provisional sale and purchase agreement (the agreement) relating to Flat B, 2nd Floor, 15, Kim Shin Lane, Sham Shui Po (the property).

2. On 29th March 1994, the plaintiff and the defendant entered into the agreement for the sale by the defendant to the plaintiff of the property. The defendant had earlier advertised the property in a newspaper. On 29th March, she was telephoned by a representative of Hing Wah Property Agency (the Agency) and as a result went to the property where she met the plaintiff, the plaintiff's husband and a representative from the Agency. The plaintiff wished to buy the property. After the negotiation between the parties, it was agreed that the property would be sold for $273,500 with completion on 5th May. The parties returned to the Agency's office, where the Agency's standard printed form of provisional sale and purchase agreement was completed by a representative of the Agency and signed by the parties and the representative. The agreement provided for the immediate payment of a provisional deposit of $30,000 and for the signing of a sale and purchase agreement on 12th April at the parties' solicitors' office, when a further deposit of $30,000 would be payable.

3. The agreement contained the following clauses:-

4. Immediately after the parties' signatures, there was a form of provisional receipt:-

"Provisional Receipt: We have received Thirty Thousand Hong Kong Dollars (HK$30,000) through High Wah Property Agency acting on behalf of the Purchaser to be the provisional deposit of the above stated property. If I (the Purchaser) fails to sign the Sale and Purchase Agreement at the solicitors' firm on the date stated in this Agreement or decides not to sell the above property, I (the Vendor) am willing to pay the double compensatory deposit and is responsible for the loss of your company's commission.

Vendor SD.: Wong Kam Lin"

5. There is an obvious error in that receipt. The words "the Purchaser" where they appear in brackets should read "the vendor".

6. What happened next is a matter of dispute. The plaintiff's case is that on 11th April she went to the firm of solicitors whom both parties intended to use. She was told that the solicitors could not represent both parties. Nonetheless she paid them the further deposit of $30,000. She then consulted her present solicitor who wrote to the defendant's solicitors in the usual manner seeking a draft agreement for approval. By return of post, the defendant's solicitors advised the plaintiff's solicitors that the defendant had decided to cancel the agreement and enclosed a cheque for $90,000 being the return of the total deposit of $60,000 and $30,000 as liquidated damages. The plaintiff's solicitors replied the following day to the effect that the defendant could not unilaterally terminate the agreement and asking for a draft agreement for approval. The stance of each party being irreconcilable, the current proceedings were later commenced.

7. The defendant said that on 4th April she telephoned her mother in U.S.A. and told her that she had sold the property. Her mother told the defendant that she would be returning to Hong Kong and that the property should not be sold. Therefore the defendant decided to take advantage of what she understood to be the provisions in the agreement entitling her to cancel it upon payment of $30,000 compensation. She telephoned the plaintiff's husband and told him of her decision. Mr. Lai, the plaintiff's husband, refused to accept the cancellation and said he would sue the defendant if she did not sell the property to them. Further telephone calls to Mr. Lai having proved fruitless, the defendant finally consulted her solicitors, whose name she had been given by Mr. Lai, with the result which I have set out above.

8. The plaintiff and Mr. Lai denied that the defendant had been in touch with them by telephone or at all. Whose version is correct, however, is immaterial because this case depends upon the true construction of Clause 5 of the agreement. Mr. Ho for the defendant contended that, upon looking at the agreement as a whole, the true construction of Clause 5 is that it constitutes what I have called in other cases "an escape clause" allowing the defendant to escape from the consequences of the agreement upon payment of $30,000 compensation.

9. I have to say that I have no hesitation in rejecting that contention. Up until a year or two ago, bitter disputes about clauses such as Clause 5 were common currency in this court when, in a rising property market, vendors were anxious to get the best bargain they possibly could. They found it advantageous to try and buy themselves out of their agreements by payment of compensation that was comfortably out-weighed by the increase in the property values. Finally in Wong Lai Fan v. Lee Ha (1992) 1 HKLR 125 the Court of Appeal made it clear that if a purchaser is to be deprived of his rights and remedies upon failure by a vendor to complete an agreement for the sale and purchase of land, a clause purporting to have such an effect must be drawn in clear terms.

10. In that case, the relevant clauses were:-

11. Hardly surprisingly, perhaps, the Court of Appeal found that the wording of Clause 7 was sufficiently clear to deprive the purchaser of an action to claim damages or for specific performance. The clause plainly has an express prohibition against such actions. In contrast, Clause 5 in the agreement contains no such prohibition. Nor does Clause 3 in relation to default on the part of the purchaser.

12. Clause 5, even after making allowance for translation from the original Chinese, (and the translation is not challenged) is nonetheless an appalling piece of drafting. It gives rise to another problem with which I shall deal in due course. In the meantime, as I said earlier, I have no hesitation in finding that Clause 5 gives rise only to liquidated damages without precluding an action for specific performance. Clause 5 falls into category (ii) discussed by Sir Edward Fry in his work on The Specific Performance of Contracts, a discussion which is set out and commented on in detail by the Court of Appeal in Wong Lai Fan.

13. Mr. McNamara, who appeared for the plaintiff, had another argument in relation to Clause 5. He said that, on the true construction of that clause, what is required of the vendor is not only that any deposit should be returned but that the vendor should in addition pay a total of $65,000, $5,000 of that being payable to the Agency in respect of fees. The defendant vendor has in fact only paid $30,000 apart from returning the $60,000 deposit. The defendant did not therefore comply with the requirements of Clause 5. The agreement remained valid and subsisting so that, in failing either to enter into a formal sale and purchase agreement or to complete, the defendant was in breach of contract.

14. On the wording of Clause 5, I agree that that is the correct interpretation. There is not, as in many cases of this nature, any reference to repayment of deposit and compensation of an amount equal to that deposit. Plainly, although it is not expressed, any deposit must be repaid. In addition, compensation of double the amount of deposit would have to be paid to enable the vendor to escape from the agreement.

15. Mr. Ho, however, said that the plaintiff is not entitled to take advantage of such a construction. He pointed out that it had not been