Plenty Motion Ltd. v. Winful Enterprise Ltd.

IN THE COURT OF APPEAL

1994, No. 32
(Civil)

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J U D G M E N T

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Godfrey, J.A.:

1. This is the judgment of the court on an appeal from a judgment, dated 28 January 1994, of Mr. Justice Ryan. The case for the appellant has been argued with commendable brevity and clarity by Mr. Warren Chan, Q.C. but nevertheless, in the end, this court considers that it has no option but to dismiss this appeal.

2. The dispute between the appellant and the respondent arises out of an agreement of 26 September 1992 whereby the appellant ("the vendor") agreed to sell and the respondent ("the purchaser") agreed to buy 40 residential units in a block comprised in a development in O Tau Harbour District, O Tau, in the People's Republic of China. The total purchase price, subject to adjustment, was some HK$12 million. The purchaser agreed to pay an initial deposit of HK$800,000 upon the signing of the agreement and a second deposit on or before 6 November 1992. This second deposit was to be a deposit of HK$800,000 or a sum calculated in accordance with a formula set out in clause 3 of the agreement which reads as follows:

"3b The second deposit which is to be payable on or before 6th day of November 1992 shall be HK$800,000.00 or a sum calculated according to the following formula (which ever is higher):-

(percentage of selling price)		(282 x sold Gross)
(of sold Gross Floor Area)		(Floor Area within)
(paid by Sub-Purchasers of)	MUL TIPLY	(the period)
(the project within that)
(period)

such deposit shall be fully paid by the Purchaser out from the proceeds of sale of the sold Gross Floor Area held by the Vendor's Solicitors under this Agreement if sufficient."

3. The first sale to sub-purchasers conducted, under other provisions of the agreement, by the vendor, was disappointing. Only 5 units were sold. The purchaser, after some delay, suggested that in paying the second deposit of HK$800,000 it should be entitled to deduct the amount which the sale had realised, calculated as HK$261,978. Unfortunately for the vendor, it never gave a clear answer to the purchaser upon this point. Mr. Warren Chan, Q.C., on behalf of the vendor, concedes that such a deduction would have been justified, but, as we read the vendor's pleadings and the evidence tendered by the vendor at the trial, this concession is made now for the first time. It is on this point that we consider the case turns.

4. The sequence of events was as follows.

5. On 6 November 1992, the time mentioned in clause 3 for the payment of the second deposit came and went but the second deposit was not paid.

6. On 4 December 1992, in a letter from the vendor's solicitors to the purchaser's solicitors, the vendor's solicitors said this:

“As the second deposit of HK$800,000.00 is payable on or before 6th November 1992 and therefore, we are obliged if you would arrange 10 send us a cheque of Hk$800,000.00 within the next three days."

(That, plainly, was a claim for payment of the full HK$800,000 without any deduction.)

7. On 5 December 1992, the purchaser's solicitors replied saying that the purchaser would like to postpone the date of the second deposit payment.

8. On 7 December 1992, the vendor's solicitors replied that the vendor did not agree to the postponement of the payment of the second deposit and that they were instructed to give the purchaser notice that the purchaser was required to effect the second deposit of HK$800,000 before 5:00 p.m. on 10 December 1992, failing which the vendor would have no alternative but to agreement. (This, obviously, was another demand for the payment of the HK$800,000 in full.)

9. On 9 December 1992, the purchaser's solicitors, by a letter of that date, drew the attention of the vendor's solicitors to the terms of the agreement and, in particular, to the terms of clause 3b relating to the payment of the second deposit. They said this:

“According to the said Clause 3b, the amount of second deposit which our client is obliged to pay is depended on the proceeds of sales of the sold Gross Floor Area and that our client is entitled to utilise such proceeds of sales to set off part of the said second deposit, we are therefore instructed to request your client through your goodselves to provide us with the following:-

1. Written report according to the said clause 6B together with all relevant supporting documents; and

2. Calculation as to how the second deposit of HK$800,000.00 be arrived at.

In these circumstances, we trust you will accede with our view that our client is only required to make payment of the said second deposit upon the above matter is cleared."

(That was a claim, made by the purchaser's solicitors for the first time, to be entitled to make the payment of HK$800,000 subject to a deduction in respect of the proceeds of the sales to the sub-purchasers.)

10. On 11 December 1992, the vendor's solicitors wrote to the purchaser's solicitors saying that they were instructed to send to the....... purchaser's solicitors, as they did, a copy report regarding the sale of the subject property. They added this:

"Pursuant to Clause 3 of the Agreement for Sale and Purchase dated 26th September 1992, your client is required to pay a further deposit of HK$800,000.00 on or before 6th November 1992."

(This was so but it leaves in the air the question whether the HK$800,000 was to be paid with or without deduction. On the whole, we think that, on its true construction, silent on the point as it was, this letter must be treated as another demand for payment of the full HK$800,000 without deduction.)

11. On 12 December 1992, the vendor's solicitors wrote to the purchaser's solicitors enclosing another copy of the report, this time stamped for authentication by a firm called Messrs. K.M. Lai & Co. They enclosed also a copy of the price list of the units (as they had been asked to do the previous day) and mentioned that a total deposit of HK$354,138.80 had been effected in October 1992. They continued as follows:

"Moreover, according to the calculation formula as mentioned in the Agreement dated 26th September 1992, the amount arrives at HK$261,978.00 (20%×$282×4645 sq. ft.) and whereby HK$800,000.00 is the higher amount pursuant to Clause 3(b) of the said Agreement."

(Although this is somewhat convoluted language, it seems to us that this is saying that, since HK$262,000 is less than HK$800,000, it is the latter figure, without deduction, that the purchaser must pay.)

12. Clause 12 of the agreement contained a provision which enabled the purchaser in certain circumstances to call the contract off. This so-called "money back guarantee" could not be invoked on the sale of five units only but it could be invoked if eight units had been sold. In order to trigger this, the purchaser through its solicitors now sought to purchase as sub-purchasers another three units. This ruse was unsuccessful.

13. On 16 December 1992, the vendor's solicitors wrote to the purchaser's solicitors as follows:

"We are instructed to inform you that your client's proposal to purchase the three units of the above property is not acceptable to our client.

We are instructed to put on record that the calculation of the sold Gross Floor Area should be referred to the result of on or before 6th November 1992.

Accordingly, we are further instructed that in the event if we do not receive the second deposit as mentioned in the Agreement for Sale and Purchase dated 26th September 1992 before 4:00 p.m. 17th December 1992, our client shall forfeit the first initial deposit of HK$800,000.00 without further notice."

(That again is a demand, as we construe it, to be paid the full HK$800,000 without deduction.)

14. This demand is not in itself a repudiation of the agreement. We accept Mr. Warren Chan Q.C.'s argument that the mere fact that the demand was framed on what is now conceded to be a wrong construction of the agreement was not necessarily repudiatory. But the demand was accompanied by a threat (as we read this letter) to forfeit the initial deposit unless HK$800,000 without any deduction was paid before 4:00 p.m. on 17 December 1992. In our view, such a threat, based as it was on an incorrect construction of the agreement, clearly does evince an intention to commit a serious breach of the agreement and so did constitute a repudiation.

15. On 17 December 1992, the purchaser's solicitors wrote to the vendor's solicitors accepting that the contract was at an end and asking for the initial deposit to be repaid. In doing so, they assigned an incorrect justification for their action; because they gave as their reason the refusal of the vendor toagree to sell to the purchaser the three properties, the subject of the ruse to which we have referred. But that makes no difference. The vendor's solicitors' letter of 16 December 1992 was a repudiation; and the purchaser's solicitors by their letter of 17 December 1992 accepted it.

16. The judge in his judgment found that the agreement on its true construction did permit the deduction from the HK$800,000 claimed by the purchaser (as is now conceded). He found that the demand had been wrongly made. He accordingly decided the case in favour of the purchaser. We think he was right to do so. Mr. Warren Chan Q.C. argued on the correspondence that the vendor had never rejected the claim of the purchaser to be entitled to make this deduction. He said, rightly, that we cannot consider the subjective state of mind of the vendor's solicitors, or of the vendor, in construing the correspondence; but we are comforted to note that, in the course of the evidence given at the trial, it emerged quite clearly that the vendor thought its solicitors had advised it that it was indeed entitled to payment of the HK$800,000 without deduction. This seems to us to buttress to the judge's conclusion which, as we say, we accept. For the reasons we have endeavoured to state, and notwithstanding that the purchaser itself was clearly desperately anxious to get out of the contract, we are satisfied that the vendor by its solicitors' letter of 16 December 1992 repudiated it, and that the purchaser became entitled to the return of its initial deposit. It follows this appeal must be dismissed, despite Mr. Warren Chan Q.C.'s attractive argument in support of it.