LEUNG YUK CHUEN v. CHANFU CHOI JOISE

1991, No. A5871

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. This is an appeal against a decision of a Master who refused the plaintiff's application for specific performance pursuant to Order 86. The action arises upon an agreement in Chinese dated 1st July 1991, whereby the defendant agreed to sell and the plaintiff to buy a flat owned by the defendant. The agreement was a short one. After making the usual provision for the payment of a deposit and the balance of the purchase price, and for delivery of the title deeds, the agreement provided:

"4. After signing this agreement, both parties shall sign a formal sale and purchase within 10 days, if Party B (the plaintiff purchaser) shall breach of the contract not to buy, Party A (the defendant vendor) can/may forfeit the deposit as compensation. If Party A breach of the contract not to sell, Party A ought to pay Party B with a sum double to the amount of the deposit HK$50,000 as compensation to Party B of loss and damage."

2. I should observe that the words "can/may" and "ought to" were originally translated as "shall". The latter translation was before the Master. During the course of the appeal and after Mr. Shum had made his submission on behalf of the defendant, the new translations were agreed upon. These translations unfortunately undermined that part of Mr. Shum's argument based upon the use of the word "shall", which he said removed any option from the defendant vendor while apparently leaving to the plaintiff purchaser his various remedies at common law or in equity. This showed a lack of mutuality between the parties which would admit of two possible interpretations of clause 4. In order to resolve the true interpretation, parole evidence could be adduced.

3. For the plaintiff, Mr. Ramanathan submitted that clause 4 admits only of one construction, namely, the payment of a liquidated sum as damages or penalty without precluding any other remedies, including specific performance, which the parties might have. He said that clause 4 does not admit of a construction providing for alternative performance of the agreement by way of payment, of a sum of money. He said that as the defendant relies upon clause 4, it should be construed contra proferentem. The clause should not be construed to exclude other legal remedies unless it clearly and unambiguously said so.

4. The construction of what I call an alternative performance clause has recently been the subject of a decision of the Court of Appeal in Wong Lai Fan v. Lee Ha (1-991) No. 175 (Civil). The decision was given on 24th January 1992 and is as yet unreported. In that appeal, the Court of Appeal was concerned with the following clauses:

"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 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."

5. The issue was whether the wording of those clauses was such as to extinguish the parties' common law rights and equitable remedies. The Court of Appeal accepted that a contract to do a certain act may be satisfied by the payment of a sum of money as an alternative to the performance of the act. See Fry on The Specific Performance of Contracts, sections 141 and 142. The court particularly accepted that parties to an agreement may limit their damages for non-completion to certain sums of money. See Abdul Cader Abdeen v. Abdul Careem Mohamed Thaheer [1958] AC 116. The Court of Appeal finally held:

"As we have indicated, in our judgment, upon its true and proper construction clause 7 provides the vendor with the option of immediately paying the amount stipulated instead of completing. In our view that effect or intention is plain and, moreover, sufficiently clear to dispose of or meet the contra proferentem rule, and the necessity for clarity in the limitation or exclusion of liability and ordinary remedies (see Szvmonowski and Company v. Beck and Company [1923] 1 KB 457) both of which were mentioned in Fong Yee Lan and relied upon by Mr. Lui.

    In our judgment, therefore, it is clear from its wording, particularly in its context, that its effect is that upon the vendor compensating the purchaser with the amount stipulated immediately upon her refusal to complete the sale in the manner provided, it is not open to the purchaser to take any action to claim damages or to enforce specific performance."

The Court of Appeal was dealing with a decision by

Mayo J. In the course of their judgment, however, they canvassed a decision of Godfrey J. in Lee Tat Kwong v. Choi Pui Kei Steven & Chan Lan Shun (1991 No. A2338 - unreported) delivered on 30th July 1991, in which the judge was faced with the same problem. He was concerned with the following clause:

"If the Purchaser does not within the stipulated time go to the solicitors office to deal with the procedures, the vendor is entitled to forfeit the provisional deposit, and further has the right to resell the property or retain it for his own use. If the vendor in breach of contract failed, within the stipulated time, to go to the solicitors' office to deal with the procedures, the vendor shall compensate the purchaser by twice the amount of the provisional deposit in the total sum of HKS40,000.00 and the purchaser is not entitled to dispute that. If the vendor in breach of contract failed immediately to compensate (the purchaser) by the amount of the deposit, the purchaser shall be entitled to take legal action to enforce the purchase by specific performance, and also to claim for any loss consequential thereupon."

Godfrey J. was referred to two cases of which he said:

"The second was Szymonowski and Company v. Beck and Company [1923] 1 KB 457. That, again, was far away from the present case. It was a case about sale of goods, but two passages from the judgment in that case are worth recording for present purposes. Bankes L.J. said (at p.464):

"A buyer has, in the event of his seller breaking his contract, a prima facie right to avail himself of one or other of several alternative remedies, and if the seller desires by a clause in the contract to restrict the buyer's right to those remedies he must say plainly whether he intends to deprive the buyer in certain events of all those remedies or only of one or more of them, and if so of which."

Scrutton L.J. said at (p.466):

"Now I approach the consideration of that clause applying the principle repeatedly acted upon by the House of Lords and by this Court - that if a party wishes to exclude the ordinary consequences that would flow in law from the contract that he is making he must do so in clear terms.""

6. The judge came to the conclusion that the clause was in sufficiently clear terms to dictate the conclusion that it was the intention of the parties to confer on the vendors an option to pay $40,000 to the purchaser instead of going through with the sale.

7. Mr. Shum contended that the intention of the parties here is far from clear. Whilst he was prepared to argue that the true intention is to exclude the parties' common law and equitable rights, he said that for the purpose of this appeal it is only necessary for him to show that both interpretations are possible in which case parole evidence should be admitted to help clarify the true intention. If parole evidence is required then it is a matter for trial. Mr. Shum also argued that there is evidence of a collateral agreement between the parties to which I will come later.

8. As I have already indicated, Mr. Shum's principal argument was undermined by the alteration of the translation in clause 4. What he was effectively left with, I think, is that clause 4 appears to be somewhat one-sided, indicating only what the defendant vendor might do, but not what options, if any, remain open to the plaintiff purchaser. This indicates a lack of mutuality between the parties. As to mutuality, in Wong Lai Fan the Court of Appeal. said:

"Mr. Lui accepts the lack of mutuality implicit in his construction of clauses 6 and 7, that is adverted to in the judgment of Mayo J., but he admits, in reliance upon Lee Tat Kwong, that such lack of mutuality is not fatal. Assuming without deciding that that is so, it is sufficient to note that that mutuality lends some support to the construction that produces it and conversely, its absence militates against a construction that does not produce it."

9. Mr. Shum also suggested that the word "forfeit" is incompatible with specific performance. He said the word is one which signifies the termination of a contract.

10. Considering clause 4 in the overall context of a provisional agreement for the sale and purchase of a flat, I have no difficulty in discerning that the clause was intended to provide for the consequence of breach in financial terms without excluding the equitable remedy of specific performance or any other remedy. I cannot see that the clause goes anywhere near depriving the plaintiff of his remedies.

11. The defendant filed an affirmation in which she deposed to the fact that there had been discussions between her, the plaintiff, and an estate agent Mr. Au. The thrust of the affirmation was that it had been agreed that the defendant would have to return double the initial deposit "as my only obligation" if she decided not to sell the flat. The plaintiff accepted and agreed to this Mr. Au read out clause 4 of the agreement explaining that if the defendant did not wish to sell after signing the agreement, she would have to pay double the initial deposit.

12. For the purpose of this appeal, I am prepared to accept what the defendant said. The fact that there was no mention of these discussions, either in the defendant's solicitors letter which informed the plaintiff that the defendant was not proceeding with the sale, or in the original defence, and that reference to the discussions only emerged after the plaintiff issued his application for specific performance is not a sufficient ground for me to ignore what the defendant said. The evidence does not, however, assist the defendant. In so far as it might constitute parole evidence admissible for the purpose of construing clause 4, it is unnecessary and irrelevant in view of the conclusion which I have reached. In so far as the evidence shows a collateral agreement under which the parties waived their remedies in law it is incompatible with the terms of the written agreement and again cannot assist the defendant. The real mischief, I think, is that assuming the parties did agree to waive their remedies, that agreement has not properly been reflected in the written agreement. The appropriate course, as Mr Ramanathan said, is for the defendant to seek rectification of the agreement, a course which has never been suggested to date. Additionally, the defendant may have a remedy against Mr. Au if Mr. Au misinterpreted or misled the defendant about the effect of clause 4.

13. Having drafted this judgment, my attention was drawn in another case to para. 853 of Chitty on Contracts, which suggests that courts have admitted evidence to prove an overriding oral warranty or oral promise that a contract will not be enforced. I caused the parties to be advised. Further submissions were made in writing.

14. The defendant's submission is that the written agreement does not indicate one way or other whether it contained all the terms agreed between the parties. The defendant has deposed to there being another term. The issue turns on credibility. The matter should go to trial.

15. The plaintiff argues that the defendant's pleaded case was that the agreement was in writing, alternatively partly in writing and partly oral. It was not pleaded that there was a collateral agreement nor is there any plea or allegation of it being a condition upon which the defendant agreed to sign. Accordingly, the general principle should apply. The ratio in City of Westminster Properties (1934) Ltd. v. Mudd (1959) Ch. 129 is distinguishable because the lessee therein signed only upon a promise made on behalf of the landlord that a certain covenant would not be enforced.

16. I am persuaded that the plaintiff is right. There is, in my judgment, nothing akin to Mudd in the present case. Unlike the express oral promise made by the landlord's agent, the plaintiff at most acquiesced in certain terms explained to him by Mr. Au. That those terms were not comprehensively set out in the agreement is unfortunate but not, I am satisfied, sufficient reason to go behind what I consider to be a document capable of interpretation without the need for extrinsic evidence.

17. In the circumstances, the appeal is allowed. The order of the Master granting the defendant unconditional leave to defend is set aside. I grant a decree of specific performance in favour of the plaintiff. I make an order nisi for costs in favour of the plaintiff. I give liberty to restore should and further directions be needed.