CHEUK TZE KWOK v. LEUNG YIN KING AND ANOTHER

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J U D G M E N T

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Penlington, J.A.:

1. This is an appeal against an order of Barnett, J. of the 20th March 1992 in which he had allowed an appeal by the defendants against an order of Master Bokhary who had dismissed the defendants' summons to strike out the plaintiff's amended statement of claim and to dismiss the action. The plaintiff seeks specific performance of a provisional sale and purchase agreement made between the parties on the 15th March 1991 whereby the plaintiff as purchaser and the defendants as vendors agreed to the sale and purchase of a flat at Waterside Plaza, Tsuen Wan, for $850,000.

Background

2. There was no dispute that on the 15th March 1991 the parties entered into a written agreement ("the agreement") in the offices of Centaline Property Agency Ltd. ("Centaline") the terms of which provided that $20,000 be paid upon the signing of the agreement and that a formal agreement should be entered into on or before the 25th March 1991 at which time a further deposit of $65,000 was to be paid. The agreement also contained 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 at his absolute discretion to sell the said premises to anyone he thinks fit 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.

11.    This agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto."

3. The agreement is in both Chinese and English with blanks in the form relative to this particular agreement having been filled-in in English. All clauses are contained within a single page. It was signed at the Tsuen Wan Branch of Centaline by the 1st defendant on behalf of herself and the 2nd defendant, who is her sister, and by the plaintiff.

4. On the 24th March 1991 there was a telephone conversation between the 1st defendant and the plaintiff in which she advised the plaintiff that she and her sister did not intend to proceed with the sale of the flat. Following this a cashier's order in the sum of $40,000 was sent to the plaintiff, being a refund of the deposit paid, $20,000, plus a further sum of $20,000 being liquidated damages in accordance with clause 7 of the agreement. This has been retained by the plaintiff.

5. By a letter dated the 20th April 1991 the plaintiff's solicitors wrote to the defendants' solicitors stating that:

"We are instructed to put on record that our client is not agreeable to your client's unilateral termination of the said Provisional Sale and Purchase Agreement. Our client intends to institute legal proceedings against your client for specific performance of the said Provisional Sale -and Purchase Agreement and/or damages arising therefrom."

There was no reference to any collateral undertakings.

6. The writ in this matter was issued on the 12th June 1991. The statement of claim, which was amended on the 19th July 1991, seeks specific performance of the agreement and damages for breach in lieu of or in addition to such specific performance. There is no claim for rectification of the contract.

7. The defendants then took out an inter-partes summons under Order 18 rule 19 seeking an order that the statement of claim be struck out on the grounds that it discloses no reasonable course of action, is frivolous or vexatious, or is otherwise an abuse of the process of the court. The summons was supported by an affirmation by the 1st defendant. The plaintiff filed no affidavit himself and the matter was heard by Master Bokhary on the 4th December 1991. At that time there were two conflicting decisions by judges at first instance regarding the legal effect of clauses similar to 6 and 7 in the agreement. Leong, J. had held that such provisions were unenforceable but Mayo, J. delivered a contrary decision in Wong Lai Fan v. Lee Ha which decision was subsequently upheld by the Court of Appeal on the 24th January 1992 (1991) Civil Appeal No. 175. In it Nazareth, J.A., delivering the judgment of the court, said:

"     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."

8. There is no dispute that the clause there being considered' is the same as clause 7 in the agreement.

9. The defendants appealed against the order made by Master Bokhary and the matter came before Barnett, J. on the 6th March 1992. Judgment was delivered on the 20th March1992 and Barnett, J., following the Court of Appeal decision in Wong Lai Fan v. Lee Ha, allowed the appeal, struck out the statement of claim and dismissed the action. In doing so he said that he accepted that he should not endeavour to resolve matters which were in dispute and that, for the purposes of the appeal, he should accept the plaintiff's version of events as contained in his affidavit filed on the 3rd March 1992, some three days before the hearing of the appeal. In it the plaintiff says that prior to the signing of the agreement he was assured both by the 1st defendant and by a Miss Cheung, an employee of Centaline, that the agreement would be totally binding and there would be no "backing out". He signed the agreement on the basis of these undertakings. When he asked that a clause be inserted in the agreement to that effect Miss Cheung assured him it was not necessary because the effect of her company's form was that it would be an absolutely binding agreement and neither party could be released without the consent of the other. There was nothing in the plaintiff's affidavit to the effect that the plaintiff had not read the provisional agreement before signing it or was not aware of the clauses which it contained, which were totally contrary to what he alleges he had been told.

The case for the appellant

10. Mr. Robert Kotewall, Q.C., leading counsel for the appellant, relied on a series of cases as authority for the proposition that even though a contract for the sale of land must be in writing oral evidence may be admitted to prove a separate independent collateral contract. No such collateral contract is pleaded in the statement of claim but if the claim had not been struck out the defendants would have had to plead that clause 7 of the agreement limited their liability in the case of default to $40,000, which they have paid, and the plaintiff is barred from seeking specific performance. To that the plaintiff would have replied pleading the separate oral collateral agreement that the contract was absolutely binding. Strong reliance is placed on the dicta of Phillimore, L.J., in Mendelssohn v. Normand Ltd. [1970] 1 QB 177 (at 186), Brikom Investments Ltd. v. Carr [1979] QB 467 and on City and Westminster Properties (1934) Ltd. v. Mudd [1959] Ch 129 where it was held that if a tenant signed a lease which contained a clause prohibiting the premises being used as sleeping quarters because he had been given an undertaking that the clause would not be enforced, that undertaking constituted a separate oral contract which could be enforced. That decision, while no doubt it effected justice between the parties on its facts, has however given rise to a considerable area of uncertainty as regards the statutory requirement for contracts for the sale of land to be in writing contained in s. 3 of the Conveyancing and Property, Ordinance, Cap. 219.

11. In Mendelssohn v. Normand Ltd. it was held that an oral undertaking by a parking attendant that he would lock the plaintiff's car, took priority over a printed condition in the parking ticket under which the company running the carpark was not to be liable for the loss of any article left in a motor car in the carpark.

12. In Brikom Investments Ltd. v. Carr a tenant signed a lease containing a clause which on its face made her liable for the cost of roof repairs which were required immediately, despite an assurance, which was not disputed had been given by the landlord's agent, that she would not be required to pay for such repairs. It was held that such an assurance constituted an enforceable oral contract that the landlord would not enforce the terms of the lease, the consideration being the tenants signing the lease document.

13. Mr. Kotewall concedes that the statement of claim as at present drafted does not contain any allegation of a collateral oral agreement between override its clear written terms. claim should only be dismissed if amended so as to show a course of case here. Barnett, J.,in the the parties which would However he submits that a it cannot be suitably action. That is not the in allowing the defendants' appeal,said if there was evidence of a collateral agreement or warranty or some form of promise, indicating that the written agreement did not constitucomplete agreement and understanding between the parties, it would be wrong to strike out a plaintiff who sought to rely on such matters. "It would be wrong to deny such plaintiff his day in court." He went on however to say that the implications of such generosity on the part of the courts are horrendous. He considered that this would open a floodgate and that written agreements would come more and more under attack. They would not be worth the paper they were written on. He considered that a party should only be permitted to go behind the terms of a document on serious grounds such as fraudulent misrepresentation. It is submitted that that is contrary to what Denning, L.J., said in Curtis v. Chemical Cleaning and Dyeing Co. [1951] 1 KB 805 at 808:

"In my opinion any behaviour, by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other party about the existence or extent of the exemption. If it conveys a false impression, that is enough. If the false impression is created knowingly, it is a fraudulent misrepresentation; if it is created unwittingly, it is an innocence misrepresentation; but either is sufficient to disentitle the creator of it to the benefit of the exemption."

14. Mr. Kotewall argues that there was here evidence, as yet untested, of the type of oral collateral agreement considered in City and Westminster Properties (1934) Ltd. v. Mudd which, if proved, would override the express written terms of the contract between the parties. There were obvious points which could no doubt be taken to cast considerable doubt on the plaintiff's version of events but that was a matter for trial not for decision at an interlocutory stage on affidavit evidence. Barnett, J. was not correct in applying the "floodgate principle" and finding that if he was to allow this claim to go forward it would open up the courts to a torrent of claims in which, parties sought to go behind the terms of written agreements for the sale of land.

The case for the defendants

15. It was argued by Mr. Denis Chang, Q.C., leading counsel for the defendants, that here the plaintiff had not pleaded that there was a collateral oral agreement which would override the express terms of the written contract and his affidavit did not support such an agreement and provide basis for an amendment. The plaintiff could not bring himself within the principles laid down in City and Westminster Properties (1934) Ltd. v. Mudd, Mendelssohn v. Normand Ltd. or Brikom Investments Ltd. v. Carr. In all those cases the plaintiff was relying on an entirely separate oral collateral contract. Here the plaintiff was not so relying. The amended statement of claim is based entirely on the agreement and simply claims that without the consent of the plaintiff the defendants wrongfully repudiated that agreement. The agreement contains a specific provision which entitles the defendants to do precisely that, provided they pay the plaintiff the agreed amount in damages. This they have done. Wong Lai Fan v. Lee Ha is clear authority that such action does not allow the purchaser to claim specific performance.

16. Mr. Chang seeks to distinguish City and Westminster Properties (1934) Ltd. v. Mudd and Brikom Investments Ltd. v. Carr on the basis that there was no argument that the tenants realised what was in the lease conditions but, as consideration for signing the leases, were given oral assurances that the conditions would not be enforced. The landlords were bound by that oral contract not to enforce the conditions. In Mendelssohn v. Normand Ltd. (which was not a contract for the sale of land) an oral assurance by a carpark attendant that he would lock the plaintiff's car overrode a printed condition on the parking ticket that the defendant would not be liable for theft from a car in the carpark. Here, it is argued, the plaintiff does not allege any undertaking not to enforce clause 7. The allegation is that he was assured there was no such clause. The plaintiff is therefore seeking to rely on another agreement, an oral one, for the sale of the flat which contains no clauses such as 6 and 7 in the agreement. That he cannot do because it would be an oral agreement for the sale of land. The decision in Curtis v. Chemical Cleaning and Dyeing Co. is also of no help to the plaintiff as it was not concerned with the sale of land.

17. Although the plaintiff did not seek rectification of the contract in his statement of claim Barnett, J. did consider this and thought that the plaintiff might be able to pursue such a claim, on the basis that the written agreement did not reflect the bargain the parties had come to orally. However as he did not only strike out the statement of claim but dismissed the entire action he presumably considered such a remedy would have to be sought in a fresh action.

18. Mr. Chang submitted that in any event there could be no question here of rectification of the agreement in the absence of evidence of mutual mistake as to the contents of the agreement and the plaintiff's failure to assert that he did not read the agreement or was otherwise ignorant as to its contents. Mr. Chang relies on the statement in Snell on Equity, 29th ed., at 629:

"There can be no rectification if the omission of a term was deliberate even if this was due to an erroneous belief that the term was unnecessary ... and similarly if the instrument intentionally contains a provision which in fact means something different from what the parties thought it meant. Rectification ensures that the instrument contains the provisions which the parties actually intended it to contain, and not those which it would have contained had they been better informed."

19. Clause 11 of the agreement provided that it superseded "all prior negotiations, representation, understanding and agreements of the parties hereto". Barnett, J. referred to this clause and cited Chitty on Contracts, 26th ed., para. 854. He did not however refer to the final sentence of that paragraph which reads that:

"However it is also submitted that such a clause would not be held to exclude extrinsic evidence of a misrepresentation or of a collateral contract or warranty since the parole evidence rule does not extend to such cases."

Mr. Chang therefore did not rely on clause 11 at this stage of the proceedings.

Decision

20. I am satisfied that this appeal should be dismissed. What the plaintiff is saying is not that, knowing that clause 7 was in the agreement, he nevertheless signed it on the basis of an undertaking given by the defendants or on their behalf that the clause would not be enforced but that there was a different contract between the parties for the sale of the flat which is not reflected in the agreement. He is, it seems to me, therefore, endeavouring to prove another contract for the sale of land, and that is an oral contract. The decisions in City and Westminster Properties (1934) Ltd. v. Mudd and Brikom Investments Ltd. v. Carr, which relate to contracts affecting land, involve a separate oral contract that, in consideration of one party signing a written document, a clause in the document will not be enforced. That is simply not the case here. The plaintiff's evidence is not that he was assured that clause 7 would not be enforced but that it did not exist, difficult though it is to accept this in the light of the form of the agreement.

21. I would only add that it is the clear intention of the legislation in s. 3 of the Conveyancing and Property Ordinance, Cap. 219, that contracts for the sale of an interest in land should be in writing. The parol evidence rule provides that evidence is not admissible to prove an oral agreement which adds to, subtracts from or varies the terms of the written contract. The interests of justice have however required over the years some exceptions being made of which the independent collateral oral contract in City and Westminster Properties (1934) Ltd. v. Mudd and Brikom Investments Ltd. v. Carr is one. These are however exceptions and there is a danger, especially in the light of the highly volatile Hong Kong property market, of the floodgate being opened to the challenge of written contracts, as Barnett, J. said below, if each case is not examined with care to see if it does fit within the exception claimed.

22. The appeal should be dismissed and I would make an order nisi that the respondents have their costs of the appeal.

Fuad, V.P. :

23. I agree that the appeal should be dismissed with the order nisi as to costs proposed.

Nazareth, J.A.:

24. I also agree that this appeal should be dismissed.