THE THOMPSETT MIND LIMITED v. TRIUMPH FIELD LIMITED

1992, No. A1826

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 yet another claim against the vendor of certain property who had refused to carry through a provisionally sale and purchase agreement prepared by the estate agent.

2. For the purpose of the present proceeding the parties have presented the Court with certain agreed Statement of Facts as follows:

" 1. By a provisional agreement dated 18.2.92 made between the Plaintiff and the Defendant, the Defendant as vendor agreed to sell and the Plaintiff as purchaser agreed to purchase the property known as House B7, Spring Field Garden, Shouson Hill Road, Hong Kong ["the Property"] at the price of HK$7, 200,000. The said agreement is at p.1 of the Agreed Bundle.

2. Upon the signing of the agreement, the Plaintiff paid the Defendant a sum of HK$200,000.00 as initial deposit.

3. Messrs. Kok & Ha acted for the Plaintiff and Messrs. Ng & Fang acted for the Defendant in the conveyancing transaction.

4. Pursuant to Clause 2(b) of the agreement, the Plaintiff tendered the sum of HK$1,240,000.00 as further deposit to the Defendant through solicitors. the covering letter of such tender is at p.4 of the Agreed Bundle.

5. By a letter dated 27th February 1992 (at p.6 of the Agreed bundle), Messrs. Ng & Fang on behalf of the Defendant,

(a) returned the further deposit to the Plaintiff;

(b) enclosed a cheque in the sum of HK$400,000.00 and stated the same to be the refund of the initial deposit and the liquidated damages in the total sum of HK$400,000.00 payable to the Plaintiff under Clause 5 of the provisional agreement.

6. By a letter dated 2nd March 1992 (at p.7 of the Agreed Bundle), the Plaintiff through Messrs. Kok & Ha intimated its refusal to accept the Defendant's contention about Clause 5 and that it would go for specific performance should the Defendant refuse to perform. The cheques for HK$400,000.00 and HK$1,240,000.00 were sent back to Messrs. Ng & Fang.

7. By a letter dated 3rd March 1992 (at p.10 of the Agreed Bundle), the Defendant through Messrs. Ng & Fang insisted on its contention that its obligation under the provisional agreement has been discharged.

8. Subsequent correspondence between solicitors are at p.11 to p.34.

9. The Plaintiff duly registered the Provisional Agreement on 17.3.92, within one month of the date of the instrument.

10. Writ of this action was issued on 14.3.92 and served upon the Defendant on 16.3.92 (covering letter at p.34). The Writ was duly registered on 17.3.92.

3. It is also the consent of the parties that the Court should only deal with a preliminary issue namely; "whether the Defendant vendor can rely on Clause 5 of the provisional sale and purchase agreement to escape from the obligation to sell the property in question, in other word to resist a claim for specific performance by the Plaintiff purchaser?"

4. Disputes of similar nature arising out of such estate agent's provisional sale and purchase agreement had been the subject matter of a number of cases in Hong Kong and the Court is grateful to Counsel for referring the Court to the following cases:

(1) Wong Lai Fan v. Lee Ha [1992] 1 HKLR 125.

(2) Lau Yuet Ming v. Yeung Wai Lun & another. HCA No. A4014 of 1991.

(3) Wong Shui Hung v. Kwok Sing Leung & another. HCA No. A2516 of 1991.

(4) Tung Kiu Ying v. Chan Mei Yuet. HCA No. A2682 of 1991.

(5) Lee Tat Kwong v. Choi Pui Kei Stephen & another. HCA No. A2338 of 1991.

(6) Ma Li Sha v. Tsang Sui Sin. HCA No. A2362 of 1992.

(7) Kartin Ltd. v. Wu Chan Choi Fa. HCA No. A5648 of 1991.

(8) Wong Pui Ching v. Wu Mei Fong and others. HCA No. A3343 of 1991.

(9) Wong Oi Chau v. Mak Ka Nung. HCA No. A4898 of 1991.

5. The material parts of the provisional agreement in question were as follows:

(4) 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.

(5) 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.

6. The issue for the Court to decide is whether on the proper construction of the aforesaid clauses, the vendor is entitled to refuse to complete the sale by compensating the purchaser with a sum equivalent to the amount of the initial deposit as liquidated damages together with the refund of the initial deposit.

7. It is common ground that parties to an agreement such as the present may limit their damages for non-completion provided a correct formula for drafting is adopted, a principle pronounced by the Court of Appeal in Wong Lai Fan's case (supra).

8. Of all the cases aforesaid, only in two of them, namely Wong Lai Fan v. Lee Ha and Lee Tak Kwong v. Choi Pui Kei Stephen (supra) the Court concluded that the wording of the relevant clauses was sufficiently clear to limit the parties damages for non-completion so that a claim for specific performance failed.

9. It is perhaps useful to examine the wording of the relevant clauses in these 2 cases.

10. In Wong Lai Fan's case, the relevant clauses read as follows:

(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 mutual 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. In Lee Tat Kwong's case, the relevant clauses read as follows:

(11) 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 the 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 HK$40,000.00 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 purchaser by specific performance, and also to claim for any loss consequential thereupon.

12. It is clear that the relevant clauses in Wong Lai Fan's case contained an express prohibition against any action for damages and/or specific performance by the purchaser after the vendor paid the compensation and refund the deposit and in Lee Tat Kwong's case, the entitlement on the part of the purchaser to take legal action to enforce the purchase by specific performance and also to claim for any loss consequential thereupon only arose when the vendor failed immediately to compensate the purchaser by the amount of the deposit.

13. In both cases, the vendors paid the purchasers the liquidated damages and returned the deposit and the claims by the purchasers for specific performance failed.

14. In all the other cases referred to the Court by Counsel as in the present case, the relevant clauses do not provide such clear prohibition and/or condition precedent.

15. The wording of such clauses may not be identical. But they are similar in that should the vendor fail to complete the sale, apart from returning the deposit, the vendor also have to pay to the purchaser liquidated damages of a sum equivalent to the amount of the initial deposit. All the judges, including Bokhary J., Keith J., Barnett J., Wong J., Gall J., Deputy Judge Jones and Deputy Judge Jennings held that the relevant clauses in their respective cases do not permit the vendor to "escape" from completion by the payment of the liquidated damages and the refund of the deposit.

16. Counsel for the Plaintiff, Mr. Lam, relies on the cases aforesaid. In particular reference was made to an often quoted passage from Sir Edward Fry's book on The Specific Performance of Contracts, 6th Edition (1921) Chapter 3 at page 65.

"S.S.140...where a contract is substantially performed by the payment of a sum of money, the Common Law remedy being adequate, Equity will not interfere. Hence, in cases where there is added to the contract a clause for the payment of a sum of money in the event of non-performance, the question arises whether the contract will be satisfied by the payment or whether it will not. In the former case, Equity will not interfere; in the latter, it may.

S.S.141. The question always is, What is the contract? Is it that one certain act shall be done, with a sum annexed, whether by way of penalty or damages, to secure the performance of this very act? Or is it that one of two things shall be done at the election of the party who has to perform the contract, namely, the performance of the act or the payment of the sum of money? If the former, the fact of the penal or other like sum being annexed will not prevent the Court's enforcing performance of the very act, and thus carrying into execution the intention of the parties: if the latter, the contract is satisfied by the payment of a sum of money, and there is no ground for proceeding against the party having the election to compel the performance of the other alternative."

17. It is Mr. Lam's contention that the mere provision for liquidated damages does not take away a party's right of specific performance and he relies on two rather old English Authorities of:

18. Long v. Bowring 12 W.R. 972 and

19. Howard v. Hopkyns 2 ATK 371.

20. In Long v. Bowring, the Defendant contracted to grant the Plaintiffs an under lease of property held by him under the C. Company and he covenanted that if the C. Company refused to grant a licence for that purpose, he would pay the Plaintiffs ￡ 1,000 by way of liquidated damages. It was held that the Defendant could not escape a specific performance by refusing to apply for a licence and by paying to the Plaintiffs the ￡ 1,000.

21. The Master of the Rolls in his short judgment had this to say:

"On the construction of the agreement and of the clause in it, which has been so much referred to, I am of opinion that, although the lease has not been obtained, the Plaintiffs have a right to a specific performance of the contract. Bowring entered into an agreement with the Longs to grant them an under-lease. If Bowring had so intended, he might have introduced into the agreement a clause, to this effect - 'I shall be at liberty to discharge myself from the obligation of the agreement upon payment to the Plaintiff of a sum of ￡ 1,000.' If that had been the meaning of the parties, it would have been easy to express it. But I think that the real meaning of the clause is, not to give Bowring this option, but to give to Long the option whether they would have the agreement specifically enforced or in lieu thereof accept a sum of ￡ 1,000. Every covenant is or be taken most strongly against the covenantor, in the same way as every grant against the grantor, and accordingly, the clause of this agreement on the part of Bowring is for the benefit of Long."

22. Mr. Chan on behalf of the Defendant contends that in Hong Kong, it is open to parties in a provisional sale and purchase agreement to escape from the liability to complete. He argues, if I understand him correctly, that the wording used in Clause 5 is sufficiently clear to demonstrate the intention of the parties that the vendor can take away the purchaser's right to specific performance by the payment of the compensation and the refund of the deposit.

23. Mr. Chan places considerable emphasis on the words "shall immediately compensate" and "the refund of the initial deposit" which he claims are words indicative of the parties' intention to bring the contract to an end.

24. Mr. Chan relies on a passage in the case Tung Kin Ying v. Chan Mei Yuet (supra) where Barnett J. said at p.11:

"In my judgment, the word "forthwith" is of some significance. If a contract is to be terminated or cancelled other than by performance of the primary obligation, it needs to be done promptly so that all parties know where they stand. In the case of breach of contract, however, where various remedies may be pursued, the payment of damages, whether pre-determined or not, does not assume or require the same urgency. The absence of the word in clause 2, therefore, is a pointer to the clause being no more than a clause determining the amount of damages."

25. Mr. Chan also relies on a passage in Wong Shui Hung v. Kwok Sing Leung and another (supra) where Keith J. in commenting the aforesaid observation of Barnett J., said the following at page 12.

"In my view, that is a distinction without a difference. Indeed, that was the view reached by Godfrey J. in Kentex Investment Ltd. v. Hui Lap Ping, Sam (HCMP No. 3447 of 1991), a case which I do not think was cited to Barnett J. Godfrey J. said at p.5 of the transcript of his judgment.

'Even if the word "immediately" is not used, the obligation, as Counsel for the vendor pointed out in argument, must be an obligation to pay the compensation within a reasonable time.'

However, although I would have preferred the view of Godfrey J. to that of Barnett J. on the relevance of the presence or absence of the word "forthwith" authority constrains me from giving effect to Godfrey J.'s view because the presence of the word "forthwith" in the clause in Abdul Cader Abdeen was one of the four reasons given by Lord Keith of Avonholm as to why the clause barred specific performance as a remedy.

However, there is, in my view, a surer basis on which Clause 3 can be distinguished from the clause in Abdul Cader Abdeen. Clause 3 merely provides that the Defendants "shall be liable to repay" the initial deposit and the additional sums to the Plaintiff, whereas the clause in Abdul Cader Abdeen provided that the vendor "shall repay" the deposit and "shall also pay" an additional sum. The language of the clause in Abdul Cader Abdeen, in my view, leaves less room for the purchaser to insist on specific performance, whereas a liability on someone to repay a particular sum does not impose an obligation to pay it, if the liability is not going to be enforced, and it is by definition not being enforced if the purchaser's preferred remedy is specific performance."

26. Mr. Chan contends that the words used in Clause 5 are "immediately" and "shall refund" which are the same as "forthwith" and "shall repay" and therefore should be construed in such a way as to disallow the purchaser to insist on specific performance.

27. The case of Abdul Cader Abdeen [1958] A.C. 116 referred to by Keith J. is also heavily relied on by Mr. Chan.

28. In Abdul Cader Abdeen, the Clause 8 "In the event of the purchaser being ready and willing to complete the said sale...and the vendors failing, refusing or neglecting to execute...the deed of transfer...then...the vendor shall...pay to the purchaser a sum of Rs.15,000 as liquidated and ascertained damages and not as "penalty", together with the other terms of the contract was held to be sufficiently clear to exclude the prima facie right of the appellant to demand specific performance.

29. It must be remembered that in all cases of this nature when the Court is trying to ascertain the intention of the parties to a contract from the words used, the background of the case is important as such background can some time throw light on the parties' intention.

30. What cannot be ignored was that the Court in Abdul Cader Abdeen was dealing with 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; a fact emphasised throughout the judgment of Lord Keith of Avonholm and a fact which formed the basis of the first of the four reasons for the judgment when it was stated at p.125.

"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 Lordships 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."

31. Further, the second reason given indicates that their Lordships' decision rested not just on Clause 8 but the general framework of the contract as well as the other clauses. In particular, reference was made to a corresponding mutuality of obligation on the purchaser in Clause 9 in the event of his failing, refusing or neglecting to complete the purchase which was considered to be significant. If Clause 5 in our case is to be construed as allowing the vendor to "escape" from specific performance, there is clearly no mutuality as by giving the vendor an absolute discretion to sell the premises in the event of the purchaser failing to complete the purchase under Clause 4, the vendor's right to insist on specific performance is retained.

32. Despite the very able argument of Mr. Chan, the Court is not convinced that Abdul Cader Abdeen is an authority for the suggestion that the presence of the words "immediately", "to pay compensation" and "to refund" initial deposit is sufficiently clear to destroy the right of the Plaintiff for specific performance. Indeed, in Wong Lai Fan v. Lee Ha (supra), the relevant clause also contained the term "shall immediate compensate and to refund" the initial deposit. The Court of Appeal had not attached any weight to such expression.

33. May I conclude by echoing passages from Bokhary J.'s judgment in Lau Yuet Ming (supra) at p.2 and Barnett J.'s judgment in Tung Kin Ying (supra) at p.12 to the following effect respectively:

"Now, what are the principles which underlie situations such 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."

and,

"It is, therefore, not difficult to see why the Court of Appeal has stated that the wording of these clauses must be plain and unambiguous. Nor is it difficult to see why in applying this principle, the Courts have upheld as effective clauses that use language which indicates that the contract is cancelled or that remedies cannot be pursued. Anything less, in my judgment, is insufficient to allow a party to escape or cancel."

34. Having considered Clause 5 in conjunction with the other clauses, in particular Clause 4, the Court is satisfied that it is neither effective nor clear to enable the Defendant to escape from the remedy of specific performance by the payment of the liquidated damages and the refund of the deposit.

35. On the preliminary issue before me, I find in favour of the Plaintiff and rule that the Defendant cannot rely on Clause 5 of the provisional Sale and Purchase Agreement in question to escape from the obligation to sell the property.

36. In accordance with the indication by the parties, I grant the parties liberty to apply as to the further conduct of the proceeding and I also order costs of the proceeding in favour of the Plaintiff to be taxed if not agreed.