NATIONAL CROWN LTD v. KAI WAN CHUNG

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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Background

1. On 25 November 1996, the plaintiff, as purchaser, and the defendant, as seller, entered into a provisional agreement for sale and purchase of a flat in Shatin. The seller refused to proceed with the deal. The purchaser issued a writ. The purchaser sought specific performance under Order 86. This was granted by the Master. The seller now appeals against this order.

The Agreement

2. The agreed price was $12,550,000, which, the agreement provided, would be paid by an initial deposit of $500,000 upon signature of the provisional agreement a further sum of $755,000 "Upon signing of the Formal Agreement for Sale and Purchase on or before 10-12-1996", and the balance of $11,295,000 "upon completion on or before 7-01-1997".

3. The agreement further provided that "Upon completion, the vendor shall deliver vacant possession of the said premises to the Purchaser".

4. Clauses 6 and 7 of the agreement say -

5. The agreement was in both English and Chinese. The official English translation of the Chinese version of clause 7 reads -

6. As to stamp duty, the agreement reads - "Subject to clause 7 ... all stamp duty shall be borne by the Purchaser solely".

The Happenings

7. On 6, 9 and 10 December 1996, the purchaser's solicitors asked the seller's solicitors for a draft sale and purchase agreement. One of the letters of 10 December 1996 said that. if the purchaser's solicitors did not send the agreement by 3.30 pm that day they would deliver an agreement "following all the terms and conditions" of the provisional agreement to the seller. They did indeed deliver a letter to the seller on that day. sending the agreement signed by the purchaser and the cheque for the further deposit asking the seller to note that the agreement "follows all the terms and conditions of the provisional agreement". I have not seen this agreement, but it is not challenged that it does indeed follow all the terms and conditions of the provisional agreement. On the same day, the seller's solicitors said the seller was out of Hong Kong and asked if the agreement "shall be postponed to on or before 19 December 1996". The purchaser's solicitors refused this request and asked if the seller's solicitors had authority to receive the further deposit. On 12 December 1996. the seller's solicitors returned the formal agreement and the cheque, and, purporting to act under clause 7, sent their cheque for $1 million. They also said that they had the amount of the stamp duty, and would let the purchaser's solicitors have the receipts evidencing payment in due course.

The Seller's Case

8. It is argued on behalf of the seller that he had the right to back out of the sale, returning the initial deposit plus an amount equal to it, and paying the stamp duty. It is said that he had the right to do this at any time up to the date of completion on 7 January 1997, and that he did not lose this right by failing to exercise his right on or before 10 December 1996.

The Seller's Right to Back Out

9. The seller's right to back out of the agreement, with the consequences mentioned in clause 7, arose if he failed to complete the sale in accordance with the agreement Generally, completion of a sale of land by the seller is the execution of an assignment in favour of the purchaser. This is the final act in the performance of various obligations by both parties. In this case, it is argued on behalf of the purchaser that the seller's obligation to complete the sale in accordance with in the agreement means, not just to execute the assignment on or before 7 January 1997, but also to do what else is required of him under the agreement leading to that final act. This in my view, must be right. In clause 6, the agreement speaks in similar terms regarding the purchaser's obligation. That equally. is not speaking only of the purchaser's obligation to pay the purchase price at the end of the road. but doing what else the agreement requires of him along the way.

10. The agreement contemplated the signing of a formal agreement for sale and purchase on or before 10 December 1996 upon which event the purchaser would be obliged to pay a further deposit of $755,000. The parties contemplated that this would happen because the agreement provides for the payment of the balance of the price of only $11,295,000 upon completion on or before 7 January 1997. If there was no formal agreement and therefore no payment of $755,000, the amount payable upon completion on or before 7 January 1997 would have not 411,295,000, but $12,050,000. There is no provision in the agreement that deals with a situation in which there is no formal agreement and no payment of the further deposit.

11. Mr Mumford argues that the seller was not obliged to enter into the formal agreement. It is true that there was nothing the purchaser could do if the seller refused to enter into the formal agreement even if it followed "all the terms and conditions of the provisional agreement". If nothing else had happened, the parties would be bound by the provisional agreement; the seller would have been entitled to his price and the purchaser would have entitled to receive assignment of the flat. Nevertheless, as part of the completion of the sale according to the term of the agreement, he undertook to do what was contemplated by the agreement; to sign a formal agreement on or before 10 December 1996 and to accept the further deposit of $755,000. He refused to do these things, or, in the words used by the agreement, he failed to do them. Having failed to complete the sale in the manner specified in the agreement he was entitled to refund the deposit plus an amount equal to the deposit and the stamp duty payable, and walk away, free from any other obligations. But he was entitled to do this only on 10 December 1996, or before that date, he having told the purchaser on 2 December 1996, through the property agents, that he would not complete the sale. What the seller was not entitled to do was fail to take the step towards completion of the sale as provided for in the agreement and then return double the deposit and the stamp duty in his own good time, leaving the purchaser waiting. That could not have been what the parties contemplated.

12. It is clear that the parties contemplated that clause 7 would operate only up to the time the further deposit was due because the English version speaks plainly of refunding the initial deposit. It does not contemplate that matters have proceeded beyond this stage because no provision is made for returning the further deposit that might have been paid on 10 December 1996. It is so that the Chinese version does not speak of an initial deposit, but if it had been intended to cover, not only the initial deposit, but also the further deposit of $755,000, it would have said so in clear terms.

13. Mr Mumford argues that the seller could indeed have decided that he did not wish to go through with the sale right up to 7 January 1997. But why stop there? If clause 7 is to be interpreted as meaning that the seller had the right to back out at any time, having failed to complete the sale, he could sit on his hands, leaving the purchaser in limbo, until he was faced with an imminent order for specific performance. This cannot be what the parties intended.

14. In my view, the only reasonable construction of the intention of the parties from the words of their agreement is that after the receiving the initial deposit but before the next step was required of him the seller was entitled to relieve himself of all his obligations under the agreement by returning the initial deposit, paying a sum equal to that deposit and the stamp duty. It is inconceivable that the parties envisaged that the seller would be entitled to allow the time for signing the formal agreement and payment of the further deposit to pass without him doing anything, and then to expect the purchaser to wait indefinitely to know if the seller intended to go through with the deal or back out. That offends one's common-sense.

15. But Mr Mumford says, in the alternative, the seller only delayed a couple of days. That may be so. but he decided to leave the matter, and it was not for him to decide how long to delay exercising his rights. The purchaser was entitled to expect the seller to live up to his agreement and it is not for me to tell the purchaser that he must accept the delay that the seller decided upon.

16. In my judgment, the seller's arguments fail.

The Result

17. In the result, I dismiss the appeal, with costs. I grant a certificate for two counsel.