WONG SHIU HUNG v. KWOK SING LEUNG AND ANOTHER

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H E A D N O T E

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Provisional agreement for sale of property - whether agreement extinguished purchaser's equitable remedy of specific performance - whether just and equitable to grant specific performance

1991 No. A2516

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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THE FACTS

1. By an agreement dated 19th March 1991 ("the Provisional Agreement"), the Defendants agreed to sell to the Plaintiff a flat in Trend Plaza, Tuen Mun. The Provisional Agreement was in both Chinese and English, but it is common ground that the Chinese version is the relevant text because it was the gaps in the Chinese version which were completed by the parties. The terms as to payment provided that:

(a) an initial deposit of $10,000 was to be paid by the Plaintiff to the Defendants on the signing of the Provisional Agreement, and

(b) the balance of the deposit, namely $51,500, was to be paid by the Plaintiff to the Defendants on the signing of a formal Sale and Purchase Agreement ("the Formal Agreement") at the offices of their respective solicitors on 28th March 1991.

2. The Provisional Agreement also provided for the circumstances in which the Formal Agreement was to be signed, and for the consequences of default. In view of the issues which I have to decide, the precise language of clauses 1 and 3 is important. The certified translation of those clauses reads as follows:

"(1) The Vendor and the Purchaser shall on or before 5.00 p.m. on the 28th of March 1991 enter into a formal Agreement for Sale and Purchase at their respective appointed solicitor's office. Should either party hereto fail to comply with the same without the prior consent of the other party, the defaulting party shall be deemed to have been in breach of this Agreement.

(3) Should the Vendor be in breach of this Agreement after receiving the initial deposit, the Vendor shall be liable to repay the said initial deposit to the Purchaser together with an additional sum equivalent to the said initial deposit as liquidated damages. In this event, the Vendor shall also pay to [the estate agents] a sum of HK$6,150.00 as service charge."

In addition, clause 4 provided that if the Plaintiff was in breach of the Provisional Agreement after paying the initial deposit of $10,000, the deposit would be absolutely forfeited, the Defendants would be entitled to resell the flat without the Plaintiff's consent, and the Plaintiff would be required to pay the estate agents' charges of $6,150.

3. The Plaintiff duly paid the initial deposit of $10,000 to the Defendants, and on the day following the Provisional Agreement, namely on 20th March, the Plaintiff's solicitors sent by fax a copy of the Provisional Agreement to the Defendants' solicitors. In their covering letter, the Plaintiff's solicitors asked for a draft of the Formal Agreement as soon as possible. Despite the fact that the Formal Agreement had to be entered into on 28th March, it was not until 8.55 p.m. on 27th March that the Defendants' solicitors sent by fax a draft of the Formal Agreement to the Plaintiff's solicitors for their approval. On the following afternoon, the Plaintiff visited his solicitors. He was content to agree the Formal Agreement in the terms of the draft prepared by the Defendants' solicitors, and he signed the draft (which the Defendants' solicitors had asked to be treated as the engrossment). I find that he signed that draft sometime between 3 p.m. and 4 p.m. However, I also find that the signed Formal Agreement, and the Plaintiff's solicitors' cheque for $51,500 representing the balance of the deposit, did not arrive at the office of the Defendants' solicitors until 5.57 p.m. that afternoon.

4. Because the signed Formal Agreement arrived after 5 p.m., the Defendants' solicitors subsequently returned the signed Formal Agreement and the cheque for $51,500 to the Plaintiff's solicitors, and the Defendants claim that the Plaintiff failed to comply with clause 1 of the Provisional Agreement, that the Plaintiff was therefore in breach of it, and that by reason of clause 4 of the Provisional Agreement, the Plaintiff had forfeited the initial deposit of $10,000 and the Defendants were entitled to resell the flat. Alternatively, the Defendants claim that if they are held to have been in breach of clause 1 by refusing to sign the Formal Agreement themselves, and by claiming that the Provisional Agreement was at an end,

(a) the Plaintiff is limited to the remedies set out in clause 3, which, upon its proper construction, prevents him from seeking or obtaining specific performance of the Provisional Agreement, but

(b) in any event, it would not be just and equitable for specific performance to be granted.

THE LATE ARRIVAL OF.THE SIGNED FORMAL AGREEMENT

5. The Plaintiff contends that clause 1 of the Provisional Agreement did not impose an obligation on the Plaintiff to deliver the signed Formal Agreement to the office of the Defendants' solicitors by 5 p.m. on 28th March. Upon its proper construction, so the argument goes, it imposed an obligation on the Plaintiff merely to sign the Formal Agreement at his solicitors' office by 5 p.m. that day. To evaluate that argument, it is necessary first to determine whether the words "enter into" in the certified translation are an accurate translation of the authoritative Chinese text.

6. By virtue of section 27 (1) (iii) of the Evidence ordinance (Cap. 8), there is a rebuttable presumption that the translation is accurate. However,

(a) the two relevant Chinese characters in clause1 - "Chim Chui" to give them their Romanized version - appear elsewhere in the Agreement where they mean "signed", and

(b) the translator, Mr. Wu, told me that, in the context of clause 1, an equally acceptable translation of the two characters would be "sign and execute".

7. I have no doubt that the translation "sign and execute" is, in the context of clause 1, a more accurate translation than "enter into". That is because the obligation on the parties, whatever it was, had to be performed at the offices of their respective solicitors. That notion can only sensibly be given effect to if the translation "sign and execute" is adopted. Both the Plaintiff and the Defendants were required to sign the Formal Agreement at the offices of their respective solicitors. It is, I suppose, just possible to give effect to the notion of performance at the office of both solicitors by adopting the translation "enter into", i.e. by requiring one party to sign the Formal Agreement at the office of his solicitors, and then to send it to the office of the solicitors to the other party where the other party would sign it. But that is a very strange use of the words "enter into", and it is one which I am not prepared to accept when the words "sign and execute" can be given effect to with both ease and commonsense.

8. Mr. Osmond Lam for the Defendants relied upon what the 1st Defendant claims the Plaintiff was told by the estate agent when the Provisional Agreement was signed. However, she did not say anything which sheds a different light on the proper construction of clause 1. According to the 1st Defendant, she referred to the parties obligation to "finalise" the Formal Agreement, i.e. by signing it, by 5 p.m. In any event, what she said to the parties is not an admissible aid to the construction of clause 1, even if they agreed with it at the time. It is my view of the proper construction of clause l, not hers or theirs, that matters.

9. Two consequences follow from this construction of clause 1. First, the Plaintiff complied with clause 1 because he signed the Formal Agreement at his solicitors' office between 3 p.m. and 4 p.m. on 28th March. Secondly, the Defendants did not comply with it, because they never signed it at all. They had not signed it before the draft was sent to the Plaintiff's solicitors for his agreement. Nor did they sign it when it eventually arrived back at their solicitors' office because they had then chosen to treat the Provisional Agreement as having been repudiated and had left the office

10. Having found that the Plaintiff complied with the terms of clause 1 of the Provisional Agreement, it is not necessary to deal with the various alternative arguments relied upon by Mr. Johnson Lam for the Plaintiff, though I should briefly state my views on one of them, because of the findings of fact I must make to deal with it. There was no express provision in the Provisional Agreement making the time by which clause 1 of the Agreement had to be complied with, i.e. 5 p.m., of the essence. It is true that time can be made of the essence by one party giving notice to the other to that effect, but such notice can only be given after the other party has been guilty of unreasonable delay, and in any event, the time mentioned in the notice must be reasonable.

11. The 1st Defendant's evidence, which I accept on the issue, is that at about 5.30 p.m. his solicitors in his presence telephoned the Plaintiff's solicitors, and told them that the deal would be cancelled if the documents did not arrive in another 10 minutes. When they had not arrived by 5.40 p.m., his solicitors telephoned the Plaintiff's solicitors again in his presence, and gave them a further 10 minutes. The document arrived 7 minutes after this further deadline had passed. However, having regard to the delay on the part of the Defendants' solicitors in delivering a draft of the Formal Agreement in the first place, I do not think that the Plaintiff's delay would have become unreasonable until the following day, 29th March, at the earliest, and it was only then that the Defendants' solicitors' attempts to make time of the essence could have been effective. By that time, though, the signed Formal Agreement and the cheque had, of course, arrived. It follows that the Plaintiff's breach of clause 1, by failing to deliver the signed Formal Agreement by 5 p.m. (if that, despite my findings, is what it was) did not entitle the Defendants to rescind the Provisional Agreement.

THE AVAILABILITY OF SPECIFIC PERFORMANCE

12. The Plaintiff contends that clause 3 of the Provisional Agreement deals only with the quantification of the damages payable by the Defendants in the event of a breach by the Defendants of the Provisional Agreement, and that it does not have the effect of extinguishing the Plaintiff's equitable remedy of specific performance. A provisional agreement containing a clause identical to clause 3 was recently considered by Barnett J. in Tung Kiu-ying v. Chan Mei-yuet (HCA No. 2682 of 1991).He concluded that the clause did not have the effect of extinguishing the purchaser's equitable remedy of specific performance. His reasoning was as follows:

(1) Parties to a contract may limit or extinguish their common law rights or equitable remedies provided that this is done in sufficiently clear and unambiguous terms : Szymonowski & Co. v. Beck & Co. [1923] 1 KB 457, and Abdul Cader Abdeen v. Abdul Careem Mohammed Thaheer [19581 AC 116.

 

(2) That principle applies to provisional agreements for the sale of land : Lee Tat-kwong v. Choi Pui-kei (HCA No. 2338 of 1991), approved in Wong Lai-fan v. Lee Ha [1992] 1 HKLR 125.

(3) Applying that principle, a number of clauses which have in common some provision beyond the simple repayment of the initial deposit and an additional sum as liquidated damages have been construed as extinguishing the purchaser's remedy of specific performance.

(4) Since the clause in Tung Kiu-ying merely provided for the repayment of the initial deposit and an additional sum as liquidated damages, the language of the clause did not declare in sufficiently clear and umambiguous terms that the purchaser's remedy of specific performance was excluded.

I agree entirely with that reasoning.

13. The problem with that reasoning is the conclusion reached by the Privy Council on the actual clause in Abdul Cader Abdeen. That clause provided merely for the repayment of the initial deposit and an additional sum as liquidated damages, and yet it was held that the purchaser's remedy of specific performance was excluded. Barnett J. felt able to distinguish Abdul Cader Abdeen on the basis that the repayment had to be made "forthwith" in that case, whereas in Tung Kiu-King it did not have to be. What Barnett J. said at p. 11 of the transcript of his judgment was as follows:

"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 ['forthwith'] in [the] clause ..., therefore, is a pointer to the clause being no more than a clause determining the amount of damages."

14. 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.

15. 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 vendors "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.

16. Accordingly, I have reached the clear conclusion that clause 3 of the Provisional Agreement does not prevent the Plaintiff from seeking specific performance of it. In those circumstances, it is unnecessary for me to consider the Plaintiff's alternative argument, based on the sentence following the passage in the judgment of Godfrey J. in Kentex which I have already cited, that because the Defendants did not tender the initial deposit and the additional sum within a reasonable time of 28th March, they lost the "option" to perform the contract by paying those sums. Godfrey J. said:

"If the vendor fails to pay the compensation within a reasonable time, then, given that he had otherwise had an option to perform the contract by payment of compensation rather than by specifically performing it, he would lose that option; and he would again become bound to submit to a decree for specific performance."

17. However, I have reached the conclusion that that argument would not have availed the Plaintiff. Although clauses of this kind have been described as clauses providing for an alternative mode of performance, they are, in my view, nothing of the kind. As Barnett J. said in Tung Kiu-ying at p.11 of the transcript of his judgment :

"[It is] wholly unreal in relation to a contract where the primary obligation is the sale of land to speak of alternative or substituted performance by payment of a relatively small sum of money."

In my view, the only permitted mode of performance is the primary obligation upon the vendor to sell the property to the purchaser. What these "escape" clauses seek to do is to limit the remedy which the purchaser can obtain for the vendor's breach of that primary obligation to damages, and, to a liquidated sum at that. When seen in that light, clause 3 (if I had construed it as preventing the Plaintiff from seeking the remedy of specific performance) would not have given the Defendants an "option" to perform the contract by paying damages. It would have made the payment of damages the only remedy which, in the absence of any further agreement to the contrary, the Plaintiff could seek. Accordingly, a failure to tender the initial deposit and the additional sum would not have deprived the Defendants, if my construction of clause 3 had been different, of their right to insist on the payment of damages as the Plaintiff's only remedy for their breach of the Provisional Agreement.

18. I turn to whether it would be just and equitable for specific performance to be granted. Mr. Osmond Lam submits that it would be unjust to require the Defendants to sell their flat to the Plaintiff when the Defendants were in breach of the Provisional Agreement through no fault of their own. The factual basis of that submission is that according to the 1st Defendant, whose evidence I accept on this issue, he was told by his solicitors after 5 p.m. on 28th March when the signed Formal Agreement and the cheque for $51,500 had not yet arrived and while he was still at his solicitors' office, that as a result of their failure to arrive on time, the Plaintiff had forfeited his deposit and the Provisional Agreement could be treated as cancelled. For the reasons I have given, that involved an erroneous construction by the Defendants' solicitors of clause l of the Provisional Agreement. Moreover, the 1st Defendant waited at his solicitors' office after 5 p.m. because he was prepared to give the Plaintiff more time to deliver the signed Formal Agreement and the cheque. Eventually, he left at 5.57 p.m. with his wife, the 2nd Defendant, when they could wait no longer. However, according to the fax which the Defendants' solicitors sent to the Plaintiff's solicitors at 6.38 p.m. that evening, the signed Formal Agreement and the cheque had arrived at their offices at 5.57 p.m. - the very minute when the Defendants left their offices. Despite that, it was not until after the writ had been issued and served on the Defendants, and the 1st Defendant had taken the writ to his solicitors, that they told him that the documents had arrived when they did. He was therefore never told that the sale could proceed if he wanted it to, but that if he chose not to proceed with the sale, there was the possibility that (a) he would be sued by the Plaintiff for specific performance of the Provisional Agreement, (b) the Plaintiff would succeed in that action, (c) if the market continued to rise, the cost of an alternative flat would be greater, but he would only have the price that he had agreed to sell the flat to the Plaintiff to use to buy it, and (d) he would have to pay a proportion of the Plaintiff's legal costs in the action as well as his own.

19. Although the 1st Defendant's evidence was that he would have decided not to proceed with the sale if he had been told that he had complete freedom to do what he wanted, he was not asked what he would have done if the down side of choosing not to proceed with the sale had been properly and fairly explained to him. However, I do not imagine for one moment that he would have taken the enormous risk which, without the benefit of that advice, he has in fact taken.

20. For these reasons, I find that the factual basis on which Mr. Osmond Lam's submission is founded - that the Defendants were in breach of the Provisional Agreement through no fault of their own - is correct. But I do not think that that should deprive the Plaintiff of the remedy of specific performance. I say that for two reasons

(i) To deprive the Plaintiff of specific performance would result in the Plaintiff having to find another flat to buy, for which, because the market has risen so considerably since March 1991, he would now have to pay much more.

(ii) The Defendants have to bear the -responsibility for the fault of their solicitors in failing to advise them of the correct position. The Defendants can, in theory at any rate, be compensated for their losses by claiming damages for their solicitors' negligence, if that is what it was.

CONCLUSION

21. With considerable sympathy for the Defendants, who have on the 1st Defendant's evidence been let down by their solicitors, I give judgment for the Plaintiff for specific performance of the Provisional Agreement. I will hear Counsel on the precise terms of the order I should make, but I cannot complete this judgment without giving my support to the views expressed by Godfrey J. on pp. 7-8 of the transcript of his judgment in Kentex, and by others, about the trap which many provisional sale and purchase agreements, although not the one in this case, lay for the unwary purchaser. They seem to me to be designed, not so much to give effect to what the vendor and purchaser wish to agree, but to ensure that the estate agents who draft them recover their commission, whether or not the sale is completed. In my-view, the sooner attention is given to these agreements by those concerned with conveyancing in Hong Kong, the better.