YUEN POK INTERNATIONAL ENTERPRISE LTD v. VALLE AGNES MALLARI

DCCJ 1707/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.1707 OF 2011

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BETWEEN

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DECISION

1.  The Plaintiff and the Defendant entered into a provisional agreement (“the Agreement”) on 10^th April 2011 for the sale and purchase of the Defendant’s property at 1/F, 352A Hennessy Road, Hong Kong (“the Property”). Before the execution of a formal sale and purchase agreement, the Defendant had on 14^th April 2011 entered into another provisional agreement with a third party with a view to selling the Property at a higher price.

2.  The Defendant sought to rely on an “escape clause” in the Agreement and tendered payment to the Plaintiff of an amount double the deposits as liquidated damages.  The Plaintiff alleged that the tender was late in time and insisted on completion of the sale.  Upon refusal by the Defendant for completion the Plaintiff registered the Agreement at the Land Registry.

3.  This action was then taken out by the Plaintiff for specific performance of the sale and/or damages.  The Writ of Summons of the action was also registered by the Plaintiff at the Land Registry.     

4.  The Defendant applied for an order to vacate the said registrations from the Land Registry pursuant to Sections 19 of the Land Registration Ordinance.  At the hearing of the Defendant’s application on 27^th July 2011, Master Mak gave the order.

5.  The present application is the Plaintiff’s appeal against Master Mak’s order. 

6.  Besides, subsequent to the said order, on 30^th August 2011, the Defendant filed an Amended Defence and Counterclaim seeking to withdraw an admission made in her original Defence and Counterclaim to the effect that Clause 2(c) of the Agreement obliged the parties to execute a formal sale and purchase agreement on or before 19^th April 2011.

7.  I have also to decide whether leave to the Defendant to withdraw the admission should be granted.

8.  At the hearing before me, counsel focused their submissions on the merits of their clients’ respective cases.  I reminded counsel that at this stage the court would be slow to attach too much weight on the merit unless it is overwhelming one way or the other.   The court should also balance the prejudice or inconvenience that might be caused to the parties should the lis pendens be vacated or not vacated.

9.  Here, the Defendant seeks to vacate the lis pendens in order that the sale to the third party can be completed[1].  On the other hand, if the sale to the third party is to be completed, it will in effect stifle the Plaintiff’s claim for specific performance.  However, the Property is one but another residential unit in a private housing estate.  There is no evidence from the Plaintiff providing any reason why the Plaintiff is particularly in favour of the Property but not any other similar unit available in the market.

10.  On balance, it is hard to say one’s prejudice or inconvenience outweighs that of the other’s.

11.  The relevant “escape clause” is at Clause 7 of the provisional sale and purchase agreement which provides as follows:

“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 refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said Premise and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

12.  A similar escape clause for the purchaser is provided under Clause 6 of the Agreement:

“Should the purchaser fail to complete the Purchase in the manner herein contained, all the deposit paid pursuant to clause 2 hereof shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell his premises to anyone he thinks fit. The Purchaser shall be liable to pay the stamp duty of this agreement and the Vendor shall not sue the Purchaser for any liabilities and/or damages or to enforce specific performance.”

13.  These clauses are commonly used in standard form provisional sale and purchase agreements in Hong Kong.  The effect of which is to allow the parties to resile from the transaction, in the case of the vendor, by returning the initial deposit together with the payment of an equal sum, and in the case of the purchaser, allowing the initial deposit to be forfeited.  

14.  Although the Defendant entered into another provisional agreement on 14^th April 2011, she did not inform the Plaintiff as such until 18^th April 2011 when her solicitors sent a letter to the Plaintiff’s solicitors saying that she has no longer the intention to complete and will rely on Clause 7, in the following terms:

“We are instructed that our client will not proceed with the sale and purchase pursuant to the Provisional Agreement for sale and purchase dated 10^th April 2011.

Further, our client is prepared to compensate your client a sum of HK$180,000 in accordance with Clause 7 of the Provisional Agreement, provided you undertake to return a Cancellation Agreement, duly executed by your client, within 3 working days upon receipt of the compensation.”

15.  However, there was no payment tendered together with the letter. 

16.  On the same day, the Plaintiff’s solicitors replied by letter, drawing the Defendant’s attention to Clause 9 and reminded her “to act in accordance with the terms and conditions” of the Agreement “within the time limit prescribed”.  They also pointed out, in my view rightly, that there is no need for a cancellation agreement to be executed pursuant to the Agreement.

17.  On 19^th April 2011, there was still no tender of payment by the Defendant to the Plaintiff.  The Plaintiff’s solicitors thus wrote to the Defendant’s solicitors requiring the Defendant “to act in accordance with the terms and conditions of the Agreement within the time limit prescribed in the event they will exercise their right under Clause 7 of the Agreement” and that “all [their] client’s rights are hereby reserved”.

18.  On the same day, the Plaintiff’s solicitors by covering letter sent a cheque in the sum of HK$193,000 to the Defendant’s solicitors as further deposit pursuant to Clause 2 of the Agreement.  Clause 2 of the Agreement provides, inter alia, that:

“Upon signing of The Formal Agreement for Sale and Purchase on or before 19^th April 2011 further deposit shall be paid in the sum of HK$193,000 and [the balance] of the purchase price shall be paid upon completion on or before 23/May/2011…”

19.  By his conduct, the Plaintiff has clearly sought to continue with the transaction notwithstanding the Defendant’s clear indication of her intention to invoke Clause 7 to resile from the transaction.

20.  On 20^th April 2011, the Plaintiff’s solicitors sent a letter to the Defendant’s solicitors, saying that the Defendant has “failed to comply with Clause 7 of [the Agreement] by returning the initial deposit together with a sum equivalent to the amount of the initial deposit on 19 April 2011.  Thus, [the Defendant] has no right to back out by exercising Clause 7 of [the Agreement]”.

21.  After receiving the letter, the Defendant’s solicitors sent 2 cheques of HK$90,000 each to the Plaintiff’s solicitors on the same day with a covering letter indicating that the cheques were “refund of initial deposit and liquidated damages, in accordance with Clause 7 of [the Agreement]”.   However, the cheques were returned to the Defendant’s solicitors the next day by the reason that the payment should have been made on or before 19^th April 2011.

22.  Relying on the Court of Appeal case of Man Sun Finance (Int) Corp v Lee Ming Ching Stephen[2], Mr. Cheung, counsel for the Plaintiff, submitted that the Defendant could only invoke Clause 7 before the time to execute the formal agreement was due as the Plaintiff could only exercise its rights under Clause 6 before that day.

23.  However, as observed by Fok J. (as he then was) in New Champion (Hong Kong) Limited v Treble & Triple Limited[3], the clause under construction in Man Sun Finance was being construed in the context of a provisional agreement requiring the parties to execute a formal agreement on or before a certain date.  If there is no such obligation to execute a formal agreement, as was the case in New Champion, the doctrine under Man Sun Finance is simply not applicable.

24.  Here, the provisions under Clause 6 and Clause 7 are similar to those in New Champion. Besides, Clause 2 of the Agreement is also similar to its counterpart in the case.  Nevertheless, the Defendant in this case has admitted in her Defence that parties are obliged to execute a formal agreement.  Therefore, whether the Defendant is now allowed to withdraw the admission is material.  

25.  In Cheung Wan Hung v Fai Wong Construction (Asia) Limited [4], I found that the principles as set out in practice note 14.1.8 of the Civil Procedure 2009, Volume 1, on withdrawal of an admission made under Part 14 of the English CPR, are applicable for consideration of whether to allow a withdrawal of an admission under Order 20 of the Rules of the District Court in amendment of a pleading:

“1. In exercising its discretion the court will consider all the circumstances of the case and seek to give effect to the overriding objective.

2. Amongst the matters to be considered will be:

(a) the reasons and justification for the application which must be made in good faith;

(b) the balance of prejudice to the parties;

(c) whether any party has been the author of any prejudice they may suffer;

(d) the prospects of success of any issue arising from the withdrawal of an admission;

(e) the public interest, in avoiding where possible satellite litigation, disproportionate use of court resources and the impact of any strategic maneuvering.

3. The nearer any application is to a final hearing the less chance of success it will have even if the party making the admission can establish clear prejudice.  This may be decisive if the application is shortly before the hearing.”

26.  The Defendant’s solicitors indicated at the hearing that the admission was a mistake made by them.  Although there is no evidence before me in support of this explanation, I can see no other plausible reason apart from this. It is obvious that the express provisions of the Agreement do not mandate parties to execute a formal sale and purchase agreement.  I see no hint of bad faith on the Defendant’s part in mistakenly, on the part of the solicitors, making the admission.

27.  As explained hereinabove, the withdrawal of the admission is essential to the Defendant’s case.  The prejudice to the Defendant if withdrawal is not allowed would be serious.  There is also likelihood that the Defendant would succeed should leave to withdraw the admission be granted.

28.  Moreover, the litigation is in its relatively early stage and at the time of the amendment pleading has not yet closed.

29.  On balance, leave to withdraw the admission is granted and the Plaintiff’s summons to disallow the Defendant’s amendment to paragraph 2 of the Defence and Counterclaim be dismissed, with no order as to costs.

30.  I make no order as to costs because, in my view, the Defendant should first seek leave to withdraw the admission before filing the Amended Defence and Counterclaim which she did not do.

31.  I can now proceed to consider the present application, on the basis that there is no admission on the Defendant’s part that the parties have an obligation under the Agreement to execute a formal sale and purchase agreement.

32.  Clause 2 of the Agreement is similar to its counterpart in the subject provisional agreement in New Champion.  I see no reason to arrive at a different conclusion from Fok J. in this respect.  Mr. Cheung submitted that the Chinese version of Clause 2 has a different meaning but in my view, it does not impose any duty on the party to execute a formal agreement either. 

33.  The Chinese version provides as follows:

“在簽訂正式買賣合約之時，即19th April 2011或以前須加付訂金港幣193,000。”

34.  Mr. Cheung stressed on the use of the word “須” saying that the Plaintiff was then obliged to pay the additional deposit on or before 19^th April 2011. 

35.  With respect, the obligation to pay the additional deposit imposed by this Chinese clause, if any, is also conditional upon the signing of the formal sale and purchase agreement on the plain reading of this Chinese clause.  The effect and meaning is just the same as its English version.  Mr. Cheung’s submission is misconceived.

36.  I conclude that there is no obligation imposed by the Agreement for execution of a formal sale and purchase agreement.  There is also no time limit prescribed, expressly or impliedly, for the Defendant (and the Plaintiff) to invoke Clause 7 (or Clause 6) under the Agreement.

37.  Regarding the effect of Clause 7, it is a matter of interpretation of agreement.  As mentioned above, the relevant provisions in the Agreement in the present case are similar to those in New Champion and distinguishable from Man Sun Finance. 

38.  Clause 7 of the Agreement provides a mode of performance alternative to completion or specific performance of the sale and purchase, at the option of the Defendant.  An equal option is available to the Plaintiff under Clause 6.  There is no time limit prescribed under the Agreement for the Defendant or Plaintiff to elect which option to perform. 

39.  By the letter dated 18^th April 2011, the Defendant had unequivocally elected to perform under Clause 7 rather than to proceed to completion.  At that point, by virtue of the Defendant’s election, the Plaintiff is also relieved from its obligation to complete the sale in the manner stipulated under the Agreement, notwithstanding no tender of payment in accordance with Clause 7 had been made.  At the same time, the Defendant is obliged to immediately pay the double deposits and the Plaintiff would be entitled to sue for such sum if it is not paid.

40.  In my view, it is not necessary for the Defendant to tender payment in order to trigger Clause 7 or, in other words, for election of the mode of performance, provided that a clear intention to rely on Clause 7 has been evinced.  Otherwise, the Plaintiff will have to face with a difficult situation where it will be uncertain about when it is relieved from its legal obligation under the Agreement after being notified, unequivocally, of the Defendant’s intention to invoke Clause 7. 

41.  After the election, the Defendant is not allowed to retract and insist on completion.  On the other hand, the Plaintiff loses its rights to take any further action to claim for damages or to enforce specific performance except, of course, for recovery of the double deposits as stipulated under Clause 7. 

42.  Upon the payment of the double deposits on 20^th April 2011, there was nothing left for the Plaintiff to claim against the Defendant.

43.  In the circumstances, I see no reason to delay vacation of the lis pendens.  The Plaintiff’s application to appeal against Master Mak’s decision is hereby refused.

44.  I make an order nisi that costs of this application be to the Defendant with certificate of counsel.  The order nisi will become absolute if no application is made by either party within 14 days.  Parties are directed to submit by joint letter the Defendant’s Statement of Costs and the Plaintiff’s objections thereof, if any, within 14 days thereafter for summary assessment of costs.