MAK LAI MAN v. LAM SIU YUI PETER

1991 No. A7570

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H E A D N O T E

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When a provisional agreement for the sale and purchase of land, although providing that the parties to it will subsequently enter into a more formal agreement, nevertheless itself constitutes an immediately binding contract for the sale and purchase of the land, neither party is entitled to insist on the insertion of any terms in the formal agreement other than those prescribed in the "provisional" agreement or otherwise implied by law; such insistence will constitute a repudiation of the contract by the party so insisting.

1991, No. A7570

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. In this case the court is once again called on to consider the effect of a realty service company's standard form headed "Provisional Agreement for Sale and Purchase"; the transaction to which it related having gone off because the parties failed to agree on the terms of the "Formal Sale and Purchase Agreement" into which they had purported to bind themselves to enter.

2. The material facts (as I find them) are as follows.

3. By an agreement ("the principal agreement"), no less than 33 pages long, dated 8th April 1991 and made between (1) Ying Ho Company Limited; (2) Chime Corporation Limited; and (3) Lam Siu Yui Peter (a solicitor, who is the defendant in this action, and to whom I shall refer as "Mr Lam"), Mr Lam agreed to buy Flat F, 8/F, Block 1, Evergreen Court, Tai Po, N.T. ("the property") for $1,317,500. He paid $131,750 by way of deposit and part payment; as to the balance, of $1,185,750, it was provided that was to be paid on 20th April 1991. If, however, the seller was not then in a position validly to assign the property to Mr Lam, the time for payment was to be postponed until the seller was in a position to assign and had given Mr Lam 7 days' notice in writing accordingly. This provision was no doubt necessary, since at the date of the principal agreement Evergreen Court was under construction; and it would be a pre-requisite of completion that an official "certificate of compliance" should have been issued, to prove that the seller had not committed any breach of the terms and conditions of the Crown grant relating to the land on which Evergreen Court was being constructed. If Mr Lam wanted to take possession of the flat before obtaining an assignment and the seller was able to give him possession, the principal agreement provided (in appallingly convoluted language) that Mr Lam could do so; but that he would then have to pay interest on the outstanding balance of the purchase price. As to completion, this was to take place within 14 days of Mr Lam being notified in writing that the certificate of compliance had been issued or within 7 days of the due date for payment of the balance of the purchase price, whichever period should last expire.

4. By 3rd June 1991, Mr Lam had in fact paid the full purchase price; and he had received the authority of the seller to go into possession of the flat. But he had not obtained an assignment.

5. Mr Lam decided to sub-sell the flat. He put it on the market. It came to the notice of the plaintiff in this action (to whom I shall refer as "Ms Mak"). She went to the office at Tai Po of a realty service company calling itself "Kai King Property Agency". They reported her interest in the property to Mr Lam. An appointment was made to introduce Mr Lam and Ms Mak at the company's office. Mr Lam arrived first. He told the company's representative that the occupation permit for Evergreen Court had been issued; that he had paid the whole of the purchase price and so was in a position to give vacant possession of the property to a purchaser at any time; but that the certificate of compliance had not yet been issued and that accordingly he would not be in a position to assign the property to the purchaser until after that had happened.

6. The plaintiff, with her husband, arrived at the company's office after Mr Lam. The company's representative introduced Ms Mak to Mr Lam. She expressed herself willing to pay $1.6 million for the property and Mr Lam indicated that he was willing to accept that price. There was some discussion of the terms of the transaction. Ms Mak was to pay an initial deposit of $50,000; the parties were to enter into a formal sale and purchase agreement on or before 2nd August 1991 when Ms Mak was to pay a further deposit of $110,000; and Ms Mak was to pay the balance of the purchase price, $1,440,000, on or before 20th August 1991 and would then be given vacant possession of the property.

7. Mr Lam says that during the course of this discussion he told Ms Mak that he would not be able to execute an assignment of the property to her until the certificate of compliance had been issued. He says that Ms Mak accepted that. Ms Mak denies that any mention of this matter of the certificate of compliance was made. I find that Mr Lam did say something about the certificate of compliance in the presence of Ms Mak; but that what he said was nowhere near sufficient to bring home to her that she was to be expected to pay over the balance of the purchase price without at the same time obtaining an assignment of the property. I am sure that Ms Mak never understood that this was what she was being asked to do, let alone that she ever agreed to it; and I find that the first time it was brought home to her that the transaction could not be completed until a certificate of compliance was issued was when the bank, whom she approached next day for a loan to enable her to purchase the property, told her so.

8. Once the brief discussion between Mr Lam and Ms Mak as to the terms of the transaction was over, the company's representative produced a standard form and proceeded to complete it. He inserted particulars of the names and identities of Ms Mak as purchaser and Mr Lam as vendor; particulars of the solicitors whom Ms Mak and Mr Lam were respectively to instruct; particulars of the property; and a statement of the agreed purchase price of $1.6 million. Under the heading "Terms of Payment" the form provided as follows :-

"(I) The Purchaser has on signing of this Provisional Sale and Purchase Agreement paid an initial deposit of HK$50,000 (HKSBC Cheque No.076449001) to the Vendor (or the Vendor's attorney) of which payment, the Vendor (or the Vendor's attorney) hereby acknowledges receipt.

(II) The Vendor and the Purchaser shall on or before 2nd August 1991 sign the Formal Sale and Purchase Agreement at their respective Solicitors and whereupon the Purchaser shall pay the further deposit of HK$110,000 by way of cashier order or Solicitors cheque to the Vendor Solicitors.

(III) The remaining sum of HK$1,440,000 (By Cashier Order/in Cash shall be paid by the Purchaser to the Vendor on/or before 20th August 1991 whereby the Vendor shall deliver vacant possession of the said property to the Purchaser."

9. The next section of the form is headed "Terms of the Agreement".

Beneath that heading the following terms are set out :

"(1) The Vendor and the Purchaser agreed that they shall sign a Formal Sale and Purchase Agreement on or before 2nd August 1991 at their respective Solicitors and if one party shall fail to sign the Formal Sales and Purchase Agreement without the consent of the other, the failing party shall be deemed to have repudiated this Agreement.

(2) The Purchaser shall upon the signing of the said formal Agreement for Sale and Purchase pay to our Company a sum of HK$ ..... service charge.

(3) The Vendor shall upon the signing of the said formal Agreement for Sale and Purchase pay to our Company a sum of HK$ ..... as service charge.

(4) Should the Vendor be in breach of this Agreement after receiving the said initial deposit, the Vendors shall be only 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 our Company a sum of HK$ ...... as Vendor and Purchaser service charges. The Vendor shall reserve the right to deal with the suit property. In any event, the Purchaser shall not proceed with any claims.

(5) Should the Purchaser be in breach of this Agreement after paying the said initial deposit, the said initial deposit shall be absolutely forfeited by the Vendor and the Purchaser shall the same time pay to our Company a sum of HK$ ..... as service charge and the Vendor shall be entitled to resell the said property without consent of the Purchaser.

(6) The said initial deposit so received by our Company on behalf of the Vendor shall be subject to the receipt by the Vendor of the same and the signing by the Vendor of this Agreement.

(7) Both parties shall bear any costs of their appointed Solicitors firm and the stamp duties thereon shall be solely paid by the Purchaser." (I omit an immaterial addition.)

10. The form did not in terms identify a completion date; but it will be remembered that it did stipulate that, on or before 20th August 1991, the balance of the purchase price, $1,440,000, should be paid by the purchaser to the vendor and that the vendor should then deliver vacant possession of the property to the purchaser. Certainly, the form contained no mention of the certificate of compliance and in particular did not stipulate that the purchaser was not to be entitled to an assignment of the property until after the certificate of compliance had been issued.

11. On 30th July 1991, Ms Mak's solicitors wrote to Mr Lam's solicitors (his own firm). They headed their letter "SUBJECT TO CONTRACT". They referred to the property, and they said this :

"We act for the Purchaser of the above property and understand that you act for the Vendor thereof. We are instructed that the main terms and conditions of the sale and purchase are as follows :-

1. Purchase Price	:	HK$1,600,000.00
2. Deposit	:	(i) the sum of HK$50,000.00 being initial deposit has been paid to the Vendor, and
		(ii) the sum of HK$110,000.00 being further deposit shall be paid on signing of the formal Agreement for Sale and Purchase.

3. Completion Date: on or before 20 August 1991

4. Legal Costs and : Each party shall bear its own legal costs Stamp duty and disbursements provided that the stamp duty on the Assignment shall be borne by our client.

5. Incumbrances : The Property is to be sold free from all and Title incumbrances and with good title.

6. Possession : Vacant possession of the Property shall be delivered to our client upon completion.

Please let us have your draft Agreement for Sale and Purchase together with all relevant title deeds and documents of the Property for our approval as soon as possible. Please also note that nothing herein is binding on our client unless and until a formal Agreement for Sale and Purchase has been signed by our respective clients."

12. On 31st July 1991, the vendor's solicitors replied heading their letter also "SUBJECT TO CONTRACT", and enclosing a draft agreement for sale and purchase in duplicate. They added :

"Please note that our client is not bound unless and until the said Agreement for Sale and Purchase has been signed by both parties."

They raised no objection to the description, in the purchaser's solicitors' letter dated 30th July 1991, of 20th August 1991 as the "completion date". Nor did they raise any objection to the statement that "vacant possession of the property shall be delivered to our client upon completion".

13. The sale and purchase agreement tendered by the vendor's solicitors to the purchaser's solicitors recited the principal agreement and contained the following provision as to completion :

"3. The purchase shall be completed at the offices of the principal Vendor's Solicitors on such date as prescribed in the Principal Agreement when the residue of the purchase money shall be fully paid and the Vendor will execute as Confirmor and will procure the Principal Vendor as vendor to execute together with all other necessary parties (if any) a proper Assignment or assurance of the Property in favour of the Purchaser or to his nominee or sub- purchasers subject as hereinafter appearing but otherwise free from incumbrances."

14. On 2nd August 1991, the purchaser's solicitors tendered to the vendor's solicitors a cheque for the HK$110,000 representing the further deposit to be paid by the purchaser to the vendor on that date. But Ms Mak had not signed the sale and purchase agreement; and her solicitors returned the draft to the vendor's solicitors amending Clause 3 by the insertion of the commencing words :

"Subject to the Vendor notifying the Purchaser forthwith on receipt of notice of completion from the Head Vendor"

And they made certain other amendments (which I need not here set out in detail) the effect of which was to make it clear that the balance of the purchase price, $1,440,000, was not to be paid to Mr Lam until such date as he was in a position validly to assign the property to Mr Mak.

15. On 3rd August 1991, the vendor's solicitors wrote to the purchaser's solicitors rejecting their proposed amendments to the sale and purchase agreement; and on 5th August 1991, the vendor's solicitors wrote to the purchaser's solicitors threatening to rescind; to forfeit the initial deposit; and to claim damages. But the purchaser's solicitors stood their ground. They contended that when the purchaser paid the balance of the purchase price, she was entitled, not only to be let into vacant possession, but also to an assignment of the property.

16. This impasse having been reached, the vendor's solicitors, by a letter dated 7th August 1991, informed the purchaser's solcitors that the vendor was now exercising his rights to forfeit the initial deposit and terminate the agreement for sale and purchase of the property.

17. On 4th October 1991, Ms Mak commenced this action, in which she claims specific performance of the "Provisional Agreement for Sale and Purchase". In answer to that Mr Lam avers that the "Provisional Agreement for Sale and Purchase" contained part only of the terms of the bargain between the parties. The agreement between the parties was partly made in writing and partly made orally. The written part was evidenced by the "Provisional Agreement for Sale and Purchase" and the oral part consisted of an express oral term to the effect that the completion of the sale and purchase of the property could not take place until after the prospective issuance of the certificate of compliance in connection with the property. (This averment was first made in an amendment to the Defence made on the second day of the trial.)

18. I have already indicated that I am not prepared to find that it was in fact part of the agreement between the parties reached on 29th July 1991 that completion of the sale and purchase of the property could not take place until after the prospective issuance of the certificate of compliance in connection with the property. It follows that the rights and obligations of the parties are governed, and governed exclusively, by the terms of the "Provisional Agreement for Sale and Purchase".

19. The central issue in the case is therefore whether the "Provisional Agreement for Sale and Purchase" is specifically enforceable.

20. Ms Mak's claim to specific performance depends, of course, on her proving that Mr Lam has entered into a binding contract with her for the sale to her of the property. If she cannot prove that, she falls at the first hurdle. As such proof, she relies on the "Provisional Agreement for Sale and Purchase". Is then this "Provisional Agreement for Sale and Purchase" to be construed as constituting an immediately binding contract for the sale of the property by Mr Lam to Ms Mak?

21. If so, Ms Mak's right to the equitable remedy of specific performance arose the moment the ink was dry on the parties' signatures to the "Provisional Agreement for Sale and Purchase". If however the "contract" was only a preliminary agreement, an agreement to agree to enter into a contract, the terms of which depended on further negotiation, it would be no contract at all. Even if the parties can be shown to have intended to enter into an immediately binding contract, the court still has to decide in a case like this whether or not they have succeeded in doing so. As Fry points out in his classic work on Specific Performance, 6th Edn. (1921), at para.370 :

"Contracts are often incomplete from their reserving some matter for further agreement : unless perhaps in cases where in the absence of such agreement the law determines the matter, such contracts are necessarily incomplete under the further agreement has been come to."

22. In the instant case, the "Provisional Agreement for Sale and Purchase" clearly contemplates that, so far as the sale and purchase of the land is concerned, the relationship between the parties is to be governed, not by the "Provisional Agreement for Sale and Purchase", but by the formal sale and purchase agreement, the terms of which have not at this stage been settled.

What is the consequence?

There are two possibilities.

23. One is that, whatever other effect the "Provisional Agreement for Sale and Purchase" may have, it cannot take effect as a contract for the sale and purchase of the property, since the terms of that contract have not been agreed and so cannot be ascertained. (This is the view I adopted, on different facts, of the agreement in Yeung Siu Hong v. Chan Sui Mee Sandie, 17th December 1992, unreported.)

24. The other is that the "Provisional Agreement for Sale and Purchase" takes effect as an immediately binding contract for the sale and purchase of the property, the essential terms of that contract being settled by the "Provisional Agreement for Sale and Purchase", and the other terms being those implied by law in such a case.

25. In my judgment the "Provisional Agreement for Sale and Purchase" in this case did take effect as an immediately binding contract for the sale and purchase of the property, the terms of that contract (unless and until supplemented by a formal sale and purchase agreement) being those settled by the "Provisional Agreement for Sale and Purchase" and otherwise those implied by law.

26. This gives effect to what I am quite satisfied was the intention of the parties, which is plainly an argument in favour of this view of the matter. Further, if the alternative argument was correct, it would mean that Mr Lam could frustrate the agreement, not by backing out of it (a course which would have been open to him but which would have required him to pay Ms Mak her initial deposit back together with an additional sum of the like amount) but by proferring for her signature a formal sale and purchase agreement containing terms more onerous to her than those of the "Provisional Agreement for Sale and Purchase", giving her the option either of signing that more onerous contract or refusing to do so; and, if she refused to do so, purporting to forfeit her initial deposit.

27. That indeed is what Mr Lam did.

28. His solictitors prepared for Ms Mak's signature a formal sale and purchase agreement under which Ms Mak would become bound to pay the full balance of the purchase price on 20th August 1991 without obtaining the benefit of an assignment to the property until some indeterminate date thereafter. True, she would be given vacant possession on 20th August 1991; but the disadvantage to a purchaser of having to pay over the purchase money without obtaining an assignment is a grave disadvantage. Such a state of affairs is so manifestly disadvantageous to a purchaser that no purchaser can be expected to agree to any such arrangement unless he has previously bound himself to do so in clear and express terms.

29. Accordingly, I hold that Ms Mak was entitled to refuse to sign the formal sale and purchase agreement tendered for her signature by Mr Llama's solicitors and did not, in so refusing, repudiate the contract. On the contrary, Mr Lam, by wrongly treating as a repudiation Ms Mak's refusal to sign that formal sale and purchase agreement (containing, as it did, terms more onerous to Ms Mak than those on which he was entitled to insist), himself repudiated the contract.

30. Ms Mak was therefore justified in bringing this action for specific performance; and I will make the appropriate decree, with the usual enquiries as to title and damages, and with the usual consequential orders to take effect if a good title to the property is shown.

31. I propose to order that Ms Mak's costs of this action be taxed and paid by Mr Lam to Ms Mak. If Mr Lam wishes to challenge the order as to costs which I have proposed, or if the parties cannot otherwise agree on the form of the order to be made as a result of this judgment, the case must be restored to the list for further argument.