Silverpole Ltd. v. China Pride Investment Ltd.
Read the full judgment text of CACV 62/1994 on BabelCite. This Court of Appeal judgment was delivered on 25 October 1994.
1. This is an appeal from an order of Mr. Justice Liu, made on 18 February 1994 after a trial lasting no less than 13 days, by which the judge resolved a dispute between the parties to a contract for the sale of land. The vendor had forfeited, or had purported to forfeit, a sum of $5,460,000 which had been paid by the purchaser to the vendor in advance of completion of the contract; the judge decided that the vendor had not been entitled to do so. The vendor now appeals to this court.
Cites 1 case
|
CACV000062/1994 1994, No. 62 _________ HEADNOTE _________ A vendor under a contract for the sale of land will not be held entitled to forfeit the purchaser's deposit, despite the purchaser's failure to complete in accordance with the contract (1) when that failure on the part of the purchaser is wholly or partly due to a failure on the part of the vendor to do all that was necessary on his own part to ensure that completion took place on time; or (2) when, in the light of the vendor's own conduct, it would be unconscionable for him to assert any right to forfeit; or (3) where the deposit is of a size greater than 10 per cent unless (per Godfey J.A.) there were special circumstances in the case which justified the vendor's asking for a deposit of that greater size. IN THE COURT OF APPEAL 1994, No. 62 _______________
_______________ Coram: Hon. Penlington, Nazareth, and Godfrey, JJ.A. Dates of hearing: 20, 22 and 23 September 1994 Date of handing down judgment: 25 October 1994 _________ JUDGMENT _________ Godfrey, J.A.: 1. This is an appeal from an order of Mr. Justice Liu, made on 18 February 1994 after a trial lasting no less than 13 days, by which the judge resolved a dispute between the parties to a contract for the sale of land. The vendor had forfeited, or had purported to forfeit, a sum of $5,460,000 which had been paid by the purchaser to the vendor in advance of completion of the contract; the judge decided that the vendor had not been entitled to do so. The vendor now appeals to this court. 2. The case appears to have been an unconscionable time a-trying given that the material facts were not really in dispute. They were as follows, By an agreement dated 27 June 1991, made between (1) Intermatic Resources Limited ("the head vendor") and (2) China Pride Investment Limited ("the vendor"), the head vendor agreed to sell to the vendor 121 carpark spaces at North Point Centre, King's Road, North Point, Hong Kong ("the property") for $18,500,000. A deposit of $1,850,000 (the conventional 10% of the purchase price) was paid by the vendor to the head vendor on the signing of the agreement. The sale was to be completed on 20 September 1991, but the agreement contained provisions under which the vendor could require the head vendor to accept postponement of completion until 20 December 1991. Under those provisions, the vendor had to give 2 days prior written notice on or before 17 December 1991 of its desire to postpone completion; it had at the same time to pay to the head vendor a further sum (described as "a further deposit") of $3,700,000; and it had to pay to the head vendor, on completion, interest on the balance of the purchase money at 12% per annum from 21 September 1991 to the actual date of completion, the head vendor giving credit to the vendor for rents receivable by the head vendor for the like period. (It is to be observed that the sum of $3,700,000 to be paid by the vendor to the head vendor as the price for postponement of the date of completion, added to the sum of $1,850,000 paid by the vendor to the head vendor on the signing of the agreement, would amount to $5,550,000, representing 30% of the purchase price of $18,500,000.) 3. On 15 August 1991, the vendor agreed to sub-sell the property to Silverpole Limited ("the purchaser"). The price was to be $27,300,000. The purchaser paid an initial deposit of $300,000; and the agreement was recorded in a memorandum of the same date, which further recorded (so far as is material) as follows:
4. The vendor duly introduced (as clause 6 of the Memorandum had contemplated) a "financier" for the purchaser. The "financier" so introduced was Hua Chiao Commercial Bank ("HCCB"). But the purchaser did not follow up this introduction. It wanted to find a lender, if it could, who would offer it better terms in those offered by HCCB. 5. On 13 September 1991, the vendor exercised its right to call for postponement of completion of its agreement with the head vendor until on or before 20 December 1991 (it had in fact already agreed with the head vendor that completion of the agreement between the head vendor and the vendor would take place on 23 October 1991). On the same day, the vendor and the purchaser entered into the formal agreement for sale and purchase contemplated by the Memorandum of 15 August 1991. The purchaser paid a further sum of $5,160,000 to the vendor (described in the agreement as "further deposit") which, together with the $300,000 paid earlier, made a total payment of $5,460,000, the balance of the purchase price of $27,300,000 to be paid on completion thus being $21,840,000. The total amount, $5,460,000, so paid by the purchaser to the vendor, amounted to 20% of the purchase price. 6. This formal agreement was expressed to supersede, and did supersede, the earlier agreement between the parties. It provided for completion before 3:00 p.m. on 23 October 1991; it provided that the time should be of the essence of the agreement in every respect; and it contained the following clause 10:
7. Clause 6 of the Memorandum of 15 August 1991 was reproduced (in an expanded form) in clause 19 of the formal agreement. Clause 19 reads as follows:
8. On 20 September 1991, the vendor's solicitors (Messrs. Norman Yung & Co.) wrote to the purchaser's solicitors (Messrs. Livasiri & Co.) referring to clause 19 of the formal agreement and inquiring if the purchaser would require the vendor to lend HK$13 million to the purchaser to enable the purchaser to complete its purchase. 9. The purchaser's solicitors did not immediately reply to this letter; the purchaser was still looking for finance on terms more favourable than those offered by the vendor. 10. On 14 October 1991, the vendor's solicitors sent to the purchaser's solicitors a facsimile message in the following terms:
11. On 17 October 1991 (following a number of further inquiries form the vendor's solicitors), the purchaser's solicitors wrote to the vendor's solicitors in the following terms:
12. On 18 October 1991, while, while its director Mr. Yoshihiko Tanabe was in Hong Kong, the purchaser was offered finance from the Hong Kong and Shanghai Bank ("HKSB"), to whom it had been introduced by the vendor, on acceptable terms; but HKSB warned that it would not be ready to complete by 23 October 1991 and might need as much as a month. The vendor was apprised of this, and on 21 October 1991 the purchaser's solicitors requested by facsimile a postponement of completion until 23 November 1991. Their message appears to have crossed with a letter, also dated 21 October 1991, from the vendor's solicitors to the purchaser's solicitors, in the following terms:
13. On 22 October 1991, the purchaser's solicitors replied by facsimile as follows:
14. Later the same day, there were negotiations between the solicitors, conducted by telephone, to resolve the differences which had arisen between the parties; but these negotiations came to nothing. At 5:00 p.m., the vendor's solicitors sent to the purchaser's solicitors a facsimile message in the following terms:
(This message did not mention a most important matter of which the vendor's solicitors were, by the time the message was sent, well aware, i.e. that Mr. Yoshihiko Tanabe - who, it will be recalled, was to give a personal guarantee to secure the due performance of the mortgage to the vendor contemplated by clause 19(2) of the formal agreement if it was the vendor who was to provide the finance - was not, on 22 October 1991 in Hong Kong; having been offered, on 18 October 1991, finance on acceptable terms by HKSB, he had gone back to his base in Japan on 20 October 1991, assuming, quite understandably, that the sale would go ahead on the basis of a loan from HKSB as soon as HKSB was ready to make the advance.) 15. Later on 22 October 1994, the purchaser's solicitors informed the vendor's solicitors, by telephone, that the terms of this message were unacceptable, and that the sale would have to be completed on the basis of the agreed loan from the vendor. They asked for the necessary drafts of the mortgage and guarantee to be forwarded for their approval. 16. At 9:30 a.m. next day, 23 October 1991 (the day fixed for completion) the vendor's solicitors forwarded by facsimile a draft guarantee for the purchaser's solicitors' approval (they did not forward any form of offer letter, or draft mortgage.) The draft guarantee was of course sent by the vendor's solicitors to the purchaser's solicitors on the footing that since their terms for an extension had been rejected it was the vendor, not HKSB, which was to provide the finance. 17. At 10:04 a.m., the vendor's solicitors sent to the purchaser's solicitors a facsimile message in the following terms:
(The reference, in this message, to the solicitors' undertaking "to deliver the guarantee after the advance of the loan" is a reference to an offer which had been made by the purchaser's solicitors to the vendor's solicitors during the negotiations to which I have referred. Since, as everybody knew, Mr. Yoshihiko Tanabe was ten in Japan, the proposal of the purchaser's solicitors was that they should give an undertaking to deliver this guarantee to the vendor's solicitors shortly after 23 October 1991; the sale itself was of course, in accordance with the usual practice, to be completed by solicitors' undertakings from the vendor's solicitors anyway.) 18. The facsimile message sent at 10:04 a.m. was followed, at 10:05 a.m., a minute later, by a further facsimile message in the following terms:
19. There remained about 2 hours before the noon deadline mentioned in this message was due to expire. At 10:19 a.m., the vendor's solicitors sent the purchaser's solicitors a further facsimile message in the following terms:
20. One minute later, at 10:20 a.m., the vendor's solicitors sent the purchaser's solicitors a further facsimile message, marked "SUBJECT TO CONTRACT", containing an offer of a mortgage facility pursuant to the provisions of clause 19. The terms of the offer were as follows:
21. At about noon, and at the request of the purchaser's solicitors, the vendor's solicitors delivered, to a messenger from the purchaser's solicitors, a blank guarantee (no less than 10 pages long and in a wholly inappropriate form) for execution by Mr. Yoshihiko Tanabe. 22. At 12:31 p.m., the vendor's solicitors sent a further facsimile message to the purchaser's solicitors in the following terms:
(If this meant that the vendor's solicitors were asking that Mr. Yoshihiko Tanabe, who was not in Hong Kong, and who, indeed, was to the vendor's solicitors' knowledge in Japan, , was supposed to come to their office in Hong Kong, and execute the guarantee, on 23 October 1991, this was a disingenuous letter. The author (Norman Yung) gave evidence that he wrote this because he was worried that he might be presented with a forgery. But it seems to me that it was an attempt, on the part of the vendor, acting by its solicitors, to catch out the purchaser. The intention may have been to force the purchaser into agreeing the vendor's terms for an extension; or it may have been to engineer a forfeiture of the purchaser's deposit. It does not matter. It was not genuine.) 23. At 1:02 p.m., the purchaser's solicitors sent a facsimile message to the vendor's solicitors in the following terms (so far as material):
24. At 3:06 p.m., the purchaser's solicitors sent a letter, by hand, to the vendor's solicitors, enclosing their cheque for HK$950,000 in favour of the head vendor and their cheque for HK$7,890,000 in favour of the vendor's solicitors. These cheques were expressed to be sent against the usual undertakings from the vendor's solicitors to send to the purchaser's solicitors within twenty one days the appropriate documents required for completion of the transaction, including the mortgage and the guarantee for execution by the purchaser and its representative; the letter included an undertaking from the purchaser's solicitors to return, approve and execute documents within a reasonable period following receipt of the same. 25. At 3:23 p.m., the vendor's solicitors sent to the purchaser's solicitors a facsimile message in the following terms:
(In fact, the mortgage was sent only by hand later in the day; it arrived at the purchaser's solicitor's office at about 5:30 p.m.) 26. At 3:40 p.m., the vendor's solicitors sent to the purchaser's solicitors a facsimile message in the following terms:
27. At 5:37 p.m., the purchaser's solicitors sent the vendor's solicitors a facsimile message in the following terms:
28. This evoked a response from the vendor's solicitors in the form of a facsimile message in the following terms:
29. However, after some wrangling, the sale and purchase was in fact completed on 20 December 1991, the parties agreeing to leave for the court's subsequent determination the question whether or not the vendor had been entitled to forfeit the purchaser's $5,460,000 as it had purported to do. 30. This was the issue at the trial of the action. Mr. Justice Liu decided it in favour of the purchaser. Was he right? 31. In my judgment, he was. 32. The only ground on which a vendor is entitled to call off his contract with the purchaser and forfeit the purchaser's deposit is a repudiation of the contract by the purchaser. Where time has been made of the essence of the agreement, and remains so on the date fixed for completion, it is the duty of the purchaser, on the date and at the time fixed for completion, to be ready, willing and able to complete. A breach of this duty by the purchaser will usually entitle the vendor to treat the contract as having been repudiated by the purchaser. So, for example, where the purchaser is bound is to turn up, on a certain day and at a certain place and time, with a cashier order or a solicitor's cheque for the amount which is due from the purchaser to the vendor at completion, but fails to do so, the vendor is entitled to call off the contract and forfeit the purchaser's deposit. The vendor is under no obligation to extend any grace to the purchaser. The purchaser may turn up (say) 24 minutes later, with the money; but it will be too late: see Ip Ming Wai v. World Ford Development Ltd., Civil Appeal 187 of 1992, 2 April 1993 (unreported). So that there shall be no misunderstanding about it, I would emphasise that nothing in this judgment is intended to cast any doubt upon what was said in that case. 33. But the due completion of a conveyancing transaction requires co-operation between vendor and purchaser. The vendor, like the purchaser, also has to be ready, willing and able to complete his part of the contract, in accordance with his terms, on the date and at the time and place fixed for completion. And, since co-operation between vendor and purchaser (and, accordingly, of their respective solicitors) is required for the contract of sale and purchase to proceed satisfactorily to completion, the contract will be construed according to the principle enunciated by Lord Blackburn in Mackay v. Dick (1881) 6 App. Cas. 251 at p. 263:
34. This well-known principle has frequently been applied in cases between vendor and purchaser; for an example, see Sprague v. Booth [1909] AC 576, especially per Lord Dunedin at p.580. 35. So, if the failure of the purchaser to complete at the date and at the time fixed for completion is attributable, or partly attributable, to the conduct of the vendor, the vendor will not be allowed to rely on the purchaser's default as justification for calling off the contract and forfeiting the purchaser's deposit. (These are simple applications of the ordinary law of contract to agreements for the sale and purchase of land. But there is a wider rule, of equity, that, if in any particular case it was unconscionable conduct on the part of the vendor, given all the circumstances, for the vendor to have called off the contract and forfeited the purchaser's deposit, the purchaser may be granted relief from the forfeiture: see Legione v. Hateley (1983) 152 CLR 406 and Stern v. McArthur (1888) 165 CLR 489, recently followed in Hong Kong in Wong Kwok Yan v. Lee, Civil Appeal No. 151 of 1993, 27 April 1994 (unreported), the judgment of the court in which case, prepared and delivered by Macdougall V.P., warrants careful consideration by solicitors instructed to act for vendors under contracts for the sale of land in Hong Kong; and see also Ng Chek-kok v. Kiu Wai-ming [1992] 1 HKLR 5, in particular Clough J.A.'s references to "sharp practice" and "trickiness" on the part of vendors at p.17.) 36. It is true that the purchaser in the case now before us was unable to tender to the vendor, on the date and at the time fixed for completion, a guarantee signed by Mr. Yoshihiko Tanabe, as was provided for by the agreement of 13 September 1991. But, as the purchaser contended below, and the judge (rightly) accepted, it had been the duty of the vendor, under the agreement of 13 September 1991, to submit to the purchaser's solicitors for their approval drafts of the mortgage to the vendor and the guarantee to be executed by Mr. Yoshihiko Tanabe, in sufficient time for these to be approved by the purchaser's solicitors (with or without amendment) and engrossed so that all the documentation would be agreed and ready for execution in time for completion. 37. In fact, all the vendor's solicitors did in this connection, before 3:00 p.m. on 23 October 1991, was to send by facsimile a draft form of guarantee for approval to the vendor's solicitors at 9:30 a.m. on that very day; to send to the purchaser's solicitors at 10:20 a.m. the further facsimile message marked "SUBJECT TO CONTRACT" containing the offer of the mortgage facility contemplated by the provisions of clause 19 of the agreement of 13 September 1991; and to deliver to the purchaser's solicitors' messenger a blank engrossment of the proposed guarantee at about noon. 38. In my judgment, this fell far short of being a sufficient discharge of the vendor's obligations under the contract. It was argued before us that, because the mortgage was to follow the standard form of a bank mortgage, this somehow exonerated the vendor's solicitors from having to tender to the purchaser's solicitors for their approval a draft of the mortgage into which the vendor would require the purchaser to enter. I do not agree. Miss Audrey Eu, Q.C. for the vendor sought before us to buttress this argument by asserting that, in the usual case, the vendor does not have to submit to the purchaser a draft form of mortgage for approval. Of course that is right; but the usual case is one in which the purchaser himself has applied to the bank for a mortgage and knows quite well that, if he wants the money, he will have to take it on the bank's terms, which he will have had an opportunity of considering when applying for the mortgage. Here we are miles away from that. It was the vendor here which was to lend the money to the purchaser. Whatever standard form was used by the vendor for the purposes of this transaction would have to be appropriately modified if it was to be properly adapted to the particular circumstances of the case. What is really said here is that the purchaser was or would have been obliged to execute whatever form of mortgage document the vendor's solicitors had asked it to execute, with no opportunity for the purchaser's solicitors to consider the draft and advise their client upon it, merely because that form followed the format of a standard form of mortgage to the Hongkong and Shanghai Bank. This, in my judgment, is too absurd to warrant further consideration. 39. Since, then, the vendor's solicitors had failed to supply the draft mortgage for the purchaser's solicitors approval well before 3:00 p.m. on 23 October 1991, the vendor had not complied with its own obligations under the contract and was not entitled to call it off and forfeit the purchaser's deposit. 40. That is sufficient to dispose of the case in favour of the purchaser, as the judge held. But I would for my part be prepared to decide the case in favour of the purchaser on the alternative ground that, having regard to the vendor's conduct here, time had by 23 October 1991 ceased to be of the essence of the contract, so that the failure of the purchaser to complete on that day is not to be treated as a repudiation of the contract. The principle is that time ceases to be of the essence of the contract in equity if circumstances arise that make it unjust that it should be so regarded; "fraud, sharp practice or other unconscionable conduct of the vendor" (see Stockloser v. Johnson [1954] 1 QB 476, per Romer L.J. at p.501), or other such considerations, may render it inequitable that a purported termination of the contract by the vendor on the ground of delay on the part of the purchaser should be treated as effective in equity: see the comments made in Spry, Equitable Remedies, 4th ed. (1990), at pp.208, 209 on the cases of Legione v. Hateley and Stern v. McArthur cited above. 41. The conduct of the vendor and the vendor's solicitors at the later stages of the present transaction was in my judgment tricky and unfair. It was such as to relieve the purchaser in equity from its legal obligation to complete on 23 October 1991. On that basis too, I would for my part hold that the vendor here was not entitled to call off the contract and to forfeit the purchaser's deposit. 42. So far, I have assumed that the $5,460,000 paid by the purchaser in advance of completion was a conventional deposit. But the purchaser here, arguing that the provision for its forfeiture was a penal provision, has pointed to the fact that the "deposit" amounted to no less than 20% of the total purchase price. Does this make any difference? To answer this question one must go back to first principles. 43. As a general rule, when a purchaser fails to perform his part of a contract for sale and purchase, the vendor's remedy is an action for damages, to be assessed in the ordinary way. But the contract may stipulate instead for a payment of a fixed sum of money by the purchaser to the vendor in the event of failure by the purchaser to perform his part of the contract. It may stipulate for such a payment before breach (as a guarantee that the purchaser means business and that the contract will be performed) or after breach. A payment of a fixed sum which is to be made before breach (as a guarantee that the purchaser means business and that the contract will be performed) may be described as a "deposit". A payment of a fixed sum which is to be made after breach may be described as "liquidated damages". 44. It is clear that in the case of a fixed sum payment which is to be made after breach ("liquidated damages") the court will allow the provision for that fixed sum payment to displace the general rule to which I have referred if, but only if, the fixed sum represents a genuine pre-estimate of the vendor's loss. If it does not, the provision will be treated as penal, and the court will not allow the vendor to enforce it. He will be left to prove his loss in the ordinary way. 45. In the case of a fixed sum payment which is made before breach ("the deposit") the position is perhaps not quite so clear. It is clear that if the fixed sum does not exceed a conventional size (e.g. 10% of the purchase price in sales of residential premises in England and Wales) the court will not treat a provision for its forfeiture as penal, even if it in no way represents a genuine pre-estimate of the vendor's loss. This is anomalous, but there is no doubt that it is the law: see Workers Trust and Merchant Bank Ltd v. Dojap Investments Ltd [1993] AC 573. 46. What is not so clear is the attitude of the law towards a "deposit" which exceeds the conventional size, or in a case in which there cannot be said to be any conventional size of "deposit". 47. In my judgment, the rule in such cases must be that the law will uphold the provision for the forfeiture of the "deposit" if, but only if, the amount of the "deposit" is of no more than a reasonable size in relation to the loss likely to be suffered by the vendor as the result of a failure on the part of the purchaser to perform his contract. If the amount of the "deposit" exceeds this then, as it seems to me, it loses the benefit of the anomalous rule which precludes the purchaser, in the ordinary case of the conventional "deposit", from asserting that the provision for forfeiture of the "deposit" is penal in nature and ought not to be upheld. The court will, then, in my judgment, uphold provisions for the forfeiture of a "deposit" in two cases (1) where it is shown that the deposit did not exceed a conventional percentage of the purchase price; or (2) where it was of no more than a reasonable size in relation to the loss likely to be suffered by the vendor; in any other case, it will treat the provision for forfeiture of the "deposit" as penal and will leave the vendor to his ordinary remedy for the purchaser's breach of contract, i.e. a claim for damages to be assessed. (Case (2) is not really a true case of "forfeiture" at all, although it may be convenient so to refer to it. The true explanation of case (2) is, I think, not that the court treats the "deposit" as forfeited but that it treats the purchaser as liable to pay to the vendor liquidated damages in the amount of the "deposit", a liability which the vendor is entitled to treat as satisfied by applying the "deposit" in discharge of it: for a similar analysis, see williams, Contract for the Sale of Land, (1930) at pp. 102, footnote (c), especially at p.103.) 48. In the case before us, the evidence established that a deposit of 10% would have been a deposit of conventional size; but that evidence was not, in my judgment, sufficient to establish that, on a sale of property such as this in Hong Kong, a deposit of as much as 20% ought to be regarded as of conventional size. (I do not rule out the possibility, though it seems to me remote, that, in some future case here, and on other evidence, an argument that a deposit of over 10% ought properly to be regarded as conventional might succeed.) However, having regard to the circumstances of this particular case (and putting the question of what might have been a conventional deposit here entirely on one side) I have come to the conclusion that Miss Eu was right in her submission to the effect that it was reasonable for the vendor here to ask for, and take, a deposit of 20%. It has to be remembered that this was a sub- sale; and that the vendor, as the purchaser knew, would stand to lose considerably if the sub-sale went off at the last minute and the vendor, accordingly, found himself unable to come up with the money to complete his own contract with the head vendor. These were, I think, "special circumstances" (see the Workers Trust case, cited above, at p.706 H) which justified a deposit of 20% in the instant case and, for this reason, I would not have been disposed to find in favour of the purchaser that it should be relieved from the forfeiture of its deposit on the ground that the provision for the forfeiture was penal in character. 49. However, for the other reasons I have given, I am of the opinion as I have already said that the judge was right to decide the issue before him in favour of the purchaser and I would accordingly dismiss this appeal. Nazareth, J.A.: 50. I agree that the appeal should be dismissed for the reasons given by Godfrey J.A. upon the first ground he specifies, i.e., the vendor's solicitors having failed to supply the draft mortgage for the purchaser's approval well before 3.00 p.m. on 23rd October 1991, the vendor had not complied with its own obligations under the contract and was not entitled to call it off and forfeit the purchaser's deposit. 51. Also, I likewise would be prepared to decide in favour of the purchaser on the alternative basis that having regard to the vendor's conduct, it would be unconscionable for it to enforce its legal right to forfeiture of the deposit. It does not seem to me to be necessary for that purpose to specify or formulate the precise basis upon which the effect of the vendor's conduct is to be placed. Be it time ceasing to be of the essence of the contract in equity because of the effect of the vendor's conduct, as favoured by the learned editors of Spry's Equitable Remedies (4th ed. pp.208, 209) or the circumstances of the unconscionable conduct being exceptional (Stern v McArthur (1988) 165 CLR 489 at 502, 503), or special, such as "fraud" or "sharp practice" (Stockloser v Johnson [1954] 1 QB 476 per Romer L.J. at p.501) or "trickiness" (Ng Chek-kok v Kiu Wai-ming [1992] 1 HKLR 5 at p.17 per Clough J.A.), it seems to me that the conduct of the vendor met both of these. That is apparent from the facts outlined by Godfrey J.A. In addition, by way of emphasis, I would point to the following aspect of the facts. 52. On the evening of 18th October 1991, several days before the completion day, 23rd October, Mr Tanabe came to Hong Kong and, on the evidence, would have signed the guarantee to obtain the loan from the vendor, had the purchaser not been diverted by the vendor's introduction of the Hongkong and Shanghai Bank and the loan it could provide. While such loan would be on terms more favourable to the purchaser than a loan from the vendor, it was also advantageous to the vendor. For one thing, it would not have that sum in capital or borrowing resources tied up. No doubt that was behind its initiative in introducing the bank at even that very late stage. Indeed, so late that it could hardly have been unaware that the loan could not by then have been put in place to enable completion by 23rd October; while at the same time leading the purchaser reasonably to suppose that an appropriate extension of time to complete was implicit. 53. In the light of these circumstances and considerations it seems to me quite plain that it was unconscionable of the vendor to take advantage of the delay caused by its own intervention which produced that result and which was made, even if only partly, for its own benefit. 54. Before I leave the matter, it seems to me desirable to mention the following. In Wong Kwok-yan v Lee, Civil Appeal No. 151 of 1993 (unreported) to which Godfrey J.A. has referred, the court (of which I was a member) upheld the decision of the judge below setting aside the vendor's purported forfeiture of the purchaser's deposit as unconscionable in reliance upon Legione v Hateley (1983) 152 CLR 406 and Stern v McArthur (1988) 165 CLR 489, and upon the finding of the judge below that the failure of the purchaser to tender the cheque on the deferred completion date was attributable to the conduct of the vendor in failing to give the plaintiffs' solicitors reasonable time to approve the draft agreement; the effect of that finding, the court held, was that it would be inequitable in the circumstances of the case to permit the vendors to refuse to perform their part of the contract, having failed to give the purchaser reasonable opportunity to perform his. It was made clear in Stern by Mason C.J. at pp. 501-502, that while equity will relieve an unconscionable exercise of legal rights, the jurisdiction to do so would be exercised in exceptional circumstances only. These dicta are in line with the observations of Romer L.J. in Stockloser v Johnson at p.501:
This seems to me clearly to envisage unconscionable conduct of an exceptional or special nature such as fraud or sharp practice. I do not read the judgment of Clough J.A. in Ng Chek-kok at p.17 lines 20-25, as suggesting that unconscionability on its own would be sufficient to impel the court to intervene. Accordingly, while solicitors instructed to act for vendors would do well to heed the timely warning given by Godfrey J.A. that careful consideration should be given to Wong Kwok-yan, that judgment should not be thought to be a general invitation to seek relief from the enforcement of legal rights upon the ground simply of unconscionability per se. Penlington, J.A.: 55. Apart from the comments below on the question of forfeiture of a deposit as being pre-estimated liquidated damages, I agree with Godfrey, J.A. that this appeal should be dismissed for the reasons he gives. 56. I find some difficulty in the concept that if a deposit is paid as "earnest money" it may be forfeit on failure of the purchaser to complete but that it is a penalty if the purpose is to hold the purchaser "in terrorem" and is therefore not forfeit. See Linggi Plantations Ltd. v. Jagatheesan [1972] 1 M.L.J. 89 per Lord Hailsham L.C. at 94, a decision discussed recently by Barnett J. in Dawson Enterprises Ltd. v. Talisteam Ltd. M.P. 790/94 as yet unreported. He said,
Barnett J. went on to comment on clause 10 of the standard conditions of contract contained in part A of the Second Schedule of the Conveyancing and Property Ordinance, Cap. 219 which he considered should be avoided in favour of one providing for forfeiture only of a genuine deposit. 57. It is not necessary here for us to decide whether or not the 20% deposit was in fact a genuine pre-estimate of liquidated damages. Miss Eu has argued forcefully that while it represents double the conventional 10% deposit, the property was unusual - a large number of car-park spaces. Another similar property in the area was on the market at a lower price. The vendor regarded this contract as a very good deal - it stood to make $9,200,000 profit. Even in Hong Kong that is enough to entitle a vendor to require a larger deposit than normal to make sure the purchaser went through with the deal. Godfrey J.A. finds that the fact that this was a sub-sale and the vendor was no doubt anxious to see that it went through as planned so it could complete its purchase from the head-vendor is a "special circumstance" as referred to in Workers Trust. I would myself not have found that was a special circumstance here and I would have considered the deposit was not a genuine estimate of damage and its purported forfeiture would have been a penalty. However that is a matter for argument when the point has to be decided. 58. The appeal is accordingly dismissed. There will be an order nisi that the respondent is to have the costs of this appeal.
Representation: Miss Audrey Eu, Q.C. and Mr. Chan Chi Hung instructed by M/s Daniel Wong & Partners for appellant Mr. Malcolm Merry instructed by M/s Livasiri & Co. for Respondent |
Cases cited in this judgment