Chan Yat Wah v. Moonland Enterprise Ltd.

HCMP 3061/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3061 OF 1998

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Coram: Deputy High Court Judge Longley in Court

Date of Hearing: 13 October 2000

Date of Ruling: 13 October 2000

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SECOND RULING

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1. The second question for the court's determination is whether the Plaintiff was in breach of the Sale and Purchase Agreement when he purported to terminate the agreement pursuant to the Provisions of Clause 31(1) of the Sale and Purchase Agreement. To put it another way, does Clause 31(1) itself provide for the determination of the agreement? This question turns upon the proper instruction of Clause 31(1) which provides as follows:

"31. (1) The Vendor hereby declares and confirms that no third party (whether related or otherwise) has any right or interest whatsoever whether legal or equitable in the Property. The Vendor confirms that he is the sole legal and the beneficial owner of the Property. In the event of any third party claiming a beneficial interest to the Property, whether legal or equitable, whether by issuing a writ of summons or by registering his beneficial interest in the Land Registry against the Property, on or before completion the Vendor shall return the deposits paid hereunder and all other deposits (if any) paid herein to the Purchaser forthwith and without prejudice to the Purchaser's right to claim against the Vendor by reason of the Vendor's failure and or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution."

2. Mr Pow for the Plaintiff argues that on its proper construction Clause 31(1) provides for a situation in which a vendor may well want to proceed but a supervening event, an unexpected third party claim, prevents the vendor from completing. When that situation occurs Clause 31(1) provides that the contract shall come to an end.

3. He submits that the key to the construction of this sub-section is to look at the nature of the situation with which it is dealing, namely a situation in which the claim of the third party causes a blot on the title which would prevent the sale going through in accordance with the agreement. In such circumstances the section cannot contemplate the purchaser having an option to continue the agreement by seeking specific performance.

4. He says that the references to it not being necessary for the purchaser to tender an assignment to the vendor for execution, and to the deposit being returned indicates that the contract is not going to proceed.

5. He argues that the true meaning of Clause 31(1) can be gleaned from Clause 19. That Clause provides:

"19. In the event of the Vendor failing to complete the sale in accordance with the terms of this Agreement it shall not be necessary for the Purchaser to tender an assignment to the Vendor for execution before taking proceedings to enforce specific performance of this Agreement or for damages for breach of this Agreement and all moneys paid by the Purchaser to the Vendor pursuant to the provisions of this agreement shall forthwith be returned to the Purchaser and the Purchaser shall be entitled to recover from the Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor."

6. This section he says is one which deals with breach by the vendor. Clause 31(1) deals with a different situation when a supervening event makes it impossible to proceed. He points to the reference to "inability" in Clause 31(1). He says that there would be no need for Clause 31(1) if it dealt with the situation of a breach by the vendor because that is catered for by Clause 19. Clause 31(1) would in such circumstances be otiose.

7. He argues that Clause 20 which provides:

"20. Nothing in this Agreement shall be so construed as to prevent either the Vendor or the Purchaser from bringing an action and obtaining a decree for specific performance of this Agreement either in lieu of the aforesaid damages or in addition to such damages as the party bringing such action may have sustained by reason of the neglect or refusal of the other party to complete the said sale or purchase at the time and in manner aforesaid."

is not relevant to the construction of Clause 31(1) because it relates to the situations where a party has sustained damage as a result of the "neglect" or "refusal" of the other party to complete, not with a situation where the vendor is simply unable to complete.

8. Mr Lim's arguments were essentially twofold.

9. Firstly, that by the opening two sentences of Clause 31(1), the vendor is giving certain warranties as to title. Mr Lim asserts that a claim by a third party to a beneficial interest to the property would ipso facto amount to a breach of the warranties in the first two sentences and that therefore the reference to the "Purchaser's right to claim against the Vendor" must inevitably be a claim for breach of contract.

10. This argument however ignores the fact that it could not be known until the final determination of the third parties' claim whether the third party has an interest in the property. The subsection deals with the consequence simply of a claim, not a determination, of the third parties' rights.

11. His second argument amounts to this. That whereas in normal circumstances the return of a deposit would indicate an end of contractual relations, this is expressly provided not to be the case by virtue of the next phrase "and without prejudice to the Purchaser's right to claim against the vendor by reason of the vendor's failure and or inability to complete the sale in accordance with the term thereof". The sub-section does not refer solely to the vendor's "inability" to complete the sale but to his "failure and/or inability to complete". The consequences of failure by the vendor to complete are dealt with by Clause 19. By that section the purchaser can either enforce specific performance of the agreement or bring an action for damages for breach. It follows therefore that Clause 31(1) contemplates an action for specific performance or an action for damages for breach.

12. I am satisfied that Mr Lim's latter argument is correct. I agree with Mr Pow that Clause 31(1) would be otiose if it simply did not add anything to Clause 19.

13. I am satisfied it does.

14. In normal circumstances, if a vendor did not complete a sale, the purchaser's deposit would only be recoverable on or after the date fixed for completion. Clause 31(1) provides for a situation when serious doubt is cast upon the vendor's ability to complete at an earlier stage. It provides that the purchaser does not have to wait until the date fixed for completion before his deposit is returned. It is to be returned "forthwith" upon the third party issuing his writ or registering his beneficial interest. In normal circumstances, the return of a deposit - which is an earnest by the purchaser that he will go through with the transaction - would indicate the end of the contractual relationship. The words "without prejudice to the purchaser's right to claim against the vendor by reason of the vendor's failure and or inability to complete the sale" indicate that this is not the case. The purchaser still has the remedies he would have under Clause 19 namely a choice either to seek with enforce the contract by specific performance or to seek damages for breach of contract. For practical purposes he is perhaps unlikely to seek or to be granted specific performance in view of the third parties claim, but it is by no means impossible. The claim of the third party may be resolved by agreement or otherwise. The reference to it not being "necessary for the purchaser to tender an assignment to the vendor for execution" is not inconsistent with the purchaser still retaining right to seek specific performance because the purchaser would have to show that he was ready and willing to proceed. What Clause 31(1) enables the purchaser to do in such circumstances is to seek specific performance notwithstanding the fact that his deposit has been returned to him or to seek damages for breach of contract.

15. I find therefore that Clause 31(1) does not itself provide for the determination of the contract. I find that the Plaintiff was in breach of the Sale and Purchase Agreement when he purported to terminate the agreement pursuant to the provisions of Clause 31(1).

Representation:

Mr Jason Pow, instructed by Messrs T H Koo & Associates, for the Plaintiff

Mr Malcolm Lim, instructed by Messrs Leung Kin & Co., for the Defendant