Trivest Investment Limited v. Fako Properties Limited
Read the full judgment text of HCA 2945/1994 on BabelCite. This High Court CFI judgment was delivered on 1 August 1994.
1. On 26th February 1994, the Defendant, as Vendor, and the Plaintiff as Purchaser entered into a written agreement ("the Agreement"), the relevant parts of which I now set out :
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HCA002945/1994 1994 No.A2945 IN THE SUPREME COURT OF HONG KONG HIGH COURT ____________
____________ Coram: Hon. Rhind, J. in Chambers Date of hearing: 29 July 1994 Date of delivery of judgment: 1 August 1994 _______________ J U D G M E N T _______________ 1. On 26th February 1994, the Defendant, as Vendor, and the Plaintiff as Purchaser entered into a written agreement ("the Agreement"), the relevant parts of which I now set out :
2. That same day the Plaintiff paid the initial deposit of $1 million. 3. By a letter dated 7th March 1994 the Defendant's solicitors informed the Plaintiff's solicitors that the Defendant would not proceed with the sale and purchase, and enclosed a cheque for $2 million in the Plaintiff's favour as a refund of the $1 million initial deposit plus an amount of the same value in purported compliance with paragraph (b) of the Default Clause in the Agreement. 4. Meanwhile, on 4th March 1994, the Defendant had entered into another agreement to sell the same shops to a different buyer at a higher price, completion of that transaction being set for 18th August 1994. 5. The Plaintiff's solicitors on 8th March 1994 wrote to the Defendant's solicitors to the effect that the Plaintiff did not accept the Defendant's unilateral rescission and returned the cheque for $2 million. 6. According to the Agreement, the formal sale and purchase agreement should be signed on or before 11th March 1994. On 11th March, the Plaintiff's solicitors sent the Defendant's solicitors a cheque for $11,831,600 as the "Down Payment" contemplated by (b) of the Payment Terms in the Agreement. 7. The same day, the Defendant's solicitors returned the cheque for $11,831,600 to the Plaintiff's solicitors, at the same time reiterating to the effect that the Defendant regarded itself as no longer bound by the Agreement. 8. Since then, at all material times, it has been known to the Defendant's solicitors that the Plaintiff has been willing to hand to the Defendant's solicitors $11,831,600 for the "Down Payment", and to perform all its obligations under the Agreement, whilst the Defendant has throughout been willing to pay the Plaintiff $2 million pursuant to (b) of the Default clause. 9. The Plaintiff on 28th March 1994 took out a writ seeking specific performance and other relief against the Defendant arising from the Agreement. Two summonses are presently before the court. One is the Plaintiff's under O.86 for an order for specific performance. The other is the Defendant's under O.14A, O.18, r.19 and O.33, r.3 and the court's inherent jurisdiction, seeking, broadly speaking, the court's acknowledgment that the Defendant has fulfilled all its obligations under the Agreement. 10. Both sides agree that the sole issue before the court is whether, on its true construction, paragraph (b) of the Agreement's "Default" clause enabled the Defendant to discharge all its obligations towards the Plaintiff under the Agreement by its tender of $2 million to the Plaintiff on 7th March 1994. 11. The dispute is of a type frequently litigated in the Hong Kong courts of recent years in the context of what are generally described as "Provisional" or "Preliminary" contracts. 12. A point taken immediately for the Plaintiff was that here, far from describing itself as "Preliminary" or "Provisional", the Agreement is headed up as, "Memorandum For Sale And Purchase". While that is no doubt so, the court has to look at the Agreement as a whole and pay heed to its substance, as well as its label. 13. The content of the Agreement is, to my mind, all of a piece with what one finds in contracts headed up "Provisional" or "Preliminary" agreements for the sale and purchase of land, and, in my judgment, the principles which have evolved in the Hong Kong case law relating to "Preliminary" or "Provisional" agreements should be applied here. 14. Unsurprisingly, the most basic rule of construction in this area, as in almost all areas, is that the court has to look at the actual words used, and what the context was. That said, the court can hardly ignore that clause (b) under "Default" bears more than a passing resemblance to the Clause 7 in Wong Lai-fan v. Lee Ha [1992] HKLR 125 which I now set out together with the Clauses 2 and 6 which preceded it :
15. There, the defendant purchaser, tendering before 3.4.91 an amount totalling twice the deposit, was held by the Court of Appeal to have discharged all his obligations, so that the plaintiff seller was refused Specific Performance or any other relief. 16. It is said for the Plaintiff that an indicator against (b) of the "Default" clause having the qualities of what is known in this branch of the law as an "escape clause" or "cooling off period" is the mandatory language, in particular the word "shall" in the context of the parts of the Agreement headed "Payment Terms", "Agreement for Sale and Purchase" and "Default". That argument cuts little ice, however, in the light of the Court of Appeal's decision in Lee Ming Ching v. Man Sun Finance (International) Corporation Limited, Civil Appeal No.203 of 1992 where similar mandatory language did not cause an escape clause to fail. The same approach is to be found in Wong Lai Fan v. Lee Ha, too. Nor do I think that the words "The vendor as beneficial owner hereby agrees to sell and the purchaser hereby agrees to purchase the above subject Properties subject to the following principal terms and conditions." at the beginning of the Agreement militate against the existence of an "escape clause" elsewhere in the Agreement. 17. Ms. Audrey Eu, Q.C., for the Plaintiff, helpfully took the court back to basics, reminding the court of Fry's three categories of contract, (her submission D2), only the latter of which relieves a party from fulfilling his obligations by payment of a sum of money as an alternative mode of performance. 18. I agreed with her, too, that the court should strive to uphold the primary contract which in the present case would be completing the transaction by assignment of the suit premises to the Plaintiff in exchange for the full purchase price. I accept, too, that the burden is on the party wishing to get out of the contract prematurely, who has to satisfy the court that, on a strict construction, applying the contra proferentum rule, the words and circumstances of the contract are sufficiently clear and unambiguous to permit that party to elect for the alternative mode of performing the contract by paying the stipulated sum. 19. For the Plaintiff, it was argued that the very use of the word "Default" pointed towards the Agreement being of the type which continues to exist even after the one wishing to get out of the contract has paid the sums arising under the Default clause. I fail to see why "Default" should have the significance the Plaintiff claims. No doubt, the Defendant's case would have been stronger if the heading had been "Opting Out", "Escape Clause", or "Cooling Off Period", rather than "Default", but I consider "Default" good enough to give rise to an alternative mode of performance by paying a sum of money. 20. A stronger point taken on behalf of the Plaintiff related to the significance of the opening words of (b) "In the event of the vendor failing to complete ...", rather than, "In the event of the vendor failing to execute the formal sale and purchase agreement ..." 21. According to the argument on the Plaintiff's behalf, that means, at least, that so long as the purchaser has tendered the Deposits and Down Payment under the "Payment Terms" part of the Agreement, the purchaser will be entitled to twice whatever has been paid to the vendor, meaning that if the Plaintiff has tendered the full 30%, it will get back whatever the Defendant has accepted by way of deposit (in our case $1 million), plus 30% of the purchase price by way of compensation. That would be for starters according to the Plaintiff, since it would also have the right to get damages for breach of the Agreement and/or Specific Performance. 22. I do not construe (b) under Default in that way. I see in (b) mutuality with what is contained in (a) where, in the event of the purchaser being in breach of the contract the vendor can only forfeit "... the total amount of the deposit already paid ..." 23. In (b), the echo of those very words to my mind indicates that in the event of the vendor being in breach he only has to pay the purchaser twice "... the total amount of deposit already paid ..." I think the words "already paid" mean what they say, and not "already tendered" Why there should be this huge disparity between what the purchaser gets and what the vendor gets under the Default clause, as interpreted by the Plaintiff, I cannot see. 24. The word "complete" in "In the event of the vendor failing to complete ..." is in my view no more than slovenly drafting for "failure to comply with its obligations and other conditions". 25. Failure to complete, in context means, no more than completing the next stage of the transaction. In the present case, that means failing to accept the 10% Down Payment before 11th March 1994. Any time before 11th March 1994 the Defendant could elect for the alternative mode of performance by returning to the Plaintiff twice the deposit already paid. 26. Where the Hong Kong courts have found in favour of a party wishing to call off a provisional agreement for the sale and purchase of land, the time between signing the provisional agreement and paying twice the deposit to get out has been described as "a cooling off period". 27. In the case before me, it was pointed out on the Plaintiff's behalf that, if (b) of the Default clause were to be construed as the Defendant urges, it would be an awfully long time to cool off, since the Defendant would have had from 26th February up until 10th August to exercise the right of election it claims. Although "cooling off" is a catchy metaphor, I do not think that too much should be made of it. I can see no good business or other reason why parties to a sale of land should not agree to a protracted period of alternative performance, with the cost of such an election escalating as time goes by. In fact, it is a perfectly sensible business arrangement. 28. In view of the above, I am satisfied that the Defendant has discharged all its duties under the Agreement so that the Plaintiff's summons stands dismissed, and I grant the Defendant an Order in accordance with Para.1 of its own summons.
Representation: Miss A. Eu, Q.C. and Mr C.Y. Li (inst'd by M/s Samuel Lam & Co.) for the Plaintiff. Mr Warren Chan, Q.C. and Mr Anthony Chan (inst'd by M/s Vincent T.K. Cheung, Yap & Co.) for the Defendant. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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