Construction of ‘escape’ clause in provisional sale agreement

In New Champion (Hong Kong) Ltd v Treble & Triple Ltd ([2010] HKEC 1154) S had agreed to buy a flat in Cyberport from the developer and entered into an agreement for its sub-sale to P. P paid an initial deposit on the signing of the provisional agreement and, later, a much larger further deposit.  The provisional sale and purchase agreement envisaged the payment of the larger deposit. It included a clause (clause 7) that entitled S to retain the initial (smaller) deposit ‘should the purchaser fail to complete.’ It provided that S would have no further remedy against P. There was no later, formal agreement between the parties.

P failed to complete on the due completion date. In essence, the question was whether clause 7 covered the situation so that the only remedy for S was to retain the initial deposit. The Court held that this was the case as a plain matter of the words of the contract. Contrary to the arguments of S, the clause did not cease to be effective after any given time (such as the completion date). Nor did it require P to take any positive action to invoke it; P had simply to fail to complete.

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