Binding effect of a provisional sale and purchase agreement

In Au Wing Cheung v Roseric Ltd ([1992] 1 HKC 149, CA) S and P entered into a provisional sale and purchase agreement concerning a shop in Happy Valley. This agreement contained a term to the effect that the agreement ‘is a document with legal binding force.’ There was to be a formal agreement and P’s solicitors wrote a letter marked ‘subject to contract’ calling for a draft agreement. It also stated that, ‘Nothing herein shall bind our client unless and until the agreement for sale and purchase relating thereto has been signed by our client and all parties concerned.’ The seller’s solicitors replied to the effect that they too regarded the negotiations as being still ‘subject to contract’ and purporting to bring them to an end. P sought specific performance and succeeded. The provisional agreement was clearly intended to be binding. The ‘subject to contract’ label applied only to any variations between the provisional agreement and the formal agreement. P’s subject to contract letter did not provide the basis for an estoppel.

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