Delay in accepting repudiatory breach.

In Cheung Ching Ping Stephen v Allcom Ltd ([2010] 2 HKLRD 324, CA) S and P entered into a provisional sale and purchase agreement. P paid an initial deposit of $1 million. The agreement provided that if S were to fail to complete it would refund the deposit and pay a further $1 million as liquidated damages.

S failed to complete on time. P wrote twice to S, reserving its rights but seeking information as to S’ progress in dealing with the matters that had to be attended to before completion could take place. After two months, P wrote to S to withdraw from the transaction. P sought the return of the deposit and the further sum of $1 million by way of liquidated damages.

The first question was whether P had lost the right to accept the repudiatory breach by waiting for two months. It was held that this delay did not mean that it had lost the right to accept the breach. The question was whether the delay was only consistent with an affirmation of the contract (or perhaps whether something material had happened in the interval between the breach and the acceptance of it) ([21]). P was entitled to accept the breach despite the delay.

P was not entitled to the $1 million by way of liquidated damages. There was nothing to show that this was a genuine pre-estimate of the damage caused by S’ breach. This was an application for summary judgment. There was to be an enquiry as to damages and the question as to whether $1 million was a genuine pre-estimate could be argued at that enquiry.

Michael Lower


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7 Responses to “Delay in accepting repudiatory breach.”

  1. avocawho Says:

    I can appreciate that the delay/extension did not amount to affirmation and hence P remains the right to claim damages for S’ repudiation.

    If the liquidated damage is a compensation clause in the written agreement, why isn’t S liable for the breach of this express term?
    I didn’t know that there’s a ‘genuine pre-estimate of damage’ test .. is it a test for liquidated damage or is it because of summary judgment?

  2. avocawho Says:

    Just an expression of opinion, this penalty/liquidated-damage distinction contradicts with the concept of free trade. The courts are supposedly unwilling to interfere with normal business transactions.

    When considering whether silence is a misrepresentation, we said in general it is not misrepresentation by reason of ‘caveat emptor’. Then, why can’t we apply ‘buyer aware’ in the case of a penalty clause?

    • Michael Lower Says:

      In the deposit cases I’ve blogged this week, the judges express concern that a penalty is an attempt to ‘terrorise’ contracting parties into compliance. The concern seems to be the lack of any attempt to ensure that the payment is proportionate to the harm caused. The fact that a party is willing to sign up to a penalty clause might be an indicator that unconscionable advantage is being taken of superior bargaining power.

  3. avocawho Says:

    If there was evidence showing that the vendor had taken advantage of the special disability of the buyer (as in the 25% deposit case), then I agree with the potential unconscionable dealing. If it is just the Court’s discretion and decision based on the proportionality of the deposit, then I’m a bit lost as I tend to think that in the commercial world, there’s a presumption that the contractual parties understand what they are signing.

    Thanks much for the discussions and for the sharing through this blog.

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