Archive for the ‘Completion date’ Category

Open contracts in Hong Kong

April 6, 2016

Fong Yin Hing v Fong Kwan Pui ([2016] HKEC 740, CFI) concerned an oral agreement by a brother to sell a flat to his sister. The sister drafted a memorandum of the terms of the agreement and the brother signed it. The brother later refused to complete and the sister sought specific performance. One aspect of the brother’s defence was that, following the Court of Final Appeal decision in Kwan Siu Man v Yaacov Ozer, there could be no contract where there was no express agreement as to the completion date. To J. rejected this interpretation of Kwan Siu Man. It is legally possible to enter into an open contract but the courts should not be too ready to find that this has occurred in the context of Hong Kong’s volatile property market. ‘In my opinion, the test is one of intention, i.e. have the parties reached a binding contract for the sale and purchase of that property at that price. If they have, then the other terms can be implied.’ ([79]). Here there was ample evidence that the parties had the necessary intention to be contractually bound.

Although no completion date was specified, the parties had agreed that completion would not take place until after their mother had died (the brother was joint tenant of the flat with the mother). It was to be implied that completion would take place at a reasonable time after the mother’s death. If completion does not take place within that time, the innocent party could issue a notice fixing a new completion date and making time of the essence ([80] referring to Behzadi v Shaftesbury Hotels Ltd and Lau Suk Ching Peggy v Ma Hing Lam). This was not void for uncertainty since it was certain that the mother would die even though the date of death could not be known ([83]).

The memorandum not only recorded the terms of the oral agreement but also the fact that the sister had paid the agreed deposit under the agreement. This did not mean that it was invalid as a memorandum. This was not a case where additional terms had been included in the memorandum casting doubt on whether it was truly intended to record the existence of an alleged oral agreement ([95]).

The oral agreement had been formed and the memorandum recorded it. The memorandum could even be considered as a written agreement. Specific performance was ordered.

Michael Lower

Completion: the duties to deliver executed assignment and to pay the completion monies trigger each other (in the absence of a contrary stipulation)

November 3, 2014

In Chong Kai Tai Ringo v Lee Gee Kee ([1997] HKLRD 461, PC) D entered into a provisional sale and purchase agreement to sell a flat in Hong Kong to P. P was at the end of a chain of sub-sales and, as a result, the purchaser under a contract higher up the chain was to execute the assignment to P. Time was of the essence for completion. The contract included a liquidated damages clause in the event of default by either party. P failed to provide the completion monies by the time stipulated for completion. D argued that this was a repudiatory breach and it purported to accept it. P sought specific performance.

The Privy Council (Lord Hutton giving the only full judgment) held that the obligations to pay the purchase price and to deliver the executed assignment are to be carried out simultaneously (in the absence of an express or implied agreement to the contrary). D was not in a position to deliver the executed assignment by the completion date because it had not arranged for the purchaser higher up the chain to execute the assignment (D anticipated dealing with this after completion). Since it was not ready to complete, P’s duty to provide the completion monies was not triggered.

The result was not to bring the contract to an end but that time ceased to be of the essence  and completion was to take place within a reasonable time. D was not entitled to rescind.

D argued that the liquidated damages clause meant that specific performance was no longer available. The Privy Council declined to consider whether this was true as a general proposition. D’s argument failed because it had not offered to pay the liquidated damages. In that case, the liquidated damages clause did not prevent the award of specific performance.

Michael Lower

Seller seeking to rely on liquidated damages clause after due date for completion had passed

August 7, 2012

In Earnest Enterprises Ltd v Yip Fung ([2012] HKEC 1096, CFI) B entered into a provisional sale and purchase agreement to buy a flat from S. As provided for in the agreement B paid HK$200,000 by way of deposit and then a further deposit of HK$210,000. No formal agreement was entered into other than the provisional agreement. B gave several extensions of time for completion but the date was eventually fixed.S failed to complete.  B sought specific performance and / or damages in lieu. S offered to refund the deposits paid and a further HK$200,000 by way of liquidated damages. S sought to invoke the liquidated damages clause in the sale and purchase agreement. S failed for two reasons. First, it was no longer possible to rely on the liquidated damages clause as drafted once the completion date had passed. Second, in any event S would have to offer liquidated damages of HK410,000 (the total of the deposits paid) and not merely an amount equal to the first of the deposits. B was entitled to specific performance and damages.

Time of the essence for completion: the common law demands strict compliance

April 20, 2012

Where time is of the essence for completion even a short delay is a repudiatory breach. In the normal course of events, there is no reason for equity to relieve the buyer from this nor from the loss of his deposit (if the contract so provides).

In Union Eagle Ltd v Golden Achievement Ltd ([1997] A.C. 514, PC) the Privy Council heard an appeal from the Hong Kong Court of Appeal. A seller had agreed to sell a flat in Hong Kong. The buyer had paid a 10% deposit. The contract provided that time was of the essence in all respects. It also provided that the deposit would be forfeited if the buyer failed to complete. Completion was to take place by 5pm on the completion date but the buyer’s solicitors arrived 10 minutes after that with the completion monies. The seller rescinded on the grounds of the buyer’s failure to comply with the term of the contract stipulating the time for completion. The buyer sought specific performance. It argued that there was an equitable jurisdiction to relieve against the forfeiture of the equitable interest created by the contract. This failed in the Hong Kong courts and in the Privy Council.

Lord Hoffman gave the only judgment. Authority and policy combined to persuade him that there was no scope for equity to intervene to save the buyer from the breach of contract:

‘When a vendor exercises his right to rescind, he terminates the contract. The purchaser’s loss of the right to specific performance may be said to amount to a forfeiture of the equitable interest which the contract gave him in the land. But this forfeiture is different in its nature from, for example, the vendor’s right to retain a deposit or part payments of the purchase price. So far as these retentions exceed a genuine pre-estimate of damage or a reasonable deposit they will constitute a penalty which can be said to be essentially to provide security for payment of the full price. No objectionable uncertainty is created by the existence of a restitutionary form of relief against forfeiture, which gives the court a discretion to order repayment of all or part of the retained money. But the right to rescind the contract, though it involves termination of the purchaser’s equitable interest, stands upon a rather different footing. Its purpose is, upon breach of an essential term, to restore to the vendor his freedom to deal with his land as he pleases. In a rising market, such a right may be valuable but volatile. Their Lordships think that in such circumstances a vendor should be able to know with reasonable certainty whether he may resell the land or not.’ (at 520)

The case illustrated the need for commercial certainty and to resist the temptation to allow equity to rewrite contracts in the name of fairness (at 519). There was no useful distinction to be drawn for this purpose between ‘commercial’ and other cases, ‘Land can also be an article of commerce and a flat in Hong Kong is probably as good an example as one could find.’ (at 519). Lord Hoffman summed up his position:

‘The fact is that the purchaser was late. Any suggestion that relief can be obtained on the ground that he was only slightly late is bound to lead to arguments over how late is too late, which can be resolved only by litigation.’ (at 523).

The seller was entitled to know with certainty whether he could re-sell or not (at 520). It may be different if there were any question of unjust enrichment or estoppel (at 523).

Michael Lower

Implied long-stop date in agreement for the sale of a Small House

April 1, 2011

There is no room to imply a long-stop date for completion of a conditional agreement where the agreement expressly contemplates uncertainty and the parties have agreed to wait until the condition can be met.

In Wong On Na v Harbour Well Development Limited ([2002] HKEC 2) the plaintiff had agreed to buy a house in the New Territories from the defendant developer. The agreement made completion conditional on getting the necessary Certificate of Compliance from the relevant District Lands Office. The developer completed the building works and sought the certificate. A lengthy delay ensued (through no fault of the developer). The plaintiff sought to rescind and the developer counter-claimed for damages. The plaintiff alleged that there was an implied term that completion was to take place within a reasonable time (see Johnson v Humphrey [1946] 1 All ER 460). This claim failed. The agreement made it clear that the completion date was uncertain and depended on obtaining the certificate. This was outside the developer’s control; it had done all that it could to obtain the certificate. The developer was awarded damages representing the difference between the contract price and the market price at the date of the hearing (the market had fallen).