Archive for the ‘contract’ Category

The limited role of admissible background in the case of registered documents

February 10, 2014

In Cherry Tree Investments Ltd v Landmain Limited ([2012] EWCA Civ 736, CA (Eng)) C had granted a charge of property to D pursuant to the terms of a facility agreement. The facility agreement extended the statutory power of sale in section 101(3) of the Law of Property Act 1925 by providing that the power of sale could be exercised at any time after the execution of the charge. This extension of the statutory power of sale did not appear in the charge. The charge was registered at the Land Registry but the facility agreement was not registered. D sold the property to L in exercise of the power of sale. It could only do so if the statutory power of sale had been extended as set out in the facility agreement. No claim was made for rectification of the charge. The primary question was whether the power of sale implied into the charge could be ‘interpreted’ in such a way as to include the extension found in the facility agreement. The English Court of Appeal decided (Arden LJ dissenting) that the charge could not be so interpreted.

Lewison LJ thought that he was bound to hold that the facility letter was admissible evidence for the purposes of interpreting the charge. But it was still necessary to consider the effect of this: what use could be made of the facility letter ([104] and [128])? The fact that the charge was a document that would be registered at the Land Registry was highly significant. The factual background carries a different weight in such cases than it would in other sorts of contract:

‘The reasonable reader’s background knowledge would, of course, include the knowledge that the charge would be registered in a publicly accessible register upon which third parties might be expected to rely. In other words a publicly registered document is addressed to anyone who wishes to inspect it. His knowledge would include the knowledge that in so far as documents or copy documents were retained by the registrar they were to be taken as containing all material terms, and that a person inspecting the register could not call for originals. The reasonable reader would also understand that the parties had a choice about what they put into the public domain and what they kept private. He would conclude that matters which the parties chose to keep private should not influence the parts of the bargain that they chose to make public.’ ([130])

A little later, Lewison LJ observed:

‘Even the staunchest advocates of the court’s ability to consider extrinsic evidence stop short at saying that by the process of interpretation the court can insert whole clauses that the parties have mistakenly failed to include.’ ([132]).

The charge could not be interpreted in such a way as to confer the more expansive power of sale contained in the facility agreement.

Longmore LJ agreed with the conclusion and reasoning of Lewison LJ ([150]).

Michael Lower

Wise Think Global Ltd: had a further deposit been paid?

November 14, 2013

In Wise Think Global Ltd v Finance Worldwide Ltd ([2013] HKEC 1790, CFA) S agreed to sell property to P. A deposit of HK$500,000 was paid on the signing of the provisional agreement. A further HK$3.1m was to be paid on the signing of the formal agreement. The provisional agreement provided that if the vendor failed to complete the agreement, it would refund the deposit paid together with a further amount equal to the deposit. The provisional agreement also provided that the deposits would be held by the vendor’s solicitors as stakeholders.

The terms of the formal agreement were agreed and P sent the agreement signed on behalf of P and a cheque for HK$3.1m. P’s solicitors’ accompanying letter declared that the agreement and cheque were sent against S’ solicitors undertaking to send in return the part of the formal agreement signed on behalf of S within three days. S’ solicitors did not give this undertaking. They cashed the cheque but did not send a part of the formal agreement signed on behalf of S. Instead, more than three days later, S purported to terminate the provisional agreement by paying liquidated damages in accordance with the terms of the provisional agreement. S refunded both of the deposits and paid a further $500,000 (equal to the initial deposit). The question was whether it had also to pay further liquidated damages equal to the HK$3.1 m further deposit.

Litton NPJ said that the central question was whether the deposit had been paid to and accepted by the vendor’s solicitors ([23]). They were to hold the deposits as stakeholders but they were also the vendor’s agents. When they cashed the cheque, the money was received and paid ([25]). The terms of the undertaking that the purchaser’s solicitors sought to impose did not render the payment conditional. The only realistic interpretation of the proposed undertaking was that the vendor’s solicitors were being asked not to cash the cheque unless they were in a position to send the vendor’s signed part of the contract to the purchaser’s solicitors ([28]). Litton NPJ emphasised that this case turned on its special facts; it would be rare for a purchaser to pay a deposit before the contract had been signed ([31]).

Bokhary NPJ approached the matter on the basis that the purchaser had accepted the risk that the further deposit would be forfeited and that there was an expectation that the right to resile, and the consequences of doing so, would be matching (the same for each party) ([37]).

Lord Millett NPJ said that the vendor’s solicitors could refuse the deposit by returning the cheque, by holding it without cashing it or by cashing it on the express basis that the money was held to the purchaser’s solicitors order ([41]). Simply cashing the cheque, by contrast, amounted to acceptance of the deposit monies ([42]).

Since the right to resile had not been validly exercised, the Court of Final Appeal ordered specific performance of the contract.

Michael Lower

Interpretation of clause modifying duty to respond to requisitions concerning unauthorised structures

August 20, 2013

In Channel Green Ltd v Huge Grand Ltd ([2013] HKEC 1124, CFI) CG had entered into a contract to buy property from HG. It had paid a 15% deposit. The contract contained a clause to the effect that the property was sold on an ‘as is’ basis. The clause provided that CG could neither raise requisitions concerning unauthorised additions, alterations or illegal structures nor refuse to complete or delay completion on account of any such matters. There were several unauthorised structures at the property. CG raised requisitions concerning these structures and refused to complete. HG elected to terminate the contract and forfeit the deposit as a result.

The question was whether, as a matter of contractual interpretation, the relevant clause meant that CG had no right to raise requisitions nor to refuse to complete on account of the unauthorised structures. The Court of First Instance decided that this was the case ([91] – [98] per Recorder Coleman SC).

The court noted that although the content of pre-contractual negotiations is irrelevant to the process of interpretation, statements of fact made in the course of negotiations are good evidence as to the context or factual matrix and so  are relevant to the construction of the contract ([23]). Thus, the fact that HG had informed CG of the existence of a number of the unauthorised structures before contracts had been exchanged was relevant to the construction of the clause.

The court also considered whether the 15% deposit was a true deposit or whether it could potentially be a penalty and decided that it was a true deposit. While the amount exceeded the conventional 10%, this was justifiable in the context of a lengthy period between contract and completion ([109]).

Michael Lower

Adverse possession and purchaser allowed into possession where the contract is never completed

July 30, 2013

In Lam Chi Keung v Choi Chung Fun ([2013] HKEC 1095, CFI) S agreed to sell property to P. Title to the property was in the name of S’ deceased father. The contract was conditional on S obtaining letters of administration. In the meantime, P paid the full purchase price and went into possession. S and P both died. P’s children sought a declaration that P had acquired title by adverse possession. This succeeded. Since the contract was conditional and S could have refused to complete and refunded the purchase price, S had a right to recover possession that could be lost by virtue of the Limitation Ordinance ([51]).

P’s children’s other claim that they were entitled to specific performance of the agreement failed. Any such right had been lost when the Government resumed the land; this extinguished all rights and interests in the property by operation of law ([30]).

Michael Lower

Signature requirement satisfied where written document intended to have contractual effect

July 25, 2013

In Leeman v Stocks ([1951] Ch 941) property was sold at auction. The auctioneer got the purchaser to sign a contract. He then reported to the seller on what had happened and the seller did not object. The contract was not signed by or on behalf of the seller. The wording of the printed contract ended with the words ‘As witness the hands of the parties’ and so seemed to envisage hand-written signatures. The seller later refused to proceed and the buyer sought specific performance.

The purchaser succeeded despite the lack of the seller’s signature. It was enough that the written contract was clearly regarded as the authorised and formal embodiment of the parties’ contractually binding intention and that the seller’s name was written in the contract. By requiring the purchaser to sign the contract, the auctioneer (as agent of the seller) was recognizing the name of the seller written in the contract as the seller’s signature.

While the contract seemed to require the parties’ hand-written signatures, this did not matter where there was evidence to show that neither party actually contemplated that there would be such a signature.

Michael Lower

No hand-written signature to contract where a signature is clearly anticipated

July 23, 2013

In Hubert v Treherne ((1842) 3 Man & G 743, 133 ER 1338) the parties entered into a contract that had to comply with the Statute of Frauds (and so had to be signed by them or on their behalf). The parties were identified by name at the beginning of the written contract. The contract ended with the words, ‘As witness the hands’ but no signature followed.

The court held that there was no signature. The problem was that the closing words (‘as witness the hands’) indicated that the parties intended to add hand-written signatures. The lack of such signatures was therefore fatal.

There was a difference of opinion as to whether the outcome would have been the same had those words (‘as witness..’) not appeared. Would it be enough that the names of the parties appeared in the body of the contract? At least two of the judges thought that this would be enough if it was clear that the written contract was a proper and authorised version of a concluded agreement. Another thought that this would not be enough since this degree of tolerance would effectively write the signature requirement out of existence.

Michael Lower

Duty to show and give good title: the MEPC principle as a last resort

July 18, 2013

In Xu Xiaoqi v Tsui Yuet Lai Teresa ([2013] HKEC 636, CFI) D agreed to sell a property to P. The agreement required D to show and give good title in accordance with sections 13 and 13A of the Conveyancing and Property Ordinance. One of the assignments forming part of the title had been executed by one tenant in common on behalf of the other under the terms of a Power of Attorney. The sellers were only able to produce a certified copy of the power. D’s solicitors argued that there was no real risk that an adverse interest could have been created as a result of the loss of the original. Nevertheless, on the day before completion they sent P’s solicitors a draft of a statutory declaration that the solicitors who had acted in relation to the power of attorney were prepared to give. P’s solicitors said that they would need time to consider it. D’s solicitors would not undertake to deliver the sworn declaration on completion since the solicitor who was to make the declaration would not give such an undertaking. Completion did not take place and D purported to rescind.

The court held that D had failed in his duty. The power of attorney was a document of title and section 13(1) obliged him to deliver the original to P.

D sought to invoke ‘the MEPC principle’ :

‘In other words, notwithstanding the law that it is a purchaser’s proprietary right to have all the originals of all the title documents (see Yiu Ping Fong, p 798H), in circumstances where there is no reasonable doubt that the missing original document would not affect the title to the property the vendor may be relieved of the obligation to produce it upon completion’. ([28] Anthony Chan J)

The principle can only be invoked, however, where the seller has made all reasonable efforts to produce the original or adequately explain its loss or destruction ([30]). D had not lived up to this responsibility. His solicitors had only produced a draft statutory declaration on the eve of completion having refused to acknowledge the validity of the requisition up to that point nor to explain the loss. There was no undertaking to produce the sworn statutory declaration on completion and P’s solicitors had not been given adequate time to consider it ([31]).

Michael Lower

Owners’ meeting: validity of decision to dissolve the meeting and of the proceedings of a ‘break-away’ meeting

July 11, 2013

Discovery Bay Services Management Ltd v Hannon Ltd ([2013] HKEC 958, LT) concerned the validity of a decision to dissolve a meeting of the Headland Village Owners’ Committee and of the proceedings of a break-away group of owners who purported to continue the meeting after the chairman had attempted to dissolve it.

There is a DMC for Discovery Bay as a whole and sub-DMCs for the villages within it. There is no owners’ corporation. CM is the manager under the DMC.

CM convened a meeting of the owners of Headland Village to elect the officers of the village owners’ committee for the coming year. The meeting began but was dissolved by the chairman. He dissolved the meeting because he disputed the validity of the appointment of the representative of CM (which was entitled to be present at the meeting and count as part of the quorum  but not to vote). He also contended that the sub-DMC only allowed owners or their spouses or family members to attend and vote. There was no scope to appoint anyone else as a proxy. He contended that the meeting was inquorate if one left ineffective proxies out of account.

A group of owners then went to another room and continued the meeting. They elected new officers. The chairman protested that the meeting was inquorate and its proceedings invalid.

DB sought, and obtained, declarations that the chairman had been wrong to dissolve the first meeting and that the second part of the meeting, and the resolutions passed there, were valid.

The chairman disputed the effectiveness of the letter by which CM appointed an individual to act as its representative at the meeting. The letter had been signed by a director of CM but did not bear CM’s chop or seal. This failed: as a matter of construction, the sub-DMC did not require the company’s chop to be effective. The normal rules for the appointment of an agent were all that mattered and they had been adhered to. In any event, CM had later formally ratified the appointment. This came after the village owners’ meeting but the ratification cured any potential defect in the original appointment.

The chairman contended that the sub-DMC only allowed owners or their spouses or family members to attend and vote. Thus, proxies given to other parties (such as CM) should be ignored. The result was that the meeting was inquorate. The Tribunal confirmed the chairman’s reading of the relevant provisions of the sub-DMC. Even allowing this, however, the meeting was still quorate. (There is an interesting comment at [56] on the idea of a ‘family member’).

Finally, there was the question as to whether the second meeting (or the second stage of the meeting) was quorate. It was. The chairman counted as part of the quorum since he was present even while he vociferously denied the validity of the proceedings. The same was true of the other owners who were of the same view as the chairman.

It was clearly a very lively meeting and there was a police presence nearby for part of it ([72]).

Michael Lower

Delay in accepting repudiatory breach.

June 27, 2013

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

Deposit or penalty? The court can order repayment of a penalty that has already been paid.

June 26, 2013

Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd ([1993] AC 573, PC) was an appeal to the Privy Council from the Court of Appeal of Jamaica. A purchaser had paid a 25% deposit and this had been forfeited by the vendor when the purchaser failed to complete on time (time being of the essence for completion). The purchaser successfully sought relief from forfeiture of the deposit.

Lord Browne-Wilkinson explained that in general a provision that a party in default is to pay or forfeit a sum of money is an unlawful penalty unless the sum in question can be shown to be a genuine pre-estimate of damages. There is an exception to this general rule in the case of deposits; these can be forfeited even where they bear no relation to the anticipated loss of the innocent party (p. 578).

For a sum to be treated as a deposit it must be a sum that can reasonably be described as a deposit. Since it is difficult to say what sum would be a reasonable deposit, the approach is to accept (without searching for any further explanation) that it is long established custom and usage in the United Kingdom and Jamaica to accept a 10% deposit as being reasonable in those jurisdictions. It is for a seller wishing to rely on any larger sum to show what special circumstances would justify the larger deposit (p. 580). A reference to market practice at the time of the contract does not amount to such a justification (pp. 579 – 580).

Here the vendor had not been able to show why a larger (25%) deposit was justified. As a result, the entire sum (not merely the excess over 10%) was treated as a penalty. The court had jurisdiction to order the vendor to repay the entire sum less the amount of any damage actually suffered by the vendor as a result of the purchaser’s breach (p. 582).

Michael Lower