Archive for the ‘Provisional agreement’ Category

Binding effect of a provisional sale and purchase agreement

May 24, 2012

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.

Construction of ‘escape’ clause in provisional sale agreement

April 25, 2012

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.