Archive for the ‘Provisional agreement’ Category

Meaning of ‘saleable area’: Top Faith Property Ltd v Wong Ben

July 27, 2022

In Top Faith Property Ltd v Wong Ben ([2022] HKCA 783) Top Faith Property Ltd (‘the buyer’) entered into a Provisional Sale and Purchase Agreement to buy the entire issued share capital of Hero Wealth Corporation Ltd for HK$250 million. Hero Wealth was the vehicle for the ownership of office units in the Lippo Centre.

Pre-contract, the buyer made an inquiry as to the ‘saleable area’ of the office units. The shareholders of Hero Wealth (‘the sellers’) provided a plan stating that the saleable area was 758.46 square metres. This was untrue and the buyer relied on misrepresentation to rescind the contract.

The buyer succeeded at first instance. The sellers appealed. They argued that the statement was true. There was no standard definition of ‘usable area’ and the architect who prepared the plan took a reasonable approach to calculating the usable area.

The 1999 Code of Measuring Practice of the Hong Kong Institute of Surveyors (‘HKIS’) did incorporate a definition of ‘saleable area’. The representation was false if this definition were applied.

However, the sellers argued that this did not enjoy any special status. The architect who prepared the plan was not bound by it and chose, instead, to use the definition of ‘usable floor space’ in the Building (Planning) Regulations (Cap 123F).

The Court of Appeal said that when interpreting a representation, ‘the proper approach is an objective one that focuses on what the words and conduct constituting the Representation would in the relevant context have conveyed to a reasonable person in the position and with the characteristics of the plaintiff’ ([24]).

The question was as to the common understanding of reasonable vendors, purchasers and estate agents) [25]).

The HKIS code was the only available professional guide as to the meaning of the term at the relevant time and was generally accepted by the market ([28]).

Thus, the representation was ‘indisputably false’ and the appeal failed.

Michael Lower

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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.