Vague arrangements as to the completion date

In Tsang Wing Man v  Chung On Ling ([2016] HKEC 2164, CA) D agreed to sell his property to P. Completion was to be within 3 days of P’s sale of her own property. It was held that this arrangement was so vague and uncertain as to be of no legal effect. As a result, there was no agreement as to the completion date. As indicated in Kwan Siu Man v Yaacov Ozer, this was strong evidence that there was no contractual intent. P had later given an oral promise to complete by the end of August 2011. This did not help matters since the need to resort to an oral term meant that there was a failure to comply with section 3(1) of the Conveyancing and Property Ordinance.

Michael Lower

Specific performance: ready willing and able; hardship; calculating damages

In Siu Wei v Ng Ying Ying ([2016] HKEC 1162, CFI) S and P entered into a provisional sale and purchase agreement for the sale and purchase of property. S later decided that she wanted to keep the property and refused to complete. S admitted that she was in breach of contract. P now sought specific performance.

1. Was P ready, willing and able to perform his obligations under the contract?
2. S argued that specific performance would inflict great hardship on her and so should be refused.
3. P sought damages in addition to specific performance. How should these be calculated?

1 Ready, willing and able?

This must be the case both at the date of the writ and at the date of the decree. Anthony To J. commented that P needed to show:

‘on a balance of probability that he was and is ready, willing and able to perform his obligations at the material times as those obligations fall due in the sense that he is not presently incapacitated from future performance and is not indisposed to do what the contract requires when the time comes. It is all a matter of evidence, a matter of credibility for the court.’ ([33])

P satisfied this test.

2 Relevance of hardship

Specific performance will not be granted if to do so would inflict great hardship on the defendant (S here). Hardship involves a balancing of the position of both parties:

‘A defendant has to show hardship in the sense of relative prejudice. He has to show that he would suffer greater prejudice if an order of specific performance is made against him than that likely to be suffered by the injured party if the order is refused.’ ([38])

This test favoured P; he really wanted to live in the flat while it was merely a commodity for S. He would be put to additional transaction costs (including a higher level of stamp duty) if he had to buy another property([44] – [46]).

Conduct was also relevant and S had not conducted her defence in good faith ([44]).

3 Calculation of damages

‘In the case of delay in conveyance of property, the normal compensation is the value of the user of the property, which will generally be taken as its rental value, for the period from the contractual time for completion to the date of actual completion’ ([48])

P was entitled to the rental value of the property for this period but reduced by the amount of mortgage interest that he would have had to pay, had completion gone ahead, but had been ‘saved’ from by the refusal of S to complete on time ([52]).

Michael Lower

Non-registration of trust. Dispositions to defraud creditors

In Goldfame Consultants Ltd v Tse Sai Ming ([2016] HKEC 1113, CFI) TCS agreed to sell land to Goldfame. The contract provided for the payment of deposits and then for the payment of the balance of the purchase price to be made on 14 August 2006. The contract provided that the assignment of the land would take place within 7 days of receipt of a letter from the Buildings Department approving the proposed site formation plan or at such other time as the purchaser might specify. The balance of the purchase price was duly paid on 14 August 2006 but the approval had not been received and the assignment did not take place. Instead, TCS executed Declarations of Trust under which he held the land on trust for Goldfame. TCS also nominated Goldfame as attorney to act for him in relation to the land. Neither the contract nor any of the other documents were registered with the Land Registry.

TCS died intestate in 2010 and TSM was granted letters of administration of his estate. TSM sold the land to H. Goldfame brought an action against TSM for breach of contract seeking damages or the return of the price paid to TCS. It also sought a declaration that TSM held the land on trust for Goldfame. It sought to have the sale to H set aside under section 60 of the Conveyancing and Property Ordinance.

There was no answer to the breach of contract claim and TSM was ordered to repay the purchase price with interest. It was accepted on all sides that the sale contract and the declarations of trust were void as against H since they had not been registered and there was no reason to doubt his good faith. Section 3(2) of the Land Registration Ordinance took effect.

Goldfame was forced to rely on section 60 of the Conveyancing and Property Ordinance. In Tradepower (Holdings) Ltd (in liquidation) v Tradepower (Hong Kong) Ltd, Ribeiro PJ  said that ‘where the disposition was made for valuable consideration, or where the disponor is not insolvent or where the disposition does not deplete the fund potentially available to creditors, an actual intent to defraud creditors must be shown as an inference properly to be drawn on the available evidence before s. 60 is engaged.’ (at [88]). The sale to H was not at an undervalue, nor was there any intention to defraud creditors ([94]). The claim against H failed.

In commenting on the expert evidence as to the market value of the property at the time of the sale to H, Recorder Coleman SC expressed his preference for valuation methods based on direct comparables where available. The subject matter of the transaction (undeveloped rural land where there was no guarantee that the approvals needed for development would be obtained) was somewhat out of the ordinary and so indices looking at the property market as a whole were unhelpful. Valuations based on the residual method involved too many assumptions to be as useful as direct comparables.

Michael Lower

Open contracts in Hong Kong

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

There is an implied term that a sale of land is with vacant possession

In Wong Yuk Ying v Chan Pui Shan May ([2016] HKEC 537, CA) S1 agreed to sell a workshop to S2. S2 entered into a sub-sale agreement with P. The workshop was divided into three units and each unit was subject to a separate tenancy. Details of the tenancies were contained in the sale and purchase agreements (both the head contract and the sub-sale). Two of the tenancies would determine by effluxion of time by the time of the completion date, the third would not. The tenants of the units whose leases expired did not vacate the property at the end of the term and were still in possession at the completion date specified in the sale and purchase agreements. P argued that the failure to give vacant possession on completion amounted to a failure to give good title and sought a declaration that S2 was in breach of contract and the return of the deposit paid to S2.

S2 argued that there was no express or implied term to the effect that sale was with vacant possession. Yuen JA disagreed: there is an implied term that sale is with vacant possession in the absence of agreement to the contrary ([22.1]). The fact that the sale was subject to and with the benefit of the tenancies did not amount to an expression of a contrary intention given that the tenancies would have expired by the completion date. In the absence of a contrary intention, the seller bore the risk that the tenants would remain in possession at the end of their leases ([30]); P’s knowledge of the existence of the tenancies and that the tenants might not vacate did not mean that there was any such contrary intention.

Michael Lower

Agreement to transfer beneficial interest: proprietary estoppel as a way of circumventing a failure to satisfy the formalities

In Sum Fan Hung v Chum Mei Diu ([2015] HKEC 1100, CFI) the plaintiff and the defendant were sisters. The plaintiff bought a flat in 1997. Title was in the defendant’s name but there was no dispute that the property was held on trust (presumably a common intention constructive trust) for the plaintiff. In 2000, the plaintiff found she could no longer meet the mortgage payments. She orally agreed with the defendant that the defendant was to become the sole legal and beneficial owner of the property. In return, the defendant would take on all liabilities relating to the property without any right of recourse to the plaintiff.  This agreement was not recorded in writing signed by the plaintiff. This was a problem since section 5(1)(a) of the Conveyancing and Property Ordinance requires assignments of equitable interests in land to be in writing and signed by the assignor or an authorized agent. This problem was circumvented by dealing with it as a proprietary estoppel case. The agreement provided the assurance and the plaintiff’s later payments (of mortgage payments and so on) provided the detrimental reliance. The court declared that the defendant became the sole legal and beneficial owner from the time of the agreement. Proprietary estoppel circumvented the failure to satisfy the formality requirements.

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)

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 entitled to rescind and recover deposit where deposit cheque is accidentally dishonoured and time is of the essence?

In Howarth Cheung Natalie Jane YS v Tsang Hong Kwang Ok ([2014] HKEC 1683, CA) S entered into a preliminary agreement for the sale of property to P. The agreement provided for P to pay a deposit of just under 5% of the purchase price. The cheque was not honoured as the bank thought that there was a discrepancy between the signature on the cheque and the specimen signature that they had. S accepted the repudiatory breach and P sought specific performance. S counter-claimed for payment of the deposit.

It was accepted by both parties that time for payment of the deposit is of the essence in Hong Kong even in the absence of an express stipulation to this effect. So the delay in paying the deposit was a repudiatory breach ([4.1] – [4.5] per Cheung JA). P argued, however, that the contract included an implied term to the effect that the stipulation as to time was suspended because the extraordinary event that had happened was beyond P’s control. This failed. The obligation was specified in clear terms ([5.9]); S should not be affected by disputes between P and her agent ([5.10]); the term was not needed to give business efficacy to the contract ([5.11]); nor was it capable of clear expression ([5.12]).

P argued that she should be granted equitable relief from termination of the agreement. This was rejected. First, the point had already been dealt with by the Privy Council in Union Eagle ([6.1]). The Australian courts took a different approach and granted equitable relief where the delay was occasioned by fraud, mistake, accident or surprise (and the High Court of Australia considered the ambit of these exceptions in Tanwar Enterprises Pty Ltd v Cauchi (2003) 201 ALR 359). Even if the Australian approach were followed, it would not allow for relief in the present case:

‘The parties themselves have stipulated the time for payment which is of the essence of the contract. The purchaser had chosen to pay by cheque which in law is in the nature of payment by cash. This by itself precludes any argument on suspension of this obligation. Further, the possibility of the bank not honouring the cheque is not beyond the reasonable contemplation of the parties as mishaps do happen. Hence payment of the deposit can be subject to an exculpatory provision which has not been sought for by the purchaser in the first place. As presently drafted, the payment term is not subject to the purchaser tendering another payment upon discovering that the cheque has not been made. In any event, HSBC is not a third party in the strict sense of the term but an agent of the purchaser. To decree relief will deprive the vendor of an essential right of the agreement. The whole circumstances just do not come within the ambit of the requirement for relief that, although the accident was not occasioned by the vendors who were innocent, it was sufficient of itself to render it unconscionable or inequitable for the vendors to insist upon its legal rights.’ ([6.20] per Cheung JA).

Finally, S could recover the unpaid deposit from P. Contractual damages aim to put S in the position that he would have been in had the contract been performed (and in that event the deposit would have been paid). Alternatively, the effect of the acceptance of a repudiatory breach is to discharge the parties from all executory obligations but does not affect rights and obligations that have already accrued (Damon Compania Naviera S.A. v. Hapag Lloyd International S.A. [1985] 1 WLR 435). This approach has been taken by the Hong Kong courts (for example, Sun Lee Kyoung Sil v Jia Weili [2010] 2 HKLRD 30).

Michael Lower

 

 

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

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

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