Posts Tagged ‘contracts’

No oral modification clauses: Rock Advertising v MWB Business Exchanges Ltd (Part 2)

July 14, 2018

In Rock Advertising Ltd v MWB Business Exchanges Ltd ([2018] UKSC 24) the UK Supreme Court had to consider the effectiveness of a No Oral Modification (‘NOM’) clause (see here for Part 1 of the blog post about this case setting out the facts and the decision). This post considers the underlying principles that the judgments had to confront.

The clause in question provided:

‘This Licence sets out all the terms as agreed between MWB and Licensee. No other representations or terms shall apply or form part of this Licence. All variations to this Licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.’

The UK Supreme Court had to consider whether the parties were bound by an orally agreed modification of the licence agreement between them.

There were two aspects to this question: (1) was the clause binding according so that oral modifications were of no legal effect; and (2) if the clause did not preclude oral modifications, whether a subsequent oral agreement purporting to modify the original agreement indicated an intention to dispense with the NOM clause.

When parties who have accepted a NOM clause agree to an oral modification, they have expressed two conflicting intentions. Which is to prevail? If the courts give effect to a NOM clause are they respecting or denying freedom of contract?

The essential objection to the idea that the clause always precludes effective oral modifications is that this would contravene freedom of contract: ‘Those who make a contract may unmake it. The clause which forbids a change may be changed like any other (Beatty v Guggenheim Exploration Co (1919) 225 NY 380, 387 – 388, Cardozo J.).

Nevertheless, Lord Sumption (and the majority of the Supreme Court) thought that the NOM clause was effective and that the subsequent oral modification was of no effect: ‘Party autonomy operates up to the point when the contract is made, but thereafter only to the extent that the contract allows … The real offence against party autonomy is the suggestion that they cannot bind themselves as to the form of any variation, even if that is what they have agreed.’ ([11])

Lord Sumption saw three good commercial justifications for NOM clauses:

  1. ‘it prevents attempts to undermine written agreements by informal means’;
  2. ‘it avoids disputes not just about whether a variation was intended but also about its exact terms’; and
  3. giving effect to NOM clauses: ‘makes it easier for corporations to police internal rules restricting the authority to agree [variations]’.

Lord Sumption thought that these justifications should carry weight since ‘the law of contract does not normally attempt obstruct the legitimate intentions of businessmen except for overriding reasons of public policy’ ([12]).

If the parties were to act on an oral variation in the belief that it was effective then estoppel might come into play but:

‘the scope of estoppel cannot be so broad as to destroy the whole advantage of certainty for which the parties stipulated when they agreed upon terms including the No Oral Modification clause. At the very least, (i) there would have to be some words or conduct unequivocally representing that the variation was valid notwithstanding its informality; and (ii) something more would be required for this purpose than the informal promise itself: see Actionstrength Ltd v International Glass Engineering In Gl En SpA’ ([2003] 2 AC 51′ ([16]).

Lord Briggs took a different line on the first of the two questions. He thought that it was conceptually impossible for the parties to impose a formalities requirement on themselves, ‘not to be free, by unanimous further agreement, to vary or abandon [the contract] by any method, whether writing, spoken words or conduct, permitted by the general law’ ([26]).

On the other hand, turning to the second question, Lord Briggs was of the view that ‘an agreed departure [from the NOM clause] will not lightly be inferred, where the parties merely conduct themselves in a non-compliant manner’ ([27]). So normally, as in the present case, the approach of the majority and that of Lord Briggs would lead to the same conclusion.

Where, however, there are circumstances, such as an urgent need to agree a variation without waiting for the production of a written variation, then Lord Briggs thought that an agreement to depart from the NOM clause might be inferred ([30]).

Michael Lower

 

 

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England: oral agreements and the common intention constructive trust

February 19, 2017

In Matchmove Ltd v Dowding ([2016] EWCA Civ 1233, CA (Eng)) Matchmove (a company controlled by F, a property developer) was negotiating for the purchase of a plot of land (‘the land’) and the adjoining meadow. F intended to split the land into two plots and to build a house on each plot. He orally agreed with his friend D that D would buy one of the plots and the meadow (D wanted to keep horses on the meadow).

In due course, Matchmove entered into a written contract for the sale of the plot to D and this sale was completed. There was, however, no written contract for the sale of the meadow to D. F and D fell out and F sought to resile from the oral agreement to sell the meadow to D.

D sought a declaration that Matchmove held the meadow on trust for him. Matchmove denied the existence of a binding agreement for the sale of the meadow. It relied on the lack of a signed written agreement to satisfy section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989.

F had intended the oral agreement concerning the meadow to be immediately binding. He was well known by D to have a business approach that attached real importance to his word as a businessman. By the time of the dispute, D had paid the entire purchase price for the meadow to Matchmove.

In these circumstances, the question was whether the agreement gave rise to a common intention constructive trust that could fall within section 2(5) of the Law of Property (Miscellaneous Provisions) Act 1989.

The Court of Appeal referred to Arden LJ’s discussion of this question in Herbert v Doyle. There, Arden LJ said that section 2(5) could  not be relied on:  (1) if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property; (2) if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified; and (3) if the parties do not expect their agreement to be immediately binding.

The Court of Appeal did not see this statement as setting out three conditions to be satisfied but as being three ways of making the same point about the effect of the judgment in Cobbe v Yeoman’s Row ([32]).

There was a clear express agreement between the parties. Although both parties were well aware that a written contract would be needed, they regarded this as a technicality and took the view that they already had a binding agreement. The payments made by D provided the detrimental reliance.

There was a common intention constructive trust that fell within section 2(5). D could enforce the oral agreement for the purchase of the meadow.

Michael Lower

 

 

Misrepresentation as to the identity of the purchaser

November 26, 2016

In Greatland Property Consultants Ltd v Charis Patria Ltd ([2016] HKEC 2518) C signed sale and purchase agreements to sell two floors of a building to P (a company that owned two other floors of the building) for a total consideration of HK$ 6 million. This meant that P owned 80% of the shares in the building and could apply for a compulsory sale of the property under the Land (Compulsory Sale for Redevelopment) Ordinance. The sale was arranged by L, an estate agent. C had made it clear to L that it was prepared to sell for HK$6 million but that the price for a sale to P would be much higher. L represented to C that the buyer was a businessman from the mainland. On this basis, C agreed to sell for HK$ 6 million. The provisional sale and purchase agreements provided for C to pay L HK$60,000 by way of commission (or agreed damages if the sale did not go ahead). When C discovered that P was the purchaser it rescinded the sale and purchase agreements and paid P HK$300,000 by way of liquidated damages.

L brought proceedings against C claiming the HK60,000 she alleged was due under the sale and purchase agreements. C’s defence was that L had misrepresented the identity of the purchasers. To facilitate this, L had written the purchasers’ name in Chinese so that C would not realise that the purchaser was P. Although P’s company chop was placed next to the signature of the authorised signatory, this was only done after C’s representative had signed so that C had no way of seeing it before the contract was entered into. Overturning the finding at first instance that this misrepresentation had not induced the contract, the Court of Appeal (Chu JA giving the main judgment) held that C’s defence was successful. Its counterclaim to recover from L the HK$300,000 it had paid in damages to P was also successful.

Michael Lower

 

Contracts and illegality: Patel v Mirza

August 25, 2016

In Patel v Mirza ([2016] UKSC 42) the UK Supreme Court considered the law concerning the recovery of money paid under a contract to carry out an illegal activity where the illegal act is not performed. If the activity were not illegal, the party who has paid the money would be entitled to recover the sum paid as a claim in unjust enrichment. The question is whether the illegality should prevent the claimant from recovering the money or other property transferred to the other party to the failed contract. In the context of Hong Kong’s property law, these principles are relevant, for example, where ding rights are sold to developers and false declarations are made to the Government as part of the overall performance of the contract. Can property transferred to developers in pursuance of the illegality-tainted contract be recovered?

Until now, English law in this area has been based on the House of Lords decision in Tinsley v Milligan and Hong Kong’s courts have applied this framework. Under the Tinsley approach, the question is dealt with as a procedural matter. The plaintiff is treated as having substantive legal rights and the question of illegality is dealt with as a procedural issue. The plaintiff can succeed if he has no need to plead his own illegality. If the plaintiff has to plead his own illegality (to rebut a presumption of advancement for example) then the claim will fail. This is subject to the possibility of a locus poenitentiae; the plaintiff who has to plead his own illegality might still be able to succeed if he can show that he withdrew from the transaction before implementation. This approach to the treatment of sums paid under illegal contracts that are not performed has come in for severe criticism. The  judgments of the nine members of the UK Supreme Court in this case are a collective attempt to create a new framework for dealing with cases of this sort. While there was unanimity as to the outcome on the facts of the case, there was disagreement within the Supreme Court on some of the fundamentals of the approach to be taken in this area.

In Patel, P paid GBP620,000 to M. M was to use the money to bet on shares in RBS relying on M’s insider information concerning an anticipated UK Government announcement. The announcement was never made. P sought to recover the GBP 620,000 on the basis that M would be unjustly enriched if he were permitted to keep it once the contract had failed. The question was whether the courts would help P given the illegality of the contract which amounted to a conspiracy to commit the offence of insider dealing. The UK Supreme Court were unanimous in deciding that P was entitled to recover the money despite the illegality of the contract and despite the fact that he would need to explain the nature of the agreement in order to establish his claim.

 

Lord Toulson and the majority: enforce the contract where to do so would be appropriate as a matter of policy (the ‘range of factors’ test)

The majority of the Supreme Court expressed agreement with the ‘range of factors’ approach articulated by Lord Toulson. Under this approach, the court would carry out a balancing act when deciding on whether or not to enforce a contract where there was unlawful conduct in its formation, purpose or performance. In broad terms, the court would:

a) consider the underlying purpose of the prohibition which has been transgressed, b) consider conversely any other relevant public policies which may be rendered ineffective or less effective by denial of the claim, and c) keep in mind the possibility of overkill unless the law is applied with a due sense of proportionality.’ ([101] Lord Toulson).

Lord Toulson did not think any greater detail than that would help but suggested that relevant factors to be borne in mind when reaching a judgment would include: ‘the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability.’ (107) The reliance approach in Tinsley should no longer be followed ([110] Lord Toulson).

 

Lord Neuberger’s Rule

Lord Neuberger takes a much simpler approach. He begins by saying that the appeal concerns, ‘a claim for the return of money paid by the claimant to the defendant pursuant to a contract to carry out an illegal activity, and the illegal activity is not in the event proceeded with owing to matters beyond the control of either party.’ ([145]). He contends for a very simple rule to the effect that the plaintiff is entitled to the money paid under such a contract (‘the Rule’) ([146]). This would apply ‘in appropriate cases’ even if the contract has been wholly or partly performed ([167]) though credit might have to be given for any benefit that the plaintiff has received ([168]). Lord Toulson’s balancing approach could be useful in deciding whether or not the case was an appropriate case for the application of the Rule ([174).

 

Do not enforce illegal contracts but order restitution of benefits conferred under contracts that fail on the grounds of illegality

The approach of the remaining judges is that the illegal contract is not enforced but is unravelled. Lord Mance disagreed with the majority’s suggestion that there needed to be a significant revision of the law in this area. His approach is that the unlawful contract could be rescinded and the parties put into the position that they would have been in had the contract never been entered into ([197]). Rescission would be available even if the contract had been partially performed, but the court would make adjustments to reflect any benefits that the plaintiff had received ([198]).

Lord Sumption spoke in favour of the illegality defence and the reliance principle as the appropriate guide as to when the defence was available (while accepting that its formulation in Tinsley was open to criticism). Where a contract fails then benefits conferred by one party on the other are recoverable ([247]). Equally, where the contract fails on the grounds of its illegality then the parties should be put into the position that they would have been had it never been entered into ([250]). The contract in this case was affected by the illegality principle ([267]) but restitution of the money that P paid to M in accordance with it should be ordered ([268]).

Michael Lower

 

Oral variation of contract despite clause requiring variations to be in writing

July 27, 2016

In MWB Business Exchange Centres Ltd v Rock Advertising Ltd ([2016] EWCA Civ 553, CA(Eng)) Rock was the licensee of business premises managed by MWB. Rock fell into arrears with the payments due under the licence. MWB brought these proceedings to recover the arrears. Rock’s managing director had had a telephone conversation about the arrears with MWB’s credit controller. They reached an oral agreement to the effect that Rock could pay a reduced amount for a period and then pay a larger amount later so that by the end of the period the arrears would have been cleared. It was found as a fact that the agreement had been reached and that the credit controller had authority to conclude the agreement on behalf of MWB. MWB received the first payment under the revised schedule but then wanted to revert to the payment arrangements in the original contract. The main question was whether the oral agreement was binding on MWB.

At first instance, Rock failed because the licence agreement contained the following clause:

‘This licence sets out all of the terms as agreed between MWB and the licensee. No other representations or terms shall apply or form part of this licence. All variations to this licence must be agreed, set out in writing and signed on behalf of both parties before they take effect.’

It was held at first instance that this precluded the possibility of an effective oral variation. Rock’s appeal against this conclusion succeeded. Notwithstanding the clause, the oral agreement to vary the payment terms was contractually binding. The English law on these clauses was considered in depth by the English Court of Appeal in April 2016  in Globe Motors  Inc v TRW Lucas Varity Electric Steering Ltd ([2016] EWCA Civ. 396, CA (Eng)). This respects the freedom of the parties to a contract to agree new terms (Kitchin LJ at [34]).

MWB also argued that Rock had not given any consideration for the agreement to vary the payment terms. This argument, too, was the subject of extensive comment in the judgment of Kitchin LJ and was the principal focus of Arden LJ’s judgment. MWB argued that the rule in Pinnel’s Case and the judgment in Foakes v Beer established that an agreement to accept a partial payment of a sum due under a contract was not binding unless some new consideration had been given. The judge at first instance had this in mind but thought that the arrangement did secure enough of an advantage for MWB for there to be consideration. The Court of Appeal agreed with this conclusion. The agreement would avoid a commercially harmful void period for the property and at least ensured that MWB got some of what was due to it.

The Court of Appeal also considered when the contract to revise the licence terms took effect. Kitchin LJ was of the view that the agreement was formed when the first payment was made and the promise to make further payments in accordance with the revised payment schedule was given ([49]). Arden LJ thought that this might be a collateral unilateral contract:

‘meaning that, collaterally to the licence, for so long as Rock was entitled to and did occupy the unit and paid the licence fee as renegotiated, MWB would be bound on payment of the initial £3,500 to accept the deferral of the arrears in accordance with the variation agreement. ‘ (Arden LJ at [89]).

Rock succeeded on its arguments as to the effectiveness of the oral contract. The Court of Appeal also considered, obiter, whether equity might have a part to play. Could promissory estoppel, for example, prevent MWB from going back on the agreement? As a result, there is a useful survey of the law. Kitchin LJ’s judgment contains this summary:

‘Drawing the threads together, it seems to me that all of these cases are best understood as illustrations of the broad principle that if one party to a contract makes a promise to the other that his legal rights under the contract will not be enforced or will be suspended and the other party in some way relies on that promise, whether by altering his position or in any other way, then the party who might otherwise have enforced those rights will not be permitted to do so where it would be inequitable having regard to all of the circumstances. It may be the case that it would be inequitable to allow the promisor to go back upon his promise without giving reasonable notice, as in the Tool Metal case; or it may be that it would be inequitable to allow the promisor to go back on his promise at all with the result that the right is extinguished. All will depend upon the circumstances. It follows that I do not for my part think that it can be said, consistently with the authorities, including, in particular, the decisions of the House of Lords in Foakes v Beer and this court in In re Selectmove , that in every case where a creditor agrees to accept payment of a debt by instalments, and the debtor acts upon that agreement by paying one of the instalments, and the creditor accepts that instalment, then it will necessarily be inequitable for the creditor later to go back upon the agreement and insist on payment of the balance. Again, all will depend upon the circumstances.’ ([61])

Here Rock did not suffer any detriment as a result of the speedy change of mind by MWB. The promissory estoppel defence would have failed ([63]).

Michael Lower

 

Sale and option to re-purchase: does the option terminate the original buyer’s rights?

May 20, 2015

In Siu Kai Ming v Lau Sai Hing ([2015] HKEC 211, CFA) D owned a village house. D entered into two contracts with P (a developer). Under the terms of the first contract, P agreed to build a three-storey village house on land owned by D in consideration of the assignment of the second floor and roof of the house (the Property) to P. The second contract granted D an option to purchase the Property from P. P built the house but D did not assign the title to the Property to P. D validly exercised the option but then gave notice that he did not intend to honour the contract thereby created. P accepted this repudiation and now sought transfer of the Property to him. D argued that the exercise of the option brought P’s rights to the Property to an end and that P was only entitled to damages for breach of the contract arising from the exercise of the option.

P succeeded. The first contract gave P an equitable interest in the property. Neither the option nor its exercise brought this to an end; they simply gave rise to another contract. In respect of the first contract, P could elect for specific performance or damages and he had chosen specific performance. He was also entitled to damages for breach of the contract arising from the option but he had suffered no loss in this respect since the market price exceeded the option price.

Michael Lower

Interpretation of a letter modifying conditions of sale

April 1, 2015

In United Bright Limited v Secretary for Justice ([2015] HKEC 438, CA) the Court of Appeal (Lam V-P delivering the judgment of the Court) had to deal with a dispute concerning the construction of a letter modifying restrictions contained in the Conditions of Sale. The Conditions of Sale (entered into in 1939) allowed only ‘European type houses’ to be built and contained a ‘DDH’ clause:

‘The design of the exterior elevations and the disposition and height of any building to be erected on the lot shall be subject to the special approval of the Director of Public Works and in no case may any building to be erected on the lot exceed 2 storeys.’

In 1957 the Government issued a Letter of Modification that allowed flats to be built instead of houses. This modification was said to be subject to conditions:

‘(a) Payment of an additional premium amounting to $33,550.00 for each Section within 14 days on demand.

(b) Buildings to comply with the following coverage limitations:

3 storeys over car port – 55% of lot area

4 ” ” ” ” – 45% ” ” ”

5 ” ” ” ” – 40% ” ” ”

(c) Car parking to be at the rate of not less than 1 car per flat.

(d) Buildings to be in accordance with the provisions of the Buildings Ordinance and plans to be submitted to the Building Authority for approval in the usual way.’

United Bright wanted to build a 37 storey block of flats with car parking beneath and associated facilities. It contended that the Letter of Modification permitted this development. The Government contended that the Letter of Modification only permitted a 5 storey development and that the DDH clause remained in full operation. Thus, the question concerned the proper construction of the Letter of Modification.

The Government succeeded:

1. Defining the relevant ‘context’ against which the relevant terms should be considered is central to contractual interpretation (Fully Profit (Asia) Limited v Secretary for Justice) ([8]). The relevant context included the Conditions of Sale that were modified ([9] – [12]). In terms of the letter itself, it was to be noted that it did not expressly release the lessee from the need to obtain approval under the DDH clause ([14]).

2. In Ying Ho Co Ltd v Secretary for Justice, the Court of Final Appeal had decided that the DDH clause in that case was an independent restriction from other more detailed restrictions in the Conditions of Sale. There was no reason to take a different view of the status of the DDH clause in the present case ([15] – [19]).

3. The fact that the Building Ordinance had been amended in 1955 (shortly before the Letter of Modification) allowing buildings of more than 5 storeys to be built and conferring powers to disapprove plans) was not part of the relevant context. The Government’s powers under the Building Ordinance and under the Conditions of Sale were separate from each other and had different objects even if administered by the same Department (Hang Wah Chong Investment Ltd v AG) ([20] – [24]).

The Court of Appeal reached its decision (in favour of the Government) based on the above considerations([27]).

The court went on, however, to look at the admissibility of correspondence around the time of the application.The lessee applied for the modification in 1956. There was, however, earlier correspondence between the lessee’s solicitors and the Government  referring to an earlier (1955) application for permission to build ‘not more than four flats on each of the six sites.’ The 1956 application was a renewal of the 1955 application. Should the correspondence be taken into account when interpreting the letter? The developer objected that the correspondence was a subjective statement of intent or merely reflected the state of the negotiations at a given moment in time ([31]). This objection failed. It was legitimate to look at the correspondence in order to clarify the subject matter of the application ([33]). The letter of modification referred to the application and so invited a reading together of the two documents. The correspondence cast light on what had been applied for (permission to erect flats and not houses) ([33] – [34]).

Evidence of the Government’s internal calculations of the premium was also admissible since the basis of the calculation was common knowledge among the relevant professional community at the time. The fact that the specific calculations were not shown to the lessee did not, therefore, mean that the calculation was inadmissible ([35] – [40]).

Finally, the correspondence was admissible even though it was being used to interpret a document registered at the Land Registry. The letter of modification regulated the rights and duties as between lessor and lessee and was not of its nature a public document ([41]). The English Court of Appeal has recently said that ‘context’ is of limited relevance when interpreting publicly registered documents (Cherry Tree Investments Ltd v Landmain Limited) but that was said in the context of a registration system with a state guarantee of title and Hong Kong’s system is materially different ([41(d)]). It is reasonable to expect Hong Kong purchasers to make enquiries of the Lands Department if they are in any doubt as to the effect of a letter of modification ([41(e)]).

Michael Lower

Deposit: where sums are described as a deposit but the ‘escape’ clauses in the provisional agreement have been deleted

February 10, 2015

In Best Linkage Ltd v Marbella Garden Ltd ([2015] HKEC 167, CFI) the parties had entered into a provisional agreement for the sale and purchase of the plaintiff’s property. The agreement required the defendant to pay $200,000 as an initial deposit and then provided for a further deposit (to take the total of the deposits to 10% of the purchase price) on the signing of the formal agreement. Two clauses had been deleted from the standard form of provisional agreement signed by the parties. One was the clause entitling the seller to forfeit the deposit (and still pursue its other remedies) in the event of the buyer’s default. The other was the ‘escape’ clause entitling the seller to terminate the contract by refunding the initial deposit and making a further payment to the buyer of an equivalent amount. The buyer later wrongfully refused to proceed with the purchase. The seller later sold to another party at a very much higher price. The seller sought, and was granted, declarations that the buyer had wrongfully repudiated the agreement and that the seller was entitled to forfeit the initial deposit.

Although the clause expressly entitling the seller to forfeit the deposit had been deleted, the parties still intended the payment to be a deposit and the nature of a deposit is now well settled (see Polyset Ltd v Panhandat Ltd) ([66]). Where there was an ambiguity, deletions have a limited role to play in interpreting a contract but there was no ambiguity here. Even if there were an ambiguity, it is not legitimate to infer from a deletion (of the clause entitling the seller to forfeit the deposit) that the parties intended the reverse proposition to govern their agreement (that the deposit could not be forfeited (see The Golden Leader)).

Michael Lower

‘Hong Kong style’ completion and sub-sales

October 27, 2014

In Wellfit Investments Ltd v Commence Ltd ([1997] HKLRD 857, PC) the Privy Council had to consider the impact of an agreement to effect a Hong Kong style completion and the fact that both parties were aware that the transaction was a sub-sale on the construction of the provisions as to completion in the sub-sale agreement.

The agreement was for the sub-sale of an apartment. Time was of the essence in the agreement. The funds from completion of the sub-sale were to be used to finance completion of the head contract. The sub-sale was to be completed by 3pm on the stipulated date and the deadline for completion under the head contract was two and a half hours later. The sub-contract was ‘subject to and with the benefit of’ the head contract. The sub-contract provided that on completion, the seller would execute a ‘proper assurance’ and give vacant possession. The parties agreed to a ‘Hong Kong style’ completion (on completion, the seller gave an undertaking to forward the executed assignment within 17 days of completion). The sub-purchaser had not provided the completion monies by 3pm and the sub-seller rescinded 24 minutes later. The sub-purchaser sought specific performance.

The buyer’s argument that the deadline had been waived or varied  by virtue of a telephone conversation between the solicitors acting for the parties failed. The words used did not amount to a clear representation that the sub-seller would not insist on its contractual rights.

The buyer argued that the seller was in breach since on completion it would not be in a position to execute a proper assurance or give vacant possession (it could only do this when the head contract was completed). This failed since these obligations were to be interpreted in the light of the agreement to complete by undertakings and because both parties were aware of the sub-sale context and had factored this into their contract.

The sub-purchaser sought relief in equity. This judgment was handed down a few months before Union Eagle. The Privy Council expressed no view as to whether such jurisdiction existed. We had to wait for Union Eagle to learn the answer to this. The Privy Council held that it would not grant such relief even if it had the power to do so. Given the linkage between the sub-contract and the head contract, there was nothing unconscionable in the sub-seller’s insistence on its strict contractual rights.

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