Introduction

It is a general rule under contract law that, if the terms of an agreement are so vague or indefinite that it cannot be ascertained with reasonable certainty what the intention of the parties is, there is no contract enforceable at law. For instance, a lease which fails to specify the date of commencement or an agreement to sell a property subject to the purchaser “obtaining a satisfactory mortgage” is generally unenforceable for uncertainty. In the recent case of Tsang Wing Man v Chung On Ling CACV 129/2015, the Court had to decide the enforceability of a sale and purchase agreement of property which on its face lacked a certain completion date.

Background

The property in dispute is the ground floor and cockloft of a building in Tai Po (the “Premises”). It is owned by the Defendant and had been rented from him on a monthly basis by the Plaintiff as the premises for her real estate agency business.

In June 2011, the Defendant informed the Plaintiff that he had a purchaser for the Premises who was willing to pay HK$10 million for it. After some negotiation the Defendant agreed to sell the Premises to the Plaintiff for HK$9.8 million and pending completion the Plaintiff could continue to rent the Premises at a monthly rent of HK$22,300. The Plaintiff and the Defendant then signed a handwritten agreement drafted by the Plaintiff which was purported to be a sale and purchase agreement (the “Agreement”). It should be noted that the Agreement contained some unusual features. First, no deposit was required to be paid by the Plaintiff under the Agreement. Secondly, and most importantly, the Agreement tied the completion of the sale of the Premises to completion of the sale of a property owned by the Plaintiff in the Mainland (the “Mainland Property”). According to the Defendant, the Plaintiff had orally represented to him that the sale of the Mainland Property would be completed soon and in any event no later than 2 months’ time.

After more than 2 months, around the beginning of September 2011, the Plaintiff requested the Defendant to extend the time for her to complete the purchase. The Defendant did not agree and informed the Plaintiff that unless she completed the purchase by middle of September 2011, he would not sell the Premises to her and would put the Premises on the market for sale. Although ultimately the Plaintiff did not complete the purchase, she did in May 2012 register the Agreement as a charge on the Premises with a view to preventing the sale of the Premises to any other purchaser going ahead.

Subsequently, the Defendant commenced proceedings to vacate the registered charge on the Premises, whereas the Plaintiff sought specific performance of the Agreement.

Issues

At first instance, the key issue before the Court was the enforceability of the Agreement, for if it was not enforceable then the Plaintiff could not seek specific performance and the Defendant would succeed in having it removed as a charge against the Premises. After considering the nature and terms of the Agreement, the trial judge ruled that the Agreement was not a properly constituted sale and purchase agreement of property as there was a lack of consideration and uncertainty in respect of completion. Therefore, it was not an enforceable contract of which the Plaintiff could seek specific performance.

On appeal, the Plaintiff argued, among other things, that if an implied term of completion within a reasonable time was read into the Agreement then it was an enforceable contract, and that during the currency of the “reasonable time” period the Defendant was under a duty to show good title to the Premises and this he failed to do.

Legal Principle

In considering the merit of the Plaintiff’s argument, the Court reminded itself of section 3(1) of the Conveyancing and Property Ordinance (Cap. 219) which provides that:-

“no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorized by him for that purpose.” (emphasis added)

In essence, section 3(1) requires that a contract for the sale of land be in writing.

The Court also referred to the decision of Kwan Siu Man v Yaacov Ozer (1998-98) 1 HKCFAR 343 where the Court of Final Appeal had emphasized that, for an agreement for sale and purchase of property to be enforceable, there must be a memorandum evidencing the contract and nothing else. The Court of Final Appeal also recognized that in Hong Kong the fixing of a completion date for sale of land was generally of considerable (if not vital) commercial importance. It followed that the making of a sale and purchase contract of property would not be found just because there has been a meeting of minds as to parties, property and price but not to completion date.

Discussion

In the present case, the Court found that there was not only no date for completion, there was also no viable means for determining it. As at the date when parties signed the Agreement, the completion date for the Mainland Property was unascertainable as there did not even exist a draft contract of sale for it. From the evidence, there was no basis for the Plaintiff to expect that the Mainland Property would be sold within a reasonable period of time, and thus the Agreement was no more than an agreement to agree.

The Court went on to consider that, if it was wrong in finding that there was lack of certainty in relation to completion date, and there was an implied term that was read into the Agreement making the completion date certain, by virtue of section 3(1) of the Conveyancing and Property Ordinance, the Agreement would still be unenforceable since the implied term on completion date was not evidenced in writing. Accordingly, the Court upheld the trial judge’s decision and dismissed the Plaintiff’s appeal.

Conclusion

As can be seen from the case above, the lack of a certain completion date in a sale and purchase agreement of property can result in the whole agreement being unenforceable. Both the vendor and purchaser of a property should thus consult their lawyers in order to enter into a binding and enforceable sale and purchase agreement of property and to fully understand their rights and interests thereunder.

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.