Kwang Qian Wen Marie v Kwan Kit Yuk
District Court
Civil Action No. 3555 of 2013
Deputy Judge Dick Ho
Land Law
5 January 2016

Joint investment in property for sub-sale before completion – whether implied term in agreement regarding return of contribution made by one party in event of sub-sale not materialising before completion

On or about 12 March 2010, P and D orally agreed (the “First Agreement”) to purchase a flat (the “Property”) in equal shares with a view to sub-selling the Property prior to completion. They also agreed to each contribute 50 percent of the deposit and part payment for the Property required before the completion date in November 2012 (the “Pre-completion Payment”), and that the Property would be purchased in D’s name with D holding it on trust for P and D in equal shares. D would be responsible for managing all affairs regarding the Property and finding a sub-purchaser. Pursuant to the First Agreement, D entered into a provisional and then a formal sale and purchase agreement with the developer. A few days later, at P’s instance, D executed a Declaration of Trust that she held the Property on trust for herself and P, as tenants in common in equal shares. Over the next two years, a sub-purchaser could not be found. From June 2012 onwards, P and D discussed various options on the assumption that no sub-sale of the Property could take place before completion. On completion day, D proceeded to complete the purchase of the Property on her own but refused to return P’s contribution. P’s case was that it was an implied term of the First Agreement that in the event that the Property could not be sub-sold before completion, then one party, to be agreed, would complete the purchase on her own and return the other’s contribution towards the Pre-completion Payment (“P’s Implied Term”). P further claimed that the parties entered into a Second Agreement in around July 2012 under which D would complete the purchase alone and become the sole beneficial owner of the Property and would return to P her contribution to the Pre-completion Payment. P brought this action against D for the return of her contribution, arguing that in failing to return the sum, D was in breach of, inter alia, the First and/or Second Agreement. At trial, D sought leave to re-amend her defence to plead that it was an implied term that upon any party breaching or withdrawing from their partnership agreement without the consent of the other, the deposit would not be returnable because the terms of the provisional and formal sale and purchase agreements gave rise to an irresistible inference that the parties intended such implied term, which was necessary to give the contract business efficacy (“D’s Implied Term”).

Held, granting judgment in favour of P, that:

Neither party’s implied term should be implied into their agreement. The fact that there was more than one possible outcome of a sub-sale not materialising before completion suggested that the First Agreement might well be effective without P’s Implied Term. P’s Implied Term failed, inter alia, to take into consideration the market situation or price of the Property at completion in requiring one of the parties to return to the other, the latter’s contribution towards the Pre-completion Payment. It was simple logic, for instance, that if the market price fell below the purchase price, neither would want to take up the Property alone and incur an instant loss on top of post-completion expenses. On the other hand, if the market price had risen by a large margin at completion, then both would be keen to complete alone or at least hold on to the 50 percent stake under the First Agreement. In either scenario, it would be quite impossible for the parties to agree on who was to go ahead with completion alone.

Jurisdictions: 

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