In AXHT Company Limited v Wing Wo Lung Company Limited & Ors [2026] HKCA 1060, the Court of Appeal considered whether a purchaser’s obligation to pay a further deposit under a preliminary sale and purchase agreement was conditional upon the signing of a formal sale and purchase agreement.
The case arose from a mortgage fraud perpetrated by D2. As a result of the fraud, P, a licensed money lender, advanced loan funds which were paid into a bank account opened by D2 purportedly in the name of D1, a company. D2 paid HK$945,000 (“D10 Sum”) to D10, who had entered into a preliminary sale and purchase agreement (“PSPA”) with D2 for the sale of certain real properties. It was D10’s case that the payment of the D10 Sum was part of the further deposit due under Clause 5B of the PSPA. P sought to recover the D10 Sum from D10 under a proprietary claim and on the grounds of unjust enrichment.
The Court of Appeal upheld D10’s right to retain the D10 Sum as a bona fide purchaser for value without notice. On the proper construction of Clause 5B of the PSPA, the obligation to pay the further deposit was not dependent on execution of a formal agreement. Unlike the authorities relied upon by P, Clause 5B did not state that payment was to be made “upon signing” or “at the time when” the formal agreement was signed.
Interestingly, the Court of Appeal further held that, even if the obligation to pay the further deposit and the obligation to sign a formal agreement had originally been linked, the subsequent conduct of D2 and D10 — namely the payment and acceptance of the D10 Sum after the scheduled deadlines for signing a formal agreement and for completion had passed — severed that link. Reflecting its nature as part of a further deposit, the D10 Sum was properly treated by the trial judge as an earnest for keeping the transaction alive.
The decision is a useful reminder that the Court will ordinarily strive to give effect to the plain and ordinary meaning of a provision in a contract, even if the consequences may appear hard for one side or the other. When drafting an agreement, the parties should pay attention to the specific words used in order to avoid unexpected results.
Read the judgment here: https://legalref.judiciary.hk/lrs/common/ju/ju_frame.jsp?DIS=181630&currpage=T
Mr Howard Wong acted for the 10th Defendant, who resisted the appeal.
