Bonsel Development Pte Ltd v Tan Kong Kar and Another

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 24 August 2000
• Neutral Citation: [2000] SGCA 45
• Docket Number: Civil Appeal No 201 of 1999
• Date: 24 August 2000
• Published date: 19 September 2003
• Year: 2000
• Plaintiff Counsel: CR Rajah SC and George Pereira (Pereira & Tan)
• Citation: [2000] SGCA 45
• Defendant Counsel: Shankar Kumar and N Sreenivasan (Rajah & Tann)
• Court: Court of Appeal (Singapore)
• Subject Matter: Whether clause imposes absolute obligation on sellers to remove caveat,Sellers failing to remove caveat after taking all reasonable steps,Conditions precedent,Option clause that sale "subject to" sellers removing caveat lodged by original purchasers,Contractual terms,Contract,Difference between condition precedent to formation of contract and condition precedent to performance of contractual obligations,Option to purchase property,Whether other clause requiring seller to convey property free of encumbrances germane to construction of 'subject to' clause,Sale not completed

(delivering the grounds of judgment of the court): This appeal pertained to the construction of a clause in a sale and purchase agreement of a real property as to whether the sellers were entitled in the circumstances that occurred to be excused from the performance of the contract. At the conclusion of the hearing we agreed with the contention of the sellers and allowed the appeal. We now give our reasons.

Background

The sellers (the appellants) were the developers of a property known as No 53 Mariam Walk, Singapore (`the property`). The property was initially sold by the appellants to Ong Puay Guan and Quan Cher Lee (`the original purchasers`) by an agreement dated 2 September 1994 (`the original agreement`). The original purchasers lodged a caveat against the property as purchasers. However, they failed to make payment in accordance with the original agreement. On 5 January 1998, the appellants gave the original purchasers 21 days` notice to pay up the outstanding instalments, failing which the original agreement would be terminated. The notice was not complied with. It would appear that on 12 May 1998, the original purchasers wrote to the appellants explaining their predicament and asking that the original agreement be terminated. However, on 20 May 1998, the appellants replied insisting that the original purchasers fulfil their obligations under the original agreement.

Early in 1999, the respondents who were husband and wife, expressed their interest in buying one of the appellants` houses. On 11 January 1999, the appellants granted to the respondents an option to purchase the property (`the option`) at the price of $1,015,000, which option was valid for 14 days. As at the time the caveat lodged by the original purchasers was still on the register, cl 10 was inserted by the appellants in the option. This clause which lay at the very heart of the action, and this appeal, read as follows:

The sale of the property is subject to us [the appellants] removing the existing caveats lodged against the property and in the event we are unable to do so by the completion date, completion shall take place two (2) weeks from the date the said caveats are removed.` [Emphasis added.]

However, on 23 January 1999, two days before the expiry of the option, the appellants` solicitors wrote to the respondents` solicitors, stating as follows:

As we informed you, the caveat referred to in cl 10 of the option is the caveat lodged by the previous purchasers of the property. Their sale and purchase agreement with our clients was annulled after the expiration of the 21 days` notice. We have written to the solicitors to withdraw their clients` caveat. We have now been informed by them that their clients wish to proceed with the purchase. We have informed them that it is not possible and have given them notice that if their clients` caveat is not withdrawn, we will commence legal proceedings against their clients to have the caveat removed. Please take note that the sale is subject to the said caveat being removed. [Emphasis added.]

Notwithstanding the appellants` solicitors` letter of 23 January 1999, the respondents nevertheless exercised the option and paid the deposit of 10% of the purchase price (less the option sum) to the appellants` solicitors on 25 January 1999. As provided in the option, the sale was scheduled for completion on 5 April 1999, but it was never completed. In the meantime, on 24 February 1999, the appellants instituted proceedings against the original purchasers to have their caveat removed as they refused to do so voluntarily. Unfortunately, the action failed. Thus on 18 May 1999, the appellants` solicitors informed the respondents that the appellants could not proceed with the sale of the property to them. In the light of this turn of events, the respondents ended up purchasing an identical property at No 49 Mariam Walk, but at a higher price of $1,290,000.

The respondents instituted an originating summons for a declaration that the appellants were in breach of contract and an order for damages to be assessed. Their claim was allowed by the court below, which made a declaration that the option became a valid binding contract as of the date of its exercise by the respondents (ie 25 January 1999), and that the contract was breached by the appellants` notice of 18 May 1999. It also ordered that the damages suffered by the respondents be assessed.

In coming to its decision the court took the following considerations into account. First, cl 10 was not a condition precedent to the formation of a binding contract. Second, cl 10 provided for postponement of completion if the caveat could not be removed in time; it did not provide what would follow if the caveat could not be removed at all. Third, the appellants were to give title to the property free from encumbrances and the object of cl 10 was to give the appellants more time to remove the caveat. Fourth, the factual matrix at the time the option was granted was consistent with the obligation of the appellants of removing the caveat as being absolute as the appellants were then of the impression that the original sale had been cancelled and all that needed to be done was to have the caveat removed. Thus, the only thing which the parties anticipated could upset the completion was a possible delay in getting the caveat removed on time. Finally, as the agreement was drawn by the appellants, the contra proferentum rule should be applied.

Meaning of `subject to`

It will be noted that cl 10 can clearly be divided into two parts. The crucial element in the first part are the words `subject to`. The learned judge is quite correct to observe that this does not constitute a condition precedent to the formation of a contract. Indeed, upon the respondents accepting the option a contract had come into being. However, a distinction should be drawn between clauses which are conditions precedent to the existence of the contract and those which are conditions precedent to the performance of the obligations under the contract.

This important distinction came up for consideration in this court in Lim Hwee Meng v Citadel Investment Pte Ltd [1998] 3 SLR 601 . There the vendor purported to grant an option to purchase a piece of land to the purchaser. Clause 5 of the option provided as follows:

The purchase herein by a company is subject to the company obtaining the approval of the Land Dealings Unit or other government approval for the purchase on or before

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