In Ho Wai Kwong v Ho Kam Chui ([2025] HKCA 174) the Court of Appeal looked at the effect of an innocent party’s election to accept the other party’s repudiatory breach. This discharges the innocent party from any obligations under the contract that remain to be performed.
The termination of the contract does not mean that any earlier transfers of property are deprived of their legal basis under the contract. Nor does it mean that the transferee of the property thenceforth holds the property on resulting trust for the transferor.
In Ho Hai Kwong, a mother assigned title to a shop out of her sole name and into the joint names of herself and her daughter. This was a sale and not a gift. The daughter agreed to pay HK$8 million for the assignment; she did not pay the price but the assignment into the joint names of mother and daughter was completed.
Eventually the mother, frustrated at the daughter’s refusal to pay the agreed price, accepted this failure as a repudiatory breach.
The question was whether this meant that the daughter held her interest in the shop on resulting trust for the mother. The Court of First Instance found this to be the case; termination of the contract, it was held, deprived the transfer to the daughter of any legal basis.
The Court of Appeal disagreed. G Lam JA, explained that, ‘[t]ermination of a contract by acceptance of a wrongful repudiation is a mechanism for the innocent party to be released from his obligation further to perform his own remaining obligations under the contract. It is prospective in operation and does not unwind what has been executed under the contract.’ ([53]).
In this case, the mother, having completed the assignment, had no further obligations from which to be released. It only remained for the daughter to pay the agreed price.
Since this termination of a contract operates prospectively, it does not ‘denude transfers of property made under the contract during its currency of all legal basis.’ ([57])
The mother also had the benefit of the unpaid vendor’s lien but this ‘did not operate to re-vest the beneficial interest in her.’ ([60]).
In the circumstances of this case, where property had already passed under the agreement, the question as to whether non-payment of the price meant that the property had to be returned to the seller depended on the terms of the agreement. The agreement in this case did not impose a requirement to return the property:
‘The Mother having conveyed the property had an accrued right to the price enforceable by an action in debt. In these circumstances, the parties’ legal relationship, and their respective rights and liabilities, are governed by contract, and there is no need or scope for bringing in the law of restitution.’ ([62])
The daughter was ordered to pay the outstanding purchase price to the mother with interest.
The case is unusual in that the mother completely performed her part of the bargain, by completing the assignment, before receiving the purchase price. Thus, the mother had no outstanding obligation when she accepted her daughter’s repudiatory breach. Normally, assignment and payment of the purchase price are simultaneous.
Michael Lower
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