PLUS LUCKY LTD v. CHIN YUK LUN FRANCIS AND ANOTHER

HCA 4645/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4645 OF 1998

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D E C I S I O N

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Background

1. This is an appeal by the Defendants from an order of Master Bharwaney made on 22 January 2003 adjourning the taxation proceedings pending the hearing and determination of the Respondent's appeal against the Order of Deputy High Court Judge Woolley dated 12 July 2002 ordering her to pay the Defendants' costs in this action, which was instituted by the Plaintiff.

2. The Plaintiff and the Defendants were respectively the purchaser and vendors of a residential property in Redhill. The Respondent was the solicitor acting for the Plaintiff in the sale and purchase. The facts of the case have been succinctly stated by Deputy High Court Judge Woolley in his judgment of 12 July 2002. The sale and purchase agreement was entered into at the peak of the property market in October 1997 for completion by 5 p.m. on 20 March 1998, by then property price has fallen significantly. Just four days before the scheduled completion day, the Plaintiff's solicitors gave notice to the Defendants' solicitors requiring a formal completion, rather than the usual completion by undertakings. The Plaintiff's representative, accompanied by the Respondent, arrived at the office of the solicitors of the Defendants at 4:23 p.m., but without the cashier order needed to complete the purchase. At 4:47 p.m., another director of the Plaintiff arrived with photocopies of the cashier orders. As Deputy High Court Judge Woolley found, there followed what can only be described as delaying tactic during which time the original cashier orders were never produced for the vendors' solicitors' inspection and at 5:15 p.m., the Respondent, on behalf of the Plaintiff, declared that the time for completion had expired and left with the Plaintiff's representatives. Following the aborted completion, the Respondent demanded return of the deposit to the Plaintiff. When that was refused, she commenced these proceedings on behalf of the Plaintiff. Two months later, the Respondent ceased to act for the Plaintiff and another firm of solicitors took over the litigation.

3. After three years, the action was tried before Deputy High Court Judge Woolley who dismissed the Plaintiff's claim. The Respondent gave evidence for the Plaintiff. She was disbelieved. Deputy High Court Judge Woolley found that the Respondent was a party to an arrangement to try to abort the completion so as to enable the Plaintiff to avoid a transaction which had become financially undesirable as a result of the dramatic fall in property price. The Plaintiff appealed but the appeal was dismissed by the Court of Appeal with costs.

4. The Defendants applied for an order that the Respondent, as solicitor acting for the Plaintiff in the transaction which gave rise to these proceedings, pay the costs of the Defendants personally under the provisions of Order 62 rule 8 of the Rules of the High Court. The application was heard before Deputy High Court Judge Woolley. On 12 July 2002, Deputy High Court Judge Woolley made an order that the Respondent pay the Defendants all solicitor and own client costs for which they are liable to their solicitors as a result of these proceedings, such costs to be taxed, giving credit for any sums recovered by them by way of party and party costs from the Plaintiff. Deputy High Court Judge Woolley also ordered the Respondent to pay the Defendants the costs of this application to be taxed on an indemnity basis.

5. On 2 August 2002, the Respondent sought leave to appeal against the orders of Deputy High Court Judge Woolley. On 26 September 2002, she took out another Summons applying for stay of execution. Both applications were heard before Deputy High Court Judge Woolley. He ruled that no leave was required for the appeal and dismissed the Respondent's application for stay with costs, but without prejudice to any further applications.

6. In the meantime, on 13 January 2003, a winding up order was made against the Plaintiff. The judgment debt of about $4.3 million and costs of about $2.2 million awarded to the Defendants remain unsatisfied.

7. On 9 October 2002, the Respondent duly filed Notice of Appeal against the decision of Deputy High Court Judge Woolley ordering her to pay the Defendants' costs. The appeal was scheduled for half day on 15 January 2003. In the meantime, taxation hearing was fixed for two days starting on 27 January 2003. Had matters progressed on that course, the appeal against the decision of Deputy High Court Judge Woolley would have been heard before taxation. If the appeal is dismissed, the Defendants could almost immediately proceed to execute on the taxed costs. If the appeal is allowed, the Defendants may not execute on the costs.

8. However, the matters took a twist when the Respondent filed a Supplementary Notice of Appeal settled by Senior Counsel on 24 December 2002. Because of the more substantial grounds of appeal filed, the Defendants considered half a day inadequate for hearing the appeal and requested for an adjournment so that the appeal could be set down for two days. By consent, the appeal was adjourned to 11 June 2003, but the Defendants refused to consent to vacate the taxation hearing to a date after the determination of the appeal. On 17 January 2003, the Respondent took out a Summons seeking to vacate the taxation hearing to a date to be fixed after determination of the appeal. On 22 January 2003, Master Bharwaney granted the Respondent's application pursuant to Order 62, rule 26 of the Rules of the High Court and adjourned the taxation hearing pending the hearing and determination of the Respondent's appeal against the Order of Deputy High Court Judge Woolley dated 12 July 2002. The Defendants now appeal against the order of Master Bharwaney.

The law

9. There seems to be little authority as to the circumstances in which a taxing master will grant a stay of taxation of costs pending appeal. In Re an Arbitration between Schindler Lifts (Hong Kong) Ltd and Dickson Construction Co Ltd (unreported, 1992; HCMP 545 of 1992), Kaplan J held it would be an improper exercise of discretion for the master to adjourn taxation which in effect operated as a stay of execution. He allowed the appeal and overturned the master's decision to adjourn the taxation hearing on the basis of Schindler's undertakings not to enforce the costs order when taxed until after the determination of the appeal. In Lo Wo v Cheung Chan Ka Joseph (unreported, 2001; HCA 618 of 1997), Waung J dealing with a similar situation as in the present case took the view that a taxing master has no jurisdiction to grant a stay of execution by adjourning taxation hearing pending appeal, or if he has, it was a wrongful exercise of discretion. In Re HY & HT Lee Bros and Co Ltd (unreported, 2000: CACV 307 of 1999), Keith JA held that a stay of taxation of costs pending appeal can be granted when there are good grounds to do so.

10. In my view, like any exercise of judicial discretion, the taxing master must exercise the discretion given to him by Order 62, rule 26(2) in accordance with legal principles. The starting point is to consider what is the discretion given to the taxing master. Order 62, rule 26(2) of the Rules of the High Court provides:

"(2) The taxing master by whom any taxation proceedings are being conducted may, if he thinks it necessary to do so, adjourn those proceedings from time to time."

11. The taxing master's duty is to tax the bill of costs. His role is to assess the quantum of costs and not to determine liability which is a matter for the trial judge. The discretion to adjourn the taxation proceedings may only be exercised if he thinks it necessary to do so i.e. to do so for the expedient and efficient disposal of the taxation. Hence, to adjourn taxation proceedings pending appeal solely for the purpose that in the event that the appeal is allowed, the taxation proceedings can be dispensed with, clearly falls outside the realm of necessity within which the taxing master may exercise his discretion to adjourn the taxation proceedings. To hold otherwise would be to give the taxing master the jurisdiction to grant stay of execution, a power which has been reserved to the trial judge or the Court of Appeal under Order 59, rule 13 and which has never been intended to be delegated to a taxing master. For a taxing master to adjourn taxation proceedings pending appeal would amount to an usurpation of the trial judge's or the Court of Appeal's function to rule on applications for stay, if applied for; or would amount to a by-pass of the trial judge or the Court of Appeal, if no application has been made. Thus, in my view, a taxing master has no jurisdiction under Order 62, rule 26(2) to adjourn taxation proceedings which operates as a stay of execution pending appeal.

12. However, the court has a general duty to take a procedural course which avoids the expenditure of unnecessary time and costs. To perform that duty, the court has inherent jurisdiction to adjourn a taxation hearing, quite independently from the jurisdiction given to a taxing master under Order 62, rule 26. This jurisdiction has to be carefully exercised and only upon good cause being shown. The burden of showing good cause rests squarely on the shoulders of the party seeking to stay the taxation hearing. What constitutes a good cause has to be determined according to the particular circumstances of the case. There can be no hard and fast rule. Essentially, it involves balancing two principles: firstly, the principle that a successful litigant should not be deprived of the fruits of his litigation, and secondly, the principle that there must be justification for putting at risk the considerable time to be spent and the large amount of costs to be incurred on the taxation which would be wasted in the event that the appellant is successful on appeal.

13. As for the first principle, Order 59, rule 13(1) provides

"Except so far as the court below or the Court of Appeal or a single judge may otherwise direct -

(a) an appeal shall not operate as a stay of execution or of proceedings under the decision of the court below;

(b) no intermediate act or proceeding shall be invalidated by an appeal."

14. This rule is in favour of the successful litigant that he should not be deprived of the fruits of his success, despite that an appeal is pending. It is not the practice of the court to lock up funds to which prima facie a successful litigant is entitled. An intending appellant who wishes to escape from the application of this general rule or who does not wish to put at risk the costs of taxation which may be wasted in the event of his successful appeal should apply to the trial judge or to the Court of Appeal for stay of execution pending appeal pursuant to Order 59, rule 13. That rule gives the trial judge or the Court of Appeal the discretion to order a stay of execution and to impose terms on which a stay is ordered. That is the first machinery an appellant should invoke to protect his interest. The principles as to how the discretion is to be exercised in an application for stay of execution have been admirably set out in the well researched judgment of Ma J, as he then was, in Star Play Development Ltd v Bess Fashion Management Co Ltd (unreported, 2002; HCA 4726 of 2001). Basically, it is a balancing exercise, balancing merits, on the one hand, against prejudice, on the other. That involves the question of stay of execution pending appeal to be considered by the trial judge or the Court of Appeal and not stay of taxation pending appeal to be considered by the taxing matter.

15. As for the second principle, the courts have acknowledged the principle that it is important for the courts to take procedural steps which will avoid the expenditure of unnecessary time and expense involved in an unnecessary taxation of costs: see Roselodge Ltd v Castle [1966] Lloyd's Report 113, at 114. This principle is one of practicality, common sense and good case management. In my view, it must be subject to the first principle which is concerned with more substantive legal principles such as the taxing master's jurisdiction, the successful party's right to the fruits of his success and the importance that a taxing master should not be allowed to usurp the function of the higher court to rule on applications for a stay. Hence, in Re an Arbitration between Schindler Lifts (Hong Kong) Ltd and Dickson Construction Co Ltd, Kaplan J allowed the appeal on the undertakings of Schindler not to enforce their costs order when taxed until after the determination of the appeal.

16. In the light of these two principles, I now turn to consider what constitutes good cause. Many cases have stressed the need of at least taking a view as to the prospects of the appeal in the balancing exercise: per Wolf LJ (as he then was) in Malliez v Redland Plasterboard Overseas Ltd, (unreported, 22 September 1992). That view was rejected by Keith JA in Re HY & HT Lee Bros and Co Ltd (unreported, 2000: CACV 307 of 1999), as he thought it quite impracticable for him to form even a provisional view of the merits without turning the chamber hearing into a mini-trial of the appeal itself.

17. I agree with the view of Keith JA. It is impracticable for a taxing master sitting on a taxation hearing to consider merits of a pending appeal. Nor is it practicable for a judge hearing an appeal from the master's order to embark on such an exercise. I am not over emphasizing the superiority of the judge to the master. Putting the situation to the extreme, assuming that an appellant was unsuccessful in the Court of Appeal and he obtained leave to appeal to the Court of Final Appeal in view of the amount of claim involved, it is not up to the taxing master to refuse to proceed with taxation because in his view the appellant has a strong and arguable case, that it is likely that the Court of Appeal has erred, that the taxation proceedings involve excessive complexity and that it is likely that these costs of taxation will be wasted. These are matters which should be properly ventilated before the Court of Appeal on an application for stay of execution. If the appellant does not see fit to apply for stay of execution, it is not for the taxing master to rush to his rescue. Based on the limited jurisdiction of a taxing master in a taxation hearing, merits of the appeal should be ignored by the master in considering whether to stay taxation hearing.

18. As this involves balancing the wasted costs on the one hand and the delay to the successful litigant being kept out of his money on the other, the conduct of the parties, in particular the delay on the part of the appellant in prosecuting the appeal, is a critical consideration. In Re HY & HT Lee Bros and Co Ltd, Keith JA indeed considered delay on the part of the appellant in prosecuting his appeal a critical factor. Given the limited jurisdiction a taxing master has in adjourning a taxation hearing as opposed to the wider jurisdiction of the trial judge or the Court of Appeal in granting a stay of execution, I think the complexity of the taxation, the amount of time and costs involved in the taxation and the opposing party's ability to pay the wasted costs are factors which may also be taken into account in the balancing exercise. The list of factors is not exhaustive. Much depends on the facts of the individual case. But merits of the appeal is clearly irrelevant. That should be ventilated before a judge on an application for stay of execution.

Respondent's grounds for the adjournment or stay of taxation

19. The order sought by the Respondent's summons dated 17 January 2003 was for the hearing scheduled on 27 and 28 January 2003 be vacated and the taxation hearing be adjourned to a date to be fixed after determination of the Respondent's appeal against the Order of Deputy High Court Judge Woolley. In her affirmation filed in support of the application, the Respondent referred to the history leading to the adjournment of the hearing of the appeal as a result of which she argued that the taxation hearing should be likewise adjourned. She said in her affirmation that as advised by Senior Counsel, she thought she has good grounds of appeal and if her appeal shall succeed, the costs of taxation will be wasted. Obviously, this is an application for a stay of taxation pending appeal and not an adjournment for the expedient and efficient disposal of the taxation. I wholly reject her submission that the adjournment was not in effect an application for stay of execution. The taxing master has no jurisdiction to adjourn the taxation hearing pending appeal under Order 62, rule 26(2). In order to invoke the court's inherent jurisdiction, the Respondent has the burden of showing good cause for the stay.

20. The Respondent submitted that as advised by Senior Counsel, she has strong and arguable case on appeal and referred me to the six- page Supplementary Notice of Appeal. The Supplementary Notice of Appeal demonstrates that this is not the appropriate venue for consideration of merits. I wholly ignore merits of appeal.

21. Another ground advanced by the Respondent is the complexity of the taxation and the time and costs such taxation would incur. She was not a party to the litigation nor the handling solicitor for the Plaintiff, except during the first two months. She has no knowledge or conduct of the litigation and hence has tremendous difficulties in preparing for the taxation as she is now asked to pay the costs incurred during this three-year litigation. I appreciate this would be a cumbersome and onerous task but fail to see how this could not be handled either by herself or a competent law costs draughtsman. But for her deliberate delay in trying to seek an adjournment of the taxation hearing, she has ample time to prepare for the taxation. Any difficulty she faces is her own making and she cannot rely on her own default as a good cause for keeping the Defendants out of their money.

22. The Respondent argued that the adjournment was occasioned by the Defendants' application for adjournment of the appeal hearing, as a result of which taxation would have been heard before the appeal. If the merits of the appeal cannot in any event constitute a good cause, I fail to see how the adjournment of the appeal hearing, albeit initiated by the Defendants is at all relevant.

23. On the contrary, looking at the events leading to the Defendants' application for adjournment of the appeal hearing, the Respondent is to blame and she left me with a doubt if in fact the Respondent was trying to delay the Defendants from recovering their costs. She filed her notice of appeal consisting of 6 paragraphs on 9 October 2002 and obtained a hearing day for half a day on 15 January 2003. It was not until more than two months after the filing of the notice and three weeks before the hearing that she filed the Supplementary Notice of Appeal. I understand it is not unusual that an appellant's solicitor would file a notice of appeal stating some brief grounds for the purpose of meeting the time limits for lodging the appeal. Deputy High Court Judge Woolley handed down his written judgment on 12 July 2002. Though through no fault on her part, she could not file her notice of appeal until Deputy High Court Judge Woolley ruled on 2 October 2002 that no leave was required. However, the fact remains that she had almost three months since 12 July 2002 to settle proper grounds of appeal. If she was led to the belief that leave was required, then she had all the more incentive to have her grounds of appeal properly settled by counsel. Yet, she took more than five months. The amendment was substantial. It expanded the Notice of Appeal from 6 paragraphs to 17 paragraphs. That necessitated the Defendants' application for adjournment of the appeal hearing. Speaking of causation, the Respondent rather than the Defendants is to blame. Thus, even on the issue of delay, the balance is against her. She cannot complain about the risk of wasted time and costs of taxation when that risk arose out of her failure to settle proper grounds of appeal.

24. In addition, if the Respondent is really concerned about staying execution pending appeal, she is also to blame for not taking out proper application for stay under Order 59, rule 13 but to try her luck by attempting to stay taxation. She said in her affirmation that Deputy High Court Judge Woolley dismissed her application for stay on the suggestion by the Defendants' counsel that the taxation hearing would not be scheduled before the hearing of the appeal and it was on that basis Deputy High Court Judge Woolley ordered that the dismissal was without prejudice to further application. If that was what was in the mind of Deputy High Court Judge Woolley, he would have granted the stay rather than refused it. The "without prejudice" rider is just a safety valve in case some unforeseen events occur. If indeed the Respondent is right, then the proper course was for her to apply for a stay pursuant to that liberty and not to attempt to by-pass the trial judge or the Court of Appeal in the way she did. The inference to be drawn from what she did is that she knew she had no merits in an application for stay.

25. There is nothing to suggest the Defendants were not good for the wasted costs and the costs of their action against the Respondent. In the end, none of the issues is resolved in the Respondent's favour. In my view, she has utterly failed to discharge her burden of showing good cause.

Conclusion

26. This is a clear case where the Respondent was in effect seeking a stay of execution. The taxing master has no jurisdiction under Order 62, rule 26(2) to grant the adjournment as the application is outside the realm of necessity within which he may exercise his discretion. Even if he has as part of the court's inherent jurisdiction, the discretion should not have been exercised as the Respondent has utterly failed to show good cause. The taxing master should have refused the application and proceeded with the taxation on 27 and 28 January 2003. This appeal would be a nugatory unless an early date for taxation could be fixed. Fortunately, I am able to reserve two consecutive days on 16 and 17 April 2003 for the taxation hearing before another taxing master.

27. The Defendants sought an order that the Respondent be ordered to pay the taxed costs into court and for the payment to be released to the Defendants upon dismissal of the Respondent's appeal. I do not consider that appropriate at this stage. Nor do I think I ought to insist on an undertaking from the Defendants not to execute the costs order when taxed as Kaplan J did in Re an Arbitration between Schindler Lifts (Hong Kong) Ltd and Dickson Construction Co Ltd. That could be left to be resolved between the parties and if necessary by an application for stay of execution.

28. Accordingly, I allow the appeal and set aside the Order of Master Bharwaney of 22 January 2003. The costs of this appeal and the costs of the hearing before the master, including costs thrown away by the adjournment, if any, shall be in the costs of the Appeal in CACV 382 of 2002. I adjourn the taxation hearing to 16 April 2003 with 17 April 2003 reserved.

Representation:

Plaintiff absent

1st and 2nd Defendants appeared in person

Respondent appeared in person

HCA 4645/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4645 OF 1998

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J U D G M E N T

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1. These proceedings arise out of a failed property transaction in March 1998. The property in question was an apartment in the Redhill peninsula and, by a formal sale and purchase agreement dated 4 October 1997, the plaintiff agreed to buy the property, and the defendants agreed to sell, at a price of $15,100,000.00, with completion to take place before 5 p.m. on 20 March 1998. The plaintiff requested a formal completion rather than the more usual completion by undertakings, the parties' solicitors agreed that this would take place on 20 March 1998, at the defendants' solicitors' office, and it was arranged that the plaintiff's solicitors and their client would arrive there about 4.05 p.m. As a result of the events which took place after the plaintiff's solicitor and representatives of her client arrived some time after 4.20 p.m., which I will look at in more detail shortly, the completion was aborted and the plaintiff now claims the return of the deposits paid in the sum of $2,265,000.00 and other fees, commission and costs wasted. The defendants maintain that they were at all times ready, willing and able to complete the transaction, and counterclaim for their own wasted fees, costs and interest, and the difference between the agreed price for the property and the sum of $8,800,000.00, being the price realised when it was resold in June 1998. It will be apparent from this that this period was a time of rapidly declining property prices, and the evidence here is that the value of this property had decreased by at least $3,000,000.00, and possibly more, between the date of the agreement and that fixed for completion. I accordingly have no doubt that the plaintiff's representatives were delighted to have avoided a transaction which would have entailed such a large short-term loss, subject to recovering their deposit. Whether they were entitled to do so is a matter I must now consider. But first it is useful to look at the nature and background of the parties, and in particular the plaintiff, and the events leading up to the date fixed for completion.

Background

2. The defendants are husband and wife and the private owners of the property, which was then leased to a tenant, and the sale was subject to the tenancy. The plaintiff was at the time a company with $2.00 paid up capital, and was part of a group of companies, all operating from the same office address in Fortune House, 61 Connaught Road Central, Hong Kong. The plaintiff's shareholders were two other companies, Euroday International Ltd and Euroday Investment Ltd, which were also two of the directors, the other being one Vincent Lau, who appears to have had no beneficial interest in the company. The only shareholders of the Euroday companies were Kwan Kwok Wah (Mr Kwan) and Tong Sik Kan (Mr Tong). An amended annual return filed on 18 September 2000 gives Mr Kwan also as a director as at 3 January 1998, but there is no explanation why his name was not included in the original return. Other companies operating from the same address included Tai Chong Development (Group) Ltd and Wide Profit Finance Ltd (Wide Profit) a registered money lender. Mr Kwan and Mr Tong were the only shareholders of the other companies except Wide Profit, whose shareholders and directors were Tse Chui Chu, Mr Kwan's 68 year old mother, and Tong Yuet Sim, Mr Tong's younger sister. Both Mr Kwan and Mr Tong were at pains in their evidence to distance themselves from the management of Wide Profit, referring to having to get instructions from the directors, their relations, but the evidence here is overwhelming that it was they alone who managed and operated the company. Mr Tong describes himself as the manager of Wide Profit, and he and Mr Kwan were signatories to the bank account. Indeed, there is no document I have seen relating to this company with any other signatures apart from someone in their accounts section, save the annual returns and the annual applications for renewal of the money lender's licence, which had to be signed by the directors on record. It was Wide Profit which was to provide mortgage financing for this purchase, and Miss Ma, the plaintiff's solicitor, refers to Mr Tong throughout as the mortgagee's representative. Both Mr Kwan and Mr Tong refer to themselves as partners in these businesses, and I have no doubt that these include Wide Profit.

3. The plaintiff's two shares were transferred to the Euroday companies on 10 September 1997, 10 days before the provisional sale and purchase agreement in this matter was signed. However, it appears that it was also used as a vehicle to hold another property in Nanhai, China, bought in January 1998 with a loan which has since been converted into a shareholding of nearly two million to a Miss Ye Pei Yi, a resident of Nanhai. There is some doubt as to the value, if any, of this property, and Mr Kwan admits that it now produces no income. The only bank statements of the plaintiff I have seen show a total of three deposits between September 1997 and January 1998, all of which were immediately withdrawn, the first to pay the initial deposit herein, leaving a nil balance before and after. It was therefore a company with only one asset of questionable value and no income, save for two payments made in respect of what is described as director remuneration, which were immediately withdrawn from its account. As will appear later, even had this sale been completed, the income from the tenancy would have been insufficient to pay the interest on the mortgage. The plaintiff was clearly a vehicle for the investment in this property, as I have no doubt were other companies in this group for other properties, the group's main business being property investment.

4. As I have said, and it is not in dispute, the agreement for sale and purchase was signed at a time when the hitherto boom in property prices was coming to an end, and in the following months prices continued to decrease at a steady rate. So much so that, by March 1998, the value of the property in question had fallen considerably from the high point some months earlier. The evidence of the plaintiff's valuation expert is that by that time it was worth between $11,000,000.00 and $11,300,000.00, depending on whether it was subject to tenancy or not. The plaintiff has produced an information sheet from Midland Realty setting out asking prices for these flats in 1998, which were within a range of about $12,000.000.00 to $12,500,000.00, although none appear to have been sold at that price, only for very much less some months later. Mr Tong and Mr Kwan of the plaintiff also gave evidence that they had an offer of about $12,000,000.00 for this flat. Putting the matter in the best light possible for the plaintiff, were the sale to proceed they would have suffered an immediate loss of at least $3,000,000.00.

5. The question of value also affects the matter of the mortgage. The plaintiff's director Mr Kwan said that he had approached banks for a loan, but they were not prepared to offer more than 70% of the then value, which amounted to about $8,000,000.00. They needed to pay a balance on completion of $12,835,000.00, and were only able to find this sum from their own associated company Wide Profit, under an agreement which fixed the term at 36 months and an interest rate of 30% per annum.

6. It is apparent from this that the transaction in March 1998 made no commercial sense in the short term, a situation recognised by the 1st defendant, who said that he would have been prepared to negotiate with the plaintiff for a lower price, if only to ensure that the sale went ahead, and admitted by Mr Tong in evidence when he said the balance to be paid was more than the market price. No approach was made however, and indeed, no contact attempted by the plaintiff's solicitors, until 16 March 1998, four days before the date fixed for completion, when they sent a letter requesting formal completion rather than completion by undertaking.

7. It cannot be disputed that formal completion in Hong Kong is an extremely unusual procedure, the more usual form being by way of solicitors' undertaking. The defendant's solicitor Mr Poon, said that in about 15,000 transactions in his conveyancing career of nearly 20 years, he had only done one formal completion, and his partner Mr Tang and conveyancing clerk Mr Siu had never done one. The plaintiff's Mr Kwan said that, in the hundreds of property transactions his companies had entered into, they had had a formal completion only once, when they were the vendor. That transaction had also been the only experience of it by their solicitor Miss Ma. One is bound to ask then, why?

8. The answer given by Mr Kwan and Mr Tong was that they feared that the defendants may be in a negative equity situation and unable to redeem their mortgage, and they wanted to be sure that they completed free of the prior encumbrance. There is, of course, absolutely no evidence that such a situation existed. Indeed, selling as they were at a price reflecting the property boom of the previous two years, it cannot even have been likely that such a situation existed. As neither the plaintiff nor their solicitor had made any enquiries with the defendants' solicitors prior to the request for formal completion, it would seem that they had no reason for such a suspicion. It follows that there must have been some other reason for the request for formal completion, and it is not difficult to deduce what it was. I have here a situation where a purchaser is locked into an extremely disadvantageous contract, and, in spite of the protestations of Mr Kwan that he was eager to complete the sale and had confidence in the market returning to profit, which I do not find convincing, I have no doubt that they would have welcomed a flaw appearing in the arrangements for completion which would enable them to withdraw and recoup their deposit. By requiring a formal completion, and giving the defendants' solicitors a bare four days' notice to prepare for it, little more than the minimum required by the Law Society, there was every chance that a situation would arise for something to go wrong.

9. This, however, did not take into account the obvious care with which the defendants' solicitor Mr Poon approached the matter and the meticulous preparation he set in train to ensure that he was ready for that completion. He was concerned that the plaintiff may try to find a way to avoid completing the transaction, a concern which Mr Kwok for the plaintiff dismissed as being without foundation. However, from the circumstances related above, and Mr Poon's evidence that no attempt had been made by the plaintiff's solicitor to make any arrangements for completion more than four days in advance, it is my view that he was right to be concerned. He accordingly ensured that all the documents for completion were ready. Included in these would have to be the release from the defendants' mortgagee bank. In a normal completion by undertaking this would be provided by the bank following receipt of the redemption money from the proceeds of sale. Here the release would have to be handed over as one of the completion documents, and arrangements had to be made with the bank to supply it before receiving the money, something about which any bank would understandably be cautious. It was solved neatly by the defendants transferring a sufficient sum to a deposit in the bank and signing a pledge to the effect that the bank may use that deposit to redeem the mortgage if anything went wrong and the release was handed over without a valid payment being made. In addition the bank's solicitor was to attend the completion to personally give the purchaser the release upon being given suitable payment. The defendants attended Mr Poon's office on 19 March to sign the pledge and also to execute the assignment which had been supplied by the plaintiff's solicitor that day.

10. To ensure that all went smoothly, in particular with the payment to the bank, Mr Poon requested that copies of the cashier orders, by which payment was to be made, might be supplied at least three hours prior to the time fixed for completion, and also requested that he be informed when the plaintiff's representative intended to come to his office for the completion. Miss Ma replied to the effect that she had told her clients of the request and would supply copies as soon as possible after receiving them. She also informed him that her clients intended to arrive at his office at about 4.05 p.m. for the purpose of completion the next day. In the event, copies of the cashier orders for payment were not provided in advance at all.

Events on 20 March 1998

11. On the morning of the day of completion, Mr Poon had a meeting with his partner, Mr Tang, and conveyancing clerks Mr Siu and Miss Ada Lam and gave them instructions on how to proceed that afternoon to ensure that nothing went wrong and the completion was conducted smoothly. It was intended that Mr Tang, Mr Siu and Miss Lam would assist at the completion, while Mr Poon would wait in his room with the defendants and join them if necessary. He told them that the plaintiff's solicitor was Miss Ma, and the bank's solicitor would be Miss Carrie Lo.

12. The defendants arrived at the office at about 3.40 p.m. and were taken to Mr Poon's room where they waited with him. Miss Lo arrived next at about 3.50 p.m. with her secretary Miss Ho and was taken to a waiting room. At some time after 4.20 p.m. Miss Ma arrived with Mr Kwan and was taken to the conference room where it was intended the completion should take place. They were accompanied there by Mr Siu and Miss Lam. Mr Siu then left to collect the completion folder and shortly returned with it. He asked about the cashier orders and was told by Miss Ma that the plaintiff's mortgagee was bringing them. This was Mr Tong, who arrived at about 4.47 p.m., Mr Kwan having been out to meet him in the lobby of the building. On the way in to the office, Mr Kwan, apparently without asking, used the time stamping machine on the receptionist's desk to stamp what later transpired to be a photocopy of the cashier orders with the time of their arrival. The events after this, and, indeed, immediately before it, are disputed by the parties, and I will look at what each maintains happened.

13. Miss Ma says that she arrived with Mr Kwan and was put in the conference room, and asked to see the completion documents, Mr Siu said that he would let her when the cashier orders arrived and left. Mr Kwan then either had or made a telephone call, said Mr Tong had arrived at the entrance of the building and left to collect him. She went on to say that they returned at 4.47 p.m. and Mr Tong gave her the cashier orders and Mr Kwan gave her two photocopies of them, one stamped with the time. She handed the other to Mr Siu and requested for the completion to proceed. Mr Siu left with the copy and returned with Mr Tang, Miss Lo and another lady who must have been Miss Ho. She then asked Mr Kwan to execute the counterpart assignment she had brought with her and put it on the table with the cashier orders and asked Mr Tang to inspect them and the assignment. Miss Lo showed her the mortgage release and supporting documents and she confirmed to Mr Kwan and Mr Tong that they were in order. She said that what happened next was that Mr Tang said that he would take away the assignment and cashier orders, Mr Tong objected, and Miss Ma suggested that Mr Tang give her the assignment executed by the defendants. Mr Tang and the others then left the room, but returned and again asked to take away the cashier orders and when she refused he said then there was nothing he could do. By this time it was after 5 p.m. and she advised Mr Kwan and Mr Tong that time had elapsed and the vendors had failed to complete. They then left. Mr Kwan and Mr Tong largely agreed with this version of events.

14. However, the account of the defendants' witnesses is markedly different. Mr Siu and Miss Lam agree that the former went to get the folder containing the completion documents after seeing Miss Ma and Mr Kwan to the conference room and told her that they were available for inspection upon her producing the cashier orders for their inspection. They were told that they were being brought by the intended mortgagee. Both Mr Siu and Miss Lam say that it was at that stage that Miss Ma produced the counterpart assignment and asked Mr Kwan to sign it, after which he left, and Miss Ma requested use of the time stamping machine to mark the time on it. This was refused, and she went out and repeated her request to the receptionist, who also refused, whereupon Miss Ma announced that she would write the time herself. While I prefer their evidence as to what happened about the counterpart assignment, I believe that they are mistaken in the time, in that it is more likely to have occurred after Mr Tong arrived with the cashier orders. I say this as the photocopy of the cashier orders was time stamped 4.47 p.m., while there is a handwritten time on the assignment, which is 4.49 p.m., apparently signed by Miss Ma. Even if Miss Ma was inaccurate in the time she wrote, it is not likely that she was wrong by some 15 minutes.

15. In any event, it is not in dispute that Mr Tong arrived at about 4.47 p.m., and there were in the conference room then Mr Kwan, Mr Tong and Miss Ma, on the plaintiff's side, and Mr Tang, Mr Siu and Miss Lam on the defendants', with Miss Lo for the defendants' mortgagee with her secretary. Mr Siu said he had asked Mr Tang to come in to answer questions that Miss Ma had about the bank's release, and he in turn had fetched Miss Lo and her secretary. Mis Lo handed the release to Miss Ma for her inspection, and she appeared satisfied with it. This was about 4.55 p.m. Miss Lo asked to see the cashier orders for the bank to check them, but was ignored. Mr Tong then queried the signature on the release and asked to see supporting documents, which were supplied by her to Miss Ma who confirmed to Mr Tong that all was in order. Mr Tong was apparently not satisfied, was loud and aggressive, and an argument broke out between him and Miss Ma. Miss Lo and the defendants' representatives left the room to allow them to cool down.

16. Several times throughout this, Mr Tang, Mr Siu and Miss Lam agree that Mr Tang had asked for a sight of the cashier orders to check, but, although Mr Tong appeared to be holding something that looked like them, they were never given an opportunity of inspecting them, but instead offered the photocopies, which Mr Tang rejected.

17. Upon Mr Tang and Mr Siu returning to the conference room, Miss Ma demanded the presence of the defendants, and was told by Mr Tang that it was not necessary as they had already executed the assignment which was available for the plaintiff's execution as soon as they were satisfied with the cashier orders and there could be an exchange. Miss Ma insisted, so Mr Tang went to fetch the defendants from Mr Poon's room, whereupon Miss Ma announced that it was now 5.15 p.m. and the time for completion had passed, and left with Mr Kwan and Mr Tong.

18. Throughout the entire proceedings that afternoon, the defendants' representatives are adamant that no original cashier orders were produced for their inspection, but only photocopies.

19. Having seen the witnesses for each side give evidence, and for reasons which I will go into further below, I accept in general terms the evidence for the defendants, and prefer that given on their behalf where it conflicts with that of the plaintiff's witnesses. While there are a number of discrepancies, which I would expect with witnesses trying to recall events over three years ago, in matters which are most relevant to this action their evidence is consistent. In particular they agree that no original cashier orders were produced, which is, in my view, one of the most important aspects of this matter, although Mr Kwok, for the plaintiff, has argued that, even if this was the case, which he disputes, this was not necessary to enable the vendors' solicitors to confirm the essential details of them to enable completion to proceed. I will look at this shortly.

20. In assessing the credibility of the witnesses, I return first to the matters I referred to above as to the interest of each side in seeing that this completion was successful. It will be readily apparent that the plaintiff had little motive for this, and indeed would have suffered financially by it, while the defendants were understandably eager to see the deal proceed to fruition in the knowledge that they were going to receive a price far beyond what the property was now worth. Their solicitors knew this and were equally keen to see that nothing went wrong, and had prepared carefully and had everyone assembled for the completion in plenty of time. As against this, the plaintiff's representatives had shown little interest in cooperating. They made no contact to discuss arrangements until four days before, then demanded a formal completion. They arrived about 35 minutes before the time stipulated and then, apparently, without the means of paying. This purported to arrive just 13 minutes before the critical time in the form of cashier orders, the arrangements for which give rise to further questions.

21. The plaintiff made no apparent attempt to obtain the cashier orders until the afternoon of 20 March. Mr Kwan and Mr Tong again seek to put the responsibility for this upon those they say ran Wide Profit. However, as I have found above, I have no doubt this was within their sphere of control. Their other argument was the additional interest they would have to pay. I fail to see that a matter of hours would have added to this more than marginally, if they had obtained them and provided copies in the morning. The next question was who obtained those cashier orders and when? The plaintiff's witnesses say that Mr Kwan took the application for them to the bank in the form of cheques from Wide Profit, signed by himself and Mr Tong, and the time recorded on the back of them is between 3.23 p.m. and 3.25 p.m. But he says that he did not wait for them but went to his solicitors. Mr Tong says that he was in the Mandarin Hotel having tea with a friend and his foki brought cashier orders to him between 4.10 and 4.15 p.m. and he then proceeded with them to the defendants' solicitors office. The difficulty with all this is that the receipt for the cashier orders retained by the bank is signed by Mr Kwan. The box of the receipt form by which another can be authorised to collect the cashier orders is blank. I cannot conceive of any bank releasing cashier orders in excess of $12,000,000.00 to someone who did not have any authorisation, or none that I have seen. The obvious conclusion is that it was Mr Kwan himself who both applied for and collected the orders. He says that he went to his own solicitors at about 4.15 to 4.20 p.m., and he accordingly had time to wait for the orders and take them with him.

22. This in turn might explain the strange behaviour of Mr Kwan at the defendants' solicitors' office of going down to the lobby to collect Mr Tong after a telephone call. He does not explain why Mr Tong could not have found his way in a lift to the office by himself. A possible explanation is that Mr Kwan had the cashier orders all the time and Mr Tong was a convenient excuse for their late arrival. It might also explain Mr Tong's relaxed behaviour by having tea with a friend only 45 minutes before he was due to present the purchase price and complete a sale for over $15,000,000.00.

23. To return to the events at the office of Messrs Poon & Cheung, the defendant's witnesses are agreed on the most important aspects of this matter, which were that the original cashier orders were not produced, and certainly not laid on the table for inspection as Miss Ma claims, that a number of time consuming questions were asked by Miss Ma, and then Mr Tong, about the bank release, most of which had already been dealt with in correspondence on requisitions raised by Miss Ma, that they felt obliged to leave because of a dispute which broke out between Mr Tong and Miss Ma, and when they returned Miss Ma demanded the presence of the defendants. I accept their evidence. They all seemed to me to be honest witnesses doing their best to recall events some time ago, but adamant on the critical issues here. In particular Miss Lo, as totally unconnected to any of the parties to the dispute, has no reason to lie. I also accept the evidence of Mr Siu that the completion documents were properly offered to Miss Ma for inspection, who did not appear very interested in them. The only documents not included were the bank's release, which was then produced by Miss Lo for inspection, and the assignment executed by the defendants, which Miss Ma was told was available for exchange once they were satisfied with the cashier orders. There was no need for its inspection as it was a document supplied by the plaintiff's solicitors.

24. As opposed to this, the behaviour of the plaintiff's representatives, and, I regret to say their solicitor, bears all the hallmarks of an arrangement to delay and obfuscate the proceedings to engineer a situation where they can claim time has expired and they have no need to complete. I have already referred to the, in my view unnecessary, last minute arrangements for the cashier orders, so that they appeared only 13 minutes before the time limit. In addition to this the prolonged questioning of the bank's release, which while possibly not irrelevant, were excessive and repetitive, and appear designed to delay, and I would add to that the possibly contrived argument between Miss Ma and Mr Tong. The totally unnecessary demand for the presence of the defendants after being told that the assignment had been executed is a further example. While a party to a completion may request the other party to be present upon notice, it is not normally necessary, and Miss Ma herself admits in her witness statement that she did not insist they were there to execute the assignment in the conference room.

25. In short I find that the defendants' solicitors were ready to complete and presented the necessary documents for that purpose, and had they been given an opportunity to inspect the cashier orders, there would have been no obstacle to it. I also find that the original cashier orders were not produced for inspection, but that photocopies were made available only, and the only question now is whether that was sufficient.

26. Mr Kwok argues that it was. He says that the defendants' solicitors only needed to check the payee of each, the amount and the date, to confirm that they were correct. In addition Mr Tang said that he would need to be satisfied that they were issued by a known licensed bank, otherwise he might feel obliged to check their authenticity. Miss Lo too wanted to satisfy herself as to their genuineness. While of course one can see on the photocopies the main matters listed above, it cannot be right that the receiving party is not then allowed an opportunity to check the copies against the originals to see that they are of the same document. This seems to me to go to the very root of the contract, that the vendor should be given the chance to make sure that they are receiving what has been agreed, and it is no answer for the purchaser to say that they will show something less than the actual amount ready to be paid. Had the agreement been for payment in cash, they could hardly have offered a photograph of the money. As Litton PJ said in Twinkle Step Investment Ltd v. Smart International Industrial Ltd (1999) 2 HKCFAR 255, at page 257:

"Upon disputes arising between the parties, it is the court's task to ascertain what their rights and obligations are, in order that the contract should work as they intended it to work: no more and no less. This would involve mutuality of obligations to some extent: In the example given by Mr Benjamin Chain in the course of argument, as referred to in Mr Justice Ching's judgment, the contract would not work unless there was some give and take on both sides: On the part of the purchaser: that he would give to the vendor a reasonable opportunity to count the money, making sure that the balance of the purchase money was indeed the consideration provided for in the contract: This right of the vendor's flows from the very nature of the contract itself. It need not be expressed."

27. Here I find that the flexibility required for a transaction such as this was all on the side of the defendants. In the evidence of Mr Tang and Mr Siu, they both said that would have acceded to any reasonable request of Miss Ma to ensure that the completion was successful. I take that to mean that, had there been a suggestion that the cashier orders were to be removed from the conference room and she objected, then I have no doubt that they would have arranged for their inspection and checking to be done there. It makes no sense that they would have jeopardised a transaction so important to their client for something which was so unnecessary. Similarly with Miss Lo, who did say she might have liked to check with the issuing bank to ensure that they were in order. There was no suggestion that there was a physical impossibility of checking them in the conference room or that no telephone, either land line or mobile, was available. The simple answer is, as I have already found, that the cashier orders were never produced, and Mr Tong did not allow them out of his possession, and the only reason this completion did not proceed was that payment to the reasonable satisfaction of the defendants was not tendered by the purchaser in accordance with the agreement and proper conveyancing practice.

Conclusion

28. It follows from the above that I find that it was the plaintiff who was in breach of the agreement and their claim must be dismissed. The defendants accordingly succeed in their counterclaim, upon which there has been no dispute as to the figures save for the sum claimed for wasted legal costs and disbursements in respect of the failed sale and purchase between these parties. Mr Kwok points out that the principle of damages is to restore the successful party to the position they would be in had the transaction proceeded to a successful conclusion. In this way they are entitled to the difference between the agreed price and that eventually received on the later sale. This would put them in the position as if the sale had proceeded. Had that been the case, they would have had to pay their solicitors the costs and disbursements out of the purchase price received. By claiming those costs now, they seek double recovery, and they are only, he contends, entitled to the extra costs incurred by the second sale. I accept this proposition and agree that the proper sum to be recovered by way of wasted costs is the amount of those on the second sale in the sum of $64,804.66.

29. I accordingly give judgment for the defendants as follows:

Fees paid to the estate agents	$ 100,000.00
Wasted costs on the second sale	$ 64,804.66
Legal costs and disbursements incurred to procure the discharge of their mortgage on the completion date	$ 8,300.00
Additional interest payable to their Mortgagee	$ 137,750.76
Difference in purchase price upon second sale ($15,100,000.00 - $8,800,000.00)	$6,300,000.00
	$6,610,855.42
Less deposit paid	$2,265,000.00
	$4,345855.42
	==========

30. There will accordingly be judgment for the defendants on their counterclaim for the sum of $4,345,855.42 and an order nisi for their costs of the action to be taxed and paid by the plaintiff.

Representation:

Mr Tim Kwok, instructed by Messrs Kenneth C C Man, for the Plaintiff

Mr Nicholas Pirie, instructed by Messrs Lo & Lo, for the Defendants

Remarks:
Appeal by the Plaintiff to the Court of Appeal. Appeal dismissed. Please refer to the Appeal Judgment CACV002167/2001.