VOLLY BEST INVESTMENT LTD v. JOINLAND HOLDINGS LTD

HCA 1438/2013

[2018] HKCFI 1191

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1438 OF 2013

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J U D G M E N T

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1.  By a Decision dated 11 May 2015, interlocutory judgment was entered in favour of the Plaintiff (Volly Best) against the Defendant (Joinland) with damages to be assessed. This is the assessment of damages.

Background

2.  This action arose out of the sale of 9 residential properties by Volly Best to Joinland which fell through due to the failure of Joinland to complete the transactions.  There is a Statement of Agreed Facts agreed by the parties pursuant to the directions of this court. For the present purpose, the relevant facts can be succinctly stated as follows.

3.  By 9 formal Sale and Purchase Agreements dated 4 June 2008 (SPA), Volly Best (a member of the Cheung Kong Group) as vendor agreed to sell and Joinland as purchaser agreed to buy 9 properties in Celestial Heights, Kowloon (Properties).

4.  Between June and July 2008, Joinland paid deposits and made part payments of the purchase price in the total sum of HK$38,263,700 for the Properties.

5.  Joinland failed to complete the purchase on 2 July 2009 in relation to 8 of the Properties, and on 6 July 2009 in relation to the remainder (Apartment No 10 on the 50th floor).

6.  Pursuant to clause 16(1) of the SPA and by letters dated 15 July 2009, Volly Best extended the completion deadline by 21 days.  Joinland failed to complete the transactions as requested. Consequently, Volly Best issued Notices of Determination dated 25 August 2009 to put an end to the SPA.

7.  Pursuant to clause 16(2) of the SPA, Volly Best forfeited the aforesaid deposits and part payments of HK$38,263,700.

8.  On divers dates from 1 to 12 March 2010, Volly Best resold all the Properties at a loss.

9.  Volly Best seeks damages at common law based on the open market value of the Properties as at the date of the Determination, ie, 25 August 2009.

Issues

10.  There is a List of Agreed Issues filed pursuant to the directions of this court.  There are only a handful of relevant issues as follows.

11.  Firstly, the date for assessing the open market value of each of the Properties.  Whether it should be the date of the Determination as claimed in the Statement of Claim or the date of the Provisional Sale and Purchase Agreements of the resale :

(1)   Apartment No 9 on the 52nd floor – 6 March 2010;

(2)   Apartment No 9 on the 53rd floor – 3 March 2010;

(3)   Apartment No 9 on the 55th floor – 4 March 2010;

(4)   Apartment No 9 on the 56th floor – 12 March 2010;

(5)   Apartment No 10 on the 50th floor – 2 March 2010;

(6)   Apartment No 10 on the 51st floor – 5 March 2010;

(7)   Apartment No 10 on the 52nd floor – 5 March 2010;

(8)   Apartment No 10 on the 53rd floor – 1 March 2010;

(9)   Apartment No 10 on the 56th floor – 1 March 2010.

12.  Secondly, whether Volly Best is entitled to recover Items (b) to (e)[1] of the Particulars of loss and damage set out in Schedule I of the Statement of Claim in respect of each of the Properties.  If so, by what amount.

13.  Items (b) to (e) are the consequential damage claimed by Volly Best, namely, management fees up to the date of completion of resale (Item b); Government rent and rates up to the completion of resale (Item c); agency commission for the resale (Item d); and conveyancing costs of the resale (Item e).  The parties had managed to agree the amount paid by Volly Best for these Items.  In short, they are as pleaded, save that Item (b) for Property (6) (adopting the numbering used in paragraph 11 above) had been agreed at HK$79,121.  There is therefore no dispute on quantum.

14.  Thirdly, whether Volly Best owed Joinland any duty to mitigate its loss, and the nature of such duty as a matter of law.  If there was such a duty, whether Volly Best had in fact mitigated its loss in respect of each of the Properties.

15.  In the course of Joinland’s opening, Mr Ho SC, who appeared with Mr Wou for Joinland, clarified that the duty to mitigate loss issue is only relevant if the court holds in favour of Joinland that the date of assessment of market price should be the date of resale of the Properties. In which case, Joinland contends that the Properties were sold below the market value. 

16.  Two factual witnesses were called, one from each side.  There is no dispute as to the credibility of these witnesses.  However, there is little relevant evidence in the testimony of Mr Law, Joinland’s witness. As to Ms Ho’s evidence, I shall mention the relevant part of the same in the analysis below.  Legal arguments aside, the dispute before the court focuses on the expert valuation evidence.  On that matter, Mr Chan gave evidence for Volly Best and Mr Kwan was called by Joinland.

Date of assessment of market price

17.  There is no controversy over the applicable principles of law, which are trite :

(1)   The normal measure of damages in relation to the sale of land is the difference between the market value of the property at the contractual time for completion less the contract price (see McGregor on Damages, 19^th edn, rubric 25-036);

(2)   The normal measure, however, is not absolute but may be varied to meet the justice of the case.  In Johnson v Agnew [1980] AC 367, the date of assessment was fixed by reference to a later date on which the remedy for specific performance became abortive.  The following dicta of Lord Wilberforce appears at pp 400H-401B:

“The general principle for the assessment of damages is compensatory, i.e., that the innocent party is to be placed, so far as money can do so, in the same position as if the contract had been performed. Where the contract is one of sale, this principle normally leads to assessment of damages as at the date of the breach …. But this is not an absolute rule: if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances.

  In cases where a breach of a contract for sale has occurred, and the innocent party reasonably continues to try to have the contract completed, it would to me appear more logical and just rather than tie him to the date of the original breach, to assess damages as at the date when (otherwise than by his default) the contract is lost.”

18.  On the application of principle (2) above, this court was referred to the case of Kwok Ka v Mak Siu Hong [1999] 2 HKLRD 564 at 572A-E where Barnett J referred to the “serious injustice to a purchaser” if the normal measure is applied in “a rising property market”.  In such a case, the date of judgement may be the appropriate date for valuation.

19.  I agree with Mr Ho that the rationale for using market price in the assessment of damages is that it is what the innocent vendor can obtain for the property which remains in his hands by reason of the breach of contract on the part of the purchaser.  Where the vendor is in breach, the market price reflects what it would cost the purchaser to acquire a comparable property in the market. 

20.  In the present case, adopting the date of the Determination for assessing the market value of the Properties is consistent with the normal rule.  The question is whether injustice may result from applying the normal rule. 

21.  It should be pointed out that there is, on its face, an anomaly in Joinland’s case in that, although it is arguing for the adoption of the resale date as the date to assess the market value, its valuation evidence is that the market value was actually higher on 25 August 2009 compared with that of March 2010.  It will be seen below that Joinland’s evidence of the market price at the earlier date is unacceptable.  This anomaly may be a recognition of the quality of that evidence.

22.  Before I refer to the relevant evidence which may assist in resolving this issue, I should set out the various valuations of the Properties (all prices are in HK$) :

Properties	Purchase Price	OMV[2] 25.8.09 (Chan)	OMV 25.8.09 (Kwan)	Resale price	OMV 3.10 (Kwan)[3]
(1)	$41,600,000	32,510,000	41,850,000	35,659,000	39,670,000
(2)	$42,380,000	32,810,000	42,710,000	35,933,000	40,350,000
(3)	$43,077,000	33,110,000	43,570,000	36,345,000	41,020,000
(4)	$44,460,000	33,410,000	44,420,000	36,756,000	41,700,000
(5)	$40,560,000	31,910,000	40,140,000	35,385,000	38,320,000
(6)	$41,340,000	32,210,000	41,000,000	35,659,000	39,000,000
(7)	$41,860,000	32,510,000	41,850,000	35,933,000	39,670,000
(8)	$42,640,000	32,810,000	42,710,000	36,208,000	40,350,000
(9)	$44,720,000	33,410,000	44,420,000	37,031,000	41,700,000

23.  Celestial Heights was a project jointly developed by Cheung Kong (Holdings) Ltd and Nan Fung Development Ltd.  It was a large development.  The Properties were sold as part of the 1^st Phase of sale involving 3 towers and some 500 flats. Nearly all of those flats were sold as planned.  Shortly after the Properties were acquired by Joinland, there was a worldwide financial downturn which started in about August 2008 and culminated in a crash in about November 2008 after the collapse of Lehman Brothers Holdings Inc.  However, the market began to recover from about the following month.

24.  The financial turmoil affected the Hong Kong property market.  There were 93 cases of default from the sale of the 1^st Phase, amongst which were the Properties.

25.  There was a 2^nd Phase sale of Celestial Heights which took place in the latter half of 2009 involving some 493 flats.

26.  According to Ms Ho, it was always Cheung Kong’s[4] intention to resell the default units.  It decided not to do so immediately after the default, and one of the reasons was that the resale would clash with the launch of the 2^nd Phase. 

27.  Turning to the question whether to adopt the resale date for the market valuation, on the assumption that the market had risen between the date of Determination and the date of resale, adopting the resale date would be consistent with the basic principle of law that the innocent party is to be compensated for the loss he suffered as a result of the breach of contract.  Damages are not meant to produce any windfall or additional profit.  Hence, in cases where the market has risen, an innocent vendor would have suffered no loss and is only entitled to nominal damage (see Richly Bright Intl Ltd v De Monsa Investments Ltd (2015) 18 HKCFAR 232, §44). 

28.  The other side of the same coin is that to allow any additional profit to the innocent party would be unjust to the party in breach, because he would be paying more than what is sufficient to put the innocent party into a position as if the contract had been performed. 

29.  If the assumption that the later valuation date would yield a higher open market value (OMV) is correct, which is Volly Best’s case, it is plain from the table in para 22 above that not adopting the later date would mean that there would be 2 layers of profits for Volly Best – first when the Properties were sold to Joinland and then on the resale (the difference between the resale price and the OMV as of 25 August 2009).  This is contrary to basic principle for assessment of damages.

30.  Mr Ismail, who appeared with Mr Ismail for Volly Best, argued that it was a matter of option for Volly Best whether to resell the Properties and that Joinland is not entitled to any credit over the profits Volly Best had made from the resale.  He relies on the following dicta from Bunge SA v Nidera BV [2015] 3 All ER 1082, §80 (Lord Toulson) :

“Whether the innocent party thereafter in fact enters into a substitute contract is a separate matter. He has, in effect, a second choice whether to enter the market – similar to the choice which first existed at the time of the original contract, but at the new rate prevailing (the difference being the basis of the normal measure of damages). The option to re-enter or stay out of the market arises from the breach, but it does not follow that there is a causal connection between the breach and his decision whether to re-enter or to stay out of the market, so as to make the guilty party responsible for that decision and its consequences. The guilty party is not liable to the innocent party for the adverse effect of market changes after the innocent party has had a free choice whether to re-enter the market, nor is the innocent party required to give credit to the guilty party for any subsequent market movement in favour of the innocent party. The speculation which way the market will go is the speculation of the claimant.”

31.  With respect, I agree with Mr Ho that Bunge SA involved unusual facts.  The issue in that case concerned the interaction between common law principles and certain contractual provisions for assessment of damages.  There was no dispute over valuation date, and the discussion of law focused much on mitigation of damage in the context of an anticipatory breach and the availability of a substitute market.

32.  However, I accept that where an innocent vendor has decided to keep the property for whatever purpose, he would be assuming the risk of movement of the market, and if he is fortunate to make a profit when he eventually sold the property, such profit is his to keep.  This sits with plain common sense.

33.  On the other hand, this is not such a case. Volly Best’s own evidence is that it had always intended to resell the default units (including the Properties).  The fact that it chose to market the default properties after the launch of the 2^nd Phase is not relevant, unless it was unreasonable for Volly Best to have done so and that it constituted a failure to mitigate loss (see below). 

34.  I am unable to see any justification for Volly Best to insist on an earlier valuation date (date of Determination) so that it can make additional profit from the resale.  I do not believe that Bunge SA assists Volly Best.  There is no basis to believe that Volly Best had assumed any market risk in the resale. 

35.  It will be seen below that this court finds that the value of the Properties was indeed higher on the resale date (see para 68 below).  In the premises, I hold that the resale date should be adopted for the valuation of the Properties.

Valuation evidence

36.  I regret to say that neither Mr Chan nor Mr Kwan had impressed the court as a reliable witness. 

37.  Dealing firstly with Mr Chan’s evidence.  He only provided his valuations of the Properties as of the date of Determination.  They represented a drop of nearly 23% as compared with the prices at which the Properties were acquired by Joinland.  This sits poorly with the territory-wide price index for private domestic properties classes D and E (luxury sector) (Index), which recorded a drop of less than 4% during the relevant period. 

38.  Although Mr Chan said that the Index was compiled with a basket of properties from the secondary market, he agreed that the Index might be used as a reality check for the valuations he arrived at. He said that he could also refer to the information from neighbouring areas, like Ho Man Tin, to see if he could be confident about his valuations.  Surprisingly, Mr Chan did not carry out any such check of his valuations despite the gulf between the same and the Index. 

39.  It should be mentioned that the variance between Mr Chan’s valuations and the market trend (as shown by the Index) is likely to be in excessive of 23%, bearing in mind his evidence that the first hand market commanded a higher price at the time (before the introduction of measures by the Government to curb speculation).  The reason was that speculators were able to make a quick profit by disposing of their properties by way of confirmor sale before completion. 

40.  Mr Chan’s valuations also differed with those of Mr Kwan by as much as about 25%.  The evidence is that the difference was mainly attributable to the adoption of different comparables used in the analysis made to arrive at the OMV.  However, given Mr Chan’s agreement that such a large difference was unusual in a mature property market like Hong Kong, it is again surprising for Mr Chan not to have at least review the comparables used by Mr Kwan to ensure that his own valuations were reliable. 

41.  Mr Chan relied on 5 comparables[5] (C1 to C5).  They were rejected by Mr Kwan as inappropriate for 3 reasons: the transaction took place after the valuation date (Time Factor), which applied to C1 to C3; different layout (Layout Factor), which affected C3 to C5; and lower floor level (Floor Factor), which applied only to C4.  In order to use these comparables for his valuation, adjustments were made by Mr Chan to account for the differences between them and the Properties.  Mr Chan agreed that normally the greater the adjustment the less reliable is the comparable. 

42.  I agree with Mr Kwan’s evidence that C3 to C5 were “different products” compared with the Properties due to the Layout Factor.  When one examines the floor plans for the Properties and those for C3 to C5, it can be seen that the former were in a shape described by Mr Kwan as resembling the wings of a butterfly with an extensive frontage and hardly any unusable space, whilst the latter were rectangular in shape with a considerably smaller frontage and had a corridor leading to 3 bedrooms. 

43.  Mr Chan was taxed in cross-examination about the Layout Factor.  He said that it was a subjective matter and he was unable to judge which was to be preferred.  I found such evidence difficult to believe.  In answer to a question from the court, Mr Chan agreed that if he was to advise a client he would say that the Properties had better layout than C3 to C5.

44.  In addition to the difference in layout, when one compares the Properties with C3 to C5, the former had 5 bedrooms as opposed to 4, they were materially larger and more expensive.  Quite rightly, these were different products.

45.  In respect of C4 and C5, they required significant adjustment for Floor Factor, respectively 22% and 17%.  In addition, there was an adjustment of 6% for both on size difference.  Mr Chan agreed that a comparable which required adjustment in excess of 20% would not be so useful, and that the more adjustment needed (for different factors), the less reliable would be the comparable. 

46.  For these reasons, I do not believe that C3 to C5 were appropriate comparables for the valuation exercise in question. 

47.  As regards C1 and C2, these were transactions which took place nearly 7 months after the SPA were terminated.  The adjustments made for C2 for Time Factor and View Factor amounted to over 17%. Given the importance of these 2 comparables in light of the unsuitability of C3 to C5, I am unable to see that Mr Chan’s assessments were sufficiently supported. 

48.  Further, there was a late challenge by Mr Chan over one of Mr Kwan’s adjustments for his comparables (View Factor).  The challenge only surfaced in the course of the hearing.  In the Joint Report, Mr Kwan acknowledged Mr Chan’s disagreement with him over the lack of adjustment for View Factor (Mr Kwan did not have the opportunity to visit the Properties).  He subsequently attended a joint site inspection and made a 2% adjustment for the difference in view between his comparables and the Properties.

49.  In the relevant Remark column in the Joint Report for Mr Chan, the word “Adopted” appeared.  On its face, this suggested that the disagreement over the View Factor was resolved after the adjustment made by Mr Kwan.  When Mr Chan was asked to explain what he meant by “Adopted”, he was unable to provide one. 

50.  Shortly before Mr Chan gave evidence, a table (exhibit D2) was introduced by Volly Best.  It was produced by Mr Chan’s “team” setting out a view analysis designed to challenge Mr Kwan’s adjustment of 2% by demonstrating that the appropriate adjustment should have been as much as nearly 7%.  This table was compiled by using 4 pairs of properties for comparison.  When Mr Chan was asked how the comparing properties were selected, his answer was that it was all carried out by his team and that his role was confined to looking at the selected pairs and checking the exercise shown in the table. 

51.  The selection of suitable properties for comparison was plainly a fundamental part of that exercise.  It is quite unfortunate that Mr Chan took no part in that process, and his attitude is not one which inspires confidence in his evidence. 

52.  Having examined the photographs provided by Mr Kwan, I have no reason to doubt the adjustment of 2% for View Factor.   

53.  Finally, Mr Chan was challenged by Mr Ho about his understanding of his duties as an impartial expert witness.  With respect, such challenge was well-founded.

54.  As regards Mr Kwan’s evidence, the same point of reality check can be made.  Mr Kwan’s valuations as of the date of Determination were marginally higher (average of 0.01%) than the purchase prices paid by Joinland.  This sits poorly with the fact that the Index showed a downward adjustment in the market of 3.4%.  When asked to explain why any purchaser would have agreed to buy the Properties at a higher price when the market had gone down, Mr Kwan was unable to provide a satisfactory answer (he said that the difference was not very large and the Index provided territory-wide data).

55.  If the value of the Properties was higher than the cost of acquisition, it is illogical for Joinland not to have completed the transactions and thereby avoiding this litigation. 

56.  Like Mr Chan, Mr Kwan had not carried out any exercise to check whether his valuations were reliable given that they were against the market trend. 

57.  Further, like Mr Chan, Mr Kwan simply ignored Mr Chan’s comparables as inappropriate instead of analysing them to see if they might provide any guidance.  This must be viewed in light of the criticisms over the comparables he used: the transactions took place 15 months before the valuation date and they were all pre-sale transactions. 

58.  I agree with both criticisms.  In respect of the age of the transactions, it is not disputed that the older the data the less useful it is. 

59.  As for the nature of the transactions, I agree with Mr Ismail that there are difficulties with using pre-sale transactions as comparables and that such difficulties cannot easily be quantified.  For instance, “allowance would have to be made for loss of interest on pre-payments; uncertainty over quality and completion dates; and varying market conditions over the relevant period”: see Million-Add Development Ltd v Secretary for Transport, LTMR 3/1994, 4 February 1997, §75 and also Good Faith Properties Ltd v Cibean Development Co Ltd, LDCS 42000/2011, 31 May 2013, §185.

60.  Finally, Mr Kwan accepted in cross-examination that he had made an error of judgment in failing in his initial report to make any adjustment for size difference between his comparables and the Properties.

61.  In the premises, I do not believe that Mr Kwan’s valuations were based on solid foundation, and I am unable to rely on the same.

62.  I shall deal next with the valuations of Mr Kwan as of the date of resale.  In this regard, Volly Best offered no expert evidence of its own and relies on resale price as evidence of the market value.  It is appropriate to consider this aspect of the case under mitigation of damage.

Mitigation of damage

63.  I do not believe that there is any real difference between the parties on the law.  Their disagreement is more a matter of semantics.  The law is trite and I would adopt the summary found on pages 2 to 3 of the judgment in Rich Pacific Holdings Ltd v Top Profit Properties Ltd, HCA 6806/1998, 26 June 2000 :

“It is trite law that an aggrieved party is under a duty to take reasonable steps to mitigate his loss. What steps are reasonable is a question of fact: Payzu Ltd v Saunders [1919] 2 KB 581. The law does not impose a very high standard on the plaintiff because the wrongdoer is the defendant. The plaintiff is not under any obligation to do anything other than in the ordinary course of business: Westinghouse Electric Co Ltd v Underground Electric Rys, [1912] AC 673 at 689.

  The onus of proof that the plaintiff failed to mitigate is on the defendant, who must show that the plaintiff ought, as a reasonable man, to have taken certain steps to mitigate his loss: Strutt v Whitnell [1975] 1 WLR 870. …”

64.  Joinland says that Volly Best had resold the Properties at prices below the market.  The only evidential support for Joinland’s case is Mr Kwan’s valuations.  In addition, this court is invited to draw an adverse inference against Volly Best due to its failure to adduce evidence of, eg, the lowest prices at which it was prepared to resell the Properties and the offers received before the conclusion of the resales.

65.  In respect of Mr Kwan’s evidence, given the lack of reliability of the same in respect of the valuations as of the date of Determination, it should be approached with caution.

66.  There is no dispute that Cheung Kong and Nan Fung were (and are) amongst the largest property developers in Hong Kong. Obviously, they had their own expertise on valuation.  The evidence is that 7 estate agents were instructed for the resale.  The commission payable to the agents had a built-in incentive on achieving the highest price[6].  Ms Ho’s evidence is that Volly Best wanted to have good response for both Phase 2 and the default units.  There is no suggestion that the resales were concluded with related parties.  There is simply no reason to believe that Volly Best had acted against its own interest by reselling the Properties at below market prices.

67.  In respect of any failure to produce relevant evidence (I am not satisfied that there was any deliberate failure), I do not believe that the court should lightly draw an adverse inference against Volly Best that the resales were undervalued (see Tullett & Tokyo Intl Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356 at 365B-J). In the absence of good reason to believe that Volly Best had resold the Properties at undervalue (I see none), it would not be right to make such a finding based on adverse inference alone. 

68.  Finally, in respect of the time lapse between the date of Determination and the resale (less than 6 months), that should not work against Joinland because the market was on an upward trend based on the Index, which is the only reliable evidence before the court. 

69.  Mr Ismail relies on Teng Fuh Co Ltd v Keen Lloyd (Holdings) Ltd, CACV 193/1999, 5 November 1999, p 11, for the proposition that a resale within 6 months after the determination of contract should be considered as reasonable.  In my respectful view, this may be treated as a general guide, subject to any particular circumstances of the case before the court.

70.  In the premises, I reject Joinland’s case on failure to mitigate loss on the part of Volly Best.  

Market price as of date of resale

71.  By reason of the above analysis, I accept that the resale prices in this case reflected the market value of the Properties and should be used to assess the damage suffered by Volly Best. 

72.  Further, the resale prices are the only reliable evidence of the market value of the Properties.  Therefore, even if one were to adopt the date of Determination for the date of assessment, there is no reliable evidence from either of the expert witnesses on the OMV of the Properties as of that date. 

73.  It would not be right for the court to try to make an assessment of the OMV as of the date of Determination based solely on the Index, which is the only reliable information.  In the premises, even if the date of Determination were to be preferred, the court would have little choice but to adopt the resale prices.  The dicta of Lloyd LJ in Hooper v Oates [2014] Ch 287, §38 provide some support for doing so :

“If the defaulting party is the buyer, much will depend on what the seller does in response to the breach … If he resells, the buyer may be able to show that, in so doing, the seller failed to take reasonable steps to mitigate his loss, for example by taking too long, or failing to follow proper professional advice, or in some other way. Absent any feature of that kind, the eventual resale price is likely to be the figure to be set against the contract price for assessment of the damages, not because it represents the market value at the date of the breach, but because it shows what loss the seller has suffered, uncomplicated by issues of remoteness or failure to mitigate.”

Other consequential loss

74.  Acting with fairness and propriety, Mr Ho accepted that where the court decides that the valuation date should be the date of resale, Joinland is liable for Items (b) (management fees up to date of completion of resale) and (c) (Government rent and rates up to completion of resale) as consequential losses.

75.  In respect of Items (d) and (e), respectively, the agency commission and conveyancing costs for the resale, Mr Ho contends that such expenses would have been incurred had there been no breach of the SPA.  There is no evidence to suggest that Volly Best had paid such expenses for the aborted sale, and that these were additional expenses which should be reimbursed by Joinland.

76.  In respect of Items (b) and (c), they are no longer in issue in light of the finding by this court that the appropriate date of assessment of market value is the resale date. 

77.  However, it must be mentioned with regret that the attitude adopted by Mr Ho has not been shown by the other side.  On behalf of Volly Best, Mr Ismail argued that Joinland should be responsible for Items (b) and (c) even if the date of assessment is the date of Determination.  This is quite an unusual contention.  It sought to impose the expenses for keeping the Properties for about 6 months between the date of Determination and the date of resale on Joinland, whilst the profits earned from a rising market would be kept by Volly Best. 

78.  Such a proposition is contrary to basic common sense.  Mr Ismail was invited by the court at the PTR to produce authorities to support this unusual case.  None was provided.  Instead, a large volume of cases was produced where damages for consequential loss were awarded in favour of innocent vendors.  They were nowhere to the point.  I shall return to this matter when it comes to costs.

79.  As regards Items (d) and (e), Mr Ismail accepted that there is no evidence before the court that these were additional expenses incurred by Volly Best in the sense that it had made similar payments for the aborted sale, and that the burden of proof is on Volly Best to substantiate its losses.  It was also accepted that unless these were additional expenses, Volly Best is not entitled to these claims. 

80.  This court was informed by Mr Ismail, after having confirmed his instructions, that Volly Best did not incur any agency commission in the aborted sale.  However, Mr Ismail later said that such information was incorrect and that Volly Best had indeed incurred such expenses. 

81.  This was an unusual turn of event given that this litigation has been on foot for many years, the alleged consequential losses are in dispute[7], Volly Best is a resourceful litigant and has been legally represented all along. 

82.  Understandably, Mr Ho is not prepared to accept the suggestion that Volly Best had paid any agency commission (or conveyancing costs) for the aborted sale.  I have to say that, given the bargaining power behind Volly Best, one would expect it to be in a position to negotiate with the agents on the commission for the aborted sale. 

83.  There was a late application by Volly Best for leave to adduce additional evidence on the payment of agency commission.  It was successfully resisted by Mr Ho on the ground of prejudice.  

84.  In these circumstances, and bearing in mind the need to conclude this litigation after so many years, I do not accept Mr Ismail’s suggestion to make an award for Items (d) and (e) with an undertaking by Volly Best not to enforce it unless it produces evidence to Joinland’s solicitors of the payment of such expenses for the aborted sale.  Opening such a door will likely lead to further arguments. 

85.  For these reasons, I would only uphold Volly Best’s claim under Items (b) and (c). 

Conclusions

86.  The quantum of damages will have to be recalculated based on the above findings.  The parties have agreed that they would endeavour to agree such recalculation and submit an agree draft order for the approval of the court.

87.  In addition, Volly Best is entitled to interest. There is no dispute that 1% above the prime rate is the appropriate rate of interest.  Mr Ho argued that the interest entitlement should be reduced by reason of the delay in launching this action.  On balance, I am not convinced that the interest entitlement should be reduced.  These are commercial entities, and Joinland has benefited from not having to pay the balance of the purchase price. 

88.  I award interest in favour of Volly Best at prime plus 1% for all its loss from date of resale to date of judgment, and thereafter at judgment rate until payment. 

89.  As for costs, it is the duty of the court to uphold the underlying objectives enshrined in O 1A, r 1, and to discourage unmeritorious arguments (see paras 77 and 78 above) (see also Hong Kong Civil Procedure 2018, 2^nd Cumulative Supp, rubric 1A/0/11).  I make an order nisi that Volly Best is to have ¾ of its costs.  The reduction is to reflect its insistence on running a wholly unmeritorious argument.  I see no sufficient reason to provide a certificate for 2 counsel.

HCA 1438/2013

[2018] HKCFI 977

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1438 OF 2013

_________

_________

___________________________

REASONS FOR DECISION

___________________________

THE APPLICATIONS

1.  At the hearing on 25 April 2018, there were before me two applications:

(1) the Defendant’s summons of 12 March 2018, seeking leave to re-amend its Defence and Counterclaim (“the Defendant’s Summons”); and

(2) the Plaintiff’s summons of 26 March 2018, seeking leave to amend its Statement of Claim and to file a supplemental expert report (“the Plaintiff’s Summons”).

2.  I dismissed both summonses at the hearing.  I now set out my reasons for doing so.

THE BACKGROUND

3.  The following are undisputed facts, taken from the parties’ statement of agreed facts of 11 April 2018, or otherwise not disputed.  The Plaintiff is the owner of a development known as “Celestial Heights” at 80 Sheung Shing Street, Ho Man Tin, Kowloon.

4.  On 4 June 2008, the Defendant entered into formal sale and purchase agreements for the purchase of nine units (“the Units”) in the development (“the Agreements”).  Clause 3(1) and Schedule 4 of each of the Agreements provided for payment of the purchase price to the Plaintiff’s solicitors in the following manner:

(1) the preliminary deposit (equivalent to 5% of the purchase price of each of the Units) had been paid on 30 May 2008;

(2) the 1^st part payment (equivalent to 5% of the purchase price) was to be paid on or before 4 July 2008;

(3) the 2^nd part payment (equivalent to 5% of the purchase price) was to be paid on or before 2 September 2008; and

(4) the balance was to be paid within 14 days of notification to the Defendant that the Plaintiff was in a position to validly assign the property to the Defendant.

5.  The Defendant paid the 1^st part payments due under the Agreements.

6.  The Defendant did not pay the 2^nd part payments due under the Agreements.

7.  By letters dated 16 June 2009, the Plaintiff’s solicitors gave notice to the Defendant that the Plaintiff was in a position to validly assign eight of the nine Units to the Defendant and required it to complete the purchase on or before 2 July 2009.

8.  By a letter dated 19 June 2009, the Plaintiff’s solicitors gave notice to the Defendant that the Plaintiff was in a position to validly assign the last of the Units to the Defendant and required it to complete the purchase on or before 6 July 2009.

9.  By letters dated 15 July 2009, the Plaintiff’s solicitors referred to the Defendant’s failure to pay the 2^nd part payments and to complete the purchase of the Units on the completion dates, and notified the Defendant that unless the purchase was completed within 21 days, the Plaintiff might enforce its rights to determine the Agreements.  The letters were issued pursuant to clause 16(1) of each of the Agreements.  The last paragraph of each of the letters stated that “All our client’s rights under the Agreement, at common law, in equity or otherwise are expressly reserved.”

10.  The Defendant did not pay the outstanding 2^nd part payments or complete the purchase within the time stipulated whereupon the Plaintiff exercised its right under clause 16(1) of each of the Agreements to determinethe Agreements and to forfeit the deposit paid.  This was done pursuant to the Plaintiff’s solicitor’s letters of 25 August 2009 (“the Determination Notices”).  The last paragraph of each of the letters stated that “All the Vendor’s rights and remedies whether under the Agreement, at common law, in equity or otherwise are hereby expressly reserved, and nothing herein shall prejudice or affect any rights or remedies of the Vendor against you arising from your breach of the Agreement.”

11.  Between 1 and 12 March 2010, the Plaintiff resold the Units to third parties.

Procedural background

12.  On 5 August 2013, the Plaintiff commenced the present action.  Its Statement of Claim pleaded:

(1) in paragraph 13, the market value of the Units as at the date of the Determination Notices of 25 August 2009;

(2) in paragraph 14, the market value of the Units as at the date of their resale in March 2010;

(3) in paragraph 15, an entitlement to recover “damages at common law”;

(4) in prayer (a), “damages under common law for breach of contract” in an amount representing the difference between the price under the Agreements and the market value of the Units as at the date of the Determination Notices.

13.  The Plaintiff applied for summary judgment, seeking interlocutory judgment on liability, with damages to be assessed.  On 11 May 2015, Madam Recorder Linda Chan SC ordered that interlocutory judgment be entered for the Plaintiff against the Defendant, with damages to be assessed (“the 2015 Judgment”).

14.  On 1 February 2017, Master J Wong gave leave to the parties toset down the assessment of damages with five days reserved.  Subsequently,the assessment of damages was set down for hearing before Anthony Chan J, to commence on 9 May 2018.

15.  By a pre-trial review notice of 7 March 2018, the Plaintiff indicated that it would seek leave at the pre-trial review (of 14 March 2018) to file a supplemental expert report relating to the market values of the Units as at the completion dates (of 2 and 6 July 2009).

16.  The Defendant’s Summons was issued on 12 March 2018.

17.  At the pre-trial review on 14 March 2018, Anthony Chan J ordered, inter alia:

(1) that the Plaintiff and Defendant serve their opening submissionsfor the assessment of damages not less than 14 days and 7 days,respectively, before the commencement of the assessment; and 

(2) that save for the Defendant’s application for leave to re-amend its Defence and Counterclaim and the Plaintiff’s application for leave to file an additional valuation report (there was at that stage not yet any application for leave to amend its Statement of Claim), there be no further interlocutory application without the leave of the Court.

18.  12 days later, the Plaintiff issued the Plaintiff’s Summons.

DEFENDANT’S APPLICATION TO RE-AMEND THE AMENDED DEFENCE AND COUNTERCLAIM

19.  Clause 16 of the Agreements provided as follows:

“ (1) Should the Purchaser fail to observe or comply with any of the terms and conditions herein contained or to make the payments in accordance with Schedule 4 or any interest payable hereunder within 7 days of the due date, the Vendormay (subject to Clause 3(3)) give to the Purchaser notice inwriting calling upon the Purchaser to make good his default. In the event of the Purchaser failing within 21 days from the date of service of such notice fully to make good his default, the Vendor may by a further notice in writing forthwith determine this Agreement.

(2) Upon the determination of this Agreement pursuant to sub-clause (1):–

(a) the sum paid by the Purchaser under item (i) of Schedule 4 by way only of deposit shall be forfeited to the Vendor …

(3) Upon determination of this Agreement under sub-clause (1) the Vendor may resell the Property either by public auction or private contract subject to such stipulations as the Vendor may think fit and any increase in price on a resale shall belong to the Vendor.  On a resale, any deficiency in price shall be made good and all expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the Vendor as and for liquidated damages Provided That the Purchaser shall not be called upon to bear such deficiency or expenses unless the Property is resold within 6 months of the determination of this Agreement.”

20.  The Defendant’s Summons sought leave to add new paragraphs 81A and 81B to the Amended Defence and Counterclaim, to plead reliance on clause 16(3) of the Agreements, and to take the point that since the Plaintiff had elected to resell the Units in March 2010, more than 6 months after the determination of the Agreements, the Defendant should not be called upon to bear any price deficiency or expenses relating to the resale.

Proposed argument based on clause 16(3) not arguable

21.  The Defendant’s argument is that clause 16(3) of the Agreements is a liquidated damages clause; as a matter of law, this precludes a claim for common law damages; that factually, by the act of reselling the Units, the Plaintiff has elected the remedy of liquidated damages; and that since the resale took place more than 6 months after the determination of the Agreements, the proviso in clause 16(3) applies and no liquidated damages are payable.

22.  Mr Ismail, counsel for the Plaintiff, submitted that the Defendant’s proposed argument was not fairly arguable, so that the amendment would be futile, and ought to be refused.  He cited VSC Building Products Company Limited v Kono Insurance Limited, unreported, HCA 947/2005, 9 September 2009, where Andrew Cheung J (as he then was) said:

“ 12. It is trite that an amendment should be refused if it is a futile one, particularly if it is a late application.

…

18. As presently advised, and in the absence of any authorities to support the proposition put forward by Mr Tam on behalf of the defendant, whilst the argument raised is ultimately a question of construction of the terms of the policy, I am not satisfied that the proposition is reasonably arguable.  I also bear in mind thatthis is a fairly late application.  Any doubt in this regard should be resolved in favour of the plaintiff, the recipient of this very late application to amend.”

23.  Clause 16(3) of the Agreements is virtually identical to clause 17(3) of the sale and purchase agreement which was considered in King’s City Holdings Ltd v De Monsa Investments Ltd [2013] 4 HKC 450.  Fok JA, with whom Lam JA and McWalters J (as they then were) agreed, held in [24] to [27] that:

(1) the clause was a liquidated damages clause;

(2) the clause was in a standard form and provisions virtually identical to it had previously been considered by the courts;

(3) a substantially identical clause was considered in Woomera CoLtd v Provident Centre Development Ltd [1985] HKLR 263.  In that case, the Court of Appeal had held that the clause was not an exhaustive statement of the vendors’ rights and did not preclude a claim for common law damages;

(4) the conclusion that clause 17(3) (in the agreement in King’s City Holdings Ltd) did not preclude a common law claim for damages against the defaulting purchaser was sufficient to support the grant of summary judgment for damages to be assessed.

24.  Thus there are two Court of Appeal judgments which have construed a clause virtually identical to clause 16(3) of the Agreements as being a non-exclusive liquidated damages clause which did not preclude the vendor from claiming for common law damages as an alternative remedy — a construction which is directly contrary to the one sought to be pleaded by the proposed paragraphs 81A and 81B.  The Court of Appeal judgments are binding on the Court of First Instance as to the question of construction of clause 16(3) of the Agreements.

25.  Counsel for the Defendant, Mr Jean-Paul Wou, accepted that this was the case.  However, he contended that the Defendant ought to be allowed its proposed amendment as it was entitled to challenge the Court of Appeal’s construction in the Court of Final Appeal.  In support of this, he cited note 18/11/1 of Hong Kong Civil Procedure 2018, which says “In a proper case, the court will allow a party to amend his pleading so as to … keep the point open for argument in the final appellate court, as in Cummingsv. London Bullion Co. [1952] 1 K.B. 327 ….”

26.  Mr Wou submitted that Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 was an authority which supported his argument on clause 16(3) of the Agreements.  He referred to [76] to [79], where Ribeiro PJ compared the different intention and effect of deposit clauses and liquidated damages clauses.  Mr Wou relied on [77], where Ribeiro PJ said that where a breach is covered by a liquidated damages clause, the amount prescribed by that clause represents the agreed sum of damages payable, regardless of the quantum of actual loss, and [79], where Ribeiro PJ reiterated that a liquidated damages clause is definitive of the damages recoverable where the actual loss exceeds the amount payable under the clause.  Similarly, McGregor on Damages at paragraph 16-022 stated that the courts implement the intention of the parties in the case of liquidated damages by holding the claimant entitled to recover the stipulated sum, irrespective of the amount of actual damage.

27.  I do not consider that Polyset (or the passage from McGregor) is authority for an alternative construction of clause 16(3).  All that Ribeiro PJ was saying was that where a liquidated damages clause applies, a claimant cannot receive more than the agreed amount of damages.  But the point about clause 16(3) is that it has been construed by the Court of Appeal as not precluding a claim for common law damages.  Where there is a such a claim, the liquidated damages clause, by definition, will not apply to fix the amount of damages recoverable.

28.  Mr Wou also submitted that whilst the Plaintiff had stated that it was claiming common law damages, it had in fact elected, by the act of selling the Units, to claim liquidated damages only.  In support of this submission, he cited Talley and anor v Wolsey-Neech (1979) 38 P&CR 45 at 52, where Browne LJ cited Horsler v Zorro (1975) 29 P&CR 180, in which Megarry J was addressing a innocent contractual party’s right to choose between terminating a contract for the other party’s breach and suing for restitution to his former position, or affirming the contract and suing for damages.  Megarry J then dealt with the consequences of those alternative remedies.  If the innocent party decided to sue for damages, he could choose whether to resell or not, and the measure of damages would be different according tohis choice.  Browne LJ then went on to hold that as the plaintiffs had chosen to exercise their rights under condition 19(4)(c) in their contract, they were only entitled to recover the liquidated damages defined by that clause.

29.  However, the clause in Talley was very different to clause 16(3) of the Agreements.  In Talley, clause 19(4)(b) first provided that without prejudice to any other rights or remedies available to him at law or in equity, the vendor might (i) forfeit the purchaser’s deposit (ii) resell the property; clause 19(4)(c) then provided for the quantum of liquidated damages payable on resale.  Thus the clause provided that the act of reselling would constitute an election of the remedy of liquidated damages.

30.  I agree with Mr Ismail that the Defendant’s proposed argument on clause 16(3) is plainly unarguable.  The authorities cited by Mr Wou do not show that King’s City or Woomera were wrongly decided.  It is not a proper case for allowing the Defendant to make an amendment so that the point can be further argued in the Court of Final Appeal.

31.  I therefore dismissed the Defendant’s Summons.

Res judicata / abuse of process

32.  Mr Ismail submitted that the Defendant cannot raise clause 16(3) at this stage, as it was a matter which could and should have been pleaded earlier and dealt with at the time of the summary judgment application.  Mr Ismail relies on either the doctrine of abuse of process under Henderson v Henderson (1843) 3 Hare 100 or cause of action estoppel.

33.  It seems to me that the Plaintiff has difficulty relying on res judicata in the traditional sense, since the 2015 Judgment did not deal with the construction of clause 16(3), the matter not having been raised by the Defendant at that stage.

34.  Mr Ismail did rely on Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160 at [22], where Lord Sumption JSC said that cause of action estoppel is absolute in relation to all points which were had to be and were decided in order to establish the existence or non-existence of a cause of action, and also bars the raising in subsequent proceedings of points essential to the existence or non-existence of a cause of action which were not decided because they were not raised in the earlier proceedings, if they could with reasonable diligence and should in all the circumstances have been raised.

35.  However, in the present case, it is not necessary for me to go further into the scope of the doctrine of cause of action estoppel, as the issue can be addressed under the Henderson principle.  In Ko Hon Yue v Chiu Pik Yuk (2012) 15 HKCFAR 72, Ma CJ said at [82] to [83]:

“ 82. The abuse that is known as the Henderson v Henderson abuse (or res judicata in the wider sense …) is derived from the case of that name. … The essence of the doctrine is that a party ought generally not to be permitted to raise in subsequent proceedings matters which that party could and should have raised in earlier proceedings.

83. … For present purposes, it is sufficient just to refer to the following facets of the doctrine:

(1) The starting point is to recognise that the doctrine is founded on an abuse of process. …

(2) This concern (that a party ought not lightly to be deprived of the right to have serious matters litigated) was echoed by Lord Millett in Johnson v Gore Wood & Co : (p.59D–G).

(3) It must therefore be essential when striking out a claim on this basis (and thus preventing a litigation of that claim) that an abuse is found to exist in seeking to raise in subsequent proceedings claims or issues which could and should have been raised in earlier proceedings. This abuse will usually take the form of the other party being ‘vexed’ (or in some cases, the terms ‘oppressed’, ‘unjustly harassed’ or ‘unjustly hounded’ are used) by the subsequent set of proceedings: Johnson v Gore Wood & Co, 31A–B.

(4) The abuse can also take the form of the administration of justice being brought into disrepute: see Chiang Lily, 256D–G ([58]) referring to Hunter v Chief Constable of the West Midlands Police [1982] AC 529. …

(5) In examining aspects such as abuse, the court is concerned with balancing interests: not just those of the litigants before it, but also taking into account the other interests involved in the administration of justice. It is important therefore here to emphasise that when the court is dealing with the HendersonvHenderson type of abuse, it is not looking at an absolute bar to litigation such as issue estoppel or cause of action estoppel. On the contrary, in considering this type of abuse, the court is required to assess a number of factors and balance competing interests. See here, Bradford and Bingley Building Society, 1490F–H. It is also worth making the following observations at this juncture:

(a) There is conceptually an important distinction between absolute bars such as issue estoppel and the type of abuse with which we are concerned. In the former situation, the party who seeks to re-litigate an issue or cause of action has already had his day in court, whereas in the latter situation, that party has not: cfJohnson v Gore Wood, 59D (‘It is one thing to refuse to allow a party to re-litigate a question which already has been decided; it is quite another to deny him the opportunity of litigating for the first time a question which is not previously being adjudicated upon’ (Lord Millett)).

(b) The assessment of different factors and balancing competing interests can be said to be an exercise of a discretion. … It is unnecessary for present purposes to decide whether or not a discretion is actually being exercised.  The more important point to bear in mind is that an appellate court is obliged to pay sufficient regard to the decision of the court below and should be reluctant to interfere where the decision is based on the assessment or balancing of a number of factors.  Nothing in the two said cases suggests otherwise; in fact, quite the contrary.”

36.  I agree with Mr Ismail that the Defendant ought not to be allowed to raise clause 16(3) of the Agreements now for the argument that it precludes the Plaintiff’s claim for common law damages by reason of the fact that the Plaintiff resold the Units in March 2010.

(1) The Plaintiff made clear its position in the Statement of Claim in August 2013 that it was claiming common law damages (based on the difference between the price under the Agreements and the market value of the Units as at the date of the Determination Notices).

(2) In the Statement of Claim, the fact that the Units had been resold in March 2010 was also clearly pleaded.

(3) The Defendant took a variety of defences in opposition to the Plaintiff’s claim and application for summary judgment, but none were based on clause 16(3).  See 2015 Judgment at [21].  No reason has been given as to why the argument based on clause 16(3) was not advanced earlier, and at least by the stage of the summary judgment application, since (if correct) it would have afforded the Defendant a complete defence to the Plaintiff’s claim, and there simply would not be any assessment of damages to carry out.

(4) It cannot be said that the Defendant’s legal advisers were unaware of the possibility of the argument.  Mr Wou was junior counsel in King’s City, the defaulting purchaser in King’s City, where a similar defence based on a virtually identical clause was advanced.  Mr Ismail pointed out, and Mr Wou did not deny, that the defaulting purchaser in King’s City was in fact controlled by the same person who controls the Defendant in the present case, namely Mr Lauw Siang Liong.  The judgment of the Court of Appeal in King’s City was given in June 2013.  The Defence and Counterclaim in the present proceedings wasdated 22 November 2013, and it was amended on 18 September 2014.  Both the original Defence and Counterclaim and Amended Defence and Counterclaim bear Mr Wou’s signature. 

(5) The judgment on the Plaintiff’s application for summary judgment was given in May 2015.  Since then, the parties have been preparing for the assessment of damages, including the obtaining of expert valuation evidence, on the basis that the Plaintiff is entitled to pursue its claim for common law damages as pleaded all along in the Statement of Claim.

(6) There has been no appeal from the 2015 Judgment.  However, the effect of the Defendant’s proposed amendments is to challenge the result of that judgment.

37.  In the circumstances, the defence based on clause 16(3) of the Agreements could with reasonable diligence have been raised much earlier, and should have been raised at the hearing of the summary judgment application before Madam Recorder Linda Chan SC.

38.  Mr Wou does not suggest that the defence based on clause 16(3) of the Agreements could not have been raised before Madam Recorder Linda Chan SC.  Rather, he says that the point goes to quantum, whereas Madam Recorder Linda Chan SC was only concerned with the question of whetherthe Defendant could raise any arguable defence. However, the Defendant’s own case is that its construction of clause 16(3) precludes the Plaintiff’s claim for damages entirely.  If so, that must have been a matter which could have been put forward in defence to the application for summary judgment.  It matters not whether one describes it as a defence going to liability or to quantum.

39.  Mr Wou further argued there is no abuse of process as firstly, the upcoming assessment of damages is not a separate set of proceedings with a different case number, and secondly, there has been no judgment on the construction of clause 16(3) of the Agreements.  However, the purpose of the Henderson v Henderson principle is to prevent abuse of the process of the Court.  Its application cannot depend on whether the upcoming assessment of damages bears a different case number to that of the 2015 Judgment.  Furthermore, the classic application of the principle is precisely in the situation where the issue in question was not dealt with in an earlier judgment, the point being that the issue could have been, but was not, raised for the Court’s consideration at that time.

40.  Mr Wou also suggested in his skeleton argument that the argument based on clause 16(3) had been foreshadowed in the Defendant’s witness statement (paragraph 51 of the statement of Law Wai), and therefore that the Defendant could raise the point without pleading.  At the hearing however, he accepted that the Defendant did need to make the amendments if it was to advance this defence.  In any event, I do not accept that the point had been foreshadowed in the witness statement of Law Wai.  Read in context, paragraph 51 was addressing the Plaintiff’s failure to mitigate its loss.

41.  I therefore refused the Defendant’s proposed re-amendment to its Defence and Counterclaim pursuant to the principle in Henderson v Henderson also.

Whether clause 16(3) of the Agreements goes to liability or quantum

42.  Mr Ismail further submitted that clause 16(3) of the Agreements goes to the question of liability, which was already dealt with by the summary judgment application, rather than damages, with which the upcoming assessment before Anthony Chan J is concerned.  He submitted that the Defendant is not entitled to argue at the assessment of damages that he is not liable to the Plaintiff for damages at all, and can only take issue with the quantum of such damages.

43.  I am not convinced that one can “categorise” clause 16(3) as one of “liability” or of “quantum”. As Mr Ismail submits (and as held in King’s City), clause 16(3) is a liquidated damages clause.  The clause wouldarise for consideration if there had been a claim for liquidated damages, and depending on the facts of the particular case, the clause might be relevant at the time of determining liability, or quantum, or both.

PLAINTIFF’S APPLICATION TO AMEND THE STATEMENT OF CLAIM AND ADDUCE SUPPLEMENTAL EXPERT REPORT

44.  The Plaintiff’s Summons sought leave to amend its Statement of Claim, and to file a supplemental expert report, for the purpose of introducing an additional basis for the assessment of damages.  That basis is the difference between the price under the Agreements and the market value of the Units as at the date of the originally scheduled deadlines for completion in July 2009 (as opposed to the date of the Determination Notices). 

Principles on a late application to amend or introduce new evidence

45.  The applicable principles are as follows.

(1) In this post-CJR era, a late application to amend or to introduce new evidence has a fairly high threshold to pass: Wise Union Industries Ltd v Hong Kong Science and Technology Parks Corporation, unreported, HCAL 12/2009, 21 September 2009, at [2], per Andrew Cheung J (as he then was).

(2) The prejudice which will be caused by refusing an application for late admission of evidence has to be balanced against the prejudice caused to the other party in allowing it in at a late stage: Chan Wing Cheung, Allan v Ho Shu Yee, Susana, unreported, CACV 393/2004, 10 January 2005, at [9(1)], per Ma CJHC (as he then was).

(3) Where an indulgence is sought from the Court, it would be a rare case that this would be given, even on terms as to costs, without a satisfactory explanation being given to justify the grant of the indulgence: Chan Wing Cheung, Allan at [9(4)].

Application of principles to the present case

46.  The Plaintiff’s Summons, taken out on 26 March 2018, is clearly late.

(1) When the Plaintiff applied for summary judgment against the Defendant (in the 2015 Judgment), it did so on the basis that it was seeking the difference between the purchase price of the Units and the market value as at the date of the Determination Notices (see 2015 Judgment at [19]).

(2) As early as 1 February 2017, the parties had agreed that the reports of their respective experts (prepared in 2016) would beadduced as evidence at the assessment of damages, as recorded in Master J Wong’s order of that date.

(3) More than a year later, the Plaintiff had indicated for the first time in its Pre-Trial Review Notice of 7 March 2018 that it would seek leave (at the pre-trial review of 14 March 2018) to file a supplemental report regarding the market value of the Units as at the scheduled completion dates.  There was at that point no indication that an application would also be made to amend the Statement of Claim.

(4) At the pre-trial review, Anthony Chan J had ordered that the Plaintiff and Defendant should serve their respective opening submissions not less than 14 and 7 days before the commencement of the assessment, that is, by 25 April 2018 and 2 May 2018.

(5) Anthony Chan J had also ordered that save for the Defendant’s amendment application and the Plaintiff’s application to file a supplemental report, there should be no further interlocutory application made without leave of the Court.  The Plaintiff did not apparently indicate that it was going to apply to amend its Statement of Claim as well.

(6) According to the Defendant, the Court did not deal with the Plaintiff’s application for filing of a supplemental expert report at the pre-trial review as there was no summons before the Court.

(7) Yet the Plaintiff still did not act with expedition.  The Plaintiff’s Summons (to amend the Statement of Claim and file a supplemental report) was not taken out until 26 March 2018, and the intended supplemental report was not produced until the same date, as an attachment to the 3^rd Affirmation of Kwok Man Shun Wilson filed on that date.  The estimated time for the Plaintiff’s Summons was stated to be 3 minutes only, and was fixed for the time when the Defendant’s Summons was to be heard, that is, 25 April 2018.

47.  Mr Ismail argued that no prejudice would be caused to the Defendant by the late amendment and supplemental report, as the Defendant’sown expert had indicated that he would be able to provide a responsive report by 2 May 2018.  However, I agree with Mr Wou that the Defendant would have suffered prejudice if the Plaintiff’s amendments had been allowed:

(1) the Plaintiff had filed its opening submissions on the day prior to the hearing.  Those submissions did not address the Defendant’s response (whether its pleading or evidence) to the Plaintiff’s supplemental report, putting the Defendant at a disadvantage.  It is not an answer to say that the matters can be dealt with by way of supplemental submissions — the Defendant was entitled to expect that the timetable ordered by the Court at the pre-trial review would be adhered to;

(2) even if the Defendant’s expert were able to prepare a responsivesupplemental report by 2 May 2018, this would have coincidedwith the deadline for the Defendant’s own opening submissions. The Defendant would have been pressed for time to deal with this new evidence in its submissions;

(3) after the Defendant’s expert provided his responsive report, the parties’ experts would have needed to meet on a without prejudice basis to narrow their differences, and to prepare a joint report to deal with the areas of agreement and disagreement.  The Plaintiff’s Summons provided that all of this was to be done within 2 days after the filing of the Defendant’s supplemental report.  The Defendant’s evidence was that 2 days would havebeen insufficient time for preparing the joint report, and at least a week would have been required, which would have meant that the joint report would only have been ready on 9 May 2018,that is, the first day of the assessment.  In order to address this complaint, Mr Ismail submitted that he would not, after all, pursue this part of the Plaintiff’s Summons.  But this would not have reduced the prejudice to the Defendant.  If anything, it would have aggravated it, as the Defendant would not then know which matters were agreed or not agreed between the experts;

(4) the burden of having to plead a response to the Plaintiff’s proposed amendments, to prepare a supplemental expert report, and to discuss areas of agreement and disagreement with the Plaintiff’s expert would all have been a distraction from the Defendant’s final preparation for the assessment.  This form of prejudice has been recognised by the courts.  See Li Xiao Yun v China Gas Holdings Ltd, unreported, CACV 38/2013, 11 March 2013, at [18] per Lam JA (as he then was); Star Industrial Co Ltd v Japan Home Centre (HK) Ltd, unreported, HCA 2294/2008, 21 December 2010, per Deputy High Court Judge Carlson at [2].

48.  I also agree that the explanation given for the delay is not satisfactory.  In the 3^rd Affirmation of Kwok Man Shun Wilson at paragraph 5, the reasons given for the delay are that:

(1) in Richly Bright International Ltd v De Monsa InvestmentsLtd (2015) 18 HKCFAR 232, the Court of Final Appeal stated at [42] to [44] that the objective of an award of damages for breach of contract is to place the innocent party in the same position as if the contract had been performed, and in the case of a contract for the sale and purchase of property, where the purchaser defaults, the vendor will in the ordinary case be entitled to an award of damages equal to the difference between the contract price and the market value of the property at the completion date;

(2) the Court of Final Appeal’s judgment was given on 18 May 2015, after the close of pleadings and the 2015 Judgment (of 11 May 2015);

(3) the Plaintiff’s original pleaded claim was based on a judgment of the Court of First Instance in 2000 which was followed by the Court of Appeal in 2013 (neither are identified);

(4) as soon as the Plaintiff’s counsel became aware of the Court ofFinal Appeal’s judgment, he advised that leave be sought to file evidence of the market values of the Units as at the completion dates (in July 2009) in the Plaintiff’s pre-trial review notice filed on 7 March 2018.

49.  However:

(1) Richly Bright did not establish any new principle for the assessment of damages.  At [42] to [44], Ribeiro and Fok PJJ were simply setting out the well-established measure of damages for a breach of contract. This cannot explain why the proposed amendments were not put forward earlier. Mr Ismail said in his skeleton that it was the only decision of the Court of Final Appeal, as far as the Plaintiff was aware, which dealt with the measure of damages to which an innocentvendor was entitled.  Even if that were the case, this would not explain why the Plaintiff (on its case) did not apply the general, well-established measure of damages for breach of contract in pleading its claim; [1]

(2) even if Richly Bright postdated the close of pleadings and the 2015 Judgment, this does not explain why the Plaintiff did not seek to amend the Statement of Claim between 2015 and 2018;

(3) even if the Plaintiff’s counsel was not aware of Richly Bright until recently—just how recently is not known—the proposed amendments could always have been made prior to that time based on the general, well-established measure of damages for breach of contract;

(4) even if the Plaintiff’s original pleaded claim was based on other judicial authorities, this would not have precluded the Plaintiff from pleading an alternative claim at the same time (as indeed the draft Amended Statement of Claim attached to the Plaintiff’s Summons seeks to do).

50.  Therefore, even if it can be said that the claim in the Plaintiff’s proposed amendments is an arguable one, this is no answer to the Defendant’s complaint of delay and prejudice.

51.  I bear in mind the fact that refusing leave for the making of the Plaintiff’s proposed amendments and filing of the Plaintiff’s supplemental report will mean that the Plaintiff will not be able to advance the case based on such amendments.  However, this prejudice is self-induced.

52.  Given the unexplained delay in the making of the application and the prejudice which the proposed amendments and new evidence would cause to the Defendant, I dismissed the Plaintiff’s Summons.

COSTS

53.  Given that both parties have been unsuccessful on their respective summonses, and that both summonses were the subject of substantial argument both in the written and oral submissions, I will make an order nisi that there be no order as to costs.

HCA 1438/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1438 OF 2013

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D E C I S I O N

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1. This is an application issued by the plaintiff on 5 March 2014 for summary judgment against the defendant in the amount of HK$59,756,864.38 and an order that the counterclaim be struck out on the ground that it discloses no reasonable cause of action, is scandalous, frivolous or vexatious or otherwise constitutes an abuse of the process of the court.  In their skeleton submissions, Mr Jat Sew Tong SC and Mr Bernard Man, counsel for the plaintiff, indicate that the plaintiff will only seek interlocutory judgment on liability with damages to be assessed. 

Background fact

2. The following fact relevant to the issues between the parties is not in dispute. 

3. The plaintiff is the developer and owner of a development at Kowloon Inland Lot No 11124 known as “Celestial Heights” (“Development”).  The defendant is part of the De Monsa group, which has substantial experience in investing in real properties in Hong Kong.

4. By letter dated 8 May 2008 to the plaintiffs’ solicitors[1], the Director of Lands gave consent to the plaintiff under the Conditions of Sale No 12667 (as modified by a Modification Letter dated 4 February 2008) to enter into agreements for sale and purchase for 500 residential units in Phase 1 of the Development subject to the conditions stated therein (“Consent Letter”).

5. On 30 May 2008, Mr Lauw Siang Liong (“Mr Lauw Senior”) on behalf of the defendant, signed 36 provisional contract (consent scheme) dated 30 May 2008 to purchase 36 units in the Development (“1^st PASPs”). On the same day, Mr Lauw Senior signed two cheques on behalf of the defendant and paid a total of HK$51,474,800 to Kao, Lee & Yip as preliminary deposits under the 1^st PASPs (equivalent to 5% of the purchase prices of the 36 units). 

6. Under the 1^st PASPs, the defendant shall within three working days (ie on or before 3 June 2008) sign the agreement in such standard form as prepared by the plaintiff’s solicitors and make further payment in accordance with the payment terms.  No agreement was signed by the defendant on 3 June 2008. 

7. On 4 June 2008, the plaintiff was informed that the defendant would not proceed with the purchase of the 36 units under the 1^st PASPs.  Upon further negotiations, Mr Lauw Senior on behalf of the defendant agreed that the defendant would purchase 9 out of the 36 units, while the other 27 units would be purchased by 27 “new off‑the‑shelf Hong Kong companies” (“the Companies”).  On the same day, Mr Lauw Senior on behalf of the defendant signed 9 formal sale and purchase agreements for the purchase of 9 units[2] (“the 9 Units”) from the plaintiff (“the Agreements”).  Mr Lauw Senior signed the Agreements in front of a solicitor of Woo, Kwan, Lee & Lo (“WKLL”).

8. Clause 3(1) and Schedule 4 of each of the Agreements state that the purchase price shall be paid by the defendant to WKLL in the following manner:

(1)  the preliminary deposit (equivalent to 5% of the purchase price) has been paid on the signing of the agreement preliminary to the Agreement;

(2)  the 1^st part payment (equivalent to 5% of the purchase price) to be paid on or before 4 July 2008;

(3)  the 2^nd part payment (equivalent to 5% of the purchase price) to be paid on or before 2 September 2008; and

(4)  the balance to be paid within 14 days of notification to the defendant that the plaintiff is in a position to validly assign the property to the defendant.

9. Apart from the Agreements, Mr Lauw Senior on behalf of the defendant signed 9 provisional contracts (consent scheme) dated 4 June 2008 (“2^nd PASPs”) for the purchase of the 9 Units.  The total deposits payable under the 2^nd PASPs was HK$19,131,850.  In each of the 2^nd PASPs, 5% of the purchase price was stated “to be paid upon the signing this provisional contract”.  There is a dispute as to when the parties signed the 2^nd PASPs.  The plaintiff says that the 2^nd PASPs were signed on 4 June 2008 prior to the execution of the Agreements, while the defendant says that they were signed on 6 June 2008 but back‑dated to 4 June 2008 by the plaintiff without the knowledge or consent of the defendant. 

10. Mr Lauw Senior instructed his staff to acquire 27 shelf companies (ie the Companies), and their names together with the invoices for the charges for acquiring them were provided to the defendant on 5 June 2008. 

11. By another 27 provisional contracts (consent scheme) dated 6 June 2008 signed by Mr Lauw Senior on behalf of the Companies, the Companies agreed to purchase the remaining 27 units in the Development and the total deposits payable was HK$32,342,950.  In each of these 27 provisional contracts, 5% of the purchase price was stated “to be paid upon the signing this provisional contract”.

12. On 4 July 2008, the defendant paid HK$19,131,850 to WKLL, being the 1^st part payments payable for the 9 Units.  The defendant did not pay the 2^nd part payments by 2 September 2008.  By letters dated 16 June 2009, WKLL gave notice to the defendant that the plaintiff was in a position to validly assign the 9 Units to the defendant and required it to complete the purchase pursuant to the Agreements on or before 2 July 2009 (“Completion Date”). 

13. By letters dated 15 July 2009, WKLL referred to the defendant’s failure to pay the 2^nd part payments and to complete the purchase on the Completion Date, and notified the defendant that unless the purchase of the 9 Units are completed within 21 days thereof, the plaintiff may enforce its rights to determine the Agreements.

14. The defendant did not pay the outstanding 2^nd part payments or complete the purchase within the time stipulated whereupon the plaintiff exercised its right to determine the Agreements by WKLL’s letter of 25 August 2009 (“Determination Notices”). 

Applicable principles

15. The principles governing application for summary judgment are not in dispute.  The burden is on the defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part (Order 14, rule 3(1)).  For this purpose, the defendant’s affidavit must “condescend upon particulars” and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it (Hong Kong Civil Procedure 2015, §14/4/4). 

16. Summary judgment is only for clear case where no fairly arguable point is raised.  This was stated by the Court of Appeal in Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 at §4:

“….Applications for summary judgment are only suitable where the court can be satisfied that not only is there are no defence but there is no fairly arguable point to be argued on behalf of the defendant. The court cannot embark upon a mini-trial based on affidavit. Except in the most clear and blatant cases, it is impossible for a court to put itself in the position of having to make findings of fact. It should rarely be necessary for a plaintiff, in making an application for summary judgment, to do more than verify the statement of claim. If, thereafter, a defendant can show a triable issue that should, there and then, be an end to the application.”

17. As for the principles governing an application to strike out a pleading for no reasonable cause of action or defence, they are stated in Hong Kong Civil Procedure 2015, §18/19/4 and may be summarized as follows:

(1)  It is only in plain and obvious cases that the court should exercise its summary powers to strike out any pleading.  There should be no trial upon affidavit. 

(2)  Disputed facts are to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings. 

(3)  The claim must be obviously unsustainable, the pleadings unarguably bad, and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

18. Where, as here, an application for striking out is made on the grounds that the pleading is frivolous or vexatious or constitutes an abuse of process, the court may admit evidence filed by the parties as long as it does not require evidence to be tested by cross-examination.  This accords with the object of the rule, which is to stop cases which are obviously frivolous or vexatious or unsustainable.  A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed (Hong Kong Civil Procedure 2015, §§18/19/8, 18/19/14). 

Issues

19. The plaintiff’s claim, as pleaded in the statement of claim dated 5 August 2013, is simple.  It alleges that the defendant failed to complete the purchase of the 9 Units pursuant to the Agreements and seeks damages in the amount of HK$59,756,864.38, being the difference between the purchase prices under the Agreements and the open market value of the 9 Units as at the date of the Determination Notices.  As the plaintiff only seeks interlocutory judgment on liability, it is not necessary to determine whether the plaintiff is entitled to judgment for the amount claimed.

20. The defendant filed a lengthy defence and counterclaim running to 26 pages.  In opposing the application, the defendant filed two affirmations, being the affirmation of Law Wai (“Mr Law”), a manager of the defendant, and the affirmation of Ding Wen Jie (“Ms Ding”), an accountant of the defendant.  For reasons never explained by the defendant, Mr Lauw Senior, the person who made all the decisions relevant to the purchase of the 36 units and had personal knowledge of the circumstances under which he signed the 1^st PASPs, the 2^nd PASPs and the Agreements on behalf of the defendant, has not made any affirmation.  This is despite the fact that the defence advanced by the defendant is based on the assertions that (1) Mr Lauw Senior did not sign the 2^nd PASPs on the date stated (ie 4 June 2008) but only signed them on 6 June 2008; and (2) Mr Lauw Senior never agreed to allow the plaintiff to use the preliminary deposits under the 1^st PASPs as the preliminary deposits under the 2^nd PASPs. 

21. Notwithstanding the length of its pleadings and affirmations, the defence advanced by the defendant boils down to the following contentions:

(1)  The Agreements were executed prior to the 2^nd PASPs, which constituted a breach of condition 16(a) of the Consent Letter (§§36‑39 of defendant’s skeleton). 

(2)  In entering into the 2^nd PASPs after the Agreements, the plaintiff “agreed to cancel the [Agreements] and to discharge the obligations of [the defendant] thereunder” (§§52‑57 of defendant’s skeleton).

(3)  The defendant never agreed that the plaintiff could treat the preliminary deposits paid under the 1^st PASPs as preliminary deposits under the 2^nd PASPs.  As the defendant did not pay, and the plaintiff’s solicitors failed to collect any preliminary deposits upon signing the 2^nd PASPs and apply them in accordance with conditions 19 and 20, there was a breach of conditions 4(a), 4(b), 19 and 20 of the Consent Letter (§§40‑45 of defendant’s skeleton).

(4)  The plaintiff offered to sell 36 car parking spaces to the defendant before the parties entered into sale and purchase agreements of the 36 units.  This constituted a breach of condition 18 of the Consent Letter.  This contention is abandoned by the defendant at the hearing. 

(5)  By reason of the breaches of the aforesaid conditions, the presale of the 9 Units were “invalid” and the plaintiff was “not authorised” to enter into the Agreements with the defendant and hence the Agreements “were hence void and unenforceable” against the defendant (§46 of defendant’s skeleton). 

(6)  The conditions under the Consent Letter were incorporated into the Agreements by virtue of recital (3) and clause 4(1)(b) thereof.  As a result of the breaches of the conditions, the plaintiff will not be able to show and give good title on completion and the Agreements “were repudiated and unenforceable against [the defendant]” (§§47‑51 of defendant’s skeleton).

22. Based on the above contentions, the defendant counterclaims for refund of the preliminary deposits of HK$19,131,850 and the 1^st part payment of HK$19,131,850 paid on 30 May 2008 and 4 July 2008 respectively.  In addition, the defendant seeks restitution of the preliminary deposits of HK$32,342,950 paid on 30 May 2008 in respect of the other 27 units on the basis that there has been “a total failure of consideration”. 

23. I turn to consider whether the defendant’s contentions give rise to a triable issue or are capable of reasoned argument. 

Alleged breach of condition 16(a)

24. Condition 16(a) of the Consent Letter provides that:

“For any Unit which has not been made available by the [plaintiff] for public sale and is to be sold under the terms of this Consent by private sale, then, subject to Condition Nos. (4), (8)(b) and (10)(a) of this Consent, a PSAP must be signed by the parties and a Preliminary Deposit paid on the same terms and conditions as deposits from the prospective purchasers set out in Condition No. (4)(a) (except that Condition No.(15)(a) will not apply) and the ASP must be signed by the [plaintiff] not later than 5 working days after the signing of the PSAP.” (emphasis added)

25. Mr Jat SC submits that even if the 2^nd PASPs were signed on 6 June 2008 (as the defendant alleges), there could be no breach of condition 16(a) of the Consent Letter, as 4 June 2008 is not later than five working days after 6 June 2008.  I agree.  The defendant’s argument that the plaintiff was in breach of condition 16(a) is unsustainable. 

26. Mr Jat further submits that the defendant’s allegation that the 2^nd PASPs were signed on 6 June 2008 is plainly incredible in light of the following matters:

(1)   Clause (g) of Schedule 7 to the Agreements states that “This Agreement was preceded by the Provisional Contract on the same terms made between the [plaintiff] and the [defendant] on the 4^th day of June 2008” (emphasis added).  This goes against the defendant’s allegation that the 2^nd PASPs were signed after the Agreements. 

(2)   The alleged back‑dating makes no sense and is contradicted by WKLL’s confirmation in its letter dated 31 December 2013 that (a) the representatives of WKLL attended the office of the defendant on 4 June 2008 for signing the Agreements, (b) the representatives of the sales agent of the plaintiff also attended the office of the defendant on the same day to arrange for the signing of the 2^nd PASPs, and (c) the signing of the 2^nd PASPs took place prior to the signing of the Agreements.  This accords with WKLL’s duty under condition 5(a), which requires WKLL to satisfy itself that the terms of the PSAP are not in breach of the conditions before it prepares any formal sale and purchase agreement. 

(3)   Condition 16(a) in fact reinforces the plaintiff’s contention that the 2^nd PASPs must have been signed before the Agreements. 

(4)   Mr Lauw Senior, who signed the 2^nd PASPs and the Agreements, does not file any affirmation in support of the defendant’s allegation.  It is clear from the affirmations of Mr Law and Ms Ding that neither of them was involved when Mr Lauw Senior signed the 2^nd PASPs and the Agreements, whether on 4 June 2008 or 6 June 2008.

27. Mr Jean‑Paul Wou, counsel for the defendant, acknowledges that the statement in clause (g) of Schedule 7 to the Agreements suggests that the PASPs were signed before the Agreements, stating that it was for stamp duty purpose.  Mr Wou is unable to offer any explanation on the inconsistency between the statement and the defendant’s present allegation.  As there is no basis to doubt the clear wording of clause (g) of Schedule 7 to the Agreements, the defendant’s allegation that the 2^nd PASPs were signed after the Agreements must be rejected as incredible.

28. That the defendant’s allegation is incredible is reinforced by the following matters:

(1)   The failure of Mr Lauw Senior to file any affirmation in support of the defendant’s allegation.

(2)  The fact that the date “04/06/2008” was printed on each of the 2^nd PASPs signed by both parties.  The defendant has not explained how the plaintiff could have back‑dated these printed dates on the 2^nd PASPs without the defendant’s knowledge when they were all signed by Mr Lauw Senior.

(3)   WKLL’s confirmation in its letter dated 31 December 2013. I do not see any basis to doubt the contents of WKLL’s letter, which are consistent with the obligations of WKLL under condition 5(a) of the Consent Letter.

Alleged cancellation of the Agreements

29. As I have already rejected the defendant’s allegation that the 2^nd PASPs were signed after the Agreements, the contention that the 2^nd PASPs had the effect of cancelling the Agreements must fail.

30. In any event, the defendant’s suggestion that in entering into the 2^nd PASPs, the plaintiff “agreed to cancel the [Agreements] and to discharge the obligations of [the defendant] thereunder” is plainly unarguable because:

(1)   There is nothing in the 2^nd PASPs or the Agreements which may be construed as the plaintiff’s agreement to cancel the Agreements.

(2)  Mr Wou is unable to cite any authority in support of this stark proposition.

(3)  The suggestion is inconsistent with the defendant’s act in paying the 1^st part payments on 4 July 2008 following WKLL’s demands dated 18 June 2008, which referred to the Agreements and required the defendant to make “part payment”, not preliminary deposits as alleged by Mr Law.  As to this, Mr Wou’s only response is to repeat Mr Law’s assertion that the 1^st part payments were paid pursuant to the 2^nd PASPs.  In my view, in making the 1^st part payments pursuant to WKLL’s demands of 18 June 2008, the defendant clearly acknowledged its obligations under the Agreements and intended to proceed with the purchase in accordance with their terms.

Alleged breach of conditions 4(a), 4(b), 19 and 20

31. The plaintiff’s case is that it treated part of the preliminary deposits under the 1^st PASPs as the preliminary deposits under the 2^nd PASPs upon the request of the defendant.  The defendant denies this and says that this was done by the plaintiff unilaterally and without the defendant’s consent.

32. Mr Jat submits that the plaintiff’s case is entirely consistent with the following undisputed fact:

(1)   Mr Lauw had on 4 June 2008 agreed to purchase the same 36 units through the defendant and some new companies (eventually, the Companies).

 (2)  The defendant never tendered another sum for payment of the preliminary deposits under the 2^nd PASPs and proceeded to pay the 1^st part payments for the 9 Units on 4 July 2008.

(3)  The plaintiff never forfeited the preliminary deposits paid under the 1^st PASPs, which it would have been entitled to do had the parties not agreed to treat part of the preliminary deposits under 1^st PASPs as preliminary deposits under the 2^nd PASPs.

(4)  The statement in clause (i) of Schedule 4 to each of the Agreements, which states that the amount representing 5% of the purchase price of property “has been paid as deposit on signing the agreement preliminary to this Agreement.”  (emphasis added)  

33. Mr Wou does not dispute the above evidence but maintain that there was never any agreement between the plaintiff and the defendant to treat part of the preliminary deposits under the 1^st PASPs as preliminary deposits under the 2^nd PASPs and that no preliminary deposit has been paid under the 2^nd PASPs.

34. In my view, the defendant’s assertion is plainly incredulous as it is inconsistent with the undisputed evidence identified in §32 above.  The assertion also defies common sense.  If, as the defendant asserts, no preliminary deposit had been paid upon signing the 2^nd PASPs, such 2^nd PASPs would not have taken effect and there would be no point for the defendant to pay the 1^st part payments on 4 July 2008 at all.  The defendant’s act in paying the 1^st part payments on 4 July 2008 is consistent with the fact that both parties considered that the preliminary deposits under the 2^nd PASPs had been paid, and that they intended to go ahead with the purchase of the 9 Units pursuant to the Agreements.  It is wholly inconsistent with the defendant’s assertion that no preliminary deposit has been paid under the 2^nd PASPs.

35. In any event, even if (which I do not accept to be the case) the defendant never agreed to allow the plaintiff to use part of the preliminary deposits under the 1^st PASPs as the preliminary deposits under the 2^nd PASPs, I do not see how it can be said that conditions 4(a), 4(b), 19 and 20 of the Consent Letter have been breached.

36. Condition 4(a) requires the PASP to state that the preliminary deposit payable to the plaintiff is an amount of approximately 5% of the average purchase price of all units put on sale at any one time.  There is no dispute that the preliminary deposit stated in each of the 2^nd PSAPs represents 5% of the purchase price.

37. Condition 4(b) provides that the full amount of the preliminary deposit must be collected by the plaintiff’s solicitors in compliance with conditions 19 and 20, and if any person who signs a PASP does not sign the formal sale and purchase agreement, the amount to be forfeited by the plaintiff must not be more than 5% of the purchase price of the unit concerned.  Mr Jat submits that conditions 4(b), 19 and 20 only require the plaintiff’s solicitors to hold onto the preliminary deposits, there is no suggestion that this was not done.  I agree.

Agreements void and plaintiff unable to show good title?

38. The last two contentions identified in §21 above may be dealt with together.

39. In light of my conclusions that there was no breach of conditions 4(a), 4(b), 16(a), 19 and 20 of the Consent Letter, there is no basis for the defendant to contend that the Agreements were “void” or unenforceable or that the plaintiff will not be able to show good title on completion of the Agreements. 

Counterclaim

40. As stated in §22 above, the counterclaim is essentially based on the same contentions described in §21 above and the contention that there has been a “total failure of consideration” in respect of the HK$32,342,950 paid by the defendant as preliminary deposits under the 1^st PASPs on 30 May 2008. 

41. Insofar as the counterclaim is based on the same contentions stated in §21 above, for the reasons set out in §§24 to 39 above, I consider that the claim is obviously frivolous and unsustainable and should be struck out. 

42. As for the claim that there has been a “total failure of consideration” in respect of the HK$32,342,950 paid by the defendant on 30 May 2008, in my view, it is impossible for the claim to succeed.  This is because the HK$32,342,950 was part of the preliminary deposits paid by the defendant under the 1^st PASPs. The considerations provided by the plaintiff were the options given to the defendant to purchase 27 units (out of the 36 units) in the Development. 

Conclusion

43. For the reasons set out above, I hold that the plaintiff is entitled to interlocutory judgment against the defendant, with damages to be assessed.  I order the counterclaim to be struck out.  As for costs, I make a costs order nisi that the costs of and occasioned by the plaintiff’s application and of this action be paid by the defendant to the plaintiff, to be taxed if not agreed.