SUPER KEEN INVESTMENTS LTD v. GLOBAL TIME INVESTMENTS LTD AND ANOTHER

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REASONS FOR JUDGMENT

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1. Last Friday, 11th October 1996 Master O'Donnell refused to hear the application of the Defendant to Re-amend the Third Party Notice and acceded to the application of the Third Party to adjourn the hearing of the Defendant's Summons. The Master adjourned the Defendant's Re-amendment application to be heard on the 6th November 1996 at the same time as the Third Party's application to strike out the Amended Third Party Notice and the Defendant's Summons for Third Party Directions. Appeal was then brought before me from last Friday's Order of Master O'Donnell. I directed that the Re-amendment application should be heard and then proceeded to hear the application, at the conclusion of which I granted the application of the Defendant to Re-amend the Third Party Notice. Due to the late hour, I indicated that I would hand down my Reasons for that decision later. I now hand down my Reasons.

2. By the Principal Agreement between a company which I will call Simpson and the Third Party, a property to be constructed at Wellington Street was agreed to be sold by Simpson to the Third Party for $265 Million. This was in December 1993. Some four months later in April 1994, the Third Party by a sub-sale Agreement, agreed to sell that property to the Defendant for $405 million. 3 days later, the Defendant by a sub-sub-sale Agreement, sold the same property to the Plaintiff for $600 million. The Plaintiff paid to the Defendant as deposit, sums totally some $101 million. The Defendant paid to the Third Party as deposit, sums totally some $100 million. There were considerable delays with the building of the property. Eventually in February 1996, some 8 months after the contractual date for completion, the Plaintiff terminated its agreement with the Defendant and demanded the return of the Plaintiff's deposit. In turn the Defendant on 11th April 1996 terminated its agreement with the Third Party and demanded the return of the Defendant's deposit. On 12th April Occupation Permit was issued in respect of the Building. On 25th April 1996, the Third Party completed the purchase with Simpson.

3. On 22nd April 1996, the Plaintiff issued the Writ and commenced the Action against the Defendant for inter alia, return of the Plaintiff's deposit and on 26th April 1996, the Defendant issued the Third Party Notice against the Third Party. On the 6th of May 1996, the Third Party Notice was amended and the next day the Amended Third Party Notice was registered as a lis pendens against the Building. The Defendant served its Defence and Counterclaim on 14th June 1996 and there were then amendments to the pleadings of the Plaintiff and the Defendant in August and September 1996.

4. On the 1st of July 1996, the Defendant issued its Summons for Third Party Directions and on the 12th July 1996, the Third Party issued its Summons to strike out the Amended Third Party Notice or part thereof. There then followed a number of procedural steps in July and September 1996. On 2nd September 1996, the Defendant issued the Summons to Re-amend the Third Party Notice and because of the objection to the proposed re-amendment by the Third Party eventually this matter led to the present appeal before me.

5. The proposed Re-Amendment of the Third Party Notice consists of the following:-

6. Mr. Chan for the Third Party objects to all the above proposed amendments, some items of the proposed re-amendment being objected to with greater force than others. His first point of objection is the timing of the application. Reference was made to the embarrassment of the Third Party by the registration of the Re-Amended Third Party Notice and it is said that this would cause difficulty to the Third Party in relation to its immediate tender sale of the Building. I agree with Mr. Fung that in considering whether to grant or refuse the proposed re-amendment, the court should only have regard to the proposed re-amendment and not have regard to extraneous matters. Short of any evidence of mala fides or that the Defendant is seeking the proposed re-amendment for an improper motive, which allegations were not made and there is no evidence to such effect, the Court really cannot go into commercial considerations or the possible consequences of the Third Party Notice being re-amended. Furthermore, it seems to be really quite wrong for the court to go into the question of the impact of the likely registration of the Re-Amended Third Party Notice. If the Third Party takes the view that the Defendant has no right to register any of the document sanctioned by the Court, then there are remedies available to the Third Party and the debate of what is the right action for the Defendant to take or not to take is at the hearing of such application by the Third Party. The proper consideration as to whether the proposed re-amendment should be made is to look at the re-amendment and the timing of the application for re-amendment really does not come into the decision making of whether to allow the proposed re-amendment or not.

7. Mr. Fung took me through each of the proposed re-amendments and I am satisfied that they are all arguably good amendments which if contained in an endorsement of a Writ would not have been struck out as being hopelessly unarguable or an abuse of process. In the course of the arguments, a number of the objections to the four heads of the proposed re-amendments had fallen away and it would not be necessary for me to go into those. There are however three objections which were maintained by Mr. Chan right to the end, namely:-

8. The complaint that the claim for damages had not been particularised so that the Third Party (and its purchasers under the tender) could know what were claimed is really seeking to impose a duty on the Defendant which the law does not recognise. As is well known, the Third Party Notice is similar to a Writ and is an originating process by the Defendant against a non party and like a Writ the Third Party Notice is not supposed to perform the function of the full pleading of the Statement of Claim. The rules in fact expressly provide that shortly after the Third Party Notice is issued and served, it should be followed soon by the Third Party Directions and it was on that occasion that directions could be given including direction as to service of Third Party Statement of Claim. Instead of pressing the Defendant to serve its Third Party Statement of Claim so that full basis of the Defendant's Third Party case could be exposed clearly and quickly, the Third Party is seeking to delay that process and instead has been engaged in skirmishes against the Defendant on the Third Party Notice. For me that is not a productive exercise. In the course of the address of Mr. Fung, it is quite clear what are the types of damages the Defendant will be seeking in the Third Party Statement of Claim and reference was made by Mr. Fung to loss of profits of $200 million, loss representing all wasted expenditure reasonably incurred in relation to the performance of the contract including all wasted costs incurred in investing title of the Property and any incidental conveyancing costs. The proposed re-amendment of the Third Party Notice claiming damages is in order and there is no valid reason against my granting leave in relation to this claim.

9. The heavy firepower of Mr. Chan was directed towards the proposed re-amendment of lien on the damages. The subject matter is the purchaser's lien on the default of the vendor and Mr. Chan made the powerful point that there is no legal authority saying that there is a lien for damages for loss of profit. He said that while there is authority that equitable lien for deposit paid and that lien could extend to interests and costs, that is the limit of the purchaser's lien and he said that Halsbury's Laws on this aspect was wrong. It seems to me that the point is clearly arguable having regard to Halsbury's Law, Volume 28 para 560-1 and the specimen forms in Atkin's Court Forms. Elaborate arguments were advanced to me by Mr. Chan to say that it is clear law that no equitable lien exists for damages in respect of loss of bargain and he cited some old cases in support of his contentions. I found the authority of Whitbread v Watt [1902] 1 Ch. 835, which unfortunately was not cited to me by Mr. Chan, to be of some guidance. The case concerned the extent of the equitable lien of the purchaser and whether it extends to a case as in that one where the contract was terminated not due to any fault of the vendor but pursuant to a power in the contract for the vendor to rescind. Vaughan Williams, L.J. said at page 838:-

"The lien which a purchaser has for his deposit is not the result of any express contract; it is a right which may be said to have been invented for the purpose of doing justice. It is a fiction of a kind which is sometimes resorted to at law as well as in equity ..... When Lord Westbury in Rose v. Watson speaks of "transfer to the purchaser of the ownership of a part of the estate corresponding to the purchase-money paid," and Lord Cranworth speaks of the purchaser being exactly in the position of a mortgagee of the estate to the extent of the purchase-money which he has paid, those expressions are merely verbal vehicles to carry the right which justice demands that the purchaser should have."

Sterling, L.J. at page 840 also referred to the foundation of the doctrine of lien being the desire to do justice between the vendor and the purchaser. It seems to me that having regard to what was said by the English Court of Appeal in the Whitbread case as the basis of the equitable lien of the purchaser namely to do justice to the purchaser, I see no reason in principle why equity would not recognise the Defendant's right to a lien for its damages is in respect of its loss of profits. If nothing else, the authority of Whitbread v Watt demonstrates that the point is wholly arguable and in the circumstances, my subsequent perusal of authorities seem to confirm my original view of the equitable reach of the principle of purchaser's lien to cover damages in respect of loss of profits. As was said at page 456 of Snell on Equity, an equitable lien arises by operation of equity from the relationship between the parties rather than by any act of theirs. Leave should be given therefore for this heavily contested item of claim.

10. The final item which Mr. Chan objects to is the matter of compound interest in equity. We have seen much revolution in recent years on the matter of interest and the court's jurisdiction as well as discretion to award interest on simple or compound basis and for what rate and for what period. What is normally awarded in equity is not the restrictive criterion by which this application to re-amend should be measured. There is room for much argument on this and having regard specially to the fact that the Plaintiff's making the same claim for compound interest in equity against the Defendant and the Defendant in these Third Party proceedings is seeking partly to cover a back to back situation, I can see no valid objection to this item of claim and accordingly I also grant leave on this item of claim.