KING'S CITY HOLDINGS LTD v. DE MONSA INVESTMENTS LTD

HCA 1714/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1714 OF 2011

____________

______________

D E C I S I O N

______________

1. I think that there should be summary judgment on liability.

2. By a Provisional Agreement dated 25 March 2008 King’s agreed to sell and De Monsa to buy Flats 38A and B and Car Parks 215, 216, 217 and 218 at 31 Robinson Road for $124,865,000.  De Monsa paid a deposit and part installments totaling $18,729,750.  A Formal Agreement followed.  But De Monsa failed to pay the balance of $106,135,250 on 25 March 2009 as stipulated by the Formal Agreement.

3. King’s eventually re-sold the flats and car-parks to third parties.  In these proceedings, King’s claims against De Monsa to recover the deficiency between the price which De Monsa agreed to pay and the re-sale prices of the properties.

4. By way of principal defence, De Monsa suggests that Lauw Senior, its controlling director, was suffering from dementia when the Provisional and Formal Agreements were signed.  De Monsa further suggests that the Midland Realty estate agents who dealt with De Monsa on behalf of King’s (Frankie Lau, Zoe Hui and Kanee Fung) knew or ought to have realised from Lauw Senior’s eccentric behavior at the time that Lauw Senior was not of sound mind.

5. De Monsa relies on evidence from its General Manager Law Wai and his colleague Liza Ho in support of its allegation of dementia.  De Monsa has also filed medical evidence in support.  Accordingly, De Monsa argues that the Agreements are not binding on it.

6. The defence just sketched out is similar to that advanced by De Monsa in HCA Nos. 167 and 1004 of 2009.  In those previous actions De Monsa was being sued by Fortune Asset and Multi Star respectively for failing to complete Sale and Purchase Agreements entered into in November 2007 (completion to take place in May 2008) and 8 January 2008 (completion to take place in July 2008).  De Monsa there ran the identical defence of Lauw Senior’s dementia and adduced almost exactly the same evidence.

7. In November 2010, following the trial of the previous actions, I held that Lauw Senior was not suffering from dementia at the relevant times.  I also held that there were no visible signs of dementia on the part of Lauw Senior.  This meant that Frankie Lau and Zoe Hui could not have known or realised that Lauw Senior was of unsound mind at the relevant times.  I further found the evidence of Law Wai and Liza Ho (both of whom had been cross-examined) to be unreliable.

8. In light of those previous findings, it would be an abuse of process for De Monsa to re-litigate the same defence on this occasion.  There is issue estoppel in the wider sense which I identified in Parakou Shipping v Jinhui Shipping and others HCAJ No. 184 of 2009, 30 September 2010 (at paras. 93-96).

9. I pointed out in Parakou that, even though (as here) there may be a party to later proceedings who was not a party to an earlier action, the party common to both the earlier and later proceedings may still be bound by the findings of the Court in the earlier action.  That common party would then be estopped from disputing the earlier finding in the later action.

10. This wider sense of issue estoppel may apply in a variety of situations.  There is no catch-all formula for exhaustively identifying when it will apply.  The best that can be said is that the doctrine applies where it is necessary to prevent an abuse of the Court’s process and to forestall the administration of justice from falling into disrepute.

11. Here there would be a clear abuse of process which would bring the administration of justice into disrepute if De Monsa were allowed to re-litigate the questions of Lauw Senior’s dementia and of certain person’s awareness of that alleged state of mental disability.  De Monsa had every opportunity to adduce such evidence of those matters as it wished at the previous trial.  It did so and adverse findings were made against it.

12. It seems to me that De Monsa is bound by those previous findings.  It would be wrong to allow a second-bite at the cherry with almost the same evidence (albeit topped up with an additional report from a neurologist).  That would be against the public interest that there should be an end to litigation.  Judicial resources should not be wasted trying the same issue all over again.

13. In Parakou (at para.179) I referred to a dictum of Goddard LJ in Hollington v. Hewthorn [1943] KB 587.  There Goddard LJ observed that a judgment may be conclusive against the whole world (even non-parties to an action) to the extent that the judgment makes findings about “the existence of a state of things”.

14. For example, Goddard LJ took the situation where C sues A for a debt and the Court holds that A is liable to pay $x to C in respect of that debt.  The Court’s finding on the amount which A is liable to pay C must be conclusive against the whole world.  If A later seeks an indemnity against B for the $x paid to C, it would not be open to B to argue that C was only liable to A for a lesser amount of $y.  B is bound by the Court’s finding as to the existence of a debt of $x due from A to C, even though B was not a party to the suit between A and C.

15. By the same token, the Court has made a finding that Lauw Senior was not afflicted by dementia and that there was no reason why Frankie Lau, Zoe Hui or (for that matter) any other estate agent dealing with Lauw Senior at the relevant time should have thought that he was so suffering. Following Goddard LJ, I think that finding as to the existence of a state of things (namely, that Lauw Senior was of sound mind at the relevant time) must be binding on all the world (including De Monsa) and it is too late to seek by the present litigation to overturn the same.

16. It follows that De Monsa’s principal defence is not open to it.  That defence has been rendered unarguable by the previous litigation involving De Monsa.  The previous findings against De Monsa are not mere expressions of opinion (as De Monsa has argued) but binding findings of fact.

17. By way of fallback, De Monsa alleges that King’s disabled itself from performing the Agreement.

18. Where the purchaser fails to complete on time, clause 17(1) of the Formal Agreement allows the vendor to give 21 days notice to complete.  The vendor may then determine the agreement if the purchaser does not complete within the 21 days allowed.

19. King’s solicitors wrote on 2 April 2009 to require De Monsa to complete within 21 days.  That means (the argument runs) De Monsa had until 24 April 2009 to complete.

20. But King’s entered into a Provisional Agreement with a third party (Wang) on 21 April 2009 for (among others) the sale of Car Park 218.  Car Park 218 was part of the property which King’s had undertaken to convey with vacant possession to De Monsa under the Formal Agreement.

21. Consequently, King’s (De Monsa reasons) could not have fulfilled its obligation to convey the whole of the property covered by the Formal Agreement (including Car Park 218) on 24 April 2009.  By selling Car Park 218 on 21 April 2009, King’s rendered it impossible to perform the Formal Agreement.  De Monsa (it is asserted) is entitled to rely on that inability of King’s as a defence to the present claim.

22. There is nothing to this argument.

23. Assume that cl.17 operates as De Monsa suggests so that the completion date was extended to 24 April 2009.  Assume further that the Provisional Agreement with Wang amounted to a contract for the sale of (among others) Car Park 218.

24. By its Provisional and Formal Agreements with King’s, De Monsa acquired an equitable interest in Car Park 218 in 2008.  That interest was registered in 2008.  At best, by the later 2009 Provisional Agreement with King’s, Wang could only have obtained an equitable interest which was lower in priority to that of De Monsa.

25. Accordingly, nothing and no one (certainly not Wang) could have prevented King’s from conveying Car Park 218 to De Monsa on 24 April 2009 if De Monsa wished to complete on that day.  Wang, in actuality, did not move into possession of Car Park 218 (or pay the entire of the agreed consideration) until much later, long after De Monsa failed to complete on 24 April 2009.

26. It follows that King’s did not disable itself from completing on 24 April 2009 merely because of the Provisional Agreement with Wang in respect of Car Park 218.  Contrary to what De Monsa has submitted, the Provisional Agreement with Wang was not an act by King’s evincing an intention no longer to be bound by its contract with De Monsa.

27. De Monsa then argues, by reference to clause 17(3) of the Formal Agreement, that it is not obliged to make good the deficiency between sale prices of the property sold.  The clause provides 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”.

28. It is unclear how this alleged defence is supposed to work.

29. It seems to be contended by De Monsa that, because a Memorandum determining the Provisional and Formal Agreements with De Monsa was only registered on 28 April 2009, it is suspicious that King’s was able to enter into a Provisional Agreement for Flat 38B and Car Park 215 (among others) on 24 April 2009.  It is suggested that King’s “jumped the gun and sold integral parts of the property before determination of the Formal Agreement”.

30. De Monsa’s allegation of a pre-sale by King’s is pure speculation.  There is absolutely no evidence (let alone sufficient particulars) to support the assertion.

31. It also appears to be contended by De Monsa that, because Car Park 218 was sold on 21 April 2009 before the 24 April 2009 deadline, there must have been a sale of an integral part of the property before (not after) the Agreement with King’s was determined.

32. But that argument, too, is untenable.  In its natural and ordinary meaning “sold” in clause 17(3) must refer to the property being effectively “sold” (that is, to the whole process of sale including completion) not just to King’s entering into an agreement to sell (which may or may not be effective).

33. In summary, De Monsa has no arguable case on liability.

34. King’s further asks that I order an interim payment of some $9.3 million on the premise that King’s is bound to obtain at least that much from De Monsa as damages.

35. De Monsa has put in a valuation report in support of an allegation that the flats and car parks were sold at a “gross undervalue”.  I am sceptical of this claim.  There is nothing to suggest that the re-sales by King’s of the flats and car parks to third parties were anything other than bona-fide attempts to mitigate loss. The various flats and car parks may not have fetched the higher prices suggested in De Monsa’s valuation report, but that can hardly be evidence that the re-sales were anything other than arm’s length transactions.

36. Nonetheless, there are disputes as to whether De Monsa is liable to pay the estate agent fees and legal costs claimed by King’s and whether an alleged rebate promised by the estate agents to Lauw Senior should or should not be taken into account in the calculation of quantum.

37. In my view, then, there should be an assessment of quantum.  Interim payments are not typically ordered in commercial cases.  They are generally ordered to alleviate hardship on the part of a plaintiff pending trial.  I am not satisfied that is the situation here.  In all the circumstances, I do not see that this is a case where an order for interim payment is required.  Instead, as a matter of case management, I should simply give directions for the speedy assessment of quantum.

38. I shall now hear counsel on costs and consequential matters.