CHARTER VIEW DEVELOPMENT LTD. v. GOLDEN RICH ENTERPRISES LTD. AND ANOTHER

HCA 7056/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7056 OF 1999

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J U D G M E N T

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1. This is an appeal by the plaintiff from the decision of Master Ho dated the 26th November 1999, ordering the plaintiff to amend its Statement of Claim, failing which the claim against the 1st defendant would be struck out.

2. The plaintiff's action is in respect of nine contracts of sale of lots of land in Sai Kung. The contracts were entered into between the 7th August 1993 and 8th October 1993. The second defendant, a director of the plaintiff, appears to have acted as agent for the 1st defendant as well as on behalf of the plaintiff. This slightly unusual situation is a complicating factor and accounts for his involvement in the action as a defendant.

3. The plaintiff with the 2nd defendant as signatory to its bank account paid a total sum of $1,332,984 as deposits on the contracts. They represented 20 per cent of the purchase price. Two years later the 2nd defendant contrived to persuade the plaintiff to pay a further deposit of 20% of the purchase price and so an identical sum found its way to the 1st defendant. The plaintiff had therefore paid 40% of the total purchase price.

4. It was further agreed by the 1st defendant that completion of the sale and purchase of these 9 properties would take place on or before 5th April 1997 - i.e. 18 months after the 5th October 1995 being the date on which the 2nd defendant signed an agreement to the effect that if the 1st defendant failed to complete as set out, the 2nd defendant would refund the total of the deposits to the plaintiff. The 2nd defendant is alleged to be the agent of the 1st defendant for the purposes of the receipt of the further deposit and the variation of the completion date. Completion did not take place as provided for, nor has it done since. The plaintiff's claim is based on a breach of the term as to the completion date, and alternatively as to the failure to complete within a reasonable time, more than 21/2 years having elapsed since the stipulated last date for completion.

5. The prayer seeks a declaration on three matters

1) that the 1st defendant has repudiated the contract (by failing to complete the sales)

2) that the plaintiff can accept the repudiation (and proceed accordingly)

3) that the plaintiff is entitled to a refund of the deposits paid and damages for breach of the contracts of sale (the 1st defendant having failed to obtain title to the properties and so be in a position to convey or assign them).

6. Against the 2nd defendant it seeks essentially return of the deposits and interest (relying on paragraph 42 of the Statement of Claim). All the words in parentheses are my additions as a gloss.

7. I can see nothing problematic in the way the plaintiff has pleaded its case. It seeks the court's directions and declarations to resolve an impasse in which, if it opted for a particular course, it might find itself prejudiced even though the apparent merits of its claim were strong if not unanswerable. From the Defence and Counterclaim filed in answer it is equally apparent, that the 1st defendant's advisers had no difficulty in understanding the claim and pleading to it. That Defence admits the whole of the factual basis to the claim and the payment and receipt of 40% of the purchase monies as deposits. It denies the pleaded completion date and alleges that completion was to take place within one month of the "succession procedures" by which the 1st defendant was to obtain title to the properties so as to be able to convey title to the plaintiff. It further contends that the plaintiff is responsible for the 1st defendant's inability to obtain title in that it has failed to pay the consultancy fees necessary to effect these "succession procedures". It is the plaintiff, it continues, who has repudiated the contract. By its counterclaim, it likewise seeks a declaration that it is entitled to accept the plaintiff's repudiation (and I assume forfeit the deposits). The Defence is dated the 15th June 1999.

8. Notwithstanding this "tit-for-tat" on the pleadings and a clear statement of the issues, on the 26th August 1999, the 1st defendant took out a summons to strike out the plaintiff's Statement of Claim as "disclosing no reasonable cause of action or that it is otherwise an abuse of the process of the court". There was and has been no proposed amendment to the Defence and Counterclaim filed. Some how Mr Alfred Fung, appearing on behalf of the 1st defendant, managed to persuade the learned Master to make the order which is the subject of this appeal. There is no note of the reasons for this but it appears that the Master accepted his argument based on the decision of the English Court of Appeal in Howard v. Pickford, 1951 1KB p. 417.

9. It is well and long established that a party to an agreement may seek a declaratory judgment from the court. It is embodied in Order 15 rule 16 which I need not set out. At beginning of the last century in Société Maritime et Commerciale v. Venus Steam Shipping Co. Ltd 1904 Commercial Cases p. 280, Channell J stated at page 290:

"As to the point that the plaintiffs are not entitled in any event to a declaration, I think that the objection is not well-founded ...... They are not entitled to come to ask a court of law for an opinion upon a speculative or academic question; but showing the necessity of a decision upon it. I think they are entitled to a declaration as to whether or not the contract is binding upon them. They are not bound at their peril to refuse to perform it and then be liable to heavy damages for not performing it [for the space of the next year and a half]. If they are wrong, they would be liable for damages down to the time of the judgment .... while they are refusing to perform; but upon the court saying that they were bound, they would then say: 'we will now go on with it for the remainder of the time'. I think that is a sufficient reason. I think therefore that they are entitled to some form of declaration that they are not bound to the defendants in the present state of things .... I do not myself see that anything that has happened that has put an end to the contract for good and all. I think that the contract is alive, and therefore it may be possible for the defendants to perfect their title and then say to the plaintiffs: 'we are now in a position, although we were not when this action was tried, to require you to perform this contract'. Therefore the declaration that the plaintiffs are entitled to must be in some shape or another to the effect that they are, not, in the present state of things, bound to perform the contract with the defendants."

10. The same principle was set out by Bailhache J in Spettabile Consorzio Veneziano di Armamento e Navigazione v. Northumberland Shipbuilding Co. Ltd 1919 121 LT 628

"...I am asked to exercise one of the most useful functions of the commercial court - namely to say between parties to contracts whether those contracts are still binding upon them. That is a function of the court which saves parties in commercial transactions from a great deal of uncertainty and a great deal of money."

11. On appeal Duke LJ at page 634 affirmed the approach Channell J had adopted in Société Maritime et Commerciale:

"That ruling entitles parties to assume that they may come to court in a properly framed action and obtain the decision of the court as to what the rights are in respect of the matter in dispute."

12. Atkin LJ lent his considerable judicial weight in support at page 635:

"This form of action is, I think, one of the most valuable contributions that the courts have made to the commercial life of this country ..... The procedure before the court is now open to them, which is unchallenged, by which they can come to a court and in a very short time have those disputes resolved. That they can do without exposing themselves to the risk of having to take a definite course, in repudiating a contract which, if it is wrong, may involve then in a very large sum of money."

13. Howard v. Pickford is not in conflict with these authorities. The facts were significantly different - the plaintiff was still performing the contract and the alleged repudiatory breaches simply posed an academic question which the court was clearly not prepared to resolve. That would have been in effect an abuse of process.

14. In my view there is no doubt that the plaintiff has properly pleaded its case and is entitled to apply for the relief sought and the appeal is allowed. In any event I would have allowed this appeal on the basis of the pleadings as they stand collectively. The Defence and Counterclaim itself indicates that the defendants' application was misconceived.

15. The plaintiff is entitled to its costs here and below and I so order. The order should be a forthwith order and I propose to assess the costs if the parties agree. This part of the costs order will be a nisi order. I also propose to give directions for the expedited progress of this action. This will be listed before me at 9:30 am, on Friday 21st January 2000 for that purpose. The plaintiff's solicitors must submit to the court and to the defendant's solicitors by 4 pm on Thursday 20th January a short note of the costs it claims are appropriate.