HO LUNG WAI STANLEY t/a CHEER RAINBOW MEMBERSHIP SERVICES v. KWOK YOK KWONG t/a B.A. MARKETING & CO

DCCJ 4731/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

CIVIL ACTION CASE NO 4731 OF 2002

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JUDGMENT

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1. This is the plaintiff's appeal against a Master's decision made on 28/2/03 in refusing his O.14 application for summary judgment against the defendant.

2. The plaintiff and the defendant are both agents engaging in the trading of club membership.

3. By a written agreement signed on 6/8/01 the plaintiff agreed to procure the purchase of the Discovery Bay Golf Club membership (hereinafter called the "golf club membership") for the purchase price of HK$1.37 millions. Pursuant to the agreement a sum of HK$140,000 was paid by the plaintiff to the defendant as deposit towards the performance of the agreement.

4. The agreement fell through as the plaintiff's client had decided against acquiring the said golf club membership. The plaintiff now sues the defendant for the return of HK$120,000, being balance of the HK$140,000 deposit less HK$10,000 liquidated damage pursuant to clause 11 of the agreement and a sum of HK$10,000 subsequently received from the defendant.

5. According to the defendant's defence and his affirmations it was the defendant's contention that he ought to be allowed unconditional leave to defend as the ultimate seller of the golf club membership, Canon HK Company Limited, had forfeited the HK$100,000 deposit on account of the plaintiff's breach in failing to complete.

6. It was the defendant's further contention that the contract carried an implied term for completion within reasonable time. As the market purchase price of the golf club membership was dropping rapidly Canon elected to forfeit the deposit and sold the said membership to Toppy Land Limited in September 2001.

7. It was not disputed by the plaintiff, for the purpose of this Order 14 application, that he was in breach of its agreement to procure the purchase of the golf club membership. The issues the court is called upon to adjudicate are:-

(a) whether there was an implied right to forfeit the deposit of HK$140,000 of the plaintiff; and

(b) whether the damages between the plaintiff and the defendant has been crystallized at the liquidated sum of HK$10,000 pursuant to clause 11 of the written agreement , restricting the defendant from claiming other consequential loss.

Sequence of contracts entered into between the various parties

8. The documents exhibited by the defendant showed 4 contracts had been entered into between 4 sale agents and the membership holder for the sale of the golf club membership. The 5 individual or entities involved were:-

(i) Cheer Rainbow Membership Services (the plaintiff)

(ii) B.A. Marketing & Co. (the defendant)

(iii) Everfine Membership Services Limited (hereinafter called "Everfine")

(iv) China Dragon Membership Services Limited (hereinafter called "China Dragon")

(v) Canon Hong Kong Company Limited (hereinafter called "Canon"), the membership holder

9. The 4 contracts executed between them were: -

(i) An agreement signed between the plaintiff and the defendant on 6/8/01 to procure the purchase of the golf club membership at the price of HK$1.37 millions. A deposit of HK$140,000 was paid by the plaintiff to the defendant pursuant to the contract.

(ii) An agreement signed between the defendant and Everfine on 7/8/01 to procure the purchase of the golf club membership for HK$1.36 millions. A deposit of HK$130,000 was paid by the defendant to Everfine pursuant to the agreement.

(iii) An agreement signed between Everfine and China Dragon on 8/8/01 for the purchase of the golf club membership for HK$1.35 millions. A deposit of HK$120,000 was paid by Everfine to China Dragon.

(iv) An agreement was signed between China Dragon and Canon on 7/8/01 for the purchase of the golf club membership for HK$1.33 millions. A deposit of HK$100,000 was paid by China Dragon to Canon pursuant to the agreement.

10. Both representatives of Everfine and China Dragon affirmed to the fact that Canon had forfeited the deposit of HK$100,000; while Canon in its letter of 31/3/03 (a letter which was not before the Master in this Order 14 application) in response to the plaintiff's enquiry stated that there was no forfeiture of deposit as China Dragon had satisfactorily completed its contract and Canon's golf club membership was assigned to Toppy Land Limited in September 2001.

Any contractual right to forfeiture?

11. In light of the conflicting evidence between China Dragon and Canon, whether Canon had forfeited the HK$100,000 deposit could not be resolved without further evidence showing the contract price between Toppy Land Limited and its sale agent and the actual payment made by Toppy Land Limited towards the purchase of the said gold club membership.

12. Assuming for the benefit of the defendant that Canon had forfeited HK$100,000 deposit it was the plaintiff's contention that this did not provide the defendant with a defence to the plaintiff's claim for the return of the deposit as there was no contractual provision to permit forfeiture of deposit and the said right to forfeit could not be implied.

13. There was no express contractual right to forfeit in the written agreement between the plaintiff and the defendant, nor was any provision for forfeiture in the 3 subsequent contracts.

14. Lord Simon in his judgment in the Privy Council decision of B.P. Refinery [1978] 52 ALJR 20, reported at page 26, said: '..... for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) It must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.'

15. Clause 11 of the plaintiff's agreement clearly spelt out the amount of liquidated damages between the plaintiff and the defendant. The importation of a term to permit forfeiture of the deposit would directly conflict with clause 11 of the written agreement, which would be contrary to parties' expressed intention. Thus, as between the plaintiff and the defendant, there cannot be an implied term to forfeit.

Would clause 11 operate as a liquidated damage clause?

16. Clause 11 of the agreement between the plaintiff and the defendant reads:-

"After signing of this Agreement, should the Purchaser's Agent and or the Vendor's Agent fail to complete this Membership transaction, the amount of HK$10,000 will be charged to the defaulting party for compensation immediately."

17. The difference in the purchase price of the various contracts showed the defendant and Everfine, the next agent down the line of sale, would harvest an agency fee of HK$10,000 should the plaintiff proceed to complete the contract as agreed. China Dragon would obtain an agency fees of HK$20,000 should the contract be performed. The sum of HK$10,000 can be shown to be a geninue pre-estimate of the agent's loss in respect of the contract between the plaintiff and the defendant.

18. It was the defendant's argument that the liquidated damage clause should only be operative to limit the liability of the vendor should the vendor refuse to sell but should not limit the liability of the purchaser should the purchaser failed to complete. Such argument is unsustainable and is contrary to the express provision of clause 11.

19. Whether the principal of the defendant is entitled to a claim for damages, relying on the agency agreement between the plaintiff and the defendant, is beyond the scope of the present consideration, as the principal has not been joined as a party to this action, there was no prayer of relief in respect of the damages suffered by the principal nor was there clear evidence before this court on the damages that the principal might have suffered. To speculate on the damages of the principal of the defendant is hypothetical.

20. I accede to the plaintiff's application for summary judgment as there was no implied term to forfeit the deposit in the event of the breach of the agreement to complete; and clause 11 is a liquidated damage clause delineating the parties' damages as between the plaintiff and the defendant.

Court's Order

21. The appeal against the Master's order is allowed. Summarily judgment is entered against the defendant. Costs order nisi for this appeal is granted in favour of the plaintiff with certificate for counsel.