TRENDLY KINGDOM LTD. v. SKY TALENT PROPERTIES LTD. AND ANOTHER

HCA 12126/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12126 OF 1998

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J U D G M E N T

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1. The plaintiff's claims derive from the 1st defendant's alleged repudiation of a contract for the sale and purchase of the property in question in these proceedings, namely the 1st to the 5th floors and the roof of the building at No. 1058 Canton Road, Kowloon, Hong Kong ("the Properties"), which was concluded on 9 January 1998, and the 2nd defendant's alleged liability under a contract of personal indemnity which was concluded on 13 November 1997.

2. The claims against the 1st defendant are for the return of the deposits paid by the plaintiff in a total sum of $735,000; compensation for losses suffered by the plaintiff in the sum of $180,850 (consisting of stamp duty, agency fee and legal costs paid by the plaintiff); and damages.

3. The claims against the 2nd defendant are for payment in the sum of $1,470,000, being double the deposits paid by the plaintiff in respect of the purchase of the aforesaid property, together with interest thereon, in terms of the indemnity agreement concluded between the 2nd defendant and the plaintiff on 13 November 1997.

4. The 1st defendant did not defend the claims against it, and on 1 February 1999 final judgment in default was entered against it with costs.

5. In the current proceedings the plaintiff is pursuing its claims against the 2nd defendant.

6. There is no dispute that by an agreement dated 3 November 1997 the 1st defendant agreed to purchase from one Profit Rich Enterprises Limited a property at 1058 Canton Road, Kowloon for $19 million. The completion date for the sale and purchase of the property was 30 May 1998.

7. Mr Cheung Chiu Hung testified that at all material times he was an employee of Everbright Property Consultants, and he had been asked by the 2nd defendant and Wong Kam Chiu (the two directors of the 1st defendant) to look for a purchaser for the property. He subsequently introduced Madam Poon to them as being interested in purchasing the 1st to the 5th floors and the roof of the building, and he thereafter acted as the agent of both parties in negotiating and finally concluding the transaction.

8. He testified that on 12 November he telephoned the 2nd defendant and told him that Madam Poon had raised concerns as to:

(1) whether the 1st defendant would be able to deliver good title to the Properties, since it was selling it in the capacity of a confirmor; and

(2) since the 1st defendant was a limited company without any assets, whether it would be able to repay the deposits which would be paid to it on the transaction, and compensation in the event that it was unable to complete the transaction. Madam Poon had asked whether the deposits could be paid to the 1st defendant's solicitors as stakeholders in the first instance, until such time as the 1st defendant's status as confirmor had been confirmed.

9. The 2nd defendant and Mr Wong did not agree to this proposal, and instead, in order to meet the concerns of the purchaser, the 2nd defendant suggested that he would give a personal indemnity to the effect that, in the event that the 1st defendant for any reason failed to complete the sale of the Properties to Madam Poon or whomever she was representing, the 2nd defendant would pay to the plaintiff double the amount which the plaintiff had advanced as deposits on the transaction. This proposal was accepted by Madam Poon on the same date, namely 12 November 1997.

10. On the following day, 13 November 1997, the parties executed a Provisional Agreement for Sale and Purchase of the Building for a sum which was eventually agreed upon as $4.9 million. The seller was described as being the 1st defendant, and the agreement was signed by the 2nd defendant and Wong on behalf of the 1st defendant; the purchaser was described as being "Ms Poon Ho Yan or its agent", and the agreement was signed by Madam Poon as the purchaser. (The words "for Trendly Kingdom Limited" which appear after Madam Poon's name in the description of the purchaser in the agreement, were added by Mr Cheung on 19 November when the agreement was amended in the circumstances as indicated hereinafter.)

11. The initial deposit which was payable on the signing of the Provisional Agreement was $300,000, and Madam Poon issued a cheque in that amount payable to the 1st defendant.

12. On the same day the 2nd defendant read and approved the terms of the personal indemnity which Mr Cheung had drafted, and signed it as "the vendor's representative", while Madam Poon signed it later that evening as "the purchaser's representative". The indemnity is expressed in the following terms:

"In relation to the property namely the whole of 1st Floor, 2nd Floor, 3rd Floor, 4th Floor, 5th Floor and Roof, No.1058 Canton Road, Mongkok ...

The Vendor and the Purchaser mutually agree that if the Vendor shall not complete the transaction with the registered owner, Mr Ng Pit Hing (Holder of Hong Kong Identity Card No.XXXXXXX(X)) being the representative of the Vendor is willing to pay double of the deposits to Madam Poon Ho Yan (Holder of Hong Kong Identity Card No.XXXXXXX(X)) being the representative of the Purchaser or its agent as indemnity. If the Purchaser shall breach the agreement, the Vendor shall have the right to forfeit all the deposits paid and the Vendor shall not claim against the Purchaser under any legal action."

13. On 17 November the 2nd defendant telephoned Mr Cheung and informed him that Madam Poon's cheque had been dishonoured upon presentation, and directed him to tell Madam Poon that unless she issued a cashier order in favour of the 1st defendant in the same amount, he would treat her as being in breach of the Provisional Agreement.

14. Mr Cheung ascertained from Madam Poon that she had in fact stopped payment on the cheque because of her concerns about the 1st defendant's ability to complete the transaction and deliver good title to the Properties.

15. After further negotiations, which were again conducted through Mr Cheung as the intermediary, the parties agreed that Madam Poon would issue a cashier order in substitution for the cheque which had been dishonoured, in payment of the 1st deposit of $300,000, which would be made payable to the 1st defendant, while the further deposits would be made payable to the 1st defendant's solicitors to hold as stakeholders pending the satisfactory completion of the purchase and sale of the Properties.

16. Mr Cheung testified that both the 2nd defendant and Wong were present at the 1st defendant's office on 19 November, when he handed the cashier order to the 2nd defendant, who accepted it without demur. On that same afternoon Mr Cheung drafted "Annexure 2" to the Provisional Purchase and Sale Agreement, in order to reflect the further agreements in relation to the payment of the deposits, dated 19 November 1997, in the following terms:

"In relation to the property namely the whole of 1st Floor, 2nd Floor, 3rd Floor, 4th Floor, 5th Floor and Roof, No.1058 Canton Road, Mongkok, Kowloon ... The Purchaser must give the deposit to be paid on 8th December 1997 and 5th November (sic) 1998 to the Vendor's Solicitors as scheduled. The Purchaser's (sic) Solicitors should immediately transfer the money to the Vendor if the deed is okay.

Furthermore, Hua Chiao Commercial Bank Limited cheque no. "357618" Hong Kong Dollars 300,000.00.

The Vendor and the Purchaser mutually agree that the said cheque will be void and will be substituted by Bank of China cheque no. "006376" Hong Kong Dollars 300,000.00."

It was signed by Wong on behalf of the 1st defendant, and by Madam Poon as the purchaser. Mr Cheung testified that the two initials at the end of the Annexure were appended by the 2nd defendant, which was denied by both the 2nd defendant and Wong, who claimed that they were his initials. In any event Mr Cheung was emphatic that the 2nd defendant was present throughout while he drafted this Annexure, and both the 2nd defendant and Wong read it and approved it before Wong signed it on behalf of the 1st defendant. The Provisional Agreement was likewise amended in paragraph 16 thereof in order to refer to and incorporate Annexure 2.

17. In her testimony Madam Poon confirmed Mr Cheung's evidence that she had indeed raised with him her concerns about the 1st defendant's status in selling the Properties as confirmor, and also because she suspected that the 1st defendant was only a shell company, and she was not willing to pay a deposit to the 1st defendant in these circumstances for fear that it might not be able to repay the deposits and compensation if it failed to complete the transaction.

18. She said that after Mr Cheung had returned from negotiating with the 2nd defendant and Wong, and informed her of the 2nd defendant's offer to pay double the deposit if the transaction could not be completed, he had also assured her that the 2nd defendant was a man of substance who owned various properties, including factory premises, and was able to buy a property without seeking any loan from the bank. Madam Poon accepted the 2nd defendant's offer, and told Mr Cheung that on that basis she was willing to enter into a purchase and sale agreement with the 1st defendant.

19. She said that on 19 November she accompanied Mr Cheung to a café near the 1st defendant's office, where Mr Cheung drafted "Annexure 2", which she signed. Mr Cheung then took Annexure 2 back to the 1st defendant's office and returned a little later with Mr Wong, and subsequently the 2nd defendant also arrived. They all signed the documents and the transaction was completed in harmony. The words "for Trendly Kingdom" after Madam Poon's name in the Provisional Purchase and Sale Agreement were added by Mr Cheung in the café.

20. She confirmed that she later, on 9 January 1998, signed the Formal Purchase and Sale Agreement on behalf of the plaintiff, and that all the deposits due in the sum of $735,000 were duly paid. Notwithstanding that the 1st defendant subsequently failed to complete the transaction, the plaintiff has never recovered any of the deposits which it advanced.

21. The 2nd defendant testified that he owned 60% of the share holding of the 1st defendant, while Mr Wong owned the remaining 40%. He said that on 13 November the 1st defendant sold the Properties to Madam Poon for $5 million. However, when Madam Poon's cheque for the 1st deposit was subsequently dishonoured, he said that the agreement for sale was thereby cancelled, and he told Madam Poon and Mr Cheung that he would not return Madam Poon's bounced cheque unless they cancelled the personal indemnity which he had given. He never did in the event return the cheque, although he did not suggest that Madam Poon or Cheung had at any time agreed to cancel the personal indemnity.

22. Then on 19 November Madam Poon came to his office with Mr Cheung and asked that the property be sold to her for $4.8 million, and after further negotiations a price of $4.9 million was agreed upon. He testified that he was not involved at all in this "2nd transaction" as he called it, as evidenced by the fact that he did not sign "Annexure 2". He agreed that with effect from 19 November when Madam Poon's cheque was replaced by the cashier order, he knew that the purchaser which they were dealing with was the company Trendly Kingdom Limited, and he accepted the company as the purchaser because his co-director Wong had signed the documents to that effect. He further said that he had spent all the deposits which the plaintiff had paid towards purchasing the property, and that if he could get the money back he would repay it to the plaintiff, but that in the meantime he had no money with which to repay the plaintiff.

23. Mr Wong testified that in the initial stages it was the 2nd defendant who had dealt with Mr Cheung; and later when he (Wong) signed documents on behalf of the company, he did so upon the 2nd defendant's instructions. The 2nd defendant had instructed him to receive Madam Poon's cashier order in substitution for her cheque which had bounced.

24. The 2nd defendant was a poor witness, and his evidence was shot through with contradictions. He did not impress me as truthful in his recounting of the various events, and his role in them.

25. Mr Cheung represented both parties, and his position as a witness was a neutral one, since he had no axe to grind on behalf of one side or the other. He impressed me as an extremely good witness who was clearly telling the truth, and I am satisfied that events occurred as deposed to by him. Madam Poon also impressed me as a truthful witness.

26. The 2nd defendant's defence as pleaded by his solicitors who were representing him at that stage, and as supported to some extent by his evidence, was firstly to the effect that it was only after the conclusion of the "1st Provisional Agreement" that he was asked by Mr Cheung to enter into the alleged contract of indemnity. "In the premises there was no consideration in law to support the alleged contract or alternatively the consideration is a past consideration and is not sufficient in law to support the alleged contract. This said contract of indemnity was never mentioned and/or incorporated into the 1st Provisional Agreement."

27. There is no merit in these allegations. The true position, as deposed to by Mr Cheung and Madam Poon, was that it was before the Provisional Agreement was ever concluded that Cheung had relayed Madam Poon's concerns to the 2nd defendant, and the 2nd defendant had responded by offering his personal "indemnity". Indeed he offered the indemnity specifically in order to meet Madam Poon's concerns and reservations, and it was only on the basis of it that Madam Poon agreed to enter into the Provisional Agreement.

28. It is clear that the consideration for his undertaking the indemnity was the plaintiff's entering into the Provisional Sale and Purchase Agreement, and that this was a good consideration in law.

29. The 2nd defendant pleaded in the alternative that when Madam Poon's cheque in respect of the 1st deposit was dishonoured, the plaintiff had thereby communicated an intention not to perform its obligations, and the 1st defendant had elected to treat the "1st Provisional Agreement" as at an end, which election was communicated to the plaintiff through Mr Cheung. Subsequently on 19 November 1997, and unknown to the 2nd defendant, the plaintiff and Mr Wong entered into another provisional agreement for the sale and purchase of the said properties namely the "2nd Provisional Agreement", as evidenced by the 1st Provisional Agreement as amended in clause 16 thereof, together with Annexure 2. Since it was never the parties' intention to incorporate the contract of indemnity as part of the 2nd Provisional Agreement ... "or any agreement at all, ... the 2nd defendant is not personally liable to the alleged contract of indemnity or at all".

30. These allegations bear no resemblance to the reality of what actually occurred, as deposed to by Mr Cheung and Madam Poon, namely that after Madam Poon's cheque bounced, both the 2nd defendant and Wong agreed to accept a cashier order from her in substitution for the cheque, and that further deposits would be paid to the 1st defendant's solicitors to hold as stakeholders, and both of them agreed to the Provisional Agreement for Purchase and Sale being amended to reflect such further agreements by incorporating Annexure 2 into it. Annexure 2 was signed by Wong on behalf of the 1st defendant, and it is clear on the evidence that the 2nd defendant had read it and agreed it to its terms and thereafter authorised Wong to sign it on behalf of the 1st defendant. Indeed, there is no dispute that the cashier order was in fact accepted and cashed by them, and the proceeds credited to the 1st defendant.

31. The 2nd defendant alleges in the further alternative that "the contract of indemnity was made between the 2nd defendant and Madam Poon, and the plaintiff was not a party to the contract of indemnity. In the premises the plaintiff has no locus standi in the said matter ...".

32. However, it is quite clear from the evidence that the 2nd defendant knew that at all material times Madam Poon was acting as an agent of the purchaser, and that she entered into the Provisional Agreement as "Ms Poon Ho Yan or its agent" (the latter words written in Chinese characters). I do not overlook the fact that her signature to the agreement was not qualified in any way.

33. In the "indemnity agreement" the 2nd defendant is described as "being the representative of the vendor" and Madam Poon Ho Yan is described as "being the representative of the purchaser or its agent". Madam Poon signed this agreement as "the purchaser's representative".

34. I am satisfied that the fact that she subsequently, on 19 November, signed Annexure 2 as "the purchaser" without any qualification was simply careless drafting by Mr Cheung, and did not alter in any way her status in concluding the Provisional Sale and Purchase Agreement as the purchaser's agent.

35. Indeed, the 2nd defendant conceded in cross-examination that he knew, on the 13 November when the indemnity agreement was concluded, that Madam Poon was representing the purchaser as its agent, although he claimed that he did not at that stage know the identity of her principal.

36. In any event the Formal Agreement of Purchase and Sale which was entered into by the parties on 9 January 1998 put the matter beyond peradventure, since the purchaser was identified as being the plaintiff, and Madam Poon signed on the plaintiff's behalf. Furthermore, the Third Schedule to the agreement is described as being: "Information included for the purposes of section 29B(1) of the Stamp Duty Ordinance (Cap. 117)", and paragraph F thereof is in the following terms:

"The date of any preceding unwritten sale agreement or agreement for sale made between the same parties on the same terms: 13th November 1997."

This was clearly a reference to the Provisional Agreement for Purchase and Sale which had been concluded on 13 November 1997.

37. In the light of all this evidence the 2nd defendant's allegations that the Provisional Agreement and the "indemnity agreement" were concluded with Madam Poon personally, and that the plaintiff therefore has no locus to seek to enforce the indemnity, are in my view completely devoid of merit.

38. It was specifically in order to induce Madam Poon to enter into the Provisional Agreement for the Sale and Purchase of the property that the 2nd defendant offered his personal undertaking to pay double the deposits to Madam Poon Ho Yan "... being the representative of the purchaser or its agent as indemnity ...", in the event that the 1st defendant for any reason failed to complete the sale of the Properties. On the same day the 2nd defendant signed on behalf of the 1st defendant the Provisional Agreement for Sale and Purchase of the property to "Ms Poon Ho Yan or its agent", well knowing that she was acting as the agent of the purchaser, albeit that the precise identity of the purchaser may not have been disclosed at that stage by her. On 9 January 1998 the parties entered into the formal "sub-sale and purchase agreement" which identified the plaintiff as the purchaser, and was signed by the 2nd defendant and Wong on behalf of the 1st defendant, and by Madam Poon on behalf of the plaintiff, and acknowledged that all the deposits in a total of $730,000 had been paid on behalf of the plaintiff.

39. It is not disputed that the 1st defendant did "not complete the transaction with the registered owner", in that in contravention of its obligations in terms of clause 20(b) of the Formal Agreement it wrongfully exercised its right to rescind the Principal Agreement without first notifying the plaintiff, and thus deprived the plaintiff of the opportunity to determine, in terms of clause 20(b), whether the 1st defendant should or should not exercise such right of rescission. The 1st defendant thus wrongfully repudiated the Formal Agreement, which repudiation was accepted by the plaintiff by its solicitors' letter of 8 June 1998.

40. It follows that the 2nd defendant is liable, in terms of the contract of indemnity of 13 November 1997, to pay the plaintiff double the deposits which the plaintiff had paid on account of the purchase of the property.

41. I grant judgment to the plaintiff as against the 2nd defendant in the sum of $1,470,000, together with interest thereon at 10% per annum with effect from the date of the filing of the Writ, namely 22 July 1998 to the date of payment. I make an order nisi that the 2nd defendant is to pay the plaintiff's costs of these proceedings.