RICHLY BRIGHT INTERNATIONAL LTD v. DE MONSA INVESTMENTS LTD

CACV 247/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 247 OF 2012

(ON APPEAL FROM HCA NO. 548 OF 2012)

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J U D G M E N T

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Hon Kwan JA:

Introduction and background

1. This is an appeal against the decision of Deputy High Court Judge Le Pichon on 15 October 2012.  The judge ordered summary judgment be entered for the plaintiff Richly Bright International Ltd (“Richly Bright”) against the defendant De Monsa Investments Ltd (“De Monsa”) in terms of the relief sought in the statement of claim.

2. The claim arose out of De Monsa’s failure to complete the sale of a commercial property in New Mandarin Plaza, No 14 Science Museum Road, Kowloon (“the property”) under a sub-sale agreement dated 8 May 2008 made between Richly Bright as the confirmor and De Monsa as the sub-purchaser.  This sub-sale was the third in a series of sub-sales of the property, with completion all due to take place on 17 September 2008[1].  De Monsa’s default on completion had a domino effect on the chain of sub-sales, which in turn brought about a chain of actions in the High Court.

3. I take the salient facts as summarised by the judge in paragraphs 2 to 8 of her judgment:

“2. The sub‑sale referred to above [as between Richly Bright and De Monsa] was part of a chain of transactions all due to be completed on 17 September 2008. The sub‑sale in question was the third in that series summarised by the following diagram:

3.  Each of the sub‑purchasers in the chain duly paid their deposits but [De Monsa] failed to complete the third sub‑sale in which [Richly Bright] was vendor.  In turn, [Richly Bright] was unable to complete the second sub‑sale it had with 823 Investment Ltd (“823”), the vendor under the second sub-sale.  In turn, that resulted in 823 being unable to complete the first sub‑sale which was with World Orient.

4.  The chain reaction led to the following actions:

(1)  HCA 24/2009 between World Orient and 823;

(2)  HCA 1452/2010 between 823 and [Richly Bright]; and

(3)  HCA 548/2012 [i.e. the present action] between [Richly Bright] and [De Monsa].

5.  In HCA 24/2009, judgment was entered against 823 on 25 February 2010:

(1)  823’s deposit of $18,561,919.50 was forfeited by World Orient; and

(2)  823 was ordered to pay World Orient $8,704,210.50 for loss of profit and to indemnify World Orient.

6.  In HCA 1452/2010, judgment was entered against [Richly Bright] on 1 April 2011.  [Richly Bright] was ordered to pay 823:

(1)  $8,092,399.50 for loss of profit; and

(2)  $8,704,210.50 by way of indemnity to 823 in respect of the latter’s payment of that amount to World Orient.

7.  While there was no declaration to the effect that 823 was entitled to forfeit the deposit of $19,989,990 paid by [Richly Bright], equally, there was no order for 823 to refund the deposit to [Richly Bright].

8.  The loss [Richly Bright] seeks to recover from [De Monsa] consists of:

(1)  loss of profit represented by the difference in price between the second and third sub‑sales of ($135,864,000 - $133,266,600) $2,597,400;

(2)  the deposit forfeited by 823 less the deposit paid by [De Monsa] of ($19,989,990 - $13,586,400) $6,403,590;

(3)  the indemnity to 823 in the sum of $8,704,210.50; and

(4)  commission payable to agents under the second sub‑sale of $1,399,298.”

4. As mentioned earlier, summary judgment was given against De Monsa in favour of Richly Bright as claimed.

5. After judgment was entered against De Monsa on 15 October 2012, 823 issued a summons on 22 November 2012 for leave to be added as an interested party in this action.  On 24 April 2013, on the undertaking of 823 not to enforce the garnishee order absolute it had obtained against De Monsa in HCA 1452/2010 on 10 April 2013 pending the present appeal, L Chan J gave leave to 823 to be added as a party in HCA 548/2012 for the purposes of the proceedings in the Court of First Instance.  On 11 July 2013, 823 obtained leave from Yuen JA to be added as an interested party in this appeal and to adduce four affirmations as further evidence in this appeal[2].

6. In this appeal, De Monsa appeared by Mr Warren Chan, SC[3].  Richly Bright was represented by Mr Lam Chin Ching Gary, and 823 by Mr Barrie Barlow, SC[4].

7. I will refer to the sub-sale agreement between Richly Bright and De Monsa as “the third sub-sale”, the sub-sale agreement between 823 as the confirmor and Richly Bright as the sub-purchaser as “the second sub-sale”, the sub-sale agreement between World Orient as the confirmor and 823 as the sub-purchaser as “the first sub-sale”.  The agreement between Win Profit as the vendor and World Orient as the purchaser will be referred to as “the head agreement”.

This appeal

8. Although several grounds were raised by De Monsa for resisting summary judgment, its main argument before the judge was that its directing mind, Mr Lauw Siang Liong, referred to as “Mr Lauw Senior” in the judgment, did not have the requisite mental capacity at the time to enter into the third sub-sale on behalf of De Monsa.  This ground has now been abandoned in that the relevant paragraphs in the Notice of Appeal were deleted by the amendments made on 9 September 2013.  Another ground of defence was undue influence exercised by estate agents over Mr Lauw Senior. Although this ground still featured in the Re-amended Notice of Appeal filed on 11 October 2013, it was not addressed in the written or oral arguments of counsel for De Monsa, and was likewise abandoned.

9. Three broad grounds of defence were pursued with vigour in this appeal.  They relate to the grounds addressed by the judge in Sections C, D and E of her judgment: whether the losses claimed by Richly Bright are recoverable; whether Richly Bright was able to give good title; and maintenance and champerty.  It was submitted by De Monsa that the judge dealt with the issue of the recoverability of the losses attributable to the chain of sub-sales cursorily by citing the decision of the Court of Final Appeal in Chen v Lord Energy Ltd (2002) 5 HKCFAR 297, without analysis of the rationale.  This is not a fair complaint.  Far more elaborate arguments were advanced by De Monsa on this issue on appeal as compared to those in the skeleton argument deployed by De Monsa before the judge.

10. With this, I turn to consider De Monsa’s grounds of appeal that triable issues are raised in its defence as to liability and quantum.  I propose to address the contentions of De Monsa in the following order:

(1)  that Richly Bright has suffered no loss;

(2)  that Richly Bright is not entitled to take into account the deposit it had paid to 823 in its claim for loss and damage against De Monsa;

(3)  that the deposit Richly Bright had paid to 823 was 15% of the purchase price and is not recoverable in the absence of exceptional circumstances;

(4)  that Richly Bright is not entitled to claim for losses relating to the second or first sub-sales as they were not within the reasonable contemplation of Richly Bright and De Monsa at the time of contracting as the likely consequences of breach of contract;

(5)  that in entering into a compromise with 823 to settle HCA 1452/2010, Richly Bright has failed to mitigate its loss and is not entitled to recover from De Monsa the amounts it was ordered to pay to 823 under the consent judgment;

(6)  that De Monsa is not liable to pay Richly Bright interest on the sums of $8,092,399.50 and $8,704,210.50 or the legal costs due from Richly Bright to 823, on the terms of the consent judgment in HCA 1452/2010;

(7)  that there was maintenance and champerty in that Richly Bright and those behind it have abused the process of the court; and

(8)  that 823 and Richly Bright could not give good title to the property on completion.

Whether Richly Bright has suffered no loss

11. De Monsa’s argument is as follows.

12. The normal measure of damages for breach of contract would be the contract price ($135,864,000) less the market value of the property at the time for completion.  In the action (HCA 1487/2009) brought by the head vendor Win Profit against World Orient for damages for failure to complete the purchase on 17 September 2008, the parties to that action agreed that the market price of the property as at the completion date was $127,150,000[5].  The court in that action found there was no loss to Win Profit as the market value was higher than the contract price in the head agreement between Win Profit and World Orient ($107,200,000).  This finding concerning the market value of the property on 17 September 2008 should also be binding on Richly Bright and De Monsa as a finding as to “the existence of a state of things” (Hollington v Hewthorn [1943] KB 587 at 596 to 597).  The measure of damages as between Richly Bright and De Monsa would be the difference between the price of the third sub-sale ($135,864,000) and the market value ($127,150,000), namely, $8,714,000. Richly Bright has forfeited the deposit of De Monsa in the sum of $13,586,400.  After giving credit for the damages recoverable out of the deposit purportedly forfeited, Richly Bright is liable to repay De Monsa the balance in the sum of $4,872,400.  For these reasons, there is at least a triable issue that Richly Bright has suffered no loss.

13. This argument may be disposed of shortly.  I leave aside for the time being the contention that the proper measure of damages in this instance should be the difference between the contract price and the market value.  A finding on the market value of the property on the same date of completion premised on the agreed valuation between Win Profit and World Orient cannot be regarded as a finding on the existence of a state of things so as to be conclusive and binding against the whole world.  This proposition has only to be stated to be rejected.  The market value of a property is not a state of things or a status, and a finding on the market value of the property on a specific date is sensitive to the nature of the evidence, whether factual or expert, adduced before the court, and depends on a range of factors and value judgments.  In that respect, it is no different from a finding of negligence, which, as Goddard LJ stated in Hollington v Hewthorn at 597, would not be binding on a stranger to the proceedings.

Whether Richly Bright is entitled to take into account the deposit it had

paid to 823 in its claim against De Monsa

14. It was contended that Richly Bright is not entitled to claim from De Monsa as part of its loss and damage its deposit of $19,989,990 paid to 823 in the second sub-sale for these reasons: (1) the claim of 823 for forfeiture of the deposit of Richly Bright in HCA 1452/2010 was dismissed by consent; and (2) 823 had no contractual right to forfeit the deposit of Richly Bright under the second sub-sale.

15. The order by consent in HCA 1452/2010 on 1 April 2011 provided inter alia as follows:

“1. the Plaintiff [823] be at liberty to enter Judgment against the Defendant [Richly Bright] for:

(a) the sum of HK$8,092,339.50 (inclusive of interest);

(b) an indemnity for the sum of HK$8,704,210.50 (inclusive of interest and legal costs) arising from the claim made by World Orient Investment Limited against the Plaintiff pursuant to the Judgment dated 25 February 2010 in High Court Action No 24 of 2009;

2. all other Plaintiff’s claims do stand dismissed; …”.

16. Pursuant to the order by consent, the judgment entered merely provided that Richly Bright was to pay 823 $8,092,339.50 (inclusive of interest) and an indemnity for $8,704,210.50 (inclusive of interest and legal costs) arising from the claim of World Orient against 823, and did not contain a declaration that 823 was entitled to forfeit the deposit of Richly Bright in the sum of $19,989,990, as all the other claims of 823 against Richly Bright were dismissed by the consent order.  Hence, it was contended that Richly Bright is not entitled to claim against De Monsa any loss arising out of the forfeiture of such deposit.

17. Further, it was submitted that 823 had no contractual right to forfeit Richly Bright’s deposit by virtue of the deletion of the following provision in the second sub-sale:

“8. Should the Purchaser fail to complete the purchase in the manner herein contained the deposit shall be forfeited to the Vendor and the Vendor shall then be entitled at his absolute discretion to sell the premises to anyone he thinks fit and the Vendor shall not sue the Purchaser for any liabilities and/or damages caused by the Purchaser’s default of this Agreement.”

18. This is a new argument raised for the first time by Mr Chan in his oral submission.  He pointed out that similar provisions in the first sub-sale and the third sub-sale were likewise deleted, so that the confirmor in each of the three sub-sales (World Orient, 823 and Richly Bright) would have no contractual right to forfeit the deposit paid by each of the sub-purchasers (823, Richly Bright and De Monsa).  Mr Chan further submitted that in the statement of claim in this action, it is pleaded that Richly Bright has suffered loss and damage owing to the forfeiture of its deposit of $19,989,990 by 823[6]. Richly Bright did not plead any other basis, such as a set-off, that its deposit was not returned by 823.

19. It is common ground[7] that the deletion of the aforesaid provision in the standard form preliminary agreement of the estate agents for each of the sub-sales and a corresponding provision relating to the vendor’s failure to complete (that the vendor should compensate the purchaser with a refund of the deposit together with a sum equivalent to the deposit as liquidated damages and the purchaser shall not take any further action to claim damages or seek specific performance) was to make the transaction between each confirmor and sub-purchaser a “must sell and must buy” agreement, that neither party could avoid its obligation to complete the sale and purchase by payment of the stipulated sum.  In each of the preliminary agreements, it was envisaged that there would be a formal agreement for sale and purchase.  As things transpired, no formal agreement was entered into in respect of each of the three sub-sales.

20. I reject the contentions of De Monsa raised above.

21. I agree with Mr Barlow that neither the dismissal of 823’s claim for a declaration of forfeiture of the deposit nor the absence of an express forfeiture provision in the contract would negative the right of 823 and of Richly Bright to bring into account the deposit each had received when it comes to the computation of the liability of the defaulting party.

22. As Mr Barlow has explained, the amount of $8,092,339.50, for which judgment was entered in favour of 823, was arrived at as follows:

823’s loss of profit, namely  $133,266,600 - $123,746,130	$9,520,470
PLUS the deposit ‘forfeited’ by World Orient	$18,561,919.50
LESS the deposit paid by Richly Bright to 823	$19,989,990
Total:	$8,092,339.50

23. Thus, the sum of $19,989,990 was taken into account and deducted from the original liability of Richly Bright to arrive at the net sum of damages it should pay to 823.  As the judge had noted in paragraph 7 of her judgment: “While there was no declaration to the effect that 823 was entitled to forfeit the deposit of $19,989,990 paid by [Richly Bright], equally, there was no order for 823 to refund the deposit to [Richly Bright].”  Equally, Richly Bright is entitled to take into account the sum of $19,989,990 in identifying its own net loss and damage of $9,000,990, which was made up as follows as pleaded in paragraphs 12 and 15 of the statement of claim:

Richly Bright’s loss of profit, namely  $135,864,000 - $133,266,600	$2,597,400
PLUS the deposit ‘forfeited’ by 823	$19,989,990
LESS the deposit paid by De Monsa to Richly Bright	$13,586,400
Total:	$9,000,990

24. In my view, the statement of claim sets out adequately how the loss and damage of Richly Bright was arrived at.  There is nothing in the pleading point of Mr Chan.

Whether the deposit of 15% paid by Richly Bright is recoverable

25. De Monsa made the point that the deposit in the second sub-sale ($19,989,990) was 15% of the purchase price, which exceeded the conventional 10%, and that there was no suggestion of any special circumstances to justify the payment of a higher deposit under the second sub-sale.  Forfeiture of a deposit above the conventional level is permitted only if there are exceptional circumstances, which relate to a true deposit’s purpose as an earnest of performance and as compensation for the vendor’s withdrawal of his asset from the property market pending completion (Polyset Ltd v Panhandat Ltd (2002) 5 HKCFAR 234 para 90).

26. I think there was objective justification for the higher amount of a deposit of 15%, and one does not have to look very far for evidence.

27. 823 had also paid a deposit of 15% to World Orient under the first sub-sale, which was entered into in November 2007.  In the head sale, a deposit of 10% was paid and it was subsequently agreed in September 2008 that a further deposit of 5% was to be paid by World Orient in consideration of Win Profit extending the completion date by two months[8].

28. De Monsa produced a schedule listing 151 purchases of properties made by Lauw Senior between March 2007 and September 2008, but as only the purchase price was given with no mention of the deposit, it is not known how many of these transactions had a deposit of over 10%[9].  However even on the information available to the court, there were three instances in which deposits of more than 10% were paid in 2007 and 2008. In October 2007, Treble & Triple Ltd, another vehicle of Lauw Senior for investing in properties, entered into agreements with a confirmor to purchase properties in Bel-Air, Cyberport and 15% deposit was paid[10].  In January 2008, De Monsa entered into an agreement with a confirmor to purchase an office at Lippo Centre and a deposit of 12% was paid[11].  In March 2008, De Monsa paid 15% deposit in respect of an agreement to purchase properties in Robinson Road[12].

29. It is also pertinent to note that the second sub-sale between 823 and Richly Bright was made just one day after the first sub-sale, at a premium of about $9.5 million.  And the second sub-sale was just two weeks after the head agreement between Win Profit and World Orient, with a difference in price between the head agreement and the second sub-sale of about $26 million.  Thus, three successive transactions were made within a matter of two weeks with a price difference of $26 million.

30. In this situation where a property was sold, sub-sold and sub-sold again within a short space of time at increasingly higher stakes, and in the light of other transactions in this period for which a deposit of over 10% was paid, I do not think the 15% deposit paid by Richly Bright was unreasonably excessive as earnest money.

Whether the losses attributable to prior sub-sales were within the reasonable contemplation of the parties

31. This seems to be De Monsa’s main argument in this appeal.  Its contention is that the normal measure of damages being the difference between contract price and market value is not displaced, and Richly Bright is not entitled to claim damages for loss of profit and consequential losses, being losses relating to the second and the first sub-sales, as such losses arose out of special circumstances and were not within the reasonable contemplation of Richly Bright and De Monsa at the time of the third sub-sale.

32. Mr Chan referred to the third sub-sale, which provided in clause 5 that Richly Bright “is selling as confirmor”, and the rider which stated that the third sub-sale was made “subject to and with the terms and conditions of” the head agreement.  Although De Monsa would know from these terms its transaction with Richly Bright was a sub-sale, it would not have known that there were other intermediate sub-sales after the head agreement was made.  He argued that De Monsa did not have actual, assumed or imputed knowledge of the second or first sub-sale or their special features.

33. Mr Chan submitted further it cannot be shown at the time of the third sub-sale, it was within the reasonable contemplation of Richly Bright and De Monsa that all the preceding sub-purchasers would have no financial resources of their own or no intention to complete their respective transactions.  He argued forcefully it could not be within the reasonable contemplation of the parties that Richly Bright would not have a “Plan B” and would not complete the second sub-sale without the funds from De Monsa, in the event De Monsa should fail to complete the third sub-sale.  He contended that the competing versions of Richly Bright and De Monsa as to their reasonable contemplation are questions of fact that can only be resolved at trial.  And there must be a triable issue whether it is easily foreseeable that a confirmor would not have a “Plan B” in the event of the purchaser’s default come the time for completion.

34. I take the law in this area as analysed by Chan PJ in Chen v Lord Energy.  “If the damages are within the reasonable contemplation of the parties, such damages would not be considered too remote and are therefore recoverable.  What is within the reasonable contemplation of the parties is a question of fact depending on the circumstances of the case and the information available to the parties at the relevant time, usually the time of the contract.” (para 21)

35. I do not think it is necessary to decide whether the present situation is within the first limb of Hadley v Baxendale (1854) 9 Ex 341 (damages as may fairly and reasonably be considered as arising naturally from the breach according to the usual course of things, in which case the measure of damages would be such damages as the parties should reasonably have contemplated would flow from the breach) or the second limb (special circumstances under which the contract was made and which had been made known to the defaulting party, in which case the measure of damages would be such damages as the parties should reasonably contemplate would flow from the breach in such special circumstances).  As stated in Chen v Lord Energy, the demarcation of the two limbs is sometimes blurred and the court may decide the case on the basis of the first or second limb or both, particularly where the case is one in which knowledge of a certain matter is imputed to the defaulting party from the circumstances (para 24).

36. The starting point for the application of the rule in Hadley v Baxendale is “the extent of the shared knowledge of both parties when the contract was made” (Kpohraror v Woolwich Building Society [1996] 4 All E R 119 at 127G to 128A; quoted in Chen v Lord Energy at para 24).

37. The two questions framed in Chen v Lord Energy at para 25, as applied to the present situation, would be as follows: (1) whether, on the information available to the parties at the relevant time, the possibility of there being prior sub-sales, and the possibility of corresponding default in completion in the chain of transactions if the ultimate purchaser should fail to complete, was within the reasonable contemplation of Richly Bright and De Monsa; and (2) if it was not within the parties’ reasonable contemplation, whether in the circumstances of this case, knowledge of the possibility of prior sub-sales and corresponding default in completion in the chain of sub-sales if the ultimate purchaser should fail to complete, could be imputed to De Monsa.  It is unnecessary for Richly Bright to show that De Monsa had actual knowledge of these matters.  Much of the arguments in the written submissions of De Monsa was based on the premise of the absence of actual knowledge of the sub-sales on its part and has missed the point.

38. In ascertaining what was within the reasonable contemplation of the parties for this purpose, the test was “a degree of probability considerably less than an even chance but nevertheless not very unusual and easily foreseeable” (The Heron II [1969] 1 AC 350 at 383A to B; quoted in Chen v Lord Energy at para 30).

39. Here, Richly Bright and De Monsa were in the business of buying and selling properties for a profit.  Not only that, both are seasoned investors with good understanding of the property market conditions here and how confirmor transactions would work.  The sole shareholder of Richly Bright, Mr Wan Pak Kuen, was a “sophisticated and experienced property investor”[13] according to De Monsa.  As for Lauw Senior, he is a well-known and seasoned real estate investor who has been investing in property in Hong Kong for more than 20 years.  Between March 2007 and September 2008, he entered into 151 transactions, at a total cost of some $7 billion, the most active months peaking at 15 transactions[14].  And between September 2007 and January 2008, Lauw Senior made a total profit of $175.58 million from the sub-sales and re-sales of properties[15].

40. On the evidence, the property market was in a heated condition at the time.  Purchase for re-sale was common.  In November 2007, De Monsa contracted to purchase the 20^th to 23^rd Floors in Silver Fortune Plaza for $163 million odd with completion in May 2008.  These three storeys were sub-sold just after 19 days at a profit of $22 million.  Four days after this profitable sub-sale, on 7 December 2007 De Monsa contracted to purchase four other storeys in the same building at $211 million odd, with completion to take place in June 2008[16].  In another instance, De Monsa bought a property in Queen’s Road Central on 5 December 2007 at $226 million and made a profit of $33.92 million when it was re-sold in a month and 17 days[17].

41. Given the background, knowledge and understanding of the parties, and the market condition at the time, it is clear that the possibility of there being one or more prior sub-sales of the property was nothing unusual and would be easily foreseeable.  It would also be easily foreseeable that in such a volatile market, if there should be default by the ultimate purchaser, there might well be a domino effect causing corresponding default in the chain of sub-sales, particularly for a substantial property transaction, as were the transactions in respect of the property, all of which were over $100 million.  The likelihood of default was typified in the words of Lauw Senior in an article in the Eastweek Magazine on 13 May 2009: “There have been defaults.  I’m a businessman through and through.  When I see a drop in price, how can I still buy? For example, when I buy it is $20,000 and if now it’s $10,000, surely I’ll default.”[18]

42. Reyes J reached the same conclusion in similar circumstances as to what was within the reasonable contemplation of De Monsa and another investor, Multi Star Investment (Group) Ltd, in a transaction in which De Monsa bought from Multi Star as the confirmor.  When De Monsa defaulted in the sub-sale, Multi Star breached the head agreement.  Reyes J awarded damages to Multi Star for loss of profit, and stayed Multi Star’s claim for an indemnity against future claims by the head vendor with liberty to restore in the event the head vendor should bring an action in the future[19].

43. I would answer question (1) posed earlier in the affirmative.  It is not strictly necessary to answer question (2).  If it were necessary to do so, I would also answer this in the affirmative and impute knowledge to De Monsa of the possibility of prior sub-sales and corresponding default in the chain of sub-sales in the event the ultimate purchaser should fail to complete.  The agreements for the first sub-sale and the second sub-sale were registered in the Land Registry in November 2007, well before the third sub-sale was entered into in May 2008.  Thus, De Monsa would have constructive knowledge of the first and second sub-sales, and of the fact that completion of all three sub-sales was to take place one after the other on the same day, with each transaction separated by a two-hour gap.  It must be easily foreseeable that if the ultimate purchaser should default, corresponding defaults in the chain of sub-sales would be entirely possible.

44. Mr Chan referred us to various passages in the speeches of the Law Lords in The Achilleas [2008] 2 All ER (Comm) 753 at paras [22], [31], [66], [68] and [73], apparently in support of a contention that De Monsa should not be held liable for foreseeable losses where they were not of the type or kind for which it could be treated as having assumed responsibility.  For the reasons given above, I am of the view that the available evidence plainly indicates that the losses attributable to the sub-sales were within the reasonable contemplation of the parties at the material time, so this is not a situation in which foreseeable losses were of a kind which was completely unpredictable and for which the parties cannot reasonably be presumed to have assumed responsibility, as in the case under discussion in The Achilleas, where the court was dealing with a highly specialised area of commercial law.  The present case belongs to the great multitude of cases where an assumption of responsibility for losses can be presumed from the intention of the parties arising from the usual course of things, or to the category of cases where the parties’ intention may be presumed from special circumstances known to the defaulting party at the time (The Achilleas, para [36]).

45. For the above reasons, I reject the contentions of De Monsa on this issue.

Whether Richly Bright had failed to mitigate its loss

46. Richly Bright had obtained unconditional leave to defend the claim of 823 in HCA 1452/2010 by the judgment of McWalters J on 22 February 2011.  De Monsa argued that by entering into a compromise with 823 and conceding to judgment in that action on 1 April 2011, Richly Bright has failed to mitigate its loss and should not be entitled to claim such loss against De Monsa.

47. There is no substance in this argument.  In agreeing to settle the action with 823, Richly Bright was absolved from any liability to pay 823’s costs and it would incur no further costs in the action.  It cannot be said Richly Bright had acted unreasonably in conceding to judgment instead of defending the claim.  Nor do I see any valid basis to question the bona fides of Richly Bright in entering into the compromise.

Whether De Monsa should be liable for interest and legal costs

48. It was contended that De Monsa should not be liable to pay Richly Bright interest on the sums of $8,092,399.50 and $8,704,210.50 or the legal costs due from Richly Bright to 823, under the terms of the consent judgment in HCA 1452/2010.

49. This contention is misconceived.  There is no conflict between the terms of the summary judgment against De Monsa and the consent judgment against Richly Bright in relation to interest on those sums.  By the summary judgment, De Monsa is required to pay interest on those sums only from the date of the writ in this action until payment, on the basis that those sums should have been paid by De Monsa no later than the issue of the writ.  As for the legal costs due from Richly Bright to 823 arising from the claim made by World Orient against 823 in HCA 24/2009, under the summary judgment, De Monsa is required to indemnify Richly Bright in respect of such legal costs.  So if Richly Bright has no liability to pay such legal costs, De Monsa would not incur liability under the summary judgment to indemnify Richly Bright in that respect.

Maintenance and champerty

50. I will first set out the relevant chronology:

25 February 2010	Judgment entered by World Orient against 823 in HCA 24/2009
22 March 2010	World Orient obtained order for examination of directors of 823
30 July 2010	Sole shareholder of 823 (Merryland Ltd) transferred its one share to Tung Yin Ling Cora (“Cora Tung”; one of the four shareholders and a director of World Orient)
25 September 2010	823 issued writ in HCA 1452/2010 against Richly Bright
27 January 2011	823’s solicitors, Messrs Alfred Lam, Keung & Ko (“ALKK”) made first proposal to Richly Bright’s solicitors, Messrs Tsangs, to compromise HCA 1452/2010
22 February 2011	McWalters J granted Richly Bright unconditional leave to defend in HCA 1452/2010
25 February 2011	ALKK made the proposal to Tsangs to settle HCA 1452/2010
2 March 2011	Tsangs made counter proposal to ALKK
23 March 2011	823 and Richly Bright filed consent summons in HCA 1452/2010
1 April 2011	Master Ko made consent order in HCA 1452/2010 and entered judgment by consent
18 May 2011	Mr Wan resigned as the director of Richly Bright and Hepson Asia Ltd (“Hepson”; a company incorporated in the BVI) was appointed to replace him as the director
23 May 2011	Mr Wan transferred his sole share in Richly Bright to Hepson
3 April 2012	Richly Bright issued the writ in HCA 548/2012 against De Monsa
25 September 2012	823 obtained garnishee order nisi against De Monsa in HCA 1452/2010
15 October 2012	DHCJ Le Pichon granted summary judgment against De Monsa in HCA 548/2012
16 October 2012	823 served garnishee order nisi against De Monsa in HCA 1452/2010
22 November 2012	823 applied to join in HCA 548/2012 as interested party
10 April 2013	Garnishee order nisi against De Monsa in HCA 1452/2010 was made absolute by Master De Souza only in respect of $8,092,339.50, but not in respect of $8,704,210.50
24 April 2013	L Chan J ordered 823 be joined as interested party in HCA 548/2012 for the purpose of proceedings in the Court of First Instance, on the undertaking of 823 not to enforce the garnishee order absolute pending the determination of De Monsa’s appeal against the summary judgment in HCA 548/2012
11 July 2013	Yuen JA granted leave to 823 to be joined as an interested party in this appeal
26 September 2013	DHCJ Hartmann allowed 823’s appeal against the garnishee order absolute so that the order is also made in respect of $8,704,210.50

51. Although it is not known who owns and controls Hepson, De Monsa contended it can reasonably be inferred that 823 and Richly Bright have agreed to and will be sharing the proceeds of the litigation against De Monsa through Hepson.  It was submitted that World Orient, 823 and Richly Bright could have no legitimate common interest in the outcome of this litigation and that 823 had officiously intermeddled with this action by encouraging Richly Bright and/or by offering to fund this action against De Monsa. De Monsa’s argument is as follows:

(1)  823 and Richly Bright are companies with a share capital of just $1.  It is apparent from ALKK’s letter to Tsangs dated 27 January 2011 that World Orient and 823 had been targeting De Monsa to recover its losses, as De Monsa is the only company with substantial worth in the chain of sub-sales.

(2)  In the said letter of ALKK, it was stated as there was no privity of contract between 823 and De Monsa, litigating with Richly Bright was the only way out for 823.  In the first proposal put forward in that letter (which was not accepted), 823 proposed for judgment to be entered against Richly Bright in HCA 1452/2010 but it would not enforce that judgment against Mr Wan or any other director or shareholder of Richly Bright.  823 made a proposal to Richly Bright to fund litigation against De Monsa, in that 823 and Mr Wan should each subscribe for shares in Richly Bright, each would make shareholders’ loans to Richly Bright to fund the proceedings, 823 was to have the carriage of the litigation and damages recovered against De Monsa would be distributed to the shareholders of Richly Bright.

(3)  Although the first proposal was not accepted, Richly Bright did agree with 823 to settle HCA 1452/2010 and conceded to judgment notwithstanding it had successfully opposed 823’s application for summary judgment and was given unconditional leave to defend.  In the bundle of correspondence concerning the negotiated settlement disclosed by Richly Bright, a “without prejudice” letter dated 1 March 2011 from Tsangs to ALKK was mentioned in the letter of ALKK dated 4 March 2011 but it was not disclosed.

(4)  Notwithstanding consent judgment was obtained against Richly Bright in HCA 1452/2010  on 1 April 2011, 823 took no steps to enforce this judgment until September 2012 when it obtained a garnishee order nisi against De Monsa, unopposed by Richly Bright.  823 and Richly Bright had abused the process of the court by obtaining a consent order in HCA 1452/2010 knowing full well it would not be enforced against Richly Bright.

(5)  Cora Tung denied on affirmation that World Orient, herself or 823 are behind Richly Bright, and asserted that neither World Orient, herself nor 823 has or had at any time any interest, whether direct or indirect, in the shareholdings of Richly Bright, despite the first proposal put forward in the letter of ALKK.  But neither Cora Tung nor any one from Richly Bright has mentioned who is behind Hepson.

(6)  Richly Bright only brought proceedings against De Monsa in April 2012, nearly a year after it conceded to judgment in favour of 823 and only after Hepson has become its new shareholder.

52. The question here is whether there is a triable issue that 823 and Richly Bright do not share a legitimate common interest in the outcome of this litigation.  I am not persuaded by De Monsa’s arguments.  As the judge has held, there was no improper funding of the action against De Monsa, each of 823 and Richly Bright has legitimate causes of action arising from the second and third sub-sales, and 823 and Richly Bright share a common interest in the litigation against De Monsa[20].  The fact that 823 and Richly Bright would ultimately be looking to De Monsa to recover their losses is nothing to the point.  The allegation that 823 and Richly Bright have agreed to and will be sharing the proceeds of the litigation against De Monsa through Hepson is sheer speculation.  Richly Bright did not accept the first settlement proposal in the letter of ALKK of 27 January 2011 or the second proposal in the letter of ALKK dated 25 February 2011, by which 823 offered to advance all the funds to bring an action against De Monsa.  And 823 only came to know about the existence of the present action against De Monsa on 11 September 2012 through a litigation search of its solicitor, as 823 had never been served or otherwise provided with the documents filed in this action.  It was after 823 had learned about this action that it commenced garnishee proceedings against Richly Bright and De Monsa in HCA 1452/2010 in September 2012[21].

53. I agree with Mr Barlow that none of the actions taken by 823 and Richly Bright was capable of posing any risk to the integrity of the court’s processes.  Maintenance and champerty are simply not engaged.

Whether Richly Bright was able to give good title

54. The failure to give good title argument run before the judge was entirely different.  It relates to the contention that Richly Bright executed the second sub-sale without authority in that Mr Wan became the sole shareholder of Richly Bright on the day after the second sub-sale was entered into[22].

55. The new argument advanced on appeal is that 823 was unable to give good title to Richly Bright and likewise Richly Bright would be unable to give good title to De Monsa, by producing two key documents of title on completion.  It was contended that 823 and Richly Bright would not be able to rely on the practice of completion in a confirmor transaction by the personal undertakings of solicitors to provide such documents at a future date.  Richly Bright raised this contention successfully to resist 823’s application for summary judgment in HCA 1452/2010 and McWalters J held there is a triable issue whether it was the intention of the parties that the practice of completion by the personal undertakings of solicitors should apply in respect of those documents of title.

56. De Monsa submitted as there was no express provision in the third sub-sale to the effect that completion was by solicitors’ undertaking in accordance with the practice in the Law Society Circular No 91/82, as discussed in Wellfit Investments Ltd v Poly Commence Ltd [1997] HKLRD 857, the usual obligations on completion apply and payment of the balance of the purchase price and the giving of good title are concurrent obligations.

57. The above arguments are without merit.

58. In the chain of sub-sales concerning the property, it was clearly anticipated by all parties that completion of the third sub-sale would take place first before completion of the other sub-sales in the chain and before the completion of the head agreement.  To require Richly Bright to produce the two key documents of title on completion is plainly unworkable.  And that was not in fact how the parties operated.  The correspondence between the solicitors for Richly Bright (Messrs Baker & McKenzie, “B&M”) and De Monsa (Messrs Woo Kwan Lee & Lo, “WKLL”) showed quite clearly it was indeed the common intention of both parties that completion was to be by undertakings of solicitors.

59. By the letter of WKLL to B&M dated 2 September 2008, they provided a draft undertaking letter for the approval of B&M and sought instructions from the latter as to which party their cheque(s) for the balance of the purchase price should be drawn and how they should split their cheque(s) on completion.  On 16 September 2008, B&M approved the draft undertaking letter as amended and gave instructions for the cheques of WKLL or the cashier orders to be split, with the payments to go to four parties for the balance of the purchase price, namely, the head vendor Win Profit, World Orient, the solicitors for 823 and Richly Bright.  The splitting of the cheques in that way indicated clearly that the third sub-sale must be completed before the other sub-sales and the head agreement.  Completion by the undertakings of solicitors was a feasible and sensible way for completion to take place as envisaged.

Conclusion and orders

60. For the above reasons, I would dismiss the appeal of De Monsa.  I would order De Monsa to pay the costs of Richly Bright and 823 in this appeal, with a certificate for two counsel for 823.

61. De Monsa has made payment into court pursuant to the order of L Chan J on 24 April 2013.  I would order the amounts with accrued interest to be paid out to Richly Bright.

Hon Lunn JA:

62. For the reasons articulated in the judgment of Kwan JA, I too would dismiss the appeal of De Monsa and make the orders set out in her judgment.

Hon Barma JA:

63. I agree with the judgment of Kwan JA.