LAU SUK CHING PEGGY v. MA HING LAM AND OTHERS

HCA 2408/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2408 OF 2004

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J U D G M E N T

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1.  This is an action by the Plaintiff (“Lau”) for specific performance of an agreement (“the Agreement”) embodied in a set of minutes of meeting dated the 11^th May 2004 (“the Minutes”) in which Lau was granted an option (“the Option”) by the 1^st Defendant (“Ma”) and the 2^nd Defendant (“Kingsway”) to purchase the shares in the 3^rd Defendant (“Multi Capital”). 

2.  Lau and Ma have known each other since about the end of 2002.  Lau had some experience in the banking sector and she was at that time providing financial consultancy service to other people.  Ma was (and is) the President of a group of companies called Kingsway Group which carried on the business of manufacturing and trading of electronics parts and components.  Kingsway belonged to the Kingsway Group. 

3.  There is no issue between the parties that in 2003, during the time when Hong Kong was struck by SARS, Lau together with one Mr Eric Wong (“Wong”) provided financial consultancy service to Ma and Kingsway which resulted in the enlargement of Kingsway’s banking facilities.  For their service, Kingsway agreed to pay each of them 2.5% of what was called the “clean portion” of the new banking facilities as their commission.  As evidenced by the Minutes, such clean portion amounted to HK$16.8m and the aggregate commission (5%) payable to Lau and Wong was HK$840,000.  I shall revisit Wong’s commission below. 

4.  At this juncture, I shall deal briefly with a factual dispute between the parties as to whether Kingsway or Kingsway Group was, at the time when the service of Lau and Wong was engaged, in financial difficulty.  This point has little relevance save for the credibility of Ma.  I accept Lau’s evidence, and hold against Ma, that the Kingsway Group was in financial difficulty.  I find it difficult to accept Ma’s evidence that he was prepared to pay HK$420,000 for Lau’s service to have the banking facilities enlarged just to “boost” his company.  Further, it is undisputed that Lau had to pay for, inter alia, the “down payment” for certain office premises rented by one of the Kingsway Group companies for which she was later reimbursed. 

5.  Whether the business relationship between Lau and Ma/Kingsway Group was confined to the enlargement of banking facilities is highly controversial.  However, it is common ground that these matters only go to the point taken by Mr Li, who appears on behalf of the Defendants, on the consideration provided by Lau for the Option.  By reason of the limited relevance, I do not intend to deal with the matters in great detail. 

6.  Lau’s case is that when she and Wong were negotiating with Ma about their consultancy service, they came to an agreement with Ma to form a joint venture in starting a loan brokerage business.  That business would provide clients to be introduced by Lau and Wong with, e.g., advice on fund raising.  Later, it was decided that the business would be carried out through Semi HK Ltd (“Semi”).  It was intended that Lau and Wong would be given shares in Semi so that they together with Ma would have equal ownership of all the shares in Semi.  Lau and Wong, in addition to their service, would inject their commission into the business as its working capital.  Further, 3 properties were acquired with the use of different corporate vehicles – one situated in Winfield Building, Happy Valley (“the Winfield Property”); one at Tower 1, Les Saisons, No.28 Tai On Street (“the Les Saisons Property”) and one at Hong Lok Yuen, Tai Po.  The Winfield Property was acquired with the use of Multi Capital and it will become apparent that it is very much at the centre of this action.  The Winfield Property and the Les Saisons Property were to be used as quarters for Lau and Wong.  All 3 properties were subsequently charged as securities to back up credit facilities granted to Kingsway.  Lau was appointed as director of both Semi and Multi Capital. 

7.  It is common ground that the joint venture did not get very far.  No business had been commenced before the relationship between Lau and Ma broke down in about February 2004.  However, it is not disputed that Lau had found an office for Semi at the Sun Hung Kai Centre and had caused it to be decorated in preparation for business.  She paid the down payment for those premises in the sum of over HK$140,000.  As noted above, she was later reimbursed for that sum. 

8.  Ma’s case is that there was no joint venture at all.  In short, he maintains that what Lau said is not true.  Before I resolve this factual dispute, I should set out the terms of the Minutes. 

The Minutes

9.  The Minutes are short and are set out in full below save for the execution part and Appendix 2 :

“	會議記錄
	日期 :		2004年5月11日
	地點 :		新鴻基中心2416室
	與會人士 :		甲方 :	Wingo Ma
			乙方 :	Peggy Lau
			丙方 :	Artwill Limited
			丁方 :	Kingsway (HK) Limited
	以上與會人士均知悉甲方同時亦代表丁方參加是次會議。
	甲、乙、丙及丁方均同意按下列條件 / 原則以取代以往合作 (1) 經營Semi HK Ltd 及 (2) 協助丁方向銀行申請的  general banking facilities clean portion of HK$16,800,000.00 的所有協議:
	1.	甲方及丁方願意無條件承擔所有Semi HK Ltd的責任、債務及一切經營開支。而Semi HK Ltd的股權及權益均與乙、丙雙方無關。
	2.	因乙、丙雙方已成功為丁方取得上述的 general banking facilities 而原本應由 Semi HK Ltd 替乙、丙雙方向丁方代收的財務顧問費HK$840,000.00 (即上述HK$16,800,000.00 的5%)現改由乙、丙雙方直接向丁方收取，乙、丙雙方各佔該顧問費的50% (即各佔HK$420,000.00); 惟該HK$840,000.00按以下方式分期支付 : 第一期的 HK$500,000.00 於 2004年1月及3月分別支付 (乙、丙雙方已各自收取)， 餘下的 HK$340,000.00 於2004年9月28日一次性支付，乙、丙各方收取HK$170,000.00。
	3.	之前經與會人士一致同意由Multi Capital Ltd持有的物業，即Flat 1, 27 Floor, Block 3, Winfield Building & Carpark No.D9 (“A物業”) 繼續由Multi Capital Ltd持有; 惟與會人士及丁方均同意給予乙方 - 認購權 (option)，使乙方及 / 或其指定人士於2004年9月28日或以前以HK$8,905,282 (見附件1) 購買A物業，購買可以買賣公司形式進行。如乙方不或未能於該日或之前行使其認購權，則乙方被視為放棄該認購權。
	4.	之前經與會人士一致同意由Decency Garment Ltd持有的物業，Unit E, 46 Floor, Tower 1, Le Printemps, Les Saisons, 28 Tai On Street, Sai Wan Ho, Hong Kong (“B物業”) 繼續由Decency Garment Ltd持有; 惟與會人士及丁方均同意給予丙方- 認購權 (option)，使丙方及 / 或其指定人士於2004年12月4日或以前以HK$5,128,441 (見附件2) 購買B物業，購買可以買賣公司形式進行。如丙方不或未能於該日或之前行使其認購權，則丙方被視為放棄該認購權。
	5.	會議結束。
				附件一
	Property :			Flat 01, 27/F., Block C and Car Park No.D9, Winfield Building, Nos.1-5 Ventris Road, Happy Valley, Hong Kong
	Owner :			MULTI CAPITAL LTD.
	Purchase Price :			HK$8.3 Million

Initial Deposit		400,000.00
Further Deposit		430,000.00
Balance Payment		2,470,000.00	3,300,000.00
[Bank Loan of HK$5 Million from United Commercial Bank]
Stamp Duty			311,350.00
Legal Fee			10,490.00
Valuation Fee			1,700.00
Fire Insurance			1,935.00
Commission – Centaline Property			83,000.00
Cost of the Company – Multi Capital Ltd.			8,200.00
Loan Repayment from Dec 2003 to Sept 2004
[HKD34,527.90 X 10 instalments]			345,279.00
Total paid out up to 28 Sept., 2004			4,061,954.00
Add :	Outstanding Principal as at 28 Sept., 2004		4,777,552.80
	Bank Penalty
	[1% on Repayment Amount]		47,775.53
	Estimated Legal Fee on Sales of Property		18,000.00
			8,905,282.33	”

10.  It is common ground that when the relationship between Lau and Ma turned sour, they agreed to an overall settlement so as to achieve a clean break.  That agreement was embodied in the Minutes.  However, Mr Li submits that no consideration was provided by Lau for the Option (see Clause 3 of the Minutes) in that the only entitlement which she had at the time of settlement was her claim to commission which was settled according to Clause 2 of the Minutes.  Lau’s claim to entitlement to shares in Semi should not be believed.  In the premises, the Option was entirely gratuitous. 

Consideration

11.  The preferred route by which issues of facts are to be resolved should be one where the allegations are tested against the contemporaneous documents.  There is no doubt in my mind that Lau’s evidence is consistent with the Minutes.  In particular, (a) there is a reference in paragraph 2 of the Minutes to the previous co-operation between the parties in the operation of Semi; (b) Clause 1 specifically addressed Semi’s liabilities andand (c) Clause 2 referred to Semi receiving the commission earned by Lau and Wong (Artwill Ltd (“Artwill”) was his nominee). 

12.  Further, I accept the point made by Mr Yau, who appears for Lau, that the scope of the Minutes would have been considerably narrower had it been the case that the only outstanding issue between the parties was the commission.  Furthermore, the fact that Lau paid a substantial sum as down payment for Semi’s office is another strong pointer in favour of her case. 

13.  I find Ma’s explanation over the terms of paragraph 2 highly unconvincing.  He said that the Minutes were drafted by Lau (with some amendments by Wong who was representing him in the negotiations).  At the time he signed them he was in Shenzhen.  According to the usage of the Chinese language in the Mainland, the words “合作經營” as distinct from “合伙經營” did not involve any shareholding.  In other words, he did not see that the words used in paragraph 2 suggested that any shareholding was involved.  He was not advised by lawyer and although he found the wording of the Minutes to be lacking in clarity, he agreed to them because he was keen to see the back of Lau as soon as possible.  There is no question that Ma was (and is) an intelligent person and a successful businessman.  His explanation is difficult to accept. 

14.  There is another matter which is damaging to Ma’s credibility (and that of Wong).  Wong has continued to work for Ma.  He is the Financial Controller of Kingsway, although he also works for other people.  He was called to give evidence for the Defendants.  It is the evidence of Ma and Wong that the arrangement concerning Artwill as embodied in the Minutes was a sham.  Wong said that he did not think that he was entitled to any commission for his work (Clause 2) and there was no genuine intention to grant an option to Artwill (Clause 4).  The reason for the sham arrangement was that Lau wanted parity of treatment for her and Wong (Artwill) and although Wong did not regard himself to be entitled to anything, he played along with Lau so that he would be able to say to her that certain terms were not achievable from Ma.  Such evidence cannot be taken seriously.  At the material time, Wong was an undischarged bankrupt.  I believe that, more likely than not, apart from contradicting Lau such evidence is designed to serve the purpose of covering the fact that Wong had received income which had not been declared to the Official Receiver. 

15.  Given my acceptance of Lau’s evidence, the Defendants’ contention on the lack of consideration must be rejected. 

Purchase of shares in Multi Capital

16.  Under Clause 3 of the Minutes, Lau (or her nominee) was given an option to purchase either the Winfield Property or the shares of Multi Capital (“the Shares”).  At all material times, the Shares were (and are) owned by Ma and Kingsway.  There is no dispute that prior to the 28^th September 2004 (“the Date”), Lau had opted to purchase the Shares.  The central dispute in this action concerns whether the Date was one for the completion of the purchase (whether the Winfield Property or the Shares) and the legal effect of what transpired during the period between about mid September and mid October 2004.

Admissibility of the Minutes

17.  Mr Li takes issue with the admissibility of the Minutes based on the contention that it is an instrument chargeable with stamp duty.  Lau cannot produce it without it having been stamped or without an undertaking to stamp it given by her solicitors.

18.  Section 15 of the Stamp Duty Ordinance, Cap.117 (“the Ordinance”) provides that :

“	(1)	Subject to subsection (1A), no instrument chargeable with stamp duty shall be received in evidence in any proceedings whatsoever except –
		(a)	criminal proceedings;
		(b)	civil proceedings by the Collector to recover stamp duty or any penalty payable under this Ordinance,
	or be available for any other purpose whatsoever, unless such instrument is duly stamped.
	(1A)	Notwithstanding anything in subsection (1), an instrument which is not duly stamped may be received in evidence in civil proceedings before a court if –
		(a)	the court so orders upon the personal undertaking of a solicitor to cause –
			(i)	such instrument to be stamped in respect of the stamp duty chargeable thereon; and
			(ii)	any penalty payable under section 9 in respect thereof to be paid; …”.

19.  There are two limbs to Mr Li’s argument, namely, (a) the Minutes contain an option to buy shares and (b) they contain an option to buy the Winfield Property.  In either case, an instrument containing such an option falls within the provisions of the Ordinance.  Before dealing with each of the arguments, it should be borne in mind that the Option is to purchase either the Winfield Property or the Shares.  Hence, Mr Yau’s first argument is that whilst the “ultimate instrument” effecting either the sale of the Winfield Property or the Shares may be charged with stamp duty (and at different rates), the Option itself cannot be chargeable to stamp duty.  Mr Li submits that although the Ordinance contains no specific provision to cover the present situation, he relies upon para. I[605]-[650] of the Encyclopaedia of Hong Kong Taxation by Willoughby and Halkyard, vol.1 (“the Encyclopaedia”)  which states that :

“Where an instrument falls within more than one head of charge, the Collector can choose to stamp under the head which provides the largest amount of duty.  After the heads of charge were simplified and substantially reduced in 1978 and 1981 such problems rarely arise in practice.”.

20.  Mr Li further submits that I need to apply the definition provisions of the Ordinance to decide whether the Option is caught by the same.  In light of para. I[605]-[650] of the Encyclopaedia, Mr Yau accepts the weakness of his first argument. 

Option to purchase shares

21.  The general charging provision imposing stamp duty is set out in S.4(1) of the Ordinance.  That section expressly states that it is only those instruments specified in the First Schedule which are subject to stamp duty.  Mr Li submits that the option to purchase the Shares is stampable under Head 2(1) of the First Schedule : “CONTRACT NOTE for the sale and purchase of any Hong Kong stock …”. 

22.  Under S.2(1) of the Ordinance, the following definitions can be found :

““	contract note” means a contract note required to be made and executed under section 19(1);
	“Hong Kong stock” means stock the transfer of which is required to be registered in Hong Kong;
	“stock” means any of the following investments –
	(a)	any shares, stocks, debentures, loan stocks, funds, bonds or notes of or issued by any body, whether corporate or unincorporate, or any government or local government authority, or any other similar investment of any description;
	(b)	any units under a unit trust scheme;
	(c)	any right, option or interest in or in respect of any stock referred to in paragraph (a) or (b), other than any such right, option or interest under an employees’ share purchase or share option scheme, …”.

23.  S.19(1) of the Ordinance imposes a duty on any person who effects any sale or purchase of Hong Kong stock as principal or agent to forthwith make and execute a contract note and cause it to be stamped.  S.19(2) provides that :

“	A contract note required to be made under subsection (1) shall state the following –
	(a)	whether the person effecting the sale or purchase of the Hong Kong stock is acting as principal or agent and, if as agent, the name of his principal;
	(b)	the date of the transaction and of the making of the contract note;
	(c)	the quantity and description of such Hong Kong stock;
	(d)	the price per unit of such Hong Kong stock and the amount of the consideration or, in the case of an exchange, particulars of the property for which such Hong Kong stock is exchanged; and
	(e)	the date of settlement.”.

24.  Mr Yau submits that (a) at the highest, the Minutes only constitute a contract to sell the Shares conditional upon the exercise of the Option and (b) the general view and practice is that an agreement for sale of shares is not a Contract Note within S.19(1).  Mr Yau relies upon paras. [1408] and [1410]-[1420] of the Encyclopaedia.  Those paragraphs state that:

“

It is not clear whether the words ‘effects any sale or purchase’ mean ‘effects any contract for the sale or purchase’ or ‘completes a sale or purchase’.  It seems that the latter is intended as otherwise an agreement for the sale of a company by a sale of shares might be liable to duty as a contract note (see also II [1410]) or give rise to a virtual immediate obligation to create contract notes once the agreement is signed.  This interpretation is currently followed by the Stamp Office.”

“

It is sometimes queried whether an agreement for the sale of a company by a sale of shares is a contract note.  It does not seem that such an agreement is intended to be caught by section 19(1) particularly if it is not possible to comply with all the requirements of section 19(2) at the time that the agreement is executed.  This view is shared by the Collector of Stamp Revenue.”.

25.  Mr Yau further submits that the Minutes do not constitute and are not meant to be a Contract Note in that the requirements under S.19(2)(a), (c), (d) and (e) are not met.  This submission is plainly correct.  Further, in light of the authority cited by Mr Yau, I hold that the Minutes are not chargeable to stamp duty under Head 2(1). 

26.  For completeness, in respect of Mr Li’s point that to hold that an option to purchase shares is not chargeable to duty would render otiose the relevant definition provision of “stock”, I take the view that the scheme of the relevant provisions under the Ordinance is, firstly, to cast a wide net.  However, it is only when a Contract Note is made (bearing in mind the duty to make them) that the liability for duty arises.  In any case involving an option, the duty to make a Contract Note must arise at some stage if the option is exercised.  At that stage, the liability for stamp duty materialises. 

Option to purchase the Winfield Property

27.  Here, Mr Li’s submission is that the Minutes are stampable under Head 1 (“IMMOVABLE PROPERTY IN HONG KONG”), (1A) (“AGREEMENT FOR SALE”).  Under S.29A(1)(b) of the Ordinance, an “agreement for sale” includes :

“an instrument in which a person confers, or has conferred on him, an option or a right to purchase immovable property or a right of pre-emption in respect of immovable property, …”.

28.  Mr Yau submits that, properly analysed, given the absence of Multi Capital as a party thereto, the Minutes can only constitute an agreement by the shareholders to cause Multi Capital to grant an option to Lau to purchase the Winfield Property.  I suggest that a better way to put the proposition is that the Minutes constitute an agreement by the shareholders to cause Multi Capital to sell the Winfield Property to Lau in the event that she chooses to buy it.  Mr Yau maintains that the right conferred on Lau in respect of the Winfield Property under the Minutes is not “an option or a right to purchase immoveable property” under S.29A(1)(b). 

29.  I should point out that at the time when the Minutes were signed Ma and Lau were the only directors of Multi Capital.  However, there is no suggestion in the evidence that they were acting for and on behalf of Multi Capital in respect of the Minutes.  Indeed, with the subject matter of the Minutes being the settlement of their personal affairs, it would not be right to infer that Ma and Lau were acting for Multi Capital. 

30.  I find some force in Mr Yau’s submission.  However, I believe that there is a simpler answer to Mr Li’s contention, although the answer may be seen as the other side of the same coin that Mr Yau is holding up.  In my view, to fall within S.29A(1)(b) the option or right to purchase immovable property must be a legally binding one.  Multi Capital is not a party to the Agreement.  It is highly questionable whether Lau can obtain specific performance of the purchase of the Winfield Property.  The sale may not be in the interest of Multi Capital, e.g., the Winfield Property was undervalued and therefore Ma and Kingsway may not be able to impose the sale upon Multi Capital.  Lau’s remedy is prima facie that of damages.  It seems to me that this construction of S.29A(1)(b) must be right, otherwise, e.g., an instrument by which a fraudster purports to grant an option to a purchaser to buy immovable property would attract stamp duty.

31.  I find some support for my view in para. [2231] of the Encyclopaedia which states that :

“paragraph (a) makes it clear that the definitions, and therefore the whole of Part IIIA, are only relevant where there is a legally binding contract.  It follows that an agreement which is ‘subject to contract’ and not therefore intended to be legally binding is not chargeable with stamp duty under head 1(1A) whether or not it is in writing.”.

32.  For these reasons, I hold that the Minutes are admissible evidence in this trial. 

The Date

33.  As stated above, Lau had indicated her intention to purchase the Shares prior to the Date.  On the documentary evidence, it is reasonably clear that on or before the 15^th September 2004, Lau had caused a name card of her solicitor to be transmitted to Ma for the purpose of purchasing the Shares.  However, it is uncontroversial that no completion of the sale took place on or before the Date.

34.  Mr Yau accepts that time is of the essence for the Agreement.  However, he contends that I should construe the Date “as being the date for notification of [Lau’s] intention to exercise the option”.  On the other hand, Mr Li submits that the Date is the last date for completion of sale. 

35.  I need to construe the Minutes in order to resolve this issue.  I find no particular element in the factual matrix which is of assistance to the present task.  I shall construe the Minutes bearing in mind the circumstances under which they came to be made.  I am convinced that the Date is the last date for completion of sale.  The reasons are as follows :

(i)	Clause 3 refers to the purchase (“購買”) of the Winfield Property on or before the Date;
(ii)	The calculation of the purchase price, down to the cents, was based on completion on the Date;
(iii)	Even on Lau’s case that the Minutes were signed in June 2004, there was ample time for the completion of transaction and it is unlikely that the parties intended that Lau should have some 3 months to just ponder over whether and how to exercise the Option.

36.  Mr Yau submits to me that in order to be workable the exercise of the Option must involve Lau giving Ma and Kingsway notice of her decision prior to completion.  Otherwise they may find themselves in a position of having to complete a sale the subject matter of which they have just been told.  I do not believe that this argument is sufficient to overcome the intention which is derived from the contents of the Minutes.  Further, the answer to the point rests on implying a term in the Agreement to the effect that reasonable notice should be given by Lau of her intention prior to the Date so as to allow Ma and Kingsway to fulfil their side of the bargain.  Of course, there was no problem of such kind in this case. 

Alleged agreement to extend the date of completion

37.  In the alternative, Mr Yau contends that there was an agreement to extend the date of completion arising from a series of correspondence.  The relevant contemporaneous documents are as follows :

(i)	By an e-mail dated 14th September 2004 from Ma’s assistant, Mr Ken Lai (“Lai”), to Lau he asked Lau about her intention as regards Clause 3 of the Minutes and pointed out “the dead-line is 28-Sept-2004”.
(ii)	By another e-mail on the next day, Lai informed Lau that they would instruct their solicitor to contact her solicitor, Wallance Lee (“Lee”), and asked her to urgently advise him of “the payment method and the completion date as need to inform United Commercial Bank and our Solicitor to prepare necessary documents”.  United Commercial Bank was the mortgagee in respect of the Winfield Property.  As to the completion date, it should be remembered that the Agreement provided for completion on or before the Date.
(iii)	By a letter dated 22nd September 2004, Lee wrote to his counterpart, Messrs D S Cheung & Co (“DSC”), asking for a draft shares sale agreement as soon as possible.  He also stated that:  “It is note that there has been an agreed formula between our respective clients for determining the purchase price and sufficient time shall be allowed for completing the necessary procedure, it is our client’s pleasure to have your clients’ suggestion for a date on or before which the completion of the sale and purchase shall take place.”.
(iv)	On the next day, by a letter marked “Subject to Contract”, DSC sent a draft agreement to Lee pointing out that it was still under review.  In addition, it was stated that: “… our client proposes that the completion of the transaction contemplated in the Agreement be taken place with one and a half month after the signing of the Agreement.  Please take your client’s instructions and revert as soon as possible.”.  The draft agreement shows that Multi Capital was to be a party thereto and the completion date was to be 15th November 2004.
(v)	It appears that there was a 2nd draft of the sale agreement received by Lee on 27th September 2004.  In the 2nd draft, the completion was stated to be 28th October 2004.
(vi)	On 28th September 2004, Lee wrote to DSC informing them that the 2nd draft was being considered.  There was discussion about the loss of the company kit of Multi Capital and Lee asked for a draft agreement of indemnity as soon as possible.
(vii)	Lee sent a 2nd letter to DSC on the 28th September 2004 marked “Subject to Contract” by which he returned the draft agreement to DSC with his amendments for their approval.  The completion date reverted back to 15th November 2004 in this 3rd draft.
(viii)	DSC replied to Lee on the 28th September 2004 with a letter marked “Subject to Contract” and “URGENT”.  They disagreed as to who was responsible for the loss of the company kit.  Further, they stated that the amended draft agreement was only received at 1:35 pm that day, their client was entitled to reasonable time to consider the same and they would respond as soon as possible.  The letter ended with the sentence: “Meanwhile, all out client’s rights are hereby expressly reserved.”.
(ix)	On 30th September 2004, DSC wrote to Lee again with a letter marked “Subject to Contract”.  A revised sale agreement (with completion date stated to be 8th November 2004) was enclosed for Lee’s “further review”.  The last paragraph of the letter reads: “Please be reminded that the your client’s option to purchase Multi Capital Limited or the Properties has already lapsed on 28 September 2004.  As such, our client agrees to extend the acceptance period for a further 8 days from the date thereof.  In the event that the Agreement is not entered into by our respective clients on or before Your client should execute the Shares Sale Agreement on or before 6 October 2004, the said option shall lapse.”.  Despite the difficult wording, it is tolerably clear that the proposition was that notwithstanding the expiration of the Date the right to purchase the Shares would be kept alive for Lau until the 6th October 2004 (an extension of 8 days from the Date), but that right could only be exercised by entering into a shares sale agreement.
(x)	On 5th October 2004, Lee replied to DSC’s letters of the 28th and 30th September 2004.  There was further argument about the loss of the company kit and the deed of indemnity.  The penultimate paragraph of the letter stated that: “As to the last paragraph, we are of the opinion that our client had informed and confirmed her exercise of the option to purchase before 28th September 2004, it is improper for your client to impose a time limit unilaterally.”.
(xi)	On 6th October 2004, DSC replied to Lee.  The letter was again marked “Subject to Contract”.  Numbered paragraph 5 is of some significance, it stated that:
	“	Please be referred to paragraph 3 of the notes of meeting of our respective clients dated 11 May 2004 (a copy enclosed).  It is explicitly stated, inter alia, that an option to purchase the property will be granted to your client so as to enable your client to purchase the property (or the shares of company which hold the property) on or before 28 September 2004.  If your client does not exercise the said option to purchase on or before 28 September 2004, such option shall lapse.
		Apparently, your client has not exercised the option by purchasing the property or entering into any agreement for the purchase of the property on or before 28 September 2004, such option shall lapse.  Mere confirmation of your client’s exercise of the option without consideration does not amount to an exercise of such option on the part of your client.  Further, our client’s interest will be tremendously prejudiced if your client fails to enter into the agreement for purchase within reasonable time.
		Nevertheless, by our letter dated 30 September 2004, our client has agreed to extend the option period to 6 October 2004.  Please revert by return whether your client would enter into the Agreement on 6 October 2004.”.
(xii)	Lee replied to DSC on the next day.  It stated, inter alia, that: “As to your No.5, we repeat the second last paragraph of our letter dated 5th.”.  It appears that another version of the draft agreement was enclosed with this letter.  The completion date remained the 8th November 2004.
(xiii)	By a letter dated 8th October 2004, Lee asked DSC for the title deeds and documents of the Winfield Property for perusal.
(xiv)	DSC replied (marked “Subject to Contract”) on 8th October 2004 to Lee’s letters of the 7th and 8th October 2004.  The letter stated that:
	“	Our client’s position has been explicitly set out in paragraph 5 of our letter dated 6 October 2004.  Your client’s option to purchase the Property has already been lapsed as no agreement for sale and purchase has been entered into by our respective clients on or before 6 October 2004 (being the extended date for entering into the agreement by the parties).  Neither had your client ever indicated the longstop date for entering into the agreement and request for any extension of time thereof.
		On an entirely without prejudice basis, please let us know when your client would enter into the Agreement so that our client would consider whether this is acceptable to him.
		Before the above matter is sorted out, your request set out in your letters will not be considered.”.
(xv)	Lee responded by a letter dated 14th October 2004, the second paragraph of which stated as follows:
	“	As to your 2nd paragraph, we reiterate the 2nd last paragraph of our letter dated 5th October 2004.  It has all along been our client’s intention to enter into the sale shares agreement as soon as possible.  However, we are still waiting for your reply to the amendments in the 2nd draft Agreement and for this reason, how can our client tell you when our client would enter into the agreement let alone the fact that our client has made no contribution to the delay under the circumstances.  In any event, please let us have your reply to the said 2nd draft without further delay.”.
(xvi)	By another letter dated 15th October 2004 from Lee to DSC, he stated, inter alia, that:
	“	We are instructed that if the 2nd Draft Agreement referred to in 1 above shall be acceptable to you, our client will have the said Agreement executed within 2 working days upon receipt of your engrossment.
		We reiterate that our client is always ready willing and able to enter into the sale shares agreement and to complete the transaction.”.
(xvii)	By a letter dated 15th October 2004 from DSC to Lee, it was stated, inter alia, that:
	“	Your amendments to the Agreement were sent to us under the cover of your letter dated 7 October 2004, i.e. one day after the “option” was lapsed.  Our client’s position had been explicitly set out in the last paragraph of our letter dated 30 September 2004 and paragraph 5 of our letter dated 6 October 2004, which will not be repeated herein.  We hereby repeat once again that your client’s proposed amendments on the Agreement will not be considered by our client as the “option” had been lapsed by that time.
		Apart from the above, kindly also take note that the sale price of the Property of HK$8,905,282.00 was calculated on the basis that the sale and purchase of the Property will take place on 28 September 2004.  The intention of both parties in this regard is reflected in the calculation of the said purchase price set out in Annex II of the minutes of meeting dated 11 May 2004.  Nevertheless, by our letter dated 30 September 2004, our client had granted an extension of time for entering into the Share Sale Agreement to 6 October 2004 without any consideration from your client.  To this point, your client had still failed to enter into any agreement with our client on or before 6 October 2004 and thus, the “option” lapsed …
		Our client’s position on the subject matter has been explicitly and repeatedly set out in our previous correspondence.  As your client has failed to enter into any agreement with our client for the purchase of the shares in the Company on or before 6 October 2004 (being the extended date for the agreement), the “option” granted to your client for the purchase of the sale shares will not be extended in any event.
		Our client will not waste further time and costs in dealing with your client in the subject matter and hence, we will not respond to your further letters if they are related to the subject matter.”.
(xviii)	The last of the correspondence was a letter from Lee to DSC dated 16th October 2004 demanding that their client “go on with the sale and purchase of the Company’s Shares (and the property) …”.

38.  I have considered the above correspondence carefully.  It should be borne in mind that there was no obligation in the Agreement for a shares sale agreement to be signed prior to completing the transaction.  Whilst it is right that the parties were apparently in agreement that it was sensible to enter into such an agreement, I am unable to see that there was either an express or implied agreement to extend the completion date for the purchase of the Shares in the event that they failed to enter into such an agreement.   

39.  Mr Li has made a powerful point that DSC’s correspondences were all marked “Subject to Contract” (One of Lee’s letters was similarly marked.).  It is trite that such words indicate that the writer does not intend to be bound unless a formal contract is drawn up [see Woodfall, Landlord and Tenant, para. 4.008].  I agree with Mr Li’s analysis that the offer to extend time given to Lau on the 30^th September 2004 (see para. 37(ix) above) is of no effect given the absence of acceptance of the term offered. 

40.  Further, Lau was represented by Lee and one would expect that he would have formally recorded any agreement on extension of time for completion.  It may be the case that Lee was under the erroneous belief that the Date was not the date of completion and that, as presently contended by Mr Yau, all that his client was required to do to exercise the Option was to give notice to the other side (and completion would follow within reasonable time thereafter).  Even if that was the case, it would not help Lau on the variation argument. 

Estoppel

41.  In the further alternative, Mr Yau submits that there was a representation made by Ma and Kingsway that they “would not insist on the original completion date”.  Such representation arose from (a) “initiating a chain of correspondence with a view to reaching formal agreement”; (b) “still negotiating on the formal agreement on the day of completion”; and (c) “there was no advice or notice by [Ma and/or Kingsway] that they would complete on [the Date]”.  These 3 points are factually correct save for the suggestion that the signing of a formal agreement was initiated by Ma and Kingsway.  A fair reading of the contemporaneous documents suggests that both sides thought that it was a good idea.  Indeed, on the 22^nd September 2004 Lee asked DSC for a draft agreement.

42.  Mr Yau’s case here is again built upon the contemporaneous documents as summarised above.  Mr Li agrees that I should decide this issue on the contemporaneous correspondence.  I ought to point out at this juncture that I regard the reason for the failure to sign a shares sale agreement as irrelevant, and neither Mr Yau nor Mr Li is arguing otherwise. 

43.  In support of his argument, Mr Yau has cited to me Hughes v Metropolitan Railway Co (1877) 2 App. Cas. 439.  The House of Lords held at p.448:

“… it is the first principle upon which all Courts of Equity proceed, that if parties who have entered into definite and distinct terms involving certain legal results – certain penalties or legal forfeiture – afterwards, by their own act or with their own consent enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable having regard to the dealings which have thus taken place between the parties.”.

44.  I am unable to see that there was any representation made by Ma or Kingsway (by themselves or their agents) to the effect contended by Mr Yau.  Firstly, it must be right that there was no such express representation.  As to implied representation, I need to have regard to the e-mail from Lai which started the paper trail (see paragraph 37(i) above).  In that e-mail, Lau was clearly warned about the “deadline” being the Date.  Further, I cannot ignore the fact that the negotiations were on “Subject to Contract” basis.  Lau was legally represented.  It cannot be suggested that Lee did not appreciate that if no shares sale agreement came to be signed his client’s rights and obligations would be governed by the Agreement.  At no time did he seek to clarify with DSC whether the original completion date should be extended in the event that the negotiations did not come to fruition.  If he was under an erroneous belief (see paragraph 40 above), that could not constitute any representation on the part of Ma or Kingsway. 

45.  Mr Li has also made the point that it is Lau’s case that the Date is not one for the completion of the purchase of the Shares and that reasonable time for completion had not arrived at the material time.  Therefore, she could not have relied on any representation made to her (which of course he denies) about not insisting on the original completion date.  Mr Yau has provided no answer to the point save for pointing out Lau’s evidence that had she been told that she needed to complete the transaction on or before the Date she would have tried to do so.  I shall deal below with Lau’s evidence on her ability to complete the transaction, which is contentious.  I certainly see the force of Mr Lee’s point.  However, given my finding on the alleged representation, the point does not fall to be decided.

Concurrent performance at completion

46.  Mr Yau has a stronger argument in contending that “where both parties to the contract were at fault in not performing the contract on the date of completion, the contract survives [for] the benefit of both parties and the time for performance of such contract would become reasonable time”. 

47.  Mr Yau submits that in the absence of a shares sale agreement the parties’ rights and obligations over completion were governed by implied terms, praying in aid para. 40-03 of Palmer’s Company Law, 24^th ed., vol.1, p.610.  There is no dispute that Lau did not tender the purchase price on the Date.  On the other hand, says Mr Yau, Ma and Kingsway had failed to meet their end of the bargain by tendering the duly executed share transfer instrument and the original certificates of the Shares as well as the title deeds to the Winfield Property in exchange for the purchase price.  Mr Li does not quarrel with the legal proposition.  I have some reservation as to whether the title deeds were required on completion, but it does not change the picture that neither side sought to perform their obligations on the Date. 

48.  My first task is to determine whether, on a proper construction of the Minutes, concurrent performance was required on completion.  One must bear in mind that normally when people make their purchase, they expect to get something in return for the purchase price simultaneously.  The operative words here are “購買” (purchase) in Clause 3.  I see nothing to displace the proposition that normally price and subject matter of a purchase are to be exchanged simultaneously.  In this case, there is nothing to prevent the purchase price and the instruments of transfer and share certificates to be exchanged on completion. 

49.  Mr Li has an interesting argument that the last sentence of Clause 3 has the effect of rendering the tender of purchase price a condition precedent for the performance by Ma and Kingsway.  He submits that in order to “行使其認購權” (exercise the Option), Lau must “購買” (purchase) the Shares, which is the only act identified for the purpose of triggering the Option.  Mr Li reminds me that an option :

“stands midway between on offer and an unconditional contract.  It creates a unique relationship, with characteristics both of an irrevocable offer and a conditional contract.  Put simply, an option is a right to execute or relinquish a transaction on fixed terms within a prescribed period. … The grant of an option imposes no obligation on the option holder, and the obligation it imposes on the grantor is contingent upon the exercise of the option.  By a unilateral act, the relationship between the parties is altered.  Only when the option is exercised do seller and buyer come under obligations to perform as if they had made an ordinary contract of sale.”.

[see Barnsley’s Land Options, 4^th ed., para. 1-002, p.1-2]

50.  I believe that Mr Li’s argument ignores the fact that Lau must inform Ma and Kingsway as to what she chose to buy prior to completion.  The purchase price was the same for the Winfield Property and the Shares.  Simply tendering the purchase price on the Date would not enable the other side to know what was to be sold.  Hence, I have held in paragraph 36 above that reasonable notice should be given by Lau of her intention prior to the Date so as to allow Ma and Kingsway to fulfil their side of the bargain.  Such obligation arose by way of implied term. 

51.  For these reasons, I hold that the completion of the sale of the Shares should be by way of concurrent performance on the part of the vendor and purchaser. 

52.  I next have to decide the legal effect of the failure on both sides to complete the sale.  There is little quarrel on this issue.  The law is as set out in the Court of Appeal decision of Camberra Investment Ltd v ChanWai-tak [1989] 1 HKLR 568.  That was a case concerning a failure to complete the sale of a landed property.  At p.574C-F, Hunter JA held as follows:

“	I regard the point as fundamental and very relevant as revealing both parties to have been at fault.  Their obligations under clause 3 were mutual.  The duty of the defendant to tender an executed assignment and that of the plaintiff to tender the balance of the purchase price were concurrent conditions.  Neither performed : neither tendered : neither triggered the corresponding obligation of the other.  The defendant neither executed nor tendered an assignment before 1 pm and thereafter was denying his obligation so to act and preventing his solicitor from taking any step to that end.  The plaintiff tried to tender and failed.  The cheque constituted at most conditional payment and not the “full” payment required.  An effective tender required cash or its equivalent, neither of which was available that Saturday afternoon.
	In my judgment this contract remained uncompleted at midnight on 28th February by the fault of both parties.  It did not then terminate as was at one time suggested.  It remained on foot with the substitution of a reasonable time for the failed express condition.  In Mehmet v. Benson (1965) 113 CLR 295, 314 Windeyer, J. used in relation to a purchaser words which I think here apply to both parties.  He said :
	“	But if, notwithstanding earlier breaches, the contract remained on foot, then it seems to me a plaintiff is not necessarily barred from having a decree for specific performance if those breaches, not having resulted in a valid rescission, can be made good by the payment of interest.””.

53.  Accordingly, I hold that the Agreement remained on foot despite the passage of the Date and that completion of the sale of the Shares was to take place within a reasonable time. 

54.  Mr Li does not seek to argue that Ma and Kingsway had given notice to Lau to complete the transaction within reasonable time.  I would have held against him had he done so.  DSC’s letter of the 30^th September 2004 (see paragraph 37(ix) above) offered an extension of time.  There are two problems with that letter: (a) only 6 days (from 30^th September 2004) were in fact given for completion and (b) it required Lau to enter into a shares sale agreement when there was no obligation to do so. 

55.  For reason which will become apparent, I ought to make a finding as to what would have been a reasonable period for completion.  I believe that the question has to be answered bearing in mind the prevailing circumstances that (a) the Agreement had provided ample time for completion and (b) notwithstanding the negotiations on the shares sale agreement, the parties should not have been idle in fulfilling their obligations.  I also take into account Mr Yau’s submission that the completion time envisaged in the draft shares sale agreements was at least 1 month after the signing of agreement.  I believe that a period of not less than three weeks would have been reasonable for the completion of the sale and purchase of the Shares when the parties were both at fault in not completing on the Date. 

56.  In light of the foregoing finding, Ma and Kingsway were in breach of the Agreement when they refused to complete the transaction as stated in DSC’s letter dated the 15^th October 2004.

Lau’s ability to complete the purchase of the Shares

57.  Mr Yau accepts that even if I agree with him on the concurrent performance argument, Lau still has to satisfy this court that she was at all material times ready, willing and able to complete the purchase of the Shares.  However, Mr Yau contends that the time for Lau’s performance has not been reached by reason of the refusal to complete on the part of Ma and Kingsway.  The Defendants strongly contest Lau’s case that she was able to complete the purchase of the Shares in 2004.

58.  There are two issues under this head.  Firstly, the legal issue whether Lau has to satisfy this court that she would have been able to complete the purchase of the Shares had Ma and Kingsway not wrongfully refused to carry their side of the bargain.  Secondly, if the answer to the first is in the affirmative, the factual question whether Lau has so satisfied this court on the evidence. 

59.  In my view, neither Counsel has referred me to any authority which clearly resolves this legal issue.  I start with some general propositions on some of the requirements on a claimant seeking the relief of specific performance.  Snell’s Equity, 31^st ed., para. 15-36 at p.367-8 provides as follows :

“

(g)

Default by the claimant.  A claimant who seeks to enforce a contract must show (i) that he has performed, or has been ready and willing to perform, all terms and conditions (apart from trivial ones) then to be performed by him, (ii) that he is ready and willing to perform all terms and conditions thereafter to be performed by him, and (iii) that he has not acted in contravention of the essential terms of the contract.  But it is not incumbent on a claimant to show that he was in a position to complete (eg if he is the purchaser, by having the price available) during the period from repudiation by the defendant to the date of the order for specific performance.  And omission, by a mere oversight, to pay a deposit on time will not necessarily debar a purchaser from obtaining specific performance.”.

60.  Mr Yau has referred me to Specific Performance, 2^nd ed., by Jones and Goodhart.  At p.71-2, there is an interesting discussion by the learned authors on the obligation on the part of an innocent party who wishes to keep a contract alive to tender performance of his own obligations in the face of repudiation (unaccepted) of the contract :

“	… Fercometal[1] presents serious problems for an innocent party which wishes to keep the contract alive.  Does it have to go through the charade of making a useless tender of performance in order to avoid giving the other party a chance to terminate the contract and claim damages? Lord Ackner said yes :
		When A wrongfully repudiates his contractual obligations in anticipation of the time for their performance, he presents the innocent party B with two choices.  He may either affirm the contract by treating it as still in force or he may treat it as finally and conclusively discharged.  There is no third choice, as a sort of via media, to affirm the contract and yet to be absolved from tendering further performance unless and until A gives reasonable notice that he is once again able and willing to perform.  Such a choice would negate the contract being kept alive for the benefit of both parties and would deny the party who unsuccessfully sought to rescind the right to take advantage of any supervening consequence which would justify him in declining to complete.
	Lord Ackner went on to temper the strictness of this rule by referring to the possibility of the party originally in default being estopped from claiming that the other party is in breach by not fulfilling an obligation.  But estoppel is an unsatisfactory answer to the problem.  The party in default could hardly be estopped if it made it clear that it was not intending to waive the performance of the innocent party’s obligations, however futile performance might be.
	Strictly applied, the decision in Fercometal means that an innocent party must continue to tender performance of its obligations even if it knows that tender will be entirely pointless.  Yet such a conclusion seems patently absurd and conflicts with decisions in other jurisdictions.
	Perhaps the difficulty lies in the very sweeping nature of Lord Ackner’s speech in Fercometal.  There may well be a distinction between contracts which are and are not capable of specific performance.  Where (as in Fercometal) the party in default cannot be compelled by an order for specific performance to perform its obligations, it is reasonable to say that the innocent party cannot keep the contract open indefinitely.  Where there has been an anticipatory breach, the innocent party can either accept it immediately or tender performance at the due time and then claim damages.  But where the contract is potentially enforceable by specific performance, the situation is quite different.  The innocent party can get the court to impose a new timetable for performance of the parties’ contractual obligations under the order for specific performance.  There is no practical reason why the innocent party should in the interim be required to tender performance of its own obligations in the absence of reason to believe that the tender will be accepted.  It is suggested, therefore, that Fercometal should be regarded as a decision which does not apply to contracts capable of being specifically enforced.  In relation to such contracts, Lord Ackner’s ‘via media’ will be available.”.

61.  Next, there is one authority that I can find which is relevant for the resolution of this legal issue (It is referred to in one of the footnotes of para. 15-36 of Snell’s Equity.) – Davis v Spalding, Ch D, 231 EG 373.  It was a case concerning the sale and purchase of a house.  After the contract was concluded, the vendor sought to back out from the same to the disagreement of the purchaser.  One of the points taken by the vendor was whether the purchaser had satisfied the court of his readiness to complete the transaction.  As reported, Mr Justice Walton held as follows :

“

Faced with this, counsel for the defendants had gone on to raise points on the allegation in the statement of claim, an allegation included in every statement of claim in an action for specific performance, that the plaintiffs had been “at all material times ready to complete their obligations.”  He (counsel) submitted that there was no evidence on which the court could be satisfied of the truth of this allegation.  The first question he (Walton J) must ask himself when resolving this issue was what were the “material times” referred to.  In his opinion the first material time must be the date agreed for completion.  That had been agreed at January 14, but the defendants repudiated the agreement.  He (his Lordship) took the view that so long as that repudiation was running the plaintiffs need not show either that they had, or that they were in a position to get, the money needed at completion.  To suggest otherwise would in his judgment place a totally unnecessary burden upon them.  Why should they prepare for an event which was not, or not yet, going to take place?  Then the next material time in an ordinary specific performance case appeared to be the time when the order came to be made.  Mr Martin, the plaintiffs’ solicitor, was on the panel of all the large and some of the smaller building societies.  He had given evidence, … The Plaintiffs had accordingly shown to the court’s satisfaction that at the two material times relevant for the present case, namely the date fixed for completion and the date when the decree was made, they were not only ready and willing but fully able to perform their obligations under the agreement.”.

62.  It must be borne in mind that Davis was not a case where both sides were in breach of contract and consequently the contract remained alive to be completed within reasonable time.  Therefore, the holding on the “first material time” is not, in my view, applicable in this case.  Indeed, by definition I am dealing with a case where the purchaser did not come up with the purchase price on the agreed completion date. 

63.  In respect of the ruling that the purchaser was not obliged to demonstrate his ability to complete during the time when the “repudiation was running”, two points should be noted.  Firstly, the purchaser had satisfied the court that they were so ready on the agreed completion date.  Secondly, the point that I am now dealing with did not arise before Walton J.  With respect, I do not regard the point decided by the learned Judge to be of general application.  Indeed, I do not believe that it was meant to be so. 

64.  Bearing in mind the above legal authorities, I come to the view that I must be guided by basic principles in resolving this legal issue.  I believe that there is a distinction between tendering performance when it would have been pointless so to do because of repudiation by the other side and satisfying the court that it would be proper to grant the discretionary relief of specific performance by demonstrating an ability to complete.  In my view, in a case where a contract is on foot to be completed within reasonable time, there is no obligation on the innocent party to tender performance of his obligations when it is plain that completion is not going to take place, but he must satisfy the court if he wants the contract to be specifically performed that he would have been able to fulfil such obligations had the contract run its proper course. 

65.  I draw support for my view from, firstly, the well-established rule that a claimant seeking specific performance must satisfy the court that he is ready and able to perform his part of the bargain. 

66.  Secondly, an analogy can be drawn with the principle that a claimant is entitled to no more than nominal damages in a case where a contract has been wrongfully repudiated by the other side (and the repudiation was accepted thereby putting the contract to an end), but he cannot satisfy the court that he would have been able to perform his side of the bargain – see Samsung Hong Kong Ltd v Keen Time Trading Ltd, CA, [1999] 2 HKLRD 623.  I am unable to see why a claimant should be in a better position when he elects the relief of specific performance (keeping the contract alive), e.g., he can have more time to come up with the purchase price because time for completion remains at large by reason of the refusal to complete by the other side.  Indeed, I an unable to see the equity in such a situation.  The lack of equity goes to the root of the relief of specific performance. 

67.  In this case, Lau has to satisfy this court that she would have been able to complete the purchase of the Shares within 3 weeks after the Date.

68.  I now examine the evidence.  The focus of the dispute is whether Lau was in a position to pay the purchase price.  Ms Lau’s evidence is that she had in place certain loan arrangement with G E Capital (“GE”).  There are two relevant documents before me.  Firstly, an offer letter dated 19^th October 2004 of a loan by GE to Multi Capital to be secured by way of mortgage of the Winfield Property with Lau acting as the guarantor.  It was in the sum of HK$8.4m.  Secondly, there is an offer letter of a personal loan by GE to Lau with Multi Capital acting as the guarantor.  That document was dated 20^th October 2004 and the loan was in the sum of HK$500,000.  It is Lau’s evidence, which I accept, that she applied for a loan from GE on the 7^th September 2004 and it was GE’s policy to break down the loan into two parts, namely, a mortgage on the Winfield Property and a personal loan.  She said that the 19^th October 2004 letter was a revised offer.  The first offer was made by way of a telephone conservation which she rejected as the terms were not entirely satisfactory to her.

69.  Lau was challenged in cross-examination on the viability of the GE loan.  She agreed that she was not entitled to make use of the Winfield Property as security for the GE loan.  Indeed, she accepted that she did not inform Ma (Lau and Ma were the only directors of Multi Capital) about her loan application.  It must be right that without Ma’s consent Lau would not have been able to either use the Winfield Property to secure any loan or to cause Multi Capital to stand as guarantor for any loan.  It should be noted that it is common ground that none of the draft shares sale agreement would have allowed Lau to make use of the Winfield Property to raise the purchase price.  Lau explained that she did not obtain Ma’s consent because she had an understanding with him to the effect that the money to be raised by her would be used to repay the existing mortgage on the Winfield Property.  When pressed in cross-examination, Lau said that she could not remember how the understanding came about, whether it was discussed during the meeting(s) which led to the Minutes or “under what specific circumstances we came across that”.  All that she could remember was that it was discussed with Wong. 

70.  Whilst I take the view that Lau is generally a credible witness, I am unimpressed with her evidence in respect of the financing of the purchase of the Shares.  It is clear to me that she recognised the fragility of her case in that area and her demeanour changed from being spontaneous and forthright to being somewhat evasive and vague in her answers.  I do not accept her evidence on the “understanding”.  In any case, I find the terms of the understanding too vague to be of any assistance to Lau’s case.  Indeed, Mr Yau has made no submission to me as to how the understanding advances his case.  Insofar as it is of any relevance, Ma’s evidence is that Multi Capital was in a position to discharge the existing mortgage on the Winfield Property without the purchase price in question and such evidence is not challenged. 

71.  In cross-examination, Lau also said that she had an oral arrangement with Yu Tai Hing, which was a property developer as well as a finance company, “for the finance of the property just in case”.  Pressed further, she said that she could have raised the requisite funds with “Yee Fu”, which I understand to be another financial institute.  I reject Lau’s evidence that she had in place an alternative arrangement to finance the purchase of the Shares.  Apart from the unsatisfactory nature of the evidence, I believe that Mr Li is right to say that such evidence is unreliable in that it surfaced for the first time when Lau was giving evidence.  This criticism carries considerable weight bearing in mind that, in the course of certain interlocutory proceedings herein, Lau was squarely challenged on her ability to pay for the Shares and the only evidence that she pointed to in answer to the challenge was the GE loan [see Bundle 1, p.92, para. (d) and p.112, para. 25].

72.  I accept Lau’s evidence that she had some money at the material time, e.g., she paid HK$400,000 for the down payment on the Winfield Property.  However, Lau has declined to inform this court of what private means she had.  Further, it has been demonstrated in cross-examination that in 2001, 2003 and 2005 Lau was sued for various sums which were not substantial.  She was clearly embarrassed when asked about them.  Whilst such evidence does not necessarily demonstrate that Lau was in financial difficulty, they do not in any way assist her case. 

73.  I have considered carefully whether I can infer that Lau could have somehow come up with the finance bearing in mind the unchallenged evidence that the Winfield Property was worth about HK$12.5m in September/October 2004 and that Lau was a financial consultant with experience and connection in the finance field.  However, I am persuaded by Mr Li that such an exercise would amount to speculation.  I must make my factual finding according to the evidence.

74.  For these reasons, I conclude that Lau would not have been able to complete the purchase of the Shares had Ma and Kingsway not refused to proceed with the transaction.  Consequently, I must refuse Lau’s claim for specific performance. 

Damages

75.  Lau has an alternative claim for damages.  In light of my finding that she would not have been able to complete the purchase of the Shares, it must follow that she is entitled to no more than nominal damages.  I award her HK$10 in this regard.

Mesne Profits

76.  There is a counterclaim by Multi Capital against Lau for mesne profits which arose from the fact that Lau had the keys to the Winfield Property since its acquisition by Multi Capital and had refused to return the keys or to deliver up vacant possession of the Winfield Property to Multi Capital despite its demands.  Possession of the Winfield Property was eventually recovered by Multi Capital via an application for injunction.  There is no issue on the period for which mesne profits are claimed and the quantum thereof – from 15^th November 2004 (when the Defendants demanded the delivery up of the Winfield Property) to 13^th July 2005 (when Lau complied with the demand) at the total amount of HK$245,933.33.

77.  Mr Yau’s only argument against the counterclaim is that Lau became the beneficial owner of the Shares upon entering into the Agreement.  Taking that at the highest, I am unable to see how such beneficial ownership can become an entitlement to occupy the property of Multi Capital.  I rule that Multi Capital is entitled to the aforesaid sum under its Counterclaim.  Interest is to be paid on that sum at half Judgment Rate from 14^th July 2005 until Judgment and thereafter at Judgment Rate until payment.  In addition, I order the removal of the lis pendens as prayed for in the Counterclaim.

Costs

78.  I make an order nisi that the costs of the Counterclaim be paid by Lau to be taxed if not agreed.  As for the costs of the action, I make an order nisi that there be no order as to costs.  In making this order, I have taken into account Mr Li’s submission that the Defendants should be entitled to certain costs by reason of the late abandonment of Lau’s claim based on trust.  Both order nisi shall become absolute in 14 days in the absence of application by either party.