GRAND TRADE DEVELOPMENT LTD. v. LI, WONG & LAM (A FIRM)

HCA4458/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.4458 OF 2001

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REASONS FOR DECISION

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The plaintiff's claim

1. By a summons dated 17 January 2002, the plaintiff applied for summary judgment against the defendant in the sum of $1.38 million (the amount claimed by it in this action) together with interest and costs. Master Rimsky Yuen dismissed the summons on 19 April 2002. The plaintiff appealed this decision by a Notice of Appeal dated 2 May 2002. On 3 September 2002, after submissions from Mr Allen Lam (for the plaintiff) and Mr Paul Shieh (for the defendant), I dismissed the appeal with costs, with Reasons to be handed down at a later stage.

2. By a Sale and Purchase Agreement dated 13 April 2000 ("the Sale and Purchase Agreement") between the plaintiff and one Bonance International Limited ("Bonance"), Bonance agreed to sell to the plaintiff the property known as Flat A, 17/F, and car park space no.26 on Level 3, of Bowen Place, 11A Bowen Road, Hong Kong ("the Property"), for the price of HK$13.8 million. The Sale and Purchase Agreement had been preceded by a Provisional Sale and Purchase Agreement dated 16 March 2000 in which reference was made to an initial deposit of $550,000 as having been paid by the plaintiff. Completion was to take place on 3 May 2000.

3. Upon the signing of the Sale and Purchase Agreement, a further deposit of $830,000 was paid by the plaintiff to Bonance's solicitors as "stakeholders". The balance of the purchase price (of $12,420,000) was payable on completion.

4. The Tenth Schedule to the Sale and Purchase Agreement was in the following terms :

"1. The further deposit shall be paid to the Vendor's Solicitors as stakeholders who may release the same to the Vendor provided that the balance of the purchase price is sufficient to discharge the existing Charge and the title deeds of the Property shall have been approved and accepted by the Purchaser's Solicitors who shall have seven days to peruse and to raise requisitions or objection in respect of the title to Property upon receipt of the said title deeds."

5. Bonance's solicitors were the defendant. It will be apparent from the above that in total, $1.38 million was therefore received by them in this capacity. In the Statement of Claim, the plaintiff alleges that (notwithstanding the reference in the Tenth Schedule to just the further deposit) both sums making up the $1.38 million were received by the defendant as stakeholders. This is in part supported by the fact that the defendant signed on the Sale and Purchase Agreement as stakeholders in relation to both sums. For the purpose of the present summons, the defendant is content to proceed on this basis.

6. Prior to the date of completion, the plaintiff's solicitors raised certain requisitions in relation to the Property. It is unnecessary to go into any great detail here : it suffices to say that the plaintiff was not satisfied with the responses to the requisitions whilst Bonance (through the defendant) took the position that the requisitions had been adequately dealt with. On 5 May 2000, Bonance treated the Sale and Purchase Agreement as having been repudiated by the plaintiff and forfeited the deposits in the said sum of $1.38 million.

7. On 12 May 2000, the plaintiff commenced proceedings against Bonance by a Vendor and Purchaser Summons (HCMP 2342/2000) ("the Action") in which the plaintiff claimed a declaration that good title had not been shown, the requisitions had not been sufficiently or satisfactorily answered and that it was Bonance which was in repudiatory breach. The plaintiff also claimed the return of the said sum of $1.38 million and an order that Bonance also reimburse the plaintiff for the stamp duty, estate agent's commission and legal costs paid by it. Damages were also claimed.

8. By a sale and purchase agreement dated 29 June 2000, Bonance agreed to sell the Property to one Profit Easy Investment Limited ("PEIL"). Completion was to take place on 4 August 2000.

9. After learning of this transaction, the plaintiff took action. In correspondence, particularly by letters dated 31 July 2002 from its solicitors, the plaintiff informed Bonance that it intended to apply for a Mareva injunction prior to the said completion date of 4 August 2000 so as to prevent Bonance from disposing of the proceeds of sale arising from the sale of the Property to PEIL and to protect the plaintiff's interest.

10. I have in fact been referred to a number of letters from the plaintiff's solicitors to the defendant dated between 29 July and 1 August 2000. In a letter dated 1 August 2000, it was stated :

"Meanwhile, we draw your attention to the Tenth Schedule of the Agreement for Sale and Purchase dated 13th April 2000 that you shall stakehold the further deposit of HK$830,000.00 until our notification to you of acceptance of title to the subject property. Now that our client does not accept title, you are required to withhold releasing the said further deposit to your client and to stakehold the same pending resolution of the above proceedings [the letter made a specific reference to HCMP 2542/2000]. We shall therefore be grateful if you will promptly confirm that you shall stakehold the said further deposit according to the said Agreement."

11. The defendant responded by a letter of the same date. Insofar as material, it stated as follows :

"2. We confirm that the initial deposit and further deposit paid by your client under Agreement for Sale and Purchase Memorial No. 8067801 in the total sum of HK$1,380,000.00 is now being retained by our firm, the same or any part thereof has never been released by our firm to our client. We further confirm that we will hold the said sum of HK$1,380,000.00 as stakeholders until resolution of the legal proceedings in HCMP No. 2342 of 2000 or unless otherwise ordered by the Court."

12. The plaintiff's case is that but for the agreement as evidenced by the letter dated 1 August 2000 from the defendant (which I shall refer to as "the 1 August 2000 Agreement"), it would have applied for a Mareva injunction.

13. The Action proceeded to trial before Chung J on 16 October 2000. In a judgment handed down on 31 October 2000, Chung J dismissed the plaintiff's claims and made an order nisi as to costs in Bonance's favour (which subsequently became absolute).

14. The next day (1 November 2000), the defendant released the said sum of $1.38 million to Bonance.

15. On 2 November 2000, the plaintiff issued a Notice of Appeal (CACV 1002/2000) against Chung J's judgment ("the Appeal"). By a letter on the same day, the plaintiff's solicitors informed the defendant that the plaintiff intended to appeal and also that the plaintiff intended to apply that very afternoon for a Mareva injunction. This application, made ex parte, was dismissed by Chung J. On 3 November 2000, the Court of Appeal (in CACV 776/2000) dismissed the plaintiff's appeal from the refusal by Chung J to grant the injunction.

16. Meanwhile, in response to the said letter from the plaintiff's solicitors dated 2 November 2000, the defendant sent a letter that day to inform the plaintiff that the $1.38 million had already been released to Bonance on 1 November 2000. This letter was, according to the plaintiff, only received after the ex parte application before Chung J.

17. The Appeal itself was heard by the Court of Appeal on 19 July 2001. In a Judgment handed down on 26 July 2001, the Appeal was unanimously allowed and it was ordered, inter alia, that the sum of $1.38 million be returned to the plaintiff. There has been no further appeal from this decision.

18. Obviously failing to get satisfaction from Bonance, the plaintiff instituted the present proceedings against the defendant on 12 October 2001. I should at this point mention that on 5 October 2000, the Property was sold to PEIL for $12.6 million pursuant to a sale and purchase agreement dated 20 September 2000. However, the proceeds of sale were insufficient to discharge the mortgage on the Property in favour of the mortgagee, The National Commercial Bank Limited.

19. As pleaded, the plaintiff claims against the defendant on the basis that contrary to the 1 August 2000 Agreement and therefore in breach of its duty as stakeholders, the defendant released the said sum of $1.38 million to Bonance on 1 November 2000 "prior to the final determination of the disputes between the Plaintiff and Bonance under the ... [the Sale and Purchase Agreement]".

20. Before me, Mr Lam confirmed that the basis of the plaintiff's claim was two-fold :

(1) Breach of the undertaking given by the defendant under the Tenth Schedule to the Sale and Purchase Agreement; and

(2) Breach of the 1 August 2000 Agreement.

21. According to the plaintiff, the effect of the 1 August 2000 Agreement was that the defendant would remain stakeholders until the final resolution of the rights of the plaintiff and Bonance in the dispute which was the subject matter of the action and this was to include any appeals.

Is there an arguable defence?

22. In my view, there is. The defendant's position is really as follows :

(1) In relation to the Tenth Schedule to the Sale and Purchase Agreement, the defendant says that the agreement stipulated therein was superceded by the 1 August 2000 Agreement. Any obligation on the part of the defendant as stakeholders contained in the Tenth Schedule to the Sale and Purchase Agreement was one that must have been submerged in the dispute between the plaintiff and Bonance that was the subject matter of the Action. In other words, if, as matters turned out before Chung J, Bonance succeeded in the Action, there would be no reason at all for the relevant deposits to be retained by the defendant as stakeholders.

(2) Support for the above can actually be seen from the terms of the letter dated 1 August 2000 from the plaintiff's solicitors to the defendant, which I have set out in paragraph 9 above.

(3) Thus, the focus must be on the 1 August 2000 Agreement, as I think Mr Lam eventually accepted.

(4) Properly construed, the defendant submits the 1 August 2000 Agreement meant that the defendant would retain the sum of $1.38 million as stakeholders only until the resolution of HCMP 2342/2000 (namely, the Action) or unless otherwise ordered by the Court. It could not mean that the defendant would be obliged to remain as stakeholders until such time as all avenues of appeal had been exhausted. Here, Mr Shieh for the defendant said in his written submissions that the letter dated 1 August 2000 from the defendant made specific reference to the resolution of the Action and not to that action and/or any appeals therefrom. Accordingly, the letter should be construed according to its plain language. Simply put : it meant what it said.

(5) It was further contended that if the agreement between the parties had been intended to cover any appeals, it would have said so and the parties would not have made specific reference to just the Action (note here that the Action was referred to not just by the defendant but also by the plaintiff's solicitors in their letters dated 31 July and 1 August 2000). While the plaintiff's case involves words having to be added or modified in order to arrive at the construction for which it contends, as far as the defendant is concerned, no addition or modification is required.

(6) In addition, the words "or unless otherwise ordered by the Court" would also tend to show that the resolution of the Action had the meaning that the defendant contends. It will be remembered that the factual matrix of the 1 August 2000 Agreement was the plaintiff's stated intention to apply for a Mareva injunction. If such an injunction had been obtained, its duration would have been until the resolution of the trial of the Action and not any appeals therefrom. This therefore may well provide some guidance as to the ambit of the 1 August 2000 Agreement. It is to be noted that the letters to which I have referred, were all drafted by solicitors.

(7) Ultimately, all the defendant had to show was that even accepting the words "until resolution of the legal proceedings in HCMP No. 2342 of 2000" were arguably wide in their meaning and would cover appeals, this was not to say that the defendant's submissions to the contrary were not equally arguable as well.

23. I have not set out all the arguments that the defendant can raise in support of its contentions. It is sufficient for me simply to conclude that I regard its case as arguable. The defendant's submissions have a simplicity and logic that, at the very least, cannot be dismissed at this stage as being unarguable. I acknowledge that the plaintiff's intention may well have been to be protected until the disputes between it and Bonance were finally resolved, but the critical question is whether the parties have used language to achieve that result. Bearing in mind the defendant's submissions referred to above, I think arguably not.

Outcome of the present summons

24. I have accordingly come to the conclusion that the learned master was entirely correct in his decision. Further, instead of merely giving unconditional leave to defend, Master Rimsky Yuen dismissed the plaintiff's summons. He was, with respect, right to do so : see Hong Kong Civil Procedure 2002, Vol.1 at paragraph 14/7/3. The defendant's defence was not only one that the plaintiff could and should readily have anticipated, it was actually pleaded in the Defence dated 14 December 2001 (before the plaintiff's summary judgment summons was taken out). Mr Lam argued that the Defence merely pleaded an implied term to the effect contended by the defendant and this therefore somehow indicated an acceptance of the plaintiff's arguments as to the meaning of the 1 August 2000 Agreement. I am unable to agree. Paragraph 13 of the Defence does not plead an implied term at all; it pleads what the defendant contends to be the true meaning and ambit of the 1 August 2000 Agreement.