VOLLY BEST INVESTMENT LTD v. JOINLAND HOLDINGS LTD

HCA 1438/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1438 OF 2013

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D E C I S I O N

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1. This is an application issued by the plaintiff on 5 March 2014 for summary judgment against the defendant in the amount of HK$59,756,864.38 and an order that the counterclaim be struck out on the ground that it discloses no reasonable cause of action, is scandalous, frivolous or vexatious or otherwise constitutes an abuse of the process of the court.  In their skeleton submissions, Mr Jat Sew Tong SC and Mr Bernard Man, counsel for the plaintiff, indicate that the plaintiff will only seek interlocutory judgment on liability with damages to be assessed. 

Background fact

2. The following fact relevant to the issues between the parties is not in dispute. 

3. The plaintiff is the developer and owner of a development at Kowloon Inland Lot No 11124 known as “Celestial Heights” (“Development”).  The defendant is part of the De Monsa group, which has substantial experience in investing in real properties in Hong Kong.

4. By letter dated 8 May 2008 to the plaintiffs’ solicitors[1], the Director of Lands gave consent to the plaintiff under the Conditions of Sale No 12667 (as modified by a Modification Letter dated 4 February 2008) to enter into agreements for sale and purchase for 500 residential units in Phase 1 of the Development subject to the conditions stated therein (“Consent Letter”).

5. On 30 May 2008, Mr Lauw Siang Liong (“Mr Lauw Senior”) on behalf of the defendant, signed 36 provisional contract (consent scheme) dated 30 May 2008 to purchase 36 units in the Development (“1^st PASPs”). On the same day, Mr Lauw Senior signed two cheques on behalf of the defendant and paid a total of HK$51,474,800 to Kao, Lee & Yip as preliminary deposits under the 1^st PASPs (equivalent to 5% of the purchase prices of the 36 units). 

6. Under the 1^st PASPs, the defendant shall within three working days (ie on or before 3 June 2008) sign the agreement in such standard form as prepared by the plaintiff’s solicitors and make further payment in accordance with the payment terms.  No agreement was signed by the defendant on 3 June 2008. 

7. On 4 June 2008, the plaintiff was informed that the defendant would not proceed with the purchase of the 36 units under the 1^st PASPs.  Upon further negotiations, Mr Lauw Senior on behalf of the defendant agreed that the defendant would purchase 9 out of the 36 units, while the other 27 units would be purchased by 27 “new off‑the‑shelf Hong Kong companies” (“the Companies”).  On the same day, Mr Lauw Senior on behalf of the defendant signed 9 formal sale and purchase agreements for the purchase of 9 units[2] (“the 9 Units”) from the plaintiff (“the Agreements”).  Mr Lauw Senior signed the Agreements in front of a solicitor of Woo, Kwan, Lee & Lo (“WKLL”).

8. Clause 3(1) and Schedule 4 of each of the Agreements state that the purchase price shall be paid by the defendant to WKLL in the following manner:

(1)  the preliminary deposit (equivalent to 5% of the purchase price) has been paid on the signing of the agreement preliminary to the Agreement;

(2)  the 1^st part payment (equivalent to 5% of the purchase price) to be paid on or before 4 July 2008;

(3)  the 2^nd part payment (equivalent to 5% of the purchase price) to be paid on or before 2 September 2008; and

(4)  the balance to be paid within 14 days of notification to the defendant that the plaintiff is in a position to validly assign the property to the defendant.

9. Apart from the Agreements, Mr Lauw Senior on behalf of the defendant signed 9 provisional contracts (consent scheme) dated 4 June 2008 (“2^nd PASPs”) for the purchase of the 9 Units.  The total deposits payable under the 2^nd PASPs was HK$19,131,850.  In each of the 2^nd PASPs, 5% of the purchase price was stated “to be paid upon the signing this provisional contract”.  There is a dispute as to when the parties signed the 2^nd PASPs.  The plaintiff says that the 2^nd PASPs were signed on 4 June 2008 prior to the execution of the Agreements, while the defendant says that they were signed on 6 June 2008 but back‑dated to 4 June 2008 by the plaintiff without the knowledge or consent of the defendant. 

10. Mr Lauw Senior instructed his staff to acquire 27 shelf companies (ie the Companies), and their names together with the invoices for the charges for acquiring them were provided to the defendant on 5 June 2008. 

11. By another 27 provisional contracts (consent scheme) dated 6 June 2008 signed by Mr Lauw Senior on behalf of the Companies, the Companies agreed to purchase the remaining 27 units in the Development and the total deposits payable was HK$32,342,950.  In each of these 27 provisional contracts, 5% of the purchase price was stated “to be paid upon the signing this provisional contract”.

12. On 4 July 2008, the defendant paid HK$19,131,850 to WKLL, being the 1^st part payments payable for the 9 Units.  The defendant did not pay the 2^nd part payments by 2 September 2008.  By letters dated 16 June 2009, WKLL gave notice to the defendant that the plaintiff was in a position to validly assign the 9 Units to the defendant and required it to complete the purchase pursuant to the Agreements on or before 2 July 2009 (“Completion Date”). 

13. By letters dated 15 July 2009, WKLL referred to the defendant’s failure to pay the 2^nd part payments and to complete the purchase on the Completion Date, and notified the defendant that unless the purchase of the 9 Units are completed within 21 days thereof, the plaintiff may enforce its rights to determine the Agreements.

14. The defendant did not pay the outstanding 2^nd part payments or complete the purchase within the time stipulated whereupon the plaintiff exercised its right to determine the Agreements by WKLL’s letter of 25 August 2009 (“Determination Notices”). 

Applicable principles

15. The principles governing application for summary judgment are not in dispute.  The burden is on the defendant to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part (Order 14, rule 3(1)).  For this purpose, the defendant’s affidavit must “condescend upon particulars” and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what the defence is, and what facts are relied on to support it (Hong Kong Civil Procedure 2015, §14/4/4). 

16. Summary judgment is only for clear case where no fairly arguable point is raised.  This was stated by the Court of Appeal in Pacific Electric Wire & Cable Co Ltd v Harmutty Ltd [2009] 3 HKLRD 94 at §4:

“….Applications for summary judgment are only suitable where the court can be satisfied that not only is there are no defence but there is no fairly arguable point to be argued on behalf of the defendant. The court cannot embark upon a mini-trial based on affidavit. Except in the most clear and blatant cases, it is impossible for a court to put itself in the position of having to make findings of fact. It should rarely be necessary for a plaintiff, in making an application for summary judgment, to do more than verify the statement of claim. If, thereafter, a defendant can show a triable issue that should, there and then, be an end to the application.”

17. As for the principles governing an application to strike out a pleading for no reasonable cause of action or defence, they are stated in Hong Kong Civil Procedure 2015, §18/19/4 and may be summarized as follows:

(1)  It is only in plain and obvious cases that the court should exercise its summary powers to strike out any pleading.  There should be no trial upon affidavit. 

(2)  Disputed facts are to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings. 

(3)  The claim must be obviously unsustainable, the pleadings unarguably bad, and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out.

18. Where, as here, an application for striking out is made on the grounds that the pleading is frivolous or vexatious or constitutes an abuse of process, the court may admit evidence filed by the parties as long as it does not require evidence to be tested by cross-examination.  This accords with the object of the rule, which is to stop cases which are obviously frivolous or vexatious or unsustainable.  A proceeding is frivolous when it is not capable of reasoned argument, without foundation or where it cannot possibly succeed (Hong Kong Civil Procedure 2015, §§18/19/8, 18/19/14). 

Issues

19. The plaintiff’s claim, as pleaded in the statement of claim dated 5 August 2013, is simple.  It alleges that the defendant failed to complete the purchase of the 9 Units pursuant to the Agreements and seeks damages in the amount of HK$59,756,864.38, being the difference between the purchase prices under the Agreements and the open market value of the 9 Units as at the date of the Determination Notices.  As the plaintiff only seeks interlocutory judgment on liability, it is not necessary to determine whether the plaintiff is entitled to judgment for the amount claimed.

20. The defendant filed a lengthy defence and counterclaim running to 26 pages.  In opposing the application, the defendant filed two affirmations, being the affirmation of Law Wai (“Mr Law”), a manager of the defendant, and the affirmation of Ding Wen Jie (“Ms Ding”), an accountant of the defendant.  For reasons never explained by the defendant, Mr Lauw Senior, the person who made all the decisions relevant to the purchase of the 36 units and had personal knowledge of the circumstances under which he signed the 1^st PASPs, the 2^nd PASPs and the Agreements on behalf of the defendant, has not made any affirmation.  This is despite the fact that the defence advanced by the defendant is based on the assertions that (1) Mr Lauw Senior did not sign the 2^nd PASPs on the date stated (ie 4 June 2008) but only signed them on 6 June 2008; and (2) Mr Lauw Senior never agreed to allow the plaintiff to use the preliminary deposits under the 1^st PASPs as the preliminary deposits under the 2^nd PASPs. 

21. Notwithstanding the length of its pleadings and affirmations, the defence advanced by the defendant boils down to the following contentions:

(1)  The Agreements were executed prior to the 2^nd PASPs, which constituted a breach of condition 16(a) of the Consent Letter (§§36‑39 of defendant’s skeleton). 

(2)  In entering into the 2^nd PASPs after the Agreements, the plaintiff “agreed to cancel the [Agreements] and to discharge the obligations of [the defendant] thereunder” (§§52‑57 of defendant’s skeleton).

(3)  The defendant never agreed that the plaintiff could treat the preliminary deposits paid under the 1^st PASPs as preliminary deposits under the 2^nd PASPs.  As the defendant did not pay, and the plaintiff’s solicitors failed to collect any preliminary deposits upon signing the 2^nd PASPs and apply them in accordance with conditions 19 and 20, there was a breach of conditions 4(a), 4(b), 19 and 20 of the Consent Letter (§§40‑45 of defendant’s skeleton).

(4)  The plaintiff offered to sell 36 car parking spaces to the defendant before the parties entered into sale and purchase agreements of the 36 units.  This constituted a breach of condition 18 of the Consent Letter.  This contention is abandoned by the defendant at the hearing. 

(5)  By reason of the breaches of the aforesaid conditions, the presale of the 9 Units were “invalid” and the plaintiff was “not authorised” to enter into the Agreements with the defendant and hence the Agreements “were hence void and unenforceable” against the defendant (§46 of defendant’s skeleton). 

(6)  The conditions under the Consent Letter were incorporated into the Agreements by virtue of recital (3) and clause 4(1)(b) thereof.  As a result of the breaches of the conditions, the plaintiff will not be able to show and give good title on completion and the Agreements “were repudiated and unenforceable against [the defendant]” (§§47‑51 of defendant’s skeleton).

22. Based on the above contentions, the defendant counterclaims for refund of the preliminary deposits of HK$19,131,850 and the 1^st part payment of HK$19,131,850 paid on 30 May 2008 and 4 July 2008 respectively.  In addition, the defendant seeks restitution of the preliminary deposits of HK$32,342,950 paid on 30 May 2008 in respect of the other 27 units on the basis that there has been “a total failure of consideration”. 

23. I turn to consider whether the defendant’s contentions give rise to a triable issue or are capable of reasoned argument. 

Alleged breach of condition 16(a)

24. Condition 16(a) of the Consent Letter provides that:

“For any Unit which has not been made available by the [plaintiff] for public sale and is to be sold under the terms of this Consent by private sale, then, subject to Condition Nos. (4), (8)(b) and (10)(a) of this Consent, a PSAP must be signed by the parties and a Preliminary Deposit paid on the same terms and conditions as deposits from the prospective purchasers set out in Condition No. (4)(a) (except that Condition No.(15)(a) will not apply) and the ASP must be signed by the [plaintiff] not later than 5 working days after the signing of the PSAP.” (emphasis added)

25. Mr Jat SC submits that even if the 2^nd PASPs were signed on 6 June 2008 (as the defendant alleges), there could be no breach of condition 16(a) of the Consent Letter, as 4 June 2008 is not later than five working days after 6 June 2008.  I agree.  The defendant’s argument that the plaintiff was in breach of condition 16(a) is unsustainable. 

26. Mr Jat further submits that the defendant’s allegation that the 2^nd PASPs were signed on 6 June 2008 is plainly incredible in light of the following matters:

(1)   Clause (g) of Schedule 7 to the Agreements states that “This Agreement was preceded by the Provisional Contract on the same terms made between the [plaintiff] and the [defendant] on the 4^th day of June 2008” (emphasis added).  This goes against the defendant’s allegation that the 2^nd PASPs were signed after the Agreements. 

(2)   The alleged back‑dating makes no sense and is contradicted by WKLL’s confirmation in its letter dated 31 December 2013 that (a) the representatives of WKLL attended the office of the defendant on 4 June 2008 for signing the Agreements, (b) the representatives of the sales agent of the plaintiff also attended the office of the defendant on the same day to arrange for the signing of the 2^nd PASPs, and (c) the signing of the 2^nd PASPs took place prior to the signing of the Agreements.  This accords with WKLL’s duty under condition 5(a), which requires WKLL to satisfy itself that the terms of the PSAP are not in breach of the conditions before it prepares any formal sale and purchase agreement. 

(3)   Condition 16(a) in fact reinforces the plaintiff’s contention that the 2^nd PASPs must have been signed before the Agreements. 

(4)   Mr Lauw Senior, who signed the 2^nd PASPs and the Agreements, does not file any affirmation in support of the defendant’s allegation.  It is clear from the affirmations of Mr Law and Ms Ding that neither of them was involved when Mr Lauw Senior signed the 2^nd PASPs and the Agreements, whether on 4 June 2008 or 6 June 2008.

27. Mr Jean‑Paul Wou, counsel for the defendant, acknowledges that the statement in clause (g) of Schedule 7 to the Agreements suggests that the PASPs were signed before the Agreements, stating that it was for stamp duty purpose.  Mr Wou is unable to offer any explanation on the inconsistency between the statement and the defendant’s present allegation.  As there is no basis to doubt the clear wording of clause (g) of Schedule 7 to the Agreements, the defendant’s allegation that the 2^nd PASPs were signed after the Agreements must be rejected as incredible.

28. That the defendant’s allegation is incredible is reinforced by the following matters:

(1)   The failure of Mr Lauw Senior to file any affirmation in support of the defendant’s allegation.

(2)  The fact that the date “04/06/2008” was printed on each of the 2^nd PASPs signed by both parties.  The defendant has not explained how the plaintiff could have back‑dated these printed dates on the 2^nd PASPs without the defendant’s knowledge when they were all signed by Mr Lauw Senior.

(3)   WKLL’s confirmation in its letter dated 31 December 2013. I do not see any basis to doubt the contents of WKLL’s letter, which are consistent with the obligations of WKLL under condition 5(a) of the Consent Letter.

Alleged cancellation of the Agreements

29. As I have already rejected the defendant’s allegation that the 2^nd PASPs were signed after the Agreements, the contention that the 2^nd PASPs had the effect of cancelling the Agreements must fail.

30. In any event, the defendant’s suggestion that in entering into the 2^nd PASPs, the plaintiff “agreed to cancel the [Agreements] and to discharge the obligations of [the defendant] thereunder” is plainly unarguable because:

(1)   There is nothing in the 2^nd PASPs or the Agreements which may be construed as the plaintiff’s agreement to cancel the Agreements.

(2)  Mr Wou is unable to cite any authority in support of this stark proposition.

(3)  The suggestion is inconsistent with the defendant’s act in paying the 1^st part payments on 4 July 2008 following WKLL’s demands dated 18 June 2008, which referred to the Agreements and required the defendant to make “part payment”, not preliminary deposits as alleged by Mr Law.  As to this, Mr Wou’s only response is to repeat Mr Law’s assertion that the 1^st part payments were paid pursuant to the 2^nd PASPs.  In my view, in making the 1^st part payments pursuant to WKLL’s demands of 18 June 2008, the defendant clearly acknowledged its obligations under the Agreements and intended to proceed with the purchase in accordance with their terms.

Alleged breach of conditions 4(a), 4(b), 19 and 20

31. The plaintiff’s case is that it treated part of the preliminary deposits under the 1^st PASPs as the preliminary deposits under the 2^nd PASPs upon the request of the defendant.  The defendant denies this and says that this was done by the plaintiff unilaterally and without the defendant’s consent.

32. Mr Jat submits that the plaintiff’s case is entirely consistent with the following undisputed fact:

(1)   Mr Lauw had on 4 June 2008 agreed to purchase the same 36 units through the defendant and some new companies (eventually, the Companies).

 (2)  The defendant never tendered another sum for payment of the preliminary deposits under the 2^nd PASPs and proceeded to pay the 1^st part payments for the 9 Units on 4 July 2008.

(3)  The plaintiff never forfeited the preliminary deposits paid under the 1^st PASPs, which it would have been entitled to do had the parties not agreed to treat part of the preliminary deposits under 1^st PASPs as preliminary deposits under the 2^nd PASPs.

(4)  The statement in clause (i) of Schedule 4 to each of the Agreements, which states that the amount representing 5% of the purchase price of property “has been paid as deposit on signing the agreement preliminary to this Agreement.”  (emphasis added)  

33. Mr Wou does not dispute the above evidence but maintain that there was never any agreement between the plaintiff and the defendant to treat part of the preliminary deposits under the 1^st PASPs as preliminary deposits under the 2^nd PASPs and that no preliminary deposit has been paid under the 2^nd PASPs.

34. In my view, the defendant’s assertion is plainly incredulous as it is inconsistent with the undisputed evidence identified in §32 above.  The assertion also defies common sense.  If, as the defendant asserts, no preliminary deposit had been paid upon signing the 2^nd PASPs, such 2^nd PASPs would not have taken effect and there would be no point for the defendant to pay the 1^st part payments on 4 July 2008 at all.  The defendant’s act in paying the 1^st part payments on 4 July 2008 is consistent with the fact that both parties considered that the preliminary deposits under the 2^nd PASPs had been paid, and that they intended to go ahead with the purchase of the 9 Units pursuant to the Agreements.  It is wholly inconsistent with the defendant’s assertion that no preliminary deposit has been paid under the 2^nd PASPs.

35. In any event, even if (which I do not accept to be the case) the defendant never agreed to allow the plaintiff to use part of the preliminary deposits under the 1^st PASPs as the preliminary deposits under the 2^nd PASPs, I do not see how it can be said that conditions 4(a), 4(b), 19 and 20 of the Consent Letter have been breached.

36. Condition 4(a) requires the PASP to state that the preliminary deposit payable to the plaintiff is an amount of approximately 5% of the average purchase price of all units put on sale at any one time.  There is no dispute that the preliminary deposit stated in each of the 2^nd PSAPs represents 5% of the purchase price.

37. Condition 4(b) provides that the full amount of the preliminary deposit must be collected by the plaintiff’s solicitors in compliance with conditions 19 and 20, and if any person who signs a PASP does not sign the formal sale and purchase agreement, the amount to be forfeited by the plaintiff must not be more than 5% of the purchase price of the unit concerned.  Mr Jat submits that conditions 4(b), 19 and 20 only require the plaintiff’s solicitors to hold onto the preliminary deposits, there is no suggestion that this was not done.  I agree.

Agreements void and plaintiff unable to show good title?

38. The last two contentions identified in §21 above may be dealt with together.

39. In light of my conclusions that there was no breach of conditions 4(a), 4(b), 16(a), 19 and 20 of the Consent Letter, there is no basis for the defendant to contend that the Agreements were “void” or unenforceable or that the plaintiff will not be able to show good title on completion of the Agreements. 

Counterclaim

40. As stated in §22 above, the counterclaim is essentially based on the same contentions described in §21 above and the contention that there has been a “total failure of consideration” in respect of the HK$32,342,950 paid by the defendant as preliminary deposits under the 1^st PASPs on 30 May 2008. 

41. Insofar as the counterclaim is based on the same contentions stated in §21 above, for the reasons set out in §§24 to 39 above, I consider that the claim is obviously frivolous and unsustainable and should be struck out. 

42. As for the claim that there has been a “total failure of consideration” in respect of the HK$32,342,950 paid by the defendant on 30 May 2008, in my view, it is impossible for the claim to succeed.  This is because the HK$32,342,950 was part of the preliminary deposits paid by the defendant under the 1^st PASPs. The considerations provided by the plaintiff were the options given to the defendant to purchase 27 units (out of the 36 units) in the Development. 

Conclusion

43. For the reasons set out above, I hold that the plaintiff is entitled to interlocutory judgment against the defendant, with damages to be assessed.  I order the counterclaim to be struck out.  As for costs, I make a costs order nisi that the costs of and occasioned by the plaintiff’s application and of this action be paid by the defendant to the plaintiff, to be taxed if not agreed.