PROFIT RICH ENTERPRISES LTD v. SKY TALENT PROPERTIES LTD

HCA9119/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9119 OF 1998

---------------------

----------------------

------------------------

J U D G M E N T

------------------------

The plaintiff's claim

1. On 16 October 1997, the plaintiff as vendor agreed to sell and the defendant as purchaser agreed to purchase the property known as 1058 Canton Road ("the Property") for the sum of HK$19 million. The Provisional Agreement for Sale and Purchase was signed on that day and on 3 November 1997, a formal Sale and Purchase Agreement was signed. Clause 2 of the Agreement provided for payments of the various deposits and also that the balance should be paid on the completion date which was agreed as 30 May 1998 and which was subsequently extended to 1 June 1998 because 30 May 1998 was a public holiday.

2. Clause 18 of the Agreement provides that time shall in every respect be of the essence of the Sale and Purchase Agreement.

3. Clause 19 provides that should the defendant fail to complete the purchase, the plaintiff may forthwith determine the Sale and Purchase Agreement by giving notice of termination in writing to the defendant and the plaintiff shall thereupon be entitled to re-enter the Property and shall be entitled to forfeit the deposit. Upon determination of the Sale and Purchase Agreement, the plaintiff may resell the Property and on such resale if there should be a deficiency in price, that and all reasonable expenses shall be borne by the defendant.

4. The defendant, in breach of the Sale and Purchase Agreement, failed to deliver the balance of the purchase price to the plaintiff on the completion date. By a letter dated 1 June 1998, the plaintiff rescinded the said Sale and Purchase Agreement and forfeited the deposits paid thereunder. The plaintiff was, at all material times, ready and willing to complete the sale and purchase of the Property. The Property was resold on 29 October 1999 and netted a total of $9.63 million. The plaintiff therefore claims against the defendant the following sums :

(a)	The deficiency in the purchase price of the Property	$9,370,000.00
(b)	Legal costs for resale of the Property	$38,947.50
(c)	Stamp duty and penalty on three Tenancy Agreements in respect of the 1st, 4th and 5th floors for the Property	$2,425.00
(d)	Penalty on Forms CR109 in respect of the 1st to 5th floors of the Property	$2,500.00
(e)	Estate agent's commission for resale of the Property	$96,300.00
(f)	Land search fees	$730.00
(g)	Certified fees	$1,500.00
(h)	Miscellaneous expenses in relation to the resale of the Property	$15,986.00
	Total :	$9,528,388.50 ==========

5. Further or in the alternative, the plaintiff claims against the defendant an indemnity in relation to all liabilities or claims which the plaintiff may suffer or incur as a result of the defendant's wrongful breach.

The Defence

6. The Defence relied upon was that on 26 May 1998, the defendant raised requisitions on the title of the Property in respect of some unauthorized structures as particularized in an architect's report dated 18 May 1998. It was averred that the plaintiff did not answer or failed to answer all the said requisitions sufficiently and/or satisfactorily to prove the title of the Property in accordance with the terms of the Sale and Purchase Agreement at a time reasonably before the date of completion. The plaintiff was, therefore, in breach of the Sale and Purchase Agreement and by that breach had prevented the defendant from completing the purchase and the subsequent sale and purchase between the defendant and a sub-purchaser was aborted as a direct consequence.

7. By reason of the above matters the defendant was entitled to rescind and/or cancel the Sale and Purchase Agreement and by a letter dated 1 June 1998 the defendant rescinded and/or cancelled the Sale and Purchase Agreement and demanded for the return of the deposit. The defendant counterclaims for the return of the deposit paid by it to the plaintiff namely :

(1) Deposit/part payment of purchase price	$2,850,000.00
(2) Stamp duty	$522,500.00
(3) Agent fee	$47,500.00
(4) Costs of investigation of the Title	$66,360.00

The defendant also claims the loss of the profit which it could have made on the resale of the Property. The defendant also claims the sum of $1,980,000.00 which was averred to be the sum which the defendant was liable to repay one of its directors, Mr Ng Pit Hing, who had agreed with the sub-purchaser that if the sub-purchase could not be completed, then the defendant would indemnify the sub-purchaser by paying it the sum concerned.

The illegal structures

8. On 7 May 1998, a firm of architects was instructed to study the existence of unauthorized structures and alterations at the Property. A site visit was then arranged for that day. The architect's report dated 18 May 1998 sets out the following unauthorized structures :

Item A -	Structures on the main roof. This was a steel work structure constructed on the main roof of the Property and occupied the major portion of the flat roof. The wall of the structure was not fully enclosed and part of it was open and part of it protected with steel sheets. Access to this structure was through the main staircase of the building.
Item B -	Structure at flat roof on the 1st floor. A structure of metal roof and steel wall was constructed at the rear portion flat roof on the 1st floor. It occupied the major area of the flat roof. Access to the structure was from the flat on the 1st floor. The structure appeared to be an extension of the flat on the 1st floor. The construction of the additional structure obstructed the windows and doors at the rear wall of the 1st floor flat, hence natural lighting and ventilation to the rear portion of the original 1st floor flat was obstructed.
Item C -	External air-conditioning units at the rear of the ground floor. Air-conditioning units were observed to have been installed at the rear wall of the ground floor projecting above the surface lane at the rear of the Property. The air-conditioning units were supported by steel angle frames and bolted or anchored to the external wall. The units occupied the full width of the rear wall of the Property. Cracks were observed adjacent to the bolts and/or anchor made for the support of the steel frame.
Item D -	Signboard at the front wall. A steel signboard was observed at the front wall of the Property and which covered a height of about 6 metres starting from the 1st floor level. It projected about 2 metres beyond the surface of the front external wall. The signboard was constructed with steel members. The signboard was supported by a steel angle frame structure, bolted and/or anchored to the external wall of the Property. The points of support covered the height of 1st floor and 2nd floor. Directly under the sign was the public street of Canton Road which was a heavily pedestrianized market area.
Item E -	Additional room at the top of staircase. A timber structure was added to the space at the top of the staircase and the structures spanned the top of the stair well. It was accessed from the top landing of the staircase on the roof level and occupied an area of about 2.5 metres x 2.5 meters.
Item F -	Extension of cockloft. The cockloft above the ground floor shop was extended to cover the whole shop area. The original cockloft was set back for at least 1.5 metres from the front wall of the shop.

9. The architect was of the opinion that the aforementioned items were unauthorized buildings works that contravened the provisions of the Buildings Ordinance and Regulations. His opinion was that they were subject to enforcement by the Building Authority by the issuance of orders under the Buildings Ordinance to have the unauthorized structures removed.

Defence evidence

10. Mr Ng Pit Hing, a director of the defendant company, gave evidence. He said that a Mr Wong of Bo Hing Property Agency, whom he knew, introduced him to a Mr Cheng and Mr Kwok of Unique Property Consultants Limited and those two introduced the Property to him. Kwok recommended to Ng that the building was good and was worth buying. At the beginning, Kwok represented the plaintiff and persuaded Ng to buy the Property.

11. Prior to signing the Provisional Sale and Purchase Agreement, on 16 October 1997, Ng made two brief visits to the Property on 13 and 14 October 1997. During those visits, he did not go into the building but looked at it from outside and he was able to see a structure on the roof which, in the course of this trial, has been called item A. He also saw a signboard erected outside the building and in the course of this trial, it has been called item D. He was very concerned about these structures but he was assured by Kwok that the plaintiff was a company of repute and the structures were legal and prior approval from the Building Authority had been obtained. He said he believed Kwok and that was the reason why he signed the Provisional Sale and Purchase Agreement. He said no one would have a survey of the building before signing the Sale and Purchase Agreement. He was going to keep the Ground Floor as a long term investment but would sell off the upper floors. Kwok said they were in good condition and Ng believed him.

12. After he signed the agreement and paid the first deposit of $1 million, he said he wanted to inspect the internal part of the building and he then phoned the three persons Kwok, Cheng and Wong to ask them to arrange an inspection. All three of them told him that they had no time and he continued to press them by phoning them. Kwok said he was not free and asked Ng to leave it till later. Sometimes he would say that his boss was not available and he had no keys. Ng said in court that Kwok did not assist him to inspect the property at all until he finally got his solicitors to write to the plaintiff's solicitors in May 1998 to ask for an inspection. He said the three of them disappeared and he could not get in touch with them. After he signed the Sale and Purchase Agreement on 16 October 1997 he could not contact Kwok at all. His mobile phone was never answered.

13. He agreed that he was aware that Kwok as the agent for the transaction would not receive his commission until the formal Sale and Purchase Agreement was signed and he agreed that by not arranging for Ng to inspect the property, Kwok was running the risk that Ng or his company would not sign the formal Sale and Purchase Agreement thereby depriving Kwok of his commission. He said he did ask that the Sale and Purchase Agreement should reflect the fact that the structures were legal but the other side would not allow it and he still signed the Sale and Purchase Agreement because Kwok had told him that the structures were legal.

14. He agreed that if the vendor was willing to demolish the structures, he would purchase the property and he agreed that on 3 November 1997, his solicitors faxed the vendor's solicitors that they wanted to amend the draft Sale and Purchase Agreement by inserting the clause "the vendor undertakes to demolish and remove all unauthorized structures". In the event that clause was not inserted into the formal Sale and Purchase Agreement.

15. The title deeds were delivered to the defendant's solicitors by the plaintiff's solicitors on 15 November 1997. However it was only on 26 May 1998 that the defendant's solicitors wrote to the plaintiff's solicitors asking for documentary evidence to show that the unauthorized structures mentioned in the defendant's architect's report had been approved by the Building Authority. On 28 May 1998, the plaintiff's solicitors wrote back and said that they were surprised by the defendant's solicitors' letter since the defendant had full knowledge of the conditions of the property at all material times including the time when the provisional agreement and the formal agreement was signed and further deposits paid. The defendant's solicitors replied to that letter on 29 May 1998.

16. Ng agreed in his evidence that he did not instruct his solicitors in that reply to say to the plaintiff's solicitors that it was entirely the fault of the plaintiff in not having allowed the defendant to inspect the internal of the Property. He also agreed that he did not tell his solicitors to say in that letter that the agent, Kwok, had assured him, Ng, that the structures were legal and that Ng had made numerous efforts to have the opportunity to inspect the inside of the building.

Assessment of Ng's evidence

17. I do not accept Ng's evidence that he was denied by the plaintiff the opportunity to inspect the internal part of the building until 22 May 1998. It seems to me that because of the rise in the property market in October 1997, he, on behalf of his company, was prepared to buy the Property without a careful inspection of the internal of the building. This they did for $19,000,000. When the market began to fall at the end of 1997 and, by May 1998, the property was only worth $11,980,000, the defendant then sought ways to get out of the transaction. They started that process by instructing Mr Pong, an architect, to inspect the property. Mr Pong was able to do that on 7 May 1998 without any apparent difficulty and on 18 May, furnished his report in which he stated there were six illegal structures which he labelled items A to F. It was only on the same day when the defendant company got the architect's report that they instructed their solicitors to request an inspection of the property which they were able to do on 22 May 1998.

18. The defence also called the architect Mr Pong Yuen Cheung who basically agreed that the structures in question could be removed within 60 days.

The issues

19. The defendant's requisition was made for the first time on 26 May 1998. The completion was due to take place on 1 June 1998 and since 31 May 1998 was a Sunday, the requisition left the plaintiff with less than five working days to answer it or to try and comply with it. Under clause 13 of the Sale and Purchase Agreement, any requisitions or objections in respect of the title shall be delivered in writing to the vendor's solicitors within seven working days after the date of receipt of the title deeds of the Property, otherwise the same shall be considered as waived and if the purchaser shall make and insist on any objection or requisitions in respect of the title which the vendor is unable or (on the grounds of difficulty, delay or expense or on any other reasonable ground) unwilling to remove or comply with, the vendor was at liberty to give the purchaser not less than five working days' notice in writing to annul the sale, in which case, unless the objection or requisition shall have been in the meantime withdrawn, the sale shall at the expiration of the notice be annulled. The requisition was therefore clearly out of time as agreed between the parties.

20. The defendant relies on the judgment of Deputy Judge Cruden in Giant River Ltd v. Asie Marketing Ltd [1990] 1 HKLR 297 where it was held that a requisition going to the root of the title will not be excluded by a condition purporting to limit the time for making the requisition. In Chiu Kin On v. Henmy International Ltd, HCMP4956/1998, Cheung J (as he then was) said that the Court of Appeal in Hillier v. Tread East Ltd [1993] 1 HKC 285 had clearly stated that even for requisitions which go to the root of the title, the time limit will only not apply if the purchaser cannot discover the defect with due diligence. Does the requisition in this case go to the root of the title? In Mexon Holdings Ltd v. Silver Bay International Ltd [1993] 3 HKC 756, Rogers JA (as he then was) at page 768 said this :

"To venture any definition of what constitutes, a root of title might be both ambitious and dangerous. Some assistance can, of course, be gained from Williams on Vendor and Purchaser, (4th Ed) at p.47. It is there said:-

'If an instrument of disposition is offered in unsupported proof of the commencement of the vendor's title, it must be a good root of title; that is to say, it must deal with or prove on the face of it, without the aid of extrinsic evidence, the ownership of the whole legal and equitable estate and interest in the property; contain a description by which the property can be identified; and show nothing to cast any doubt on the title of the disposing parties.'"

21. In that case, the purchaser's architect was of the view that the Property contravened the Building (Planning) Regulations by failing to comply with the Code of Practice on Provision of Means of Escape since the maximum travel distance from the property to the entrance of the escape staircase exceeded 18 metres. Rogers JA was of the view that the requisitions which were raised did not relate to how the vendor derived its interest to the property. He said that the documents had not been challenged and on the face of the documents which had been provided, there was a clear chain leading back to the base of the title. He then said (at page 768) :

"What can be said, however, is that a query has been raised as to whether the present configuration complies with the Buildings Ordinance, Cap.123. That would in a broader sense affect the Appellant's title but it does not go to the root of its title."

Rogers JA then held that the objection did not go to the root of title. Nazareth VP was of the view that the solution proffered which involved incurring expenditure to reduce the distance to the escape staircase would not go to the root of title. The other solution of the purchaser surrendering the use of about 13% of the usable area of the property would constitute a blot on the title, but not to the root or even the chain of title. Nazareth VP then held that the purchaser was not entitled to raise the requisition. Mayo JA (as he then was) was of the view that the non-compliance with fire regulations constituted an impairment of the implied covenant for quiet enjoyment of the property but it could by no means be said that the defect went to the root of title. He was of the view that the defect of title in that case was of a peripheral nature and the vendor was justified in declining to entertain the requisition. The Court of Final Appeal in the same case was also of the view that the so-called defect went no where near the root of title.

22. The unauthorized structures in the present case could all have been removed within 60 days and this was agreed by both the architects retained by the parties. On 2 July 2002 when the plaintiff's architect Mr Norman Yiu visited the site, he noticed that items A and C had already been removed. I find that the other items could have been removed if the requisition had been made earlier and the plaintiff had sufficient time to remove them. These unauthorized structures were structures which enlarged the useable area of the Property, for instance, items A, B, E and F, and were possibly breaches of the Buildings Ordinance which might have attracted enforcement action by the Building Authority. Nevertheless, I am of the view that none of these structures went anywhere near affecting the plaintiff's title to the Property nor its right to give a good title to the defendant. I am, therefore, of the view that none of these structures went to the root of the title. Furthermore, if the defendant in fact wanted to inspect the Property before completion, my view is that that could have been arranged easily. Once an internal inspection of the Property was made, then items E and F could have been discovered. I do not accept Mr Ng's evidence that the agents had made a misrepresentation to him that all the structures had been authorized by the Building Authority. If there was any doubt about the matter, the defendant could easily have got their solicitors to write to the Building Authority to confirm that the structures had been authorized. There was after all a period of seven and a half months between the signing of the Sale and Purchase Agreement and the completion date.

23. Mr Mumford, SC for the defendant submits that the unauthorized structures were all latent defects in the sense that one could not tell whether they had been authorized and none of them were shown in the plans. Counsel submits that the plaintiff was under a duty to disclose these latent defects and the plaintiff must have known of them or ought to have known because it must have had the building surveyed at some stage when it bought it. I do not agree with that submission. I agree with the submission by Mr Chow, appearing for the plaintiff, that there is no evidence before the court to suggest that the plaintiff must necessarily have known or ought to have known about such unauthorized structures but had chosen not to disclose them. There is no evidence when these structures were built and by whom. It is just as possible that the structures were built by the tenants occupying the various floors and the plaintiff even though it was the landlord was unaware of some of these structures. I respectfully agree with the view by Chung J in Billion Profit Enterprises Ltd v. Rise Path Investments Ltd & Others, HCA711/1999 when he quoted Barnsley's Conveyancing Law and Practice (1996), 4th Ed., pages 153-4 which said :

"... A defect is latent if it cannot be discovered by the exercise of reasonable care on an inspection of the property. ...

and then Chung J said (at page 6) :

If the law were that each and every burden (in particular, illegal structure) needs to be precisely pinpointed, dispute can arise as to how far a vendor needs to disclose:-

(a) the precise nature of the illegal structure;

(b) the exact size and dimension of the illegal structure;

(c) in what way(s) the illegal structure can create a risk or doubt on the title.

...

When doctrines of equity were called upon, it must be borne in mind that a purchaser ... could and should inspect or survey the suit property prior to entering into a formal sale and purchase agreement which contains clauses specifically extinguishing or limiting a vendor's duty relating to user and/or unauthorized structures. If he enters into the formal agreement without doing so, he should not be heard to complain that there had been 'non-disclosure'."

Defendant watching the market

24. Having heard the evidence, my view is that it is quite clear that the defendant company was watching the market after it entered into the formal Sale and Purchase Agreement. It is an incontrovertible fact that after the formal Sale and Purchase Agreement was signed in November 1997, the property market in Hong Kong began to go downwards and by the completion date at the end of May 1998, the prices of all properties had fallen dramatically. The evidence was that by May 1998 the Property in question had fallen from its value of $16.25 million as at November 1997 to $11.98 million. The defendant then made a last ditch effort to try and get out of the transaction by, as stated above, firstly, instructing their architect to inspect the Property in May 1998.

The Courts' tolerance of such conduct

25. The Court of Final Appeal in Mexon (2000) 3 HKCFAR 110 was particularly critical of the attempt by the purchaser to get out of that transaction and at page 117, Litton PJ said :

"A good title does not mean a perfect title, free from every possible blemish. Whenever a question like this arises, it must be approached from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain. If the purchaser, in truth, had a real concern over the way the 33rd floor had been partitioned in 1992, it could have written a letter to the Building Authority expressing its concern, upon the assumption that the Building Authority would act in a fair and reasonable manner. The purchaser's solicitors' letter of 6 November said they noticed that the architect's certificate did not specify that the partitioning did not 'contravene the fire regulations'. They did not say when they first noticed this fact. The director who later on made an affirmation in support of the purchaser's case did not in turn say when this matter had first come to his notice. Assuming it was shortly before the letter of 6 November was written, (not necessarily a sound assumption), there was still ample time for the matter to be clarified with the Building Authority. Instead, the purchaser chose to put forward a case based upon surmise and conjecture as to what the Building Authority might do because of the alleged 'contravention of reg.41(1)'. These are hardly the circumstances under which equity would go to the aid of an allegedly aggrieved party."

Bokhary PJ was just as scathing in his remarks at page 119 :

"Although it could have asked the Building Authority what attitude he took and then adduced evidence of his response, the purchaser has chosen instead to invite the Court to in effect proceed by way of surmise as to what the Building Authority might do. I doubt if that is a choice open to a purchaser who is out of time for raising requisitions and who asks the court in effect to relieve him of the ordinary contractual consequences of his lateness. Nor does the purchaser's difficulties end there. It is not adequately explained why its requisition was as late as it was. One cannot rule it out as a real possibility that the purchaser was watching the property market for a time before deciding to raise its requisition.

Whatever may be the basis and scope of the court's jurisdiction to entertain a late requisition it must at least be necessary for there to be a strong case in which the party invoking such jurisdiction has taken all practicable steps in his power to make the position as clear as possible for the court. That cannot be said to be the position in the present case."

26. Even before the judgment of the Court of Final Appeal in Mexon in April 2000, Stone J in Wong Man Kit Raymond v. Chan Nam Fan, HCMP4391/1997, in May 1998, put the burden squarely on the shoulders of the purchaser to satisfy the court that there is a proper case for disregarding the contractual time limit when he said :

"... I do not accept that a clear and obvious matter which goes to the root of the Vendor's title can, in effect, be clasped to the Purchaser's breast for opportunistic use in any subsequent emergency ? and in this context, perhaps, there can be no greater emergency in the eyes of the Hong Kong speculator than the fall of the property market subsequent to purchase. It follows, therefore, that in my judgment a problem going to root of title does not, ... serve in itself to render the provisions of [the time limit clause] otiose. To the contrary."

Further on in the judgment he said :

"... I reject unequivocally [the] contention that if a matter goes to root of title, all else, in effect, falls away, and that the point can be kept in reserve to provide an unmeritorious 'bail out' for a purchaser seeking to avoid what has turned out to be a bad bargain. In this regard, I am in respectful argument with the views expressed by the Court of Appeal in Hillier, ..."

27. In City Chain Properties Ltd v. Speedy Port Ltd, HCA2221/1998, on 7 November 2001, Sakhrani J at paragraph 73 page 14 expressly adopted the quoted passage by Stone J in Wong Man Kit (supra). Further, the learned judge was clearly of the view that the onus was on the purchaser to explain its lateness. He said :

"The defendant has failed to adequately explain why its requisition was raised so late. What Bokhary PJ said in Mexon Holdings Ltd. v Silver Bay International Ltd. [2000] 2 HKC 1 @ 10 is also applicable here:

'It is not adequately explained why its requisition was as late as it was. One cannot rule it out as a real possibility that the purchaser was watching the property market for a time before deciding to raise its requisition.'"

Conclusions

28. In the light of everything said above, I find as follows :

(1) The defendant's requisition did not go to the root of the title.

(2) The defendant was far too late to make the requisition on the date that he did.

(3) The defendant failed to complete by proffering the balance of the purchase price.

(4) Consequently the plaintiff was entitled to repudiate the sale and to forfeit the deposit.

(5) The plaintiff incurred a loss in the resale of the Property and is entitled to recover the difference in price from the defendant.

29. The defendant submits that the resales took place far too late and no one gave evidence for the plaintiff so it is not possible to establish whether the sales were at arm's length. The defendant submits that the right to resell should have been exercised within a reasonable time as the contract itself provides that time is of the essence. The defendant therefore submits that the comparison should be between the contract price and the May 1998 valuation price. The plaintiff's reply to that is that the plaintiff's right to claim the difference in price on the resale is based on the express terms of the contract. It is therefore for the defendant to plead and show why the plaintiff should be deprived of their contractual right. I agree with the plaintiff's submission. The duty to mitigate was never pleaded by the defence. In Ho Lai Chuen Cadia trading as Resolution Software Consultants v. Xerox (Hong Kong) Ltd, CACV299/2002, 7 March 2003, the Court of Appeal ruled at paragraph 6 as follows :

"...the deputy judge appears to have made his order on the basis that the plaintiff failed to adduce evidence which, in effect, related to mitigation. A plaintiff is entitled to claim the amount which it says it had lost as a result of a contract not being performed and any matter of mitigation of that amount is a matter of defence. It is clearly established in such cases as Roper v Johnson (1873) L.R. 8 C.P. 167, ... and Garnac Grain Co. v Faure and Fairclough [1968] AC 1130 at 1140 that mitigation is a question of fact. ... Any factors in mitigation of damage were for the defendant to plead and prove."

30. This issue was never pleaded by the defendant nor was there any proof that the resale could have taken place in 1998. I therefore give judgment to the plaintiff in the sum of $6.52 million which is the difference between the original sale price minus the sum realised on the resale, that is $9.63 million, minus the $2.85 million deposit paid to the plaintiff by 5 January 1998. The plaintiff is entitled to interest at 1% above prime rate on the $9.63 million from 1 June 1998 to 29 October 1999 and I give judgment accordingly. There will also be interest at 1% above prime rate on $6.52 million from 1 June 1998 until date of judgment and thereafter at judgment rate until payment and I give judgment accordingly.

31. There was no evidence from the plaintiff on what expenses were incurred on the resale and therefore the plaintiff is not entitled to judgment for any of those sums. The plaintiff is not entitled to the claims in paragraphs 2, 3 and 5 of the Re-amended Statement of Claim. There will be costs to the plaintiff to be taxed if not agreed.

32. By reason of what I have already said the defendant's counterclaims are dismissed with costs to be taxed.