CHAN KWOK FAI v. ONWARD ELECTRICAL & SUPPLIES CO LTD

cacv 109/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 109 of 2004

(on appeal from HCA NO. 3600 OF 2003)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This is an appeal from a judgment of Deputy High Court Judge Muttrie given on 25 March 2004 whereby the judge granted judgment under Order 14 in favour of the plaintiff and ordered that there be an injunction restraining the defendant from disposing of or transferring any of its business or assets to any other party than the plaintiff and secondly he ordered that there be specific performance of the contract contained in and/or evidenced by the plaintiff’s tender dated 28 June 2003 and the defendant’s liquidator’s letter of 7 July 2003.  The judge further ordered that the defendant should pay the plaintiff damages in respect of the wrongful repudiation of the contract together with interest to be assessed.  At the conclusion of the hearing of this appeal this court not only dismissed the appeal, albeit clarifying the wording of the order as to damages, but imposed an injunction against the defendant restraining the disposal of any part of the sum of $177,442 at present in the account of the defendant’s liquidator, except for the purposes of discharging the costs payable to the plaintiff and damages in lieu of specific performance and that there be liberty to apply to vary or discharge the order.

Background

2.  Following an invitation for tenders issued by the defendant’s liquidator, the plaintiff submitted a tender on 27 June 2003, which was subsequently increased on 28 June at the liquidator’s suggestion, for the purchase of the business and assets of the defendant.  The final amount of the tender was $1,300,000.  The tender was submitted on a form which had been prepared by the liquidator.  Clause 5 of the tender provisions provided as follows:

“For the sale of the assets and business, it shall take effect upon confirmation of the title of the new buyer is obtained from the Customs and Excise Department or related authority of China.”

3.  There was apparently, a list of liabilities which was annexed to the document, although that list has not been produced in evidence.  The only other part of the tender which is relevant as far as this case is concerned is the provision as to the manner of payment as originally proposed by the plaintiff:

“	(1)	(Tenderer) shall pay $100,000 to the Liquidator and $200,000 to the bank as deposits;
	(2)	After receiving confirmation in respect of the transferability of the assets and debts and after receiving the approval from the PRC Customs and Excise Department, other relevant PRC government authorities and the landlord, (Tenderer) should further pay $200,000 to the Liquidator and $600,000, to the bank; and
	(3)	If my offer was accepted, I would employ the existing employees to continue the business in the same address.”

4.  That tender was accepted by letter of 7 July 2003 from the liquidator.  Despite that, however, the solicitors appointed by the liquidator wrote on 16 August 2003 to the solicitors instructed on behalf of the plaintiff as follows:

“We are instructed by our client, the Liquidator of the captioned company, that the Liquidator is unable to obtain approval from the landlord of the premises to release the assets in subject.  As a result of this, the agreement for sale is incapable of being enforced.

In such circumstances, we are further instructed by our client to rescind the said agreement and to refund a sum of HK$300,000 being stakeholder money paid by your client.”

5.  The plaintiff did not accept this stance on behalf of the liquidator.  It offered to negotiate with the landlord of the premises but various obstacles were put in its way.  Eventually a letter was produced on behalf of the defendant purporting to be written on behalf of the landlord of one of the factory premises previously occupied by the defendant.  The letter indicated that no agreement had been reached between the landlord and any purchaser of the machinery.  It left the way open for the release of the machinery on payment of the arrears of rent.

6.  However, prior to that, on 25 July 2003, the liquidator was informed by the solicitors whom he had instructed that the Customs authorities in the PRC required payment of duties in order to release five machines in one of the factories.  The letter stated that a sum in the region of US$13,000 to US$19,000 was required which would be inclusive of the solicitors’ costs but exclusive of disbursements and charges payable to other government departments.  It does not appear from any of the correspondence or, indeed, from any of the other evidence filed on behalf of the defendant, that this information was conveyed to the plaintiff.  Instead, it appears, that the defendant’s stand was maintained on the basis that the landlord would not give its consent and at 9:10 pm on 8 September 2003 the plaintiff was invited by e-mail to submit a further tender by 9 September 2003.  That was declined and the writ, with the statement of claim endorsed thereon, was issued on 26 September 2003.

7.  As the judge said, the defence filed on behalf of the defendant was in affidavit form.  If judgment had not been given against the defendant it would have been necessary to strike out the defence and require it to be pleaded in accordance with the rules namely to contain a statement in summary form of only the material facts.  The major argument raised on behalf of the defendant on this appeal was that the contract constituted by the tender and acceptance thereof was subject to the condition that it could not have been the intention of the parties that the defendant would be required to do all possible acts to procure the release of the machinery by the authorities in the PRC if such acts were beyond the capacity of the defendant.  Mr Wong, who appeared on behalf of the defendant, sought to argue that procuring the release of the machinery from the control of the Customs in the PRC was such an act which was beyond the capacity of the defendant.  His ground for so saying was, apparently, that the defendant could not afford the US$19,000.

8.  In my view there is no ground for implying the condition upon which the defendant seeks to rely.  The only contractual provision in relation to securing the release is that contained in clause 5 which has been cited above.  It is not suggested that the liability to pay the sum of US$19,000 or thereabouts to the Customs was a liability listed in the list of liabilities.  It is accepted that the liability was, apparently, unknown to the liquidator at the time that the tender was accepted.  In those circumstances it was clearly the responsibility of the vendor, in the person of the liquidator, to pass good title in respect of the items sold subject to the disclosed liabilities.  The liquidator and the defendant cannot put it beyond their control to provide clear title and to secure the release of the machinery from the Customs by simply refusing to pay the amount which is required to be paid.  Furthermore, impecuniosity cannot be a defence to an allegation of breach of contract.  The defendant’s primary argument therefore fail us.

9.  A point was also sought to be made in similar vein on the basis that clause 5 of the tender should be interpreted as including securing the consent of the landlord.  It was said that the clause 5 should be read in conjunction with the payment terms.  I do not see that that argument can have any validity whatever.  As noted above, the provisions as to payment were inserted into the tender document by the plaintiff.  They became terms of the contract upon the acceptance by the liquidator of the plaintiff’s tender.  Clause 5 and the provisions as to payment were quite separate.  The provisions as to payment were simply that.  If the consent of the landlord were not forthcoming the payment that was due to be made subsequent to the consent being obtained and conditional upon it would not be payable.  In those circumstances the appeal fell to be dismissed. 

10.  One further matter emerged in the course of the argument.  It was said in the affirmation of the liquidator, which was filed on behalf of the defendant, that a new tender from a new purchaser had been accepted and that there had been a sale and purchase agreement executed by the new purchaser on 19 September 2003.  Despite that, the judge below not only granted the injunction but also ordered specific performance.  On this appeal the defendant did not seek to argue that an order for specific performance should not be granted because it was now impossible for specific performance to take place.  Neither did the plaintiff seek to argue that.  It appears that the plaintiff was suspicious as to whether in fact a sale had taken place and that there had been any completion thereof.  In view of the stance taken by both parties this court was not disposed to disturb the order for specific performance but approached the matter on the basis that all the plaintiff might eventually be able to obtain was damages in lieu of specific performance. 

11.  Upon inquiry as to whether there were any assets available to pay damages in lieu of specific performance the court was informed that out of a sum of $300,000 which had originally been available to the defendant and the liquidator there was only now left $177,442 after various costs including the defendant’s legal costs had been paid.  It would appear, therefore, that money has been frittered on this litigation which is now neither available to the plaintiff in respect of the damages nor is it available to the general body of creditors.  It would appear that the damages to which the plaintiff might be entitled, should specific performance not be possible, could be very substantial and far in excess of the amount of the tender.  In those circumstances this court made the order referred to above in order to prevent any further dissipation of what little money was now left.

Hon Le Pichon JA:

12.  I agree.