KIN MING HOLDINGS INTERNATIONAL LTD v. LAM MOON YUEN

HCA2350/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

ACTION NO. 2350 OF 2005

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J U D G M E N T

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1.  This is an application for default judgment.  The judgment sought are two declarations that (i) an agreement dated 16 April 2004 made between the plaintiff and (ii) the defendant has been terminated and the parties are discharged from further performance of this agreement.  The application is supported by an affirmation of one Chiu Pan-pan filed on 12 December 2005 and an affirmation of one Hsu Ming-chi filed on 26 January 2006.

2.  I am aware that it is not the normal practice of the court to make declarations without trial.  I refer to paragraph 19/7/20 of the Hong Kong Civil Procedure 2006.  However, I think justice requires me to make the declarations sought in this action without trial.

3.  I gleaned the following facts from the two affirmations.  The plaintiff’s subsidiary Kin Ming (Xiamen) Properties Company Limited (“Kin Ming”) and another company in Xiamen used to own the development rights in a piece of land in Pupianqu, Xiamen.  The rights were governed by a land grant of (98) 厦地合字(功協)001號 and by a land certificate called the Xiamen Land and Housing Certificate no. 00000396.

4.  After two amendments to the land grant which divided the land into smaller plots, Kin Ming became the sole owner of the development rights in two of the smaller plots, which are designated Lots A1 and A4.  The rights over Lot A4 were to erect residential accommodation and offices thereon.  The plaintiff and the defendant then entered into an agreement on 16 April 2004 to co-operate in developing Lot A4 (“the agreement”).

5.  However, before entering into the agreement, the parties were aware that the planning or the permitted land use of Lot A4 might be changed from residential accommodation and office to public facilities and the agreement might not proceed.  They therefore provided the following clauses in the agreement:

“三.	付款條件
3.3	待甲方取得廈門市房管局的繳交土地綜合配套費通知書時，即2004年6月30日前支付人民幣五千萬元整，7月30日前支付人民幣五千萬元整，如甲方未在6月30日前取得房管局繳交地價通知書，則付款時間相應順期後延。
六.	爭議的解决
6.2	如甲方未能於2004年6月30日前在努力向廈門市政府相關部門取得此項目繳交地價款之通知書，甲方須於2004年6月30日後十五個工作天內退還乙方之一億元人民幣，本協議的效力因而終止，乙方的董事委任亦應撤銷，若甲方不能如期退還該款項，乙方有權追討依照香港高等法院之判決欠款利率為準則計算利息。
七.	其它約定
7.1	甲方退還乙方款項後二年內，如甲方能取得上述項目之合法開發權，甲方必須按與乙方原先訂立此合同條約與乙方重新合作（但已收甲方利息應全額退還）。
7.2	甲方若再獲取合作項目開發權時，應書面通知乙方重新合作，但乙方須於收到甲方通知書後的15天內，應作出決定，否則視為放棄重新與甲方合作。
(English translation)
3.	Payment conditions
3.3	Upon Party A obtaining the Notice of Payment of Completely Integrated Land Fees from the Xiamen Metropolis Housing Management Department, (Party B) shall pay RMB 50 million before 30 June, pay RMB 50 million before 30 July, if Party A should fail to obtain the Notice of Payment of Land Price from the Housing Management Department before 30 June, then the time for payment will correspondingly postponed in sequence.
6.	Dispute resolution
6.2	If Party A should fail to diligently obtain from the relevant department of the Government of the Xiamen Metropolis before 30 June 2004 the Notice of Payment of Land Price for this project, Party A should refund to Party B the RMB 1 billion within 15 working days after 30 June 2004, the effect of this agreement will as a result terminate, Party B’s appointment as director will also be cancelled, if Party A should fail to refund the said sum on time, Party B has the right to claim interest to be calculated in accordance with the judgment rate of the High Court of Hong Kong.
7.	Other provisions
7.1	Within 2 years after Party A has refunded the money to Party B, if Party A should obtain the legitimate development right of the above project, Party A must co-operate with Party B afresh in accordance with the terms of this agreement (however, the interest received from Party A should be refunded in total).
7.2	If Party A should obtain the development right of the joint venture again, (it) should notify Party B in writing for co-operation afresh, but Party B should within 15 days after receipt of Party A’s written notice make a decision, otherwise will be deemed to abandon the co-operation afresh with Party A.”

6.  Pursuant to the agreement, the defendant paid the plaintiff RMB 130 million, with the last payment of RMB 30 million paid on 17 August 2004. 

7.  After making the agreement, the plaintiff had on numerous occasions sought the Notice of Payment of Land Price “繳交地價款之通知書” from the Xiamen Government, but without success. 

8.  At a meeting on 16 July 2004, the Vice-Mayor of Xiamen told Mr Hsu Ming-chi that the usage of Lot A4 had to be changed from residential accommodation and office to public uses.  The plaintiff and the defendant tried to lobby the Xiamen Government not to impose this change and that was the reason why the defendant paid $30 million to the plaintiff even on 17 August 2004.  However, the lobbying was to no avail.  Eventually the plaintiff’s subsidiary had no choice but to comply with the direction of the government.

9.  The plaintiff also sought legal advice on the law of the Mainland and was told by its Chinese lawyer that it was no longer possible for Kin Ming to go ahead to develop Lot A4 into a residential accommodation and office development as it was against the Mainland’s law to do so.

10.  As a result, Kin Ming on 13 July 2005 entered into a land exchange agreement with the Xiamen Land Development Company, a wholly owned company of the Xiamen Government, whereby Lot A4 was exchanged by Kin Ming with the Xiamen Land Development Company for another lot adjacent to Lot A1.  The Xiamen Government intends to build a convention centre and related facilities on Lot A4 and its adjacent lot.  The foundation stone for this project had been laid by the Vice-Premier of the Central Government Madam Wu Yi in September 2005. 

11.  In the premises, the plaintiff could not comply with clause 6.2 of the agreement and the agreement had been terminated at the latest by the end of 15 July 2004.  The plaintiff had on numerous occasions tried to return the RMB 130 million to the defendant, but the defendant refused to accept the money.

12.  As a result of the land exchange, Kin Ming’s Lot A1 is now merged with the lot as exchanged from the Xiamen Land Development Company.  The plaintiff is eager to develop this new lot but that requires the injection of substantial capital.  However, since the defendant has refused to accept the return of the RMB 130 million, the plaintiff does not feel comfortable to go ahead to develop the new lot, though this new lot contains no part of Lot A4.

13.  In the last hearing on 24 January 2006, I have questioned whether clause 6.2 would indeed terminate the agreement when clause 3.3 allows postponement of payment to beyond 30 June 2004 in the event of the plaintiff’s failure to obtain the Notice of Payment of Land Price “繳交地價通知書” by that date.  However, I am now satisfied by the affidavit of Mr Hsu that clause 3.3 was not intended to override clause 6.2 but to provide a buffer in case the Xiamen Government should be slow in issuing the certificate.

14.  Mr Neoh, leading counsel for the plaintiff, submitted that I can declare that the agreement between the plaintiff and the defendant had been frustrated by the events referred to above.  I am however hesitant to take that view as such a declaration may annihilate the effect of clauses 7.1 and 7.2.  I am only prepared to declare that the agreement has been terminated as per its clause 6.2.

15.  I am satisfied that the defendant has been served with the writ of summons endorsed with the statement of claim, the motion for default judgment, the affirmations and skeleton submissions, but she has chosen not to take part in this matter.

16.  In the first Chinese legal opinion produced to me, there was a suggestion that the agreement was void.  Mr Neoh does not abide by that view.  The plaintiff is also not seeking such a declaration.  I would therefore pay no regard to that part of the opinion.

17.  In the premises, I declare and order as follows:

(1)   The agreement dated 16 April 2004, signed between the plaintiff and the defendant is terminated but without prejudice to its possible revival pursuant to clause 7.1 therein.

(2)   Subject to paragraph 1 above, both the plaintiff and the defendant are hereby discharged from further performance of the said agreement dated 16 April 2004.

(3)   That the reserved costs of 24 January 2006 be to the plaintiffs.

(4)   The costs of this action including the costs of this application be paid by the defendant to the plaintiff, to be taxed if not agreed, with a certificate for two counsel for this action and for this application.

(5)   That the plaintiff may be at liberty to deduct from the sum of RMB 130 million already tendered to the defendant the agreed or taxed costs of the action, including the costs of this application.

Representation: