WELLFIT INVESTMENTS LTD. v. POLY COMMERCE LTD. and Another

1990 No. A8737

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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R U L I N G

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1. The Court of Appeal upheld, as a proper exercise of his discretion, the decision of Wong J. to refuse the confirmor leave to re-re-amend its Defence and Counterclaim. The confirmor had sought to plead two sets of facts which it said made it inequitable for the sub-sale agreement to be enforced. Those two sets of facts were:

(i) the sale by the Hunts to KLY of their shares in Wellfit, and

(ii) the hardship which Mr. Cheung would suffer in the event of specific performance of the sub-sale agreement being granted.

The effect of the dismissal of the appeal from Wong J.'s order is that the confirmor is unable to rely on these facts in order to contend that it is inequitable for the sub-sale agreement to be enforced.

2. However, that does not mean that these facts cannot be relied upon to resist Wellfit's claim for specific performance on some other ground. As it is, the confirmor wishes to rely on the fact of the sale of the shares in support of its contention that damages are an adequate remedy for the breach of the sub-sale agreement, and that specific performance should not be awarded for that reason. Is that argument precluded by the judgment of the Court of Appeal? The answer to that question turns on whether that argument is included in the re-re-amendments which Wong J. refused.

3. In my view, the argument is not included in the re-re-amendments which Wong J. refused. The Court's jurisdiction to award the equitable remedy of specific performance is triggered if the Court is satisfied that the plaintiff's remedies at law are inadequate : see Snell's Equity, 29th ed., p. 585. The argument, therefore, that damages are an adequate remedy for Wellfit for the confirmor's breach of the sub-sale agreement is an argument which has to be addressed before the Court considers whether it would be inequitable to award Wellfit the remedy of specific performance.

4. A fair reading of the plea which Wong J. refused to permit the confirmor to advance is that it related only to the question whether it would be inequitable to award to Wellfit the remedy of specific performance. Accordingly, I rule that it is open to the confirmor to rely on the sale of the shares in Wellfit to KLY in support of its contention that specific performance should not be granted because damages are an adequate remedy. It may be difficult for the confirmor to succeed in that argument. After all, it is generally thought that damages are an inadequate remedy for breaches of agreements relating to the sale of land. But that goes to the question whether the argument is likely to succeed, not to whether the confirmor is precluded from relying upon it.

5. In reaching this conclusion, I have not overlooked the increasing tendency of the courts (referred to in Spry, The Principles of Equitable Remedies, 4th ed., p. 59) to decline to treat the adequacy of damages as a jurisdictional issue. However, the explanation for that tendency, I think, is that if damages are not an adequate remedy for breaches of contracts, especially for breaches of contracts relating to the sale of land, specific performance is likely to be awarded. In other words, the dividing line between the adequacy of damages and the appropriateness of specific performance has come to be blurred because the answer on one issue is likely to provide the answer on the other. But that understandable tendency must, in my judgment, be resisted in a case in which it is necessary to keep the issues separate. This is such a case in view of the fact that the confirmor's ability to rely on the sale of the shares is limited to the issue as to whether damages are an adequate remedy for breach of the sub-sale agreement.

6. This analysis is not affected by the comment of Nazareth V.-P. that the two sets of facts which the confirmor sought to plead could not make it unconscionable to order specific performance. What Nazareth V.-P. was addressing was whether it was arguable that these facts made it inequitable to order specific performance. He was not addressing the question whether the sale of the shares meant that Wellfit's remedy in damages was adequate. In any event, Nazareth V.-P.'s comment did not form part of the ratio of the Court as a whole : although Bokhary J.A. and Liu J.A. agreed that the appeal should be dismissed, they did not say that they agreed with Nazareth V.-P.'s reasoning.

7. The matter, I think, can be tested in this way. Suppose that the confirmor chose no longer to defend the proceedings. I would still have to decide whether, in the exercise of my discretion, I should award the remedy of specific performance. In order to decide that, I would have to consider whether damages would be an adequate remedy for Wellfit. The fact that I knew from Mr. Chang's opening about the sale of the shares is not something which I could ignore. Accordingly, whether the point was taken or not, I would still have had to consider the impact of the sale of the shares on the question as to whether damages would be an adequate remedy for Wellfit. However, this argument cannot apply to the question whether the Court can consider whether the sale of the shares makes it inequitable to order specific performance. That would be tantamount to saying that (a) the amendments to the Defence and Counterclaim which were refused did not have to be pleaded at all, and (b) the hearing before Wong J. and the Court of Appeal had been conducted on a false premise.

8. Finally, neither party now proposes to call evidence on the issue relating to the sale of the shares. The only evidence which I have, therefore, is the evidence that the shares were in fact sold by the Hunts to KLY Nominees Ltd. in February 1991. The time to be spent on the issues relating to remedies, and therefore the legal costs of the issues relating to remedies, will now not be as great as was originally envisaged. This is, in my judgment, not a case in which I should order that the hearing relating to remedies should be deferred until after the proposed appeal from my judgment on liability has been disposed of.

(Brian Keith)

Judge of the High Court