HUEN WAI KEI v. CHOY KWONG WA CHRISTOPHER

HCA 1093/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1093 OF 2006

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D E C I S I O N

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1.  There are two applications before me.

2.  The first, by Notice of Motion, taken out by the 1^st and 2^nd plaintiffs, namely, Huen Wai Kei (“Huen”) and China Gain Corporation Ltd. (“China Gain”) respectively and the second by summons taken out by the 2^nd defendant, Raking Ltd. (“Raking”).

3.  By the Notice of Motion, Huen and China Gain ask for supplemental orders supplemental to the Judgment given in the trial of this matter and which is dated 28 May 2013. The Judgment has already been sealed and perfected.

4.  The summons taken out by Raking asks for amendment of paragraph 2 of the Judgment in two instances.

Background

5.  Huen and one Choy Kwong Wa, Christopher (“Choy”), being the 1^st defendant, were shareholders of Pacific World Asset Management Ltd. (“Pacific”).

6.  China Gain is a local company owned and controlled by Huen.

7.  Raking is a company owned by Choy and his wife but largely controlled by Choy. At the material time, Raking was the registered owner of a duplex at Residence Bel-Air, Island South, and 2 car parking spaces (“the Properties”).

8.  In 2005, disagreement having arisen between Huen and Choy over the running of Pacific, Choy, by an agreement dated 26 October 2005, agreed to purchase Huen’s shares in Pacific for HK$40 million (“the Shares Agreement”).

9.  There is no dispute that the first HK$10 million had been paid by Choy to Huen.

10.  As for the balance of the HK$30 million purchase price, Choy gave to Huen 3 cheques, each for HK$10 million, but post-dated to between January and July 2006.

11.  On 4 November 2005, the parties came to a further agreement that Choy and Raking would put up the Properties as security for the discharge of Choy’s liability to pay under the Shares Agreement (“the Security and Set-Off Agreement”) and that should Choy default in payment under the Shares Agreement, Raking would assign the Properties to China Gain the consideration for which would be set off against the amount in default. Pursuant thereto, a memorandum of agreement was signed between Huen and Choy whereby Raking agreed to assign the Properties to China Gain at the then market value of HK$38.4 million. Huen and Choy also signed a supplemental agreement to the Shares Agreement providing that the parties would procure the signing of the memorandum as a guarantee for Choy’s liability under the Shares Agreement.

12.  Thereafter, China Gain and Raking then entered into an agreement dated 8 November 2005 for the sale and purchase of the Properties at an agreed consideration of HK$38.4 million (“the S&P Agreement”).

13.  The 3 post dated cheques were all dishonoured and the balance of the HK$30 million has since been outstanding and no part of it was paid by Choy.

14.  These proceedings were then commenced effectively by Huen and China Gain claiming against Choy and Raking.

15.  Huen claimed against Choy the sum of HK$30 million with interest on the dishonoured cheques and/or the breach of the Shares Agreement. In the alternative, Huen also claimed specific performance of the Security and Set-Off Agreement.

16.  China Gain claimed against Raking (as an alternative to Huen’s claim ) an order for specific performance of the S&P Agreement and damages.

17.  The trial was heard by me in January 2012 with evidence called by both sides.

18.  A written Judgment was handed down on 28 May 2013. In that Judgment, I accepted the evidence and the case of the plaintiffs in its entirety and found in favour of the plaintiffs, at the same time dismissing the consolidated counterclaim of Choy.

19.  Accordingly, judgment was given to the plaintiffs as follows:

(a)    Choy to pay Huen HK$30 million with interest at 1% above prime rate from date of Writ to judgment and thereafter at judgment rate until payment; and

(b)   Alternatively to (a) above, an order for specific performance by Raking of the S&P Agreement by assigning the Properties free from encumbrances to China Gain and to set off the consideration of HK$38,400,000.00 against the judgment sum of HK$30 million together with the interest awarded thereon.

20.  No part of the judgment sum of HK$30 million has been paid by Choy to Huen up to date.

21.  By letter of 5 June 2013, the plaintiffs’ solicitors wrote to the defendants’ solicitors calling for the assignment by Raking to China Gain of the Properties. However no steps had been taken by the defendant in that respect.

22.  On 2 July 2013, the defendants filed an appeal against the Judgment above.

23.  On 12 July 2013, the defendants applied by summons to inter alia:-

(a)    Vacate the registration of the Writ of Summons in HCA 1242 of 2006 (which had been registered by the plaintiffs in the Land Registry against the Properties by Memorial No. 06060901290064) against the Properties; and

(b)   To seek a declaration that the S&P Agreement for the Properties “is of no further effect”.

24.  That application by the defendants was heard by Deputy High Court Judge Leung on 8 November 2013 and was dismissed.

25.  The Properties had been mortgaged by Raking by a deed of mortgage dated 13 April 2005 by which a charged had been created over the Properties in favour of the Standard Chartered Bank (“the Bank”) as security for loans. As at the end of 2012, the outstanding mortgage loan was about HK$12.7 million according to Choy’s affidavit filed on 12 July 2013.

26.  On or about 24 January 2014, Huen came to know that the Bank was in the course of exercising its power of sale under the mortgage and had invited tenders for the purchase of the Properties, the deadline for submission being on 24 January 2014. In the circumstances, Huen instructed solicitors to write to the Bank in an attempt to stop the Bank from selling the Properties.

27.  By letter of 28 January 2014, solicitors for the Bank replied by letter indicating that the Bank had already entered into an agreement to sell the Properties.

28.  I am now told that the Properties had been sold off by the Bank for some HK$77 million and the outstanding liabilities from the mortgage is in the region of some HK$17 million. The sale proceeds of the Properties less the outstanding mortgage and various expenses incurred by the Bank are being held by the Bank’s solicitors who have now taken out interpleader proceedings as regards the net balance of such sale proceeds.

The plaintiffs’ application by Notice of Motion

29.  By the Notice of Motion, the plaintiffs now seek an order, supplemental to the Judgment given on 28 May 2013 that :-

1. In respect of the Agreement for Sale and Purchase of the Properties entered into between the Bank as vendor and mortgagee and Szeto Nga Fan Wendy as purchaser on 24 January 2014 ;

1.1 insofar as any of the proceeds of sale of the Properties are used to discharge any mortgage given by Raking in favour of the Bank (including any costs and expenses incidental to such discharge), the defendants and each of them do pay China Gain Corporation Ltd. and/or Huen an equivalent amount;

1.2 the defendants and each of them do cause the Bank to pay the balance of the proceeds of sale of the Properties to China Gain; and

2. the costs of an incidental to this application be paid by the defendants to the plantiffs.

30.  The plaintiffs’ application is supported by the 2^nd affidavit of Leung Ka Kin Johnny herein.

31.  It was submitted by the plaintiffs that Choy’s obligation to pay the HK$30 million arose in 2006.

32.  By its Judgment dated 28 May 2013, this Court had accepted the plaintiffs’ claim in its entirety.

33.  Choy has now failed to pay the judgment sum of HK$30 million to Huen and Raking has failed to assign the Properties to China Gain.

34.  It is the plaintiffs’ contention that Raking had allowed default of its mortgage obligations in respect of the Properties so as to subvert the Judgment and by its actions have thus caused the Properties to be sold off by the Bank to a third party thereby depriving the plaintiffs of their entitlement under the Judgment to have the Properties transferred to China Gain.

35.  Whilst the plaintiffs accepts and acknowledges that the Bank’s interest in the Properties takes priority over the plaintiffs, it was submitted that since China Gain was entitled to an assignment of the Properties free from encumbrance, it follows that the defendants must make good any shortfall in the unencumbered value of the Properties caused by the Bank deducting the amount of the mortgage and the costs and expenses of discharging the same from the proceeds.

36.  It is on this basis that the plaintiffs seek the balance of the sale proceeds after the discharge of the mortgage and the Bank’s expenses together with the amount of the shortfall.

37.  In so far as legal basis is concerned in making this application, counsel for the plaintiffs rely not only on Order 20 r 11 but more so on the inherent jurisdiction of the court to make supplemental orders after a judgment has been sealed and perfected.

38.  In that regard, counsel for the plaintiff submits that Rule 11 is not limited to clerical errors but applies also to errors arising from any accidental slip or omission. The plaintiffs say that there has been an accidental omission in the judgment because it was not contemplated, when the matter went to trial, at least by the plaintiffs and the court, that Raking had defaulted or would default on its obligations under the mortgage and that if the defendants were or anticipated being in default, they had kept quiet about it. Thus the court could not have intended that the plaintiffs’ entitlement under the Judgment to the unencumbered Properties (and therefore to the value of the unencumbered Properties) could be usurped by Raking’s failure to comply with its obligations under the mortgage, whether such failure was deliberately intended to undermine the Judgment or not.

39.  It was further submitted by the plaintiffs that had this eventuality been raised by the parties and contemplated by the court, it would inevitably have made express provision in the Judgment for the situation in which the Bank exercised its rights of sale in the event of Raking’s default. The reason for doing so would be to preserve and implement the intent of the Judgment which purpose is achieved by paragraphs 1.1 and 1.2 of the Notice of Motion.

40.  The plaintiffs rely on the principles summarized at paras. 20/11/1 to 20/11/8 of Hong Kong Civil Practice 2014 and the cases referred to thereunder.

41.  Specifically, the plaintiffs point to the case of Ford Hunt v Singh [1973] 1 WLR 738 to say that “There is jurisdiction to make upon proof of new facts an order supplemental to an original order….Thus the court has power to make a supplemental order to an order for specific performance that there be an inquiry as to damages sustained by reason of the delay in completing the agreement…”

42.  The plaintiffs also rely on the case of Northern Counties Securities Ltd v Jackson & Steeple Ltd. [1974] 1 WLR 1133 for the proposition that “…the court also has power to make by way of supplemental order any alternative order whatever which might be appropriate in the changed circumstances to secure the due performance of the defendant’s obligations”

43.  As well as the case of Anmac Ltd.’s Patent [1995] FSR 501 at 510-511 where the court, having referred to Ford Hunt and Re Scalby held that in those cases ‘the supplemental order was made consequent upon a failure to perform an earlier order. As it seems to me jurisdiction to make a supplemental order can only arise when there is such a failure coupled with facts not available at the time when the earlier order was made.’

44.  It was pointed out that in the present case the defendants have failed to comply with the order for specific performance, and that the fact of a default on the mortgage and the Bank’s exercise of it s power of sale of the Properties were facts not available at the time of the Judgment, thus the present case falls squarely within the principle in Anmac’s case.

45.  The plaintiffs seek also to rely on the case of Australian Hardboards Ltd v Hudson Investment Group Ltd. [2007] NSWCA 104 at [58]-[62] where it was said “In some cases orders have been made which alter the effect of an existing order because of facts which were not before the court which made the original order. It may be that such a supplemental order can be made because of facts which had occurred before the making of the original order but were not brought to the court’s attention…It has been held that supplemental orders can be made because of facts occurring after the making of the original order….This jurisdiction has long been recognized in the practice books”.

46.  The plaintiffs ask the court to exercise its discretion and to grant the orders sought by the plaintiffs based on the following matters:

(a) the court clearly intended that should Choy fail to pay the outstanding HK$30 million, China Gain was entitled to specific performance of the S&P Agreement by way of assignment of the Properties free from encumbrances;

(b) that entitlement accrued in 2006;

(c) after completion of the order for specific performance, China Gain would be entitled to the whole of the sales proceeds of the Properties, should they be sold;

(d) Choy, having failed to pay the HK$30 million, the defendants were not entitled to any residual value arising from a sale of the Properties. The whole beneficial interest after assignment of the Properties would be China Gain’s;

(e) The defendants’ obligation was to assign the Properties free from encumbrance, so that it was their obligation to discharge the mortgage. The defendants failed to comply with this obligation such that the value of the plaintiffs’ interest in the Properties has diminished by the amount of the outstanding mortgage and the Bank’s costs and expenses;

(f) Where a defendant fails to comply with an order for specific performance, a plaintiff may discharge the mortgage himself and seek recompense from the defendant (see Grant v Dawkins [1973] 1 WLR 1406);

(g) The defendants’ approach to their contractual obligations and obligations pursuant to the Judgment has been consistently cynical and obstructive. They have put up dishonest defences and sought to obstruct the plaintiffs’ legitimate enforcement of their rights at every turn;

(h) Any order other than the one sought would frustrate the Judgment and the intent behind it;

Stance taken by defendants and the defendants’ summons

47.  In so far as the application made by the plaintiffs is concerned, Mr. Chain, who appeared for the defendants, makes the following points:

(a) The plaintiffs are put to election as to which court they would wish to make the present applications since they have, apart from the present applications, also applied to the Court of Appeal for extension of time to file a Respondent Notice which seeks to make the same applications as are made here. The plaintiffs should not be allowed to ask for the same reliefs in both tiers of court;

(b) There is no basis for the supplemental order sought by the plaintiffs to be made against Choy since the order for specific performance was made only as against Raking. The present application against Choy is therefore misconceived;

(c) After the order for specific performance was made after the trial of the matter, the plaintiffs had not come back to the court with any minutes of order to specifically carry out the order for specific performance. Therefore there is no time limit imposed for specific performance. Now that specific performance is no longer available, the correct application should be to discharge the order for specific performance and to make some other order, presumably an inquiry as to damages on the authority of Johnson v Agnew [1980] AC 367.

48.  On the first matter sought by Raking’s summons, it was submitted by Mr. Chain that paragraph 2 of the Judgment should be amended by deleting the words “free from encumbrance” on the basis that there was no factual foundation for the “free from encumbrance” provision to be included in the Security and Set Off Agreement.

49.  As for the second matter sought by Raking,  it was also submitted by Mr. Chain that the same paragraph 2 of the Judgment should further be amended by substituting the words “the said judgment sum of HK$30 million together with interest awarded thereon” with the words “the 1^st Defendant Choy Kwong Wa Christopher’s indebtedness to the 1^st Plaintiff Huen Wai Kei” on the basis that the words now appearing in the  Judgment was not the intention of the court.

DECISION

50.  I would deal first with the matters sought by the plaintiffs by the Notice of Motion.

51.  The first preliminary point taken by the defendants is that the plaintiffs are put to election as to which level of court they wish to seek such relief since the plaintiffs have also made application to the Court of Appeal for extension of time to file a Respondent’s Notice seeking the same reliefs as now sought by its Notice of Motion.

52.  This matter has now resolved itself since the Court of Appeal (Chu J.A. sitting in chambers) have dismissed the plaintiffs’ application for extension of time to file a Respondent’s Notice on the grounds that since the same reliefs have been sought in the Court of First Instance, it should be left to the Court of First Instance to decide the matter, and if decided against the plaintiffs, the plaintiffs can always appeal that decision.

53.  The second preliminary point taken by the defendants is that the supplemental orders sought by the plaintiffs relates to the order for specific performance which was made against Raking and has nothing to do with Choy. There is therefore no basis for the supplemental orders to be made against Choy.

54.  In this respect, the judgment at trial in so far as  Choy was concerned was a monetary judgment for HK$30 million in favour of Huen. That judgment against Choy was one which the Huen could have levied execution against Choy in the usual way.

55.  As an alternative to that monetary judgment against Choy, there was an order for specific performance against Raking in favour of China Gain to convey and assign the Properties to China Gain free from encumbrance as being security for the debt owed by Choy to Huen.

56.  However, that order for specific performance was only sought and made against Raking, and not against Choy.

57.  Due to the sale of the Properties by the Bank, specific performance can no longer be effected now.

58.  Even if that was due to a breach in that the mortgage loan was allowed to go in default so as to set in motion the Bank’s power of sale under the mortgage, it can only have been a breach by Raking. Choy does not figure in such breach.

59.  For the above reason, I accept the point taken by Mr. Chain that there is no basis for the plaintiffs to seek the supplemental orders against Choy.

60.  I come now to deal with the substantive issue relating to the supplemental orders sought by the plaintiffs in the Notice of Motion.

61.  There can be no question but that the court has an inherent jurisdiction to make supplemental orders after trial given the proper circumstances. That much is not in dispute between the parties. As I understand Mr. Chain, what is in dispute is whether such jurisdiction has been engaged by the plaintiffs in coming to court to seek the reliefs under the Notice of Motion.

62.  The right to specific performance may have accrued in 2006. However, Huen initially issued a writ claiming for HK$30 million and interest against Choy. Later another writ was issued being a claim by China Gain against Raking for specific performance of the S&P Agreement. When these claims were consolidated, in the Consolidated Statement of Claim, the claim for specific performance by China Gain against Raking was a claim in the alternative to the monetary claim of Huen against Choy.  It would follow that if Choy had satisfied the monetary judgment against him with interest, the order for specific performance against Raking would no longer have effect.

63.  Bearing in mind that the order for specific performance against Raking was made only as an alternative to the monetary judgment against Choy, that order for specific performance would only kick in when and if Choy defaulted in meeting the monetary judgment against him.

64.  No order was sought by the plaintiffs and no order has been made as to any time limit for Choy to comply with the monetary judgment against him, failure of which would set in motion the order for specific performance.

65.  Nor was any step taken by the plaintiffs after judgment for any directions or further order from the court as to the time within which Choy would be given to meet the monetary judgment, failing which a date be appointed for the specific performance of the S&P Agreement.

66.  Indeed that could not have been done for as long as there was an outstanding mortgage loan, the Properties could not have been conveyed to China Gain free from encumbrances unless it was with the agreement of the mortgagee bank. Such agreement of the mortgagee bank could not have been obtained without somebody (be it Raking or China Gain) discharging the outstanding mortgage loans and probably all its incidental expenses.

67.  In the case of Grant v Dawkins the plaintiff there did obtain an order for a date to be appointed for the vendor to convey the subject property to the plaintiff upon the plaintiff discharging the mortgage. In that case, the court held that damages should be assessed not at the date fixed for completion of the contract, but at the date appointed for discharge by the purchaser of the mortgage (that date being the same date appointed for the specific performance).

68.  In my view, what is asked for in paragraph 1 of the Notice of Motion is not simply a supplemental order but goes far beyond the ambit of a supplemental order.  Effectively the order sought tantamounts to an assessment of damages without there being an inquiry as to the damage.

69.  Mr. Bell S.C., appearing for the plaintiffs, says that if the orders sought by the plaintiffs are not made, it would effectively frustrate the judgment.

70.  I do not agree. Quite apart from the usual execution which can be levied upon the monetary judgment against Choy, there are still other steps open to the plaintiffs.

71.  The Bank’s solicitors have taken out interpleader proceedings in respect of the net balance of the proceeds from the sale of the Properties now held by them.  There is nothing to stop the plaintiffs from asking for the net proceeds in those interpleader proceedings, by making out their case in those interpleader proceedings.

72.  Furthermore, the plaintiffs can also discharge the order for specific performance since it can no longer be performed and to set in motion an inquiry for damages for breach of the order of specific performance.

73.  For the reasons given, I decline to make the orders sought by the plaintiffs on the Notice of Motion.

74.  I turn now to deal with the defendants’ summons.

75.  Firstly, the words “free from encumbrance”, which the defendants complain of, is taken from the prayer in the Consolidated Statement of Claim and which in turn came from the S&P Agreement. The wording was therefore a matter of contract between the parties, the wording of which had been agreed between the parties in the S&P Agreement.

76.  The short answer therefore to the complaint by the defendants is that it is trite law that it is not for the court to re-write or re-word contracts agreed between parties.

77.  As to the second point submitted by the defendants, the words “the judgment sum of $30 million with interest awarded thereon” were the words taken from the Prayer for relief contained in the Consolidated Statement of Claim. Those words were adopted by the Court consciously and deliberately as being words contained in the relief asked for by the plaintiffs. Therefore, rightly or wrongly, they reflected the intention of the Court. No complaint or submission had ever been made by the defendants at the trial as to those words now complained of.

78.  The Judgment had been sealed and it is not open now for the defendants to seek to amend those words in the way now suggested by them.

79.  For the above reasons, I am unable to accept the submissions of Mr. Chain in so far as the wordings of paragraph 2 of the Judgment are concerned.

80.  Accordingly, the summons of the defendants is also dismissed.

Cost

81.  In view of the fact that both the plaintiffs’ Notice of Motion as well as the summons by Raking have both been refused and dismissed, there will be costs order nisi as follows :-

(a) Cost of the Notice of Motion be to Choy and Raking to be borne by Huen and China Gain and to be taxed if not agreed;

(b) Cost of the summons by Raking be to Huen and China Gain to be borne by Raking and to be taxed if not agreed.