XCHRX CHINA SENSE INTERNATIONAL LTD. AND OTHERS v. LEUNG HOI AND ANOTHER

HCA 1426/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1426 OF 1999

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J U D G M E N T

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Godfrey, J.A. :

1. The defendants ask for permission to file further evidence at this very late stage. The difficulties which the defendants have apparently experienced do not justify that. All that is required of a defendant in an application for summary judgment is to show that he has a defence which has a realistic prospect of success. This the defendants ought to have done long ago. The indulgence formerly granted all too often to applications such as this cannot be repeated in future, with the costs and delays of litigation in many cases already out of all proportion to the subject matter. I therefore refuse this application, and now deal with the plaintiffs' application for summary judgment under Order 14 as Rules of Supreme Court.

2. The claim is made on an agreement for the sale and purchase of shares in a company called Happy Respect Investment Limited ("Happy Respect") one of the plaintiffs. The agreement is dated 9 March 1996 and is made between the 1st and 2nd plaintiffs, China Sense International Limited ("China Sense") and Eagle Lane Investment Limited ("Eagle Lane") as purchasers and the defendants Leung Hoi and Leung Yeung Lai Ling as vendors.

3. This is an agreement to redevelop certain property in Leung Fai Terrace and Caine Road, Hong Kong. The provisions of the agreement under which the claim is made are to be found in clause 8. Clause 8 is in the following terms:

"8. UNDERTAKING

8.01 The Vendors undertake with the Purchasers [that is, China Sense and Eagle Lane] that they will indemnify Happy Respect against any depletion of assets of Happy Respect resulting from:-

(a) any claim for tax incurred (other than tax, if any, on the sale of the Happy Respect Property) made by Hong Kong Government for any period ending on or before Completion;

(b) any reasonable settlement of any threatened claim demand commitment direction apportionment assessment recovery or counter-action in respect of any claims for back tax (other than tax, if any, on the sale of the Happy Respect Property) or penalty assessed for any period prior to Completion;

(c) any claim or demand for any of the obligations and liabilities herein set out to be borne and discharged by the Vendors;

(d) any costs charges and payments reasonably incurred by the Vendors in contesting or settling any of such claim demand commitment direction apportionment assessment recovery or counter-action whether threatened or made."

The events which give rise to the claim are these. In due course it became apparent that that was a sum of stamp duty in respect of which Happy Respect was entitled to be indemnified under clause 8.01. That sum was quantified in the Statement of Claim at $225,038.50. The defendants had been called on to pay the sum to Happy Respect. They failed to do so, and if the matter rested there they would be liable in damages for breach of contract to China Sense and Eagle Lane. That would be the end of the matter.

4. But the defendants say that the matter does not rest there. The defendants say that, at the time when the agreement was made (in the terms of a draft prepared by their own solicitors), an assurance was given to them by one Chiang, acting on behalf of the plaintiffs, that no reliance should be placed on this provision in clause 8 for an indemnity.

5. They have pleaded that this deed was not their deed; non est factum.

6. So far as this plea is concerned, I have no doubt that it has no realistic prospect of success.

7. So far as the alleged assurance goes, the matter is somewhat different. The assurance is referred to, in the affirmation of Leung Hoi filed on 15 May 1999, in the following terms:

"7. Sometime later, the parties pursued a negotiation. During the negotiation, it was obvious to the parties that there was potential stamp duty payable under the Joint Development Agreement, which was in the process of adjudication by Inland Revenue Department. Since the amount for the stamp duty is considered to be insignificant to the purchase price, both Chiang and I had the consensus that the purchasers, namely the 1st and 2nd Plaintiffs would be responsible for the payment of the stamp duty payable under the Joint Development Agreement.

8. At the advanced stage of the negotiation, the parties agreed to strike the deal by selling the shares of the 3rd plaintiff at a price of HK$53,124,738.92. When Chiang and I worked out the terms of the Agreement, I specifically pointed out to Chiang, which was agreed by him, that with the proposed sale price, the 2nd Defendant and I would be exonerated from the liability to pay the stamp duty under the Joint Development Agreement. However, neither Chiang nor I had requested Messrs. C. K. Yung & Co., Solicitors who were instructed to prepare the Agreement to put the same down as a term thereof. I remember that I did not mention to the solicitors concerning the potential stamp duty under the Joint Development Agreement.

9. On or about 9th March 1996, the 2nd Defendant and I went to solicitors' office for the purpose of signing the Agreement. After the handling solicitor interpreted to us the effect of clause 8 of the Agreement, I queried about the effect of the said clause in view of the previous agreement I had with Chiang on the issue of stamp duty payable under the Joint Development Agreement. Having heard my query, Chiang immediately, on behalf of the 1st and 2nd Plaintiffs, agreed with the 2nd Defendant and me that the 1st and 2nd Plaintiffs would pay the stamp duty under the Joint Development Agreement irrespective of the effect of clause 8 aforesaid.

10. Based on the agreement that the 1st and 2nd Plaintiffs would pay the potential stamp duty under the Joint Development Agreement, the 2nd Defendant and I therefore signed the Agreement."

8. I must here observe that the agreement contained a provision in the following terms:

"13. FULL AGREEMENT

13.01 This Agreement sets out the full agreement between the parties and supersedes all prior arrangements agreements whether oral or in writing between the parties hereto.

13.02 This Agreement together with any documents referred to herein constitutes the whole Agreement between the parties hereto and no variations thereof shall be effected unless made in writing."

The evidence does not begin to prove that Chiang was acting as an agent for the 1st and 2nd plaintiffs when he gave the alleged assurance. I find that allegation incredible.

9. The allegation of an assurance contradicts the express terms of the written agreement prepared and drafted by the vendors' solicitors. It is contrary to the provisions of clause 13 which I have just read. And in my judgment it is far from clear that it was intended to have or did have any contractual effect. No doubt something was said about stamp duty during the course of negotiation but what is said in the course of negotiation has got nothing to do with the task of ascertaining what was the contractual relationship between the parties and the terms of that relationship. Many things are said in the course of negotiation of a contract which do not find their way into the final contract.

10. In order to establish a collateral contract, especially one which contradicts the written terms of the contract, the necessary evidence must be clear and unequivocal. I find it incredible that in this case any such assurance was given by Chiang, even if he was an agent for the plaintiffs.

11. In these circumstances, it seems to me that the plaintiffs are entitled to summary judgment and I will give judgment accordingly, in favour of China Sense and Eagle Lane (not in favour of Happy Respect), for the sum claimed, as damages for breach of contract, since the defendants have failed to honour the promise which they gave China Sense and Eagle Lane by clause 8 of the Agreement.