GOOD FORM CO LTD v. CHEUNG WAI HAN

DCCJ 3816/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3816 OF 2013

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DECISION

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INTRODUCTION

1.  This is an applicant for leave to appeal to appeal to the Court of Appeal for a decision that I had made in relation to the plaintiff’s Order 14A application on 21 March 2014.

2.  The issue I am asked to decide upon at the present hearing is whether, in addition to the arguments explored by the parties in the original hearing, the additional “grounds” submitted by the defendant would give her a reasonable and not fanciful prospect of success at the proposed appeal.       

Background

3.  The factual background to this case and the issues in dispute had already been stated in my decision dated 30 March 2014. I do not wish to repeat them here.

4.  In the present application, Mr Jeremy Cheung leading Ms Karen Cheung appeared on behalf of the defendant.  Mr Anthony Lo remained as counsel for the plaintiff.

DISCUSSION

5.  The defendant’s draft grounds of appeal consisted of a total of 11 grounds.  I only intend to deal with the main grounds here.

Grounds 1 to 3

6.  The defendant considers that I was wrong in holding that the “confusion and difficulties” in Clause 19 of the Agreement as identified by the defendant’s counsel and accepted by Barnett J in Dawson Enterprises Limited v Talistream Limited [1994] 2 HKC 317 to be no longer good law and the law in that area was well settled by authorities such as Workers Trust and Merchant Bank v Dojap Investments [1993] AC 573; Cheer King Investment v Rich Glory Investment Ltd [1995] 1 HKC 663 and Union Eagle Ltd v Golden Achievement Ltd [1995] 1 HKC 225.

7.  Further, the defendant considers that I was wrong when I applied the same approach of construction as that in the Court of Appeal in Broad Money Development v Industrial Engineers Limited, CACV 101 of 1999, unreported (24 September 1999) and Teng Fuh Company Limited v Keen Lloyd (Holdings) Limited, CACV 193 of 1999, unreported (5 November 1999).  In particular, the defendant considers that I was wrong when adopting the appeal courts’ approach in construing the clause containing the words “liquidated damages” as not serving any useful purpose.  Further, it is submitted that I had failed to identify that there are wordings in the relevant clause in those 2 cases which allow the vendors to claim unliquidated damages, while such wordings do not exist in Clause 19 of the Agreement in the present case.  The defendants says that such difference in wordings precludes the court from following the construction adopted by the 2 appeals cases in treating the words “liquidated damages” as meaningless.

8.  In addition, the defendant considers that I had failed to consider that the wording “deposit money shall be absolutely forfeited as for and for liquidated damages” does not exist in Broad Money and Teng Fuh; and that there is no discussion of the case of Dawson in the 2 cases, such that they are not authorities to distinguish Dawson and the approach adopted in those cases has not diminished the effect of the warning of the confusion raised in Dawson.

9.  With respect, I do not agree with the defendant’s submissions.  I agree with Mr Lo’s submission that I was fully aware that any deposit paid pursuant to a land contract, subject to its terms and conditions, could be liquidated damages.  I consider that I was entitled to rely on Broad Money and Teng Fuh to deal with and reject the defendant’s contention that, based on the words of “as and for liquidated damages” in Clause 19, that the deposit of 10% of the purchase price of the Property paid by the defendant was the liquidated damages agreed by the parties for compensating the plaintiff in the event of the defendant’s breach.

Grounds 4 & 5

10.  The defendant’s compliant under these 2 grounds is mainly that in an application under Order 14A, the plaintiff has not spelt out on what basis the damages is to be assessed, ie whether it is liquidated or unliquidated damages.  The defendant says that this is amongst the 3 tranches of damages identified by Mr Malcolm Merry (who was then in private practice at the Bar and who is now a professor at the Faculty of Law at The University of Hong Kong) in an article appealed in Law lectures for Practitioners 1994 at pp 230-246 (“the Article”). The defendant argues that without making a determination on what legal basis the damages is to be assessed, it is procedurally inappropriate and unjust for the case to “hastily” proceed to assessment of damages.

11.  With respect, I do not agree with the submission. The Article in my view does not add anything to what was later decided by the Court of Appeal in Broad Money and Teng Fuh and the CFA in Polyset Ltd v Panhandat Ltd (2002) 5 HKCFR 234. Not only the Article itself was quite dated (the lecture was given in 1994), much of the contents was the opinion expressed by the writer himself without of course the benefit of knowing how the law in the area would develop in subsequent years.  As respectable as Mr Merry is in the field, in my view, the Article at best stated the views of the learned writer himself at the time.  As a lecture to the practitioners, I think the contents are meant to be thought provoking and intellectually challenging.  It does not however represent the law.  Least it should be treated as a binding authority like the cases decided by the appellate courts in subsequent cases.  Thus, I would prefer to follow the rules laid down by the Court of Appeal in Broad Money and Teng Fuh and by the CFA in Polyset, at least in the way as I understand them, rather than a lecture given by a prominent practitioner/academic to some practicing lawyers. 

12.  The defendant further submits that the “marked wording” giving the vendor’s right to claim any “actual loss” do not feature in Clause 19 of the Agreement.  Hence, the vendor’s option to claim unliquidated damages does not arise in Broad Money and Teng Fuh.  In other words, the defendant submits that the rationale of Broad Money and Teng Feh in ignoring the superfluous effect of the words “liquidated damages” is not and ought not to be applied to the present case.   

13.  I am afraid I do not share that view.  It is not disputed that the forfeiture clause (ie Clause 26 (a)) dealt with by the CFA in Polyset contained the words of “without prejudice to the Vendor’s right to recover the actual loss” while Clause 19 in our instant case does not.  It is also not disputed that the decisions of Dawson, Worker Trust and Union Eagle had all been referred to and considered by the CFA in Polyset itself.  Further, it is also not disputed that, save from some immaterial differences, Clause 19 of the Agreement is identical to clause 10 in Part A of the Second Schedule to the Conveyancing and Property Ordinance that Ribiero PJ has made specific reference to.  

14.  In this regard, I agree with Mr Lo’s submissions that, firstly, eventhough Clause 19 in our instant case does not contain the words “without prejudice to the Vendor’s right to recover the actual loss”, it belongs to the same type of forfeiture clauses which can be found in Broad Money and Teng Fuh. Thus, I consider that I was entitled to adopt the same approach as the Court of Appeal in dealing with the words “as and for liquidated damages” in those 2 cases. Secondly, even after taking into account of the ratio in Polyset, I think I was entitled to come to the conclusion that under Clause 19, the plaintiff, besides forfeiting the 10% deposit, is entitled to claim for the expenses incurred for or any deficiency suffered from the re-sale of the Property “as and for liquidated damages” as well as other damages (liquidated or unliquidated damages) for interest paid or lost caused by the defendant’s failure.

15.  In the aforesaid circumstances, I do not consider that I was wrong in ruling that the plaintiff was entitled to forfeit the 10% deposit of the purchase price paid by the defendant as well as to claim for liquidated damages. 

Ground 9 – Expert evidence

16.  At the beginning of the hearing in February 2014, I disallowed the defendant from adducing expert evidence in the form of a valuation report mainly on the ground that such expert opinion was adduced by way of affidavit without first obtaining leave from the court. 

17.  Although expert evidence could be adduced by way of affidavit without first obtaining leave from the court (see Order 38, rule 36(2) of RDC), supporting evidence filed for Order 14A application have to be confined to material facts relating to the question of law or construction to be determined by the court.  Further, any affidavit evidence in answer must be confined to matters within the knowledge of the deponent in such application (see §14A/2/7 at p285 of Hong Kong Civil Procedure 2014). In my view, it is clear that the question falls on the court to determine under the Order 14A summons is not the value of the property itself but the construction of Clause 19 of the Agreement. Thus, the expert evidence produced by the defendant in her affirmation was not (1) relating to the construction of Clause 19; and (2) within the knowledge of the defendant herself as she does not possess the required expertise to act as an expert.

18.  However, perhaps the more important question is whether it would be right to allow a party to rely on expert report which it had obtained but chose not to disclose but only did so for the first time, unilaterally and without the court’s leave, in an affirmation in reply to the plaintiff’s affirmation in an Order 14A application. 

19.  In my view, it would not be right to allow the defendant to do so for 2 reasons.  First, as said, it is an Order 14A application which involves the legal interpretation of Clause 19.  It does not involve the amount of quantum which the plaintiff may have lost at this stage.  That can be determined at a later stage by a master if the plaintiff succeeds.  Second, whether prior to or under the CJR regime, it is a good practice in civil litigation that all cards should be placed on the table.  It is trite that a party who wishes to rely on the contents of an expert report should seek leave of the court to do so, otherwise it does so at his own risk as to costs (see §38/36/1 at p793 of the Hong Kong Civil Procedure 2014).  In my view, the defendant is not entitled to take the other side by surprise to suddenly produce a valuation report without notice or leave of the court.

Grounds 10 & 11 – Costs issue

20.  I agree with Mr Lo that the defendant’s arguments on costs under the draft grounds of appeals should be dealt with separately under the plaintiff’s application to vary the costs order nisi.

Application to vary the Costs Order Nisi

21.  Pursuant to Order 22, rule 24 of RDS, the plaintiff by way of a summons dated 1 April 2014 applies for an order that the defendant pays the costs occasioned by the plaintiff’s Order 14A application on an indemnity basis together with enhanced interest at a rate of 5% above the judgment rate.  

22.  The plaintiff’s application was made on the basis that long before the plaintiff’s Order 14A application was heard, an offer under Order 22 rule 4 of the RDC in the nature of a sanctioned offer had been made.  The offer was to invite the defendant to admit liability and consent to judgment be entered against her, leaving the issue of quantum to be assessed before a master. 

23.  The offer was made by the plaintiff on 23 January 2014 and it was opened to the defendant to accept it on or before 20 February 2014, which was the date on which the plaintiff’s Order 14A application was heard.  However, instead of accepting the offer, the defendant chose to argue the meaning and legal effect of Clause 19 at the hearing.  Obviously the defendant is entitled to do so.  However, it must be taken at the same time that she was fully aware of the consequences on costs if she could not do better at the hearing than was being offered by the plaintiff.

24.  Ms Cheung in her written submission argues that the plaintiff has made no concession in its sanctioned offer as it basically has asked for the same relief as it sought in the Order 14A application.  Hence, the defendant argues that the judgment against the defendant is not more advantageous than the plaintiff’s sanctioned offer.  As such, the defendant says that the plaintiff’s application has been misconceived. Instead, the defendant took out a separate summons dated 15 April 2014 asking the court to make an order that the question in relation to the costs of the plaintiff’s 14A order be reserved until the determination on the assessment of damages. 

25.  In my view, by arguing the Order 14A summons in full, it is clear that the defendant has refused to accept the offer made by the plaintiff.  The only issue is whether the terms of the offer made by the plaintiff is more advantageous than what the court has awarded to the defendant in the Decision. 

26.  Of course, part and parcel of the offer made by the plaintiff is that they would discontinue the summons against the defendant and the hearing scheduled for the summons would be vacated.  Further, under the offer, the plaintiff was prepared to accept the defendant paying its costs up to 2 January 2014 which was the date on which the defendant filed her affirmation in opposition of the plaintiff’s application.

27.  By insisting on arguing the Order 14A summons, much costs and expenses have been incurred by both sides.  A full hearing before me was required.  Hence, in my view, what the plaintiff was able to achieve at the hearing must be more advantageous than the offer made as the plaintiff back in January 2014 as the plaintiff would have been able to save all the legal costs incurred had the defendant accepted the offered within the prescribed time.          

28.  Thus, I find there is nothing unjust in making an order in accordance with Order 22 rule 24(3) of the RDC given that the defendant had 28 days to consider the offer.  Further, I do not see any good reason why this matter has to be reserved until after the determination on the assessment of damages.

29.  For the 5% enhanced interest above the judgment rate claimed by the plaintiff, I agree with Mr Lo that the plaintiff is entitled to the same for the following reasons:

(i) The defendant had more than sufficient time to consider and accept the offer before the Order 14A hearing took place;

(ii) The indifferent attitude taken by the defendant in dealing with the offer;

(iii) The enhanced interest sought by the plaintiff is only at half of the maximum rate that the court has power to order.

30.  In the circumstances, I order that the defendant do pay the plaintiff’s costs from the date on which the offer was made ie 23 January 2013 on an indemnity basis to be taxed if not agreed with enhanced interest rate of 5% above the judgment rate from the date of the judgment until payment.  I also order that the costs of and occasioned by the application to vary the costs nisi order be to the plaintiff, the same to be taxed on indemnity basis if not agreed with certificate for counsel.   

Conclusion

31.  In conclusion, I am afraid I disagree with Mr Cheung’s submissions that I had erred in coming to the decision as I did in this case.  I therefore would refuse the defendant’s application for leave to appeal and dismiss the summons.

32.  As to the costs for the defendant’s application for leave to appeal and the defendant’s summons to have the costs reserved until the determination of the assessment of damages, I consider that the appropriate costs order should be one where the defendant should bear the plaintiff’s costs on these applications on a party to party basis, such costs to be taxed if not agreed with certificate for counsel.

33.  It remains for me to thank counsel on both sides for their helpful assistance.