LAM KWAN YU v. HARDWELL INTERNATIONAL LTD

HCA 1415/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1415 OF 2005

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Dates of Hearing:  26-27 March 2008

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J U D G M E N T

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The undisputed facts:

1.  In about December 1996, Ms Lam and Hardwell entered into an oral agreement to purchase a property, (Concordia Plaza), for the sum of $40,608,000, subject to the existing tenancy.  There was a sitting tenant in the property.

2.  Initial discussions in respect of the purchase of Concordia Plaza had been with Ms Lam and a Ms Chen, the wife of Mr Wong Siu Por, a shareholder and director of Hardwell.  Ms Lam and Ms Chen were, at that time, good friends.  Subsequently, Mr Wong agreed with Ms Lam to make the purchase with her, with Mr Wong using a Hardwell as the vehicle to hold his interest.  In evidence Mr Wong acknowledged that he was duly authorised by Hardwell to enter into agreements on behalf of the company.

3.  It is common ground that it was agreed that, although the property was to be held as to 25% by Ms Lam, and 75% by Hardwell, title would be taken in the name of Hardwell alone.  The provisional agreement for sale and purchase was made on 16 December 1996, with completion due on 15 April 1997.  It was the intention of the parties, in December 1996, to enter into the agreement to purchase the property and to resell it, as confirmors, prior to the date upon which they were due to complete purchase.

4.  Pursuant to the agreement Ms Lam paid, by way of three cheques, a total sum of $2,538,000 towards the deposit.  These were paid on 17 December 1996, to January 1997, and 1 February 1997.

5.  Unfortunately the property market was not as buoyant as they expected, and it became apparent that they would be unable to find a buyer before completion, and must complete purchase themselves.  Ms Lam was concerned about the prospect that completion of the purchase, which required a mortgage, carried with it a liability on her part to meet 25% of the mortgage payments.  Ms Lam approached Mr Wong seeking to sell her 25% share in the property to him.  Instead, it was agreed that Ms Lam’s interest in the property would be reduced to 10% and that she would be obliged to credit into Hardwell’s bank account, each month, the sum of $18,869.26, representing her 10% share of the mortgage instalment, after taking into account rental receipt.

6.  Mr Wong arranged the mortgage, for $15 million, and the property purchase was completed on the due date.

7.  On 10 May 1997, after the completion of the purchase, Ms Lam prepared a document to record the circumstances of the transaction.  Clauses 3 & 5, in particular, are relevant to the dispute that arose subsequently.  It reads:

“3      (Hardwell) shall in its own name take out a mortgage of the Property in favour of Dao Heng Bank Ltd and raise a loan of HK$15 million at a loan interest rate of 9.5 per annum, repayable by a period of five years with a monthly instalment of HK$315,028.60 with the last instalment of HK$320,114.64; after deducting the monthly rent received, (Ms Lam) shall before the 14th day of each month automatically credit into (Hardwell’s) Dao Heng Bank account No. 59108091 a sum of HK$18,869.26 representing 10% of her share of the instalment amount, the last instalment in the sum of HK$19,377.87.  (However, since the tenant started to pay the monthly rent as from 30th June 1997, (Ms Lam) shall pay an additional instalment of HK$12,633.60 prior to 29 June 1997.)  If the payment is overdue, (Hardwell) shall be entitled claim interest from (Ms Lam).

5       In view of (Ms Lam’s) financial difficulty arising from her involvement in other investment projects and based on the principle of mutual support, (Hardwell) agreed that (Ms Lam) would be entitled to pledge her share of interests in the Property in favour of other company or person, if necessary.  (Ms Lam) guaranteed that such a pledge would not prejudice the interests of (Hardwell).”(sic)

8.  By October 1998, Ms Lam had made 18 instalments of her contribution, pursuant to the written agreement.  However after making those 18 payments her payments ceased.  This was to be the genesis of the dispute between the parties.

The case for Ms Lam:

9.  It was Ms Lam’s evidence that, at the time her payments stopped, she told Mr Wong that she was in financial difficulties and was unable to continue to make further payments.  She said she told Mr Wong that she was willing to sell her interest in the property to him, or to a third party, at 70% of the then market price.

10.  In an affidavit made in support of an application to summary judgement Ms Lam said that Mr Wong told her that the written contract already contained provisions to cater for the situation that the interests of both he and her would be evaluated in accordance with the written contract upon the sale of the property.  In her witness statement, Ms Lam’s evidence was that Mr Wong told her that Hardwell would make full payment, including her share, of the monthly payments to the bank.  Ms Lam said that at the same time Mr Wong asked Ms Lam not to mortgage her interest in the property, to which she agreed.  As will be seen, whether there was such an agreement is the central area of dispute.

11.  Ms Lam made no further mortgage instalment payments, she said, believing that there was an agreement that these would be met by Hardwell and that in due course she would have to pay interest.

12.  Ms Lam said that in March 1999, there was a discussion between herself and Mr Wong, after she had learned from an estate agent that the tenancy agreement was about to be renewed, or there was to be a new tenant.  As the amount payable by Ms Wong, she said, then being paid on her behalf by Hardwell, was dependent upon the rental received, the amount might need to be adjusted.  Her evidence was that although Mr Wong promised to have his accountants supply the details, nothing was supplied.

13.  Ms Lam said that in January 2005, with property prices having been substantially rebounded, she enquired of Mr Wong as to any intention to sell the property.  She said that she was told that Hardwell was not in a hurry to dispose of the property, since the market was still in the initial booming stage.

14.  In February 2005, Ms Lam learned that the property had been sold.  Her evidence was that she immediately called Mr Wong who confirmed the sale of the property and agreed to put to her calculations regarding her interest in the property, after deducting accrued liabilities, and the interest she had to pay in respect of her unpaid instalments. 

15.  Ms Lam said that she made a number of telephone calls, including sending to Mr Wong’s office by fax, copies of all her payments to Hardwell, including the bank pay-in slips in respect of the direct credits to the bank account, in an effort to obtain the details.

16.  The sale of the property was completed on 23 May 2005.  At that time Ms Lam had still received nothing from Mr Wong.  Ms Lam said that she called Mr Wong following the sale, but that he declined to meet her and told her that his accountant had already done the calculation and that he would ask the accountant to credit $250,000 to Ms Lam’s bank account.  This was done on 2 June 2005.  At that time Ms Lam had still not received any calculations. 

17.  Calculations were sent to her by fax on 22 June 2005.  This showed that, even before taking into account payment to be made to the writ $250,000, she had suffered a loss of some $148,000.  Ms Lam did not accept the calculations.  She first, wrote herself, to Mr Wong, on 27 June 2005, reasserting her claim.  On her calculation she was duly nearly $2.5 million.

18.  There was no response to that letter.  She instructed solicitors, who on 7 July 2005, wrote to Hardwell, setting out the circumstances and demanding payment.

The case for Hardwell:

19.  The case for Hardwell is that there was no agreement that Hardwell would pay the interest instalments on Ms Lam’s behalf, and charge interest on that sum.  Mr Wong’s evidence was that Ms Lam was in breach of the written agreement by failing to make monthly payments, and that in a telephone discussion in either December 1998 or January 1999, she surrendered her rights in the property to Hardwell in consideration of Hardwell refraining from taking action against her for non-payment of those mortgage instalments.  Consequently, it was submitted, Hardwell had no liability whatsoever to Ms Lam.

20.  In the alternative it was submitted that if Ms Lam retained a 10% interest in the property, subject to a liability to Hardwell for the mortgage instalments made on her behalf, Hardwell was entitled to charge interest on the payments made.  Ms Lam did not dispute the liability to interest.

The issues:

21.  There are accordingly three issues for the court to decide.  They are:

(i)      Was Ms Lam entitled, under clause 3 of the agreement, to stop making her monthly contribution, subject only to a liability to Hardwell for interest on the sums not paid?

(ii)     Is the evidence of Ms Lam, that Mr Wong agreed to continue making payments on her behalf to be accepted, or is the evidence of Mr Wong, that Ms Lam relinquished her interest in the property in consideration of Hardwell making payments on her behalf, to be accepted?

(iii)    If Ms Lam entitled to stop making the monthly contributions, subject only to a liability for interest, what interest rate is to be charged?

The interpretation of clause 3:

22.  Mr Wong asserted that there was no agreement at all that in the event of Ms Lam being in financial difficulty Hardwell would make the mortgage instalment payments and that Ms Lam would pay interest on those sums. 

23.  The written agreement signed by both parties plainly recognises the contemplation by both of potential financial difficulties arising on the part of Ms Lam.  That is quite plain from the opening words of clause 5.

24.  The clear, and only, inference arising from the inclusion of the last sentence in clause 3 is that it was the intention of the parties that if Ms Lam did not make her monthly payment she would pay interest on that sum to Hardwell.  There is simply no other reason why this provision would be included.

25.  It must be remembered too that title to the property was taken in Hardwell’s name alone, and that all mortgage instalment payments would have to be made by Hardwell.  Further, in the event of any default the mortgagee would look to Hardwell, and not to Ms Lam.  In those circumstances it is entirely consistent with logic, and the express provisions of the document, that the parties would have discussed the circumstances should Ms Lam not be able to make her contribution payment. 

26.  I am satisfied that such an agreement was reached.  I reject Mr Wong’s assertion that there was no such agreement.

27.  Mr Yip said, relying upon the contra-profferentem rule, that any ambiguity in the words should be interpreted against Ms Lam, who prepared the document.  He argued that clause 3 of the written contract did not entitle Ms Lam to stop making payments at her own discretion.  It is right that the contract must be construed against Ms Lam in the event of any ambiguity.  But when the contract is read as a whole, particularly having regard to clause 5 which recognises potential financial difficulty on the part of Ms Lam, there is no ambiguity at all.

Discussion as to credit:

28.  Whether it was agreed that Ms Lam had relinquished her interest in the property is a matter which simply turns upon the credibility of the parties.  If I accept the evidence of Ms Lam, she did not surrender her interest, and is entitled to 10% of the net proceeds of the sale of the property, after giving credit to Hardwell for the mortgage instalment payments made on her behalf together with interest thereon.  If I accept the evidence of Mr Wong, Ms Lam has relinquished her interest in the property and the claim should be dismissed.

29.  I did not find Mr Wong to be a believable witness.  In a number of matters his evidence was in direct conflict with matters that could not be in dispute.

30.  Following the sale of the property Ms Lam contacted Mr Wong a number of times and raised with him her alleged entitlement to a 10% share of the proceeds of sale.  Mr Wong acknowledged that it was so.  He said that he gave instructions to his accountant to prepare a calculation assessing Ms Lam’s share.  That document was prepared and was faxed to Ms Lam on 22 June 2005.

31.  Plainly, in order to give instructions to prepare that document Mr Wong knew, at that time, that there had been an agreement between the parties that Ms Lam was entitled to a 10% interest in the property.

32.  On 27 June 2005, Ms Lam wrote to Mr Wong reasserting her position, challenging the calculation that had been faxed to her, and demanding payment.  On 7 July 2005, Ms Lam’s solicitors wrote to Hardwell setting out the nature of the claim, reasserting the agreement to the 10% interest on the part of Ms Lam, referring to the faxed calculation, and demanding payment.

33.  Mr Wong instructed solicitors upon receipt of that letter.  They wrote, on 14 July 2005, to Ms Lam’s solicitors, in response to their letter of 7 July 2005.  The letter is instructive, and I set out in full.

“We act for Hardwell International Ltd, and refer to your letter to our client dated 7 July 2005 which has been passed on to us with instructions to reply.

We are instructed that there has never been any contract or oral or (other)wise between your client and ours in respect of the Property as alleged by your client or at all.

Even if there were in existence any contract, which our client expressly denies, your client would have repudiated the same years ago by failing to pay her share of mortgage payments since July 1997, i.e. for 8 years.  Any contract should have been terminated by such blatant breaches of its fundamental condition.  Your client’s interests in the Property if any which is expressly denied should have already been extinguished years ago.

We are further instructed that the $250,000 our client credited into your client’s account was only made out of our client’s sympathy for your client’s present financial situations.

Please also note that we have standing instructions to accept service for our client.”

Mr Wong acknowledged that he had seen a draft of the letter before it was sent in that he had approved its terms.  The letter records, and Mr Wong acknowledges, that a copy was sent to him.

34.  The letter began with a denial of any contract.  The case for Mr Wong at trial admitted both the oral and written contract.  When cross-examined as to why he instructed his solicitors that there had been no contract at all, Mr Wong said that when he instructed the solicitors he had forgotten about the contract.  But only three weeks earlier, prior to 22 June 2005, he had instructed his accountant to prepare a calculation based upon Ms Lam having a 10% interest in the property.  Further, on about 28 June 2005, Mr Wong had received Ms Lam’s letter which specifically referred to the written agreement.

35.  I reject without hesitation Mr Wong’s assertion that he had “forgotten” about the contract when he instructed his solicitors.  There is no suggestion that the denial of the existence of the contract was a tactical step, taken by Mr Wong consequent upon advice given by his solicitors.  In the circumstances the only conclusion there can be is that Mr Wong’s instruction to his solicitors was demonstrably false.

36.  In cross-examination it was put to Mr Wong that the calculation, faxed to Ms Lam on 22 June 2005, demonstrated that he knew very well that Ms Lam had a 10% share of the property and that she was entitled share of the net proceeds subject only to the deduction of the contribution payment she had not made together with interest thereon.  It was pointed out that unless Ms Lam’s case was true, there was simply no purpose in having the calculation prepared.

37.  In his witness statement, Mr Wong said that the calculation was prepared for his internal purposes only, to see how much might be due to Ms Lam if her assertion that she had a 10% interest in the property was correct.  He said that it had been faxed to Ms Lam inadvertently and by mistake by his accountant.  He said that he had no intention at all that she should have received it.

38.  The accountant, Mr Mak Sui Chung, has, unfortunately, died before the hearing of these proceedings.  However he filed an affidavit in a summary judgement proceedings, that affidavit is dated 8 March 2006.  Mr Mak makes no reference whatsoever to the circumstances in which the calculation came to be faxed to Ms Lam.  It must have been abundantly plain to all concerned at the summary judgement proceedings stage that the existence of the calculation, and the delivery of it to Ms Lam, might be relied upon by her as an admission by Mr Wong of the extent of her interest.  If, as Mr Wong now asserts, there was no intention to send the calculation to Ms Lam I have no doubt at all that Mr Mak would have said so in his affidavit.  The affidavit was quite silent on this matter.

39.  Further, the fax was referred to in Ms Lam’s solicitors letter of 7 July 2005.  If it were the case that the faxed calculation had been inadvertently sent, and was not intended to be given to Ms Lam, I have no doubt at all that Mr Wong would have instructed his solicitors to clarify the purpose of the fax.  Instead, their letter of reply was silent in this respect.

40.  Mr Wong was examined by his counsel as to the reason why the fax was prepared.  The question was asked twice.  In his first answer Mr Wong said:

“Because she always phoned me and made me very troublesome so I asked the accounting staff to work out the calculations so that she, after seeing this, would not bother me any more.” (My emphasis)

Not surprisingly, Mr Yip was concerned about this answer.  He repeated the question.  This time the answer was:

“Because she always troubled me with telephone calls.  So I asked the accountant to work it out even if she had the 10% there if she would have any money left.”

41.  It is plain beyond question from those answers that Mr Wong intended that the calculation should be shown to Ms Lam.  He said so in terms.  Plainly, the primary reason Mr Wong had for preparing the calculation was to determine how much was due.  His secondary reason was show it to Ms Lam, in order that she would stop bothering him by telephone.

42.  I reject Mr Wong’s assertion that the fax calculation was sent to Ms Lam in error, as a fabrication.

The counterclaim:

43.  In the proceedings Hardwell has counterclaimed against Ms Lam for the sum of $250,000, asserting that that sum was a loan to Ms Lam, repayable upon demand.  The payment had been made by Mr Wong through Hardwell on 2 June 2005.  As may be seen from the solicitor’s letter of 14 July 2005, Mr Wong’s instructions were that the sum was paid “out of sympathy for (Ms Lam’s) financial situation”.

44.  In his witness statement, and at trial, Mr Wong did not rely upon sympathy or generosity towards Ms Lam, but instead asserted that as he could no longer tolerate the continuous telephone calls of Ms Lam, and that upon her oral undertaking over the telephone not trouble him and his wife any more, he lent her the sum of $250,000 repayable upon demand.

45.  Nothing could be further from the instructions Mr Wong gave to his solicitors on 14 July 2005.  It is simply unbelievable that a person would pay $250,000 to someone “out of sympathy”, when that other person is creating trouble by constant telephone calls.  No proper explanation given by Mr Wong as to why he should instruct his solicitor that a gift of $250,000 had been made, when in fact, as he asserted in trial, the payment was by way of loan.

46.  There is no suggestion that the statement by the solicitor in the letter of 14 July 2005, was a tactical position, adopted on advice from the solicitor.  In the whole of the circumstances the instruction given to the solicitor by Mr Wong as to the purpose of the payment of $250,000 was plainly false.

47.  There is equally no evidence at all upon which I could believe Mr Wong’s assertion that there was an agreement that he should advance $250,000 to Ms Lam, repayable upon demand.  I reject his evidence in such a loan as a fabrication.  I am satisfied that the payment was made by Mr Wong in recognition of a liability he had to Ms Lam.

48.  The final matter that leads me to reject Mr Wong’s assertion that Ms Lam had agreed to relinquish her interest in Concordia Plaza is a recognition of the value of her interest.  By the time she found herself unable to make the monthly payments Ms Lam had invested some $3 million in the transaction.  Mr Wong asserted that at that time the value of the property was around $10 million, less than the mortgage sum due.  But the valuations obtained by the parties demonstrate that at that time the value of the property was in the order of $26 million.

49.  Even after allowing for the reduction in value Ms Lam still had a net interest in the property worth in the order $1.1 million.  It makes no commercial sense at all that she should simply walk away from that interest, instead of selling it some other party, as she first proposed to Mr Wong.  It is inherently unlikely that she would simply relinquish her interest.

Conclusion:

50.  For the foregoing reasons I accept the evidence of Ms Lam and reject that of Mr Wong.  I am satisfied that agreement was reached between Ms Lam and Hardwell that they would share in the property and the ratio of 10% to Ms Lam and 90% to Hardwell.  I am further satisfied that it was agreed that in the event of Ms Lam being unable to make her contribution to the mortgage instalments, those would be paid by Hardwell and Ms Lam would be obliged to pay interest on her share to Hardwell. 

51.  I reject the proposition that there was any agreement that Ms Lam should relinquish her share in Concordia Plaza to Hardwell.  As the contract contemplated and provided for the eventuality of Ms Lam might not be able to make her contributions, her failure to make the payments does not repudiate the contract, but merely gives rise to an entitlement to Hardwell to claim interest.

52.  In reaching this conclusion I do not disregard the submissions made by Mr Yip as to Ms Lam’s credibility.

53.  I do not accept that there is no commercial sense in the bargain reached in relation to non-payment of the mortgage instalment share by Ms Lam.  The transaction was one which began out of friendship between the parties.  It had the effect of relieving the burden on Hardwell in making the purchase by 10%.  It was accordingly commercially advantageous to Hardwell.  The continued involvement of Ms Lam, even when she could not pay, is understandable out of the friendship of the parties at that time.

54.  I do not accept that any difference there might be between paragraph 10 of Ms Lam’s first affirmation in the summary judgement proceedings in paragraphs 21 & 27 of her witness statement, (see para 10 above), justify a rejection of her evidence.  Any difference there is, is merely a different way of expressing essentially the same matter.

55.  I found no reason at all to disbelieve Ms Lam.

The rate of interest:

56.  The agreement is clear in that interest is to be paid by Ms Lam on her unpaid instalments.  However the contract makes no provision at all as to the rate of interest to be charged.  Mr Wu submitted that I should approach the issue of the interest rate on the same basis as the court would approach the question where a concluded contract did not specify the price to be paid for the benefits conferred by the contract.  In those circumstances the court will often imply a term that the price is to be a reasonable price: see The Interpretation of Contracts, Lewison para 6.15.

57.  There is no doubt that there was a concluded contract between the parties.  The omission of the interest rate does not detract in any way from the concluded nature of the contract.  I have no doubt that the parties intended the bargain to be enforceable.  I adopt the explanation of Chadwick LJ in BJ Aviation Ltd v Pool Aviation Ltd [2002] EWCA Civ 163, para 23:

“[W]here the court is satisfied that the parties intended that their bargain should be enforceable, it will strive to give effect to that intention by construe into words which they had used in a way which does not lead the matter to be agreed in the future incapable of being determined in the absence of future agreement.  In order to achieve that result the court may feel able to imply a term in the original bargain that the price or rent or the matter to be agreed, shall be a “fair” price, or a “market” price, or a “reasonable” price; or by quantifying what ever matter it is that has to be agreed by some equivalent epithet.”

58.  I am quite satisfied that it is appropriate, in the circumstances, that in the absence of agreement between the parties as to interest, I should fix the sum.  The case for Hardwell does not contain any assertion that it was necessary for Hardwell to borrow money in order to make the mortgage instalment payment.  But Mr Yip is on good ground when he says that Hardwell has lost the use of the money that Ms Lam ought to have paid.

59.  In the whole of the circumstances I am satisfied that an appropriate interest rate would be prime plus 1%.

Conclusion:

60.  The case for Ms Lam acknowledged entitlement on the part of Hardwell to interest.  It follows from the findings I have made that Ms Lam succeeds both in the claim and on the counterclaim.  The relief sought was by way of declaration.  Ms Lam is entitled to a declaration that Hardwell holds such sum from the proceeds of sale of Concordia Plaza, as may be determined pursuant to this judgement, as money had and received by Hardwell, for Ms Lam.

The necessary calculation:

61.  Calculations were put before me by Mr Wu, but he accepted my comment that the effect of the calculation was to compound the interest.  There is no entitlement to compound interest.  It will be necessary to calculate the interest due, at the appropriate rate, on each individual instalment, not paid by Ms Lam, from the date that it was due, to the date of sale, at which point in time Hardwell has effectively been repaid by its retention of the whole of the sale proceeds.

62.  Ms Lam is entitled to a credit for the instalments that she has paid, and her initial contribution.  She is also entitled to its credit for the rental income received from the property to the date of sale.  I propose to leave it to the parties to discuss together the calculation and agree upon the necessary figure. 

63.  Leave is reserved to apply in case agreement cannot be reached, in which case the parties may come back before me to argue the matter.

64.  Hardwell must pay interest on the amount found to be due at the judgement rate on the sum due from the date of completion of the sale of property, that it is 22 May 2005, to the date of payment.

Costs:

65.  There will be an order nisi that Ms Lam is entitled to her costs on the claim and the counterclaim.