CHESTRICH INDUSTRIAL LTD v. RICHYORK INTERNATIONAL LTD AND OTHERS

HCA 2875/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.2875 OF 2002

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J U D G M E N T

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The applications

1. There are two applications before the court in this case, each taken out by the 2nd defendant herein.

2. The first application, by summons dated 17 April 2003, seeks an order striking out the Statement of Claim against the 2nd defendant on the ground that it discloses no reasonable cause of action, and that the action herein be dismissed.

3. Consequential orders are sought, in particular an order that registration at the Land Registry of an Agreement for Sale and Purchase of a property, which was entered into between the plaintiff and the 1st defendant, be vacated, and a further order for vacation of the registration at the Land Registry of the Re-Amended Writ in these proceedings against the same property. The 2nd defendant also seeks final judgment on his counterclaim against the plaintiff for a declaration that the Sale and Purchase Agreement did not confer upon the plaintiff any right or interest in the property in question.

4. The second application is far more recent. It is by summons dated 11 February 2004, and seeks an order, without prejudice to the matters the subject of the first application, that the registrations as aforesaid against the property be vacated by means of payment into court by the 2nd defendant of the sum of HK$3.8 million.

5. Clearly these two applications cannot properly be understood without reference to the somewhat curious background facts which spawned them, and it is to these matters that I now turn.

The factual background

6. It is difficult, at the interlocutory stage at least, to decide whether this action is a property or a family dispute; perhaps it is a bit of both.

7. The 2nd defendant, Mr Wang Sek Fai, is an elderly man. I am told he is now 92. He currently lives in Vancouver.

8. In 1997 Mr Wang was the owner of a shop in Mongkok. He wished to sell it, and on 21 November 1997, in Canada, he executed a sale and purchase agreement and an assignment over this shop to a company called Richyork International Limited, the 1st defendant herein.

9. Richyork is owned and controlled by Mr Wang's son, Albert Wong Ying Chuen, whilst another director of that company is the 4th defendant herein, Mr Aylmer Matthew Wong, who is Mr Wang's grandson, and Mr Albert Wong's son.

10. On 10 February 1998 Richyork, which purchased the shop in Mongkok from Mr Wang, onsold the property to the plaintiff herein, Chestrich International Limited, by entering into a Sale and Purchase Agreement with that company of that date.

11. Pursuant to this Sale and Purchase Agreement, Chestrich paid the sum of HK$3.8 million by way of deposit.

12. However this transaction was never completed. What has happened is that Mr Wang disavowed the initial sale to Richyork. He alleges that he did not understand what he was signing.

13. Accordingly, on 19 March 1998 Mr Wang commenced HCA No.4317 of 1998 against Richyork in a bid to recover his property.

14. Some four years later, on 29 May 2002, upon an Order 14 application taken out in that action by Mr Wang, an application upon which Richyork neither appeared nor filed evidence, Deputy Judge Woolley, sitting in chambers, granted a declaration that the sale and purchase agreement and the assignment of the property in the Wang/Richyork transaction were void ab initio, and that the registration both of the purported agreement and of the purported assignment was to be vacated.

The present proceedings

15. These proceedings, in which are mounted the two interlocutory applications with which the court presently is seized, were commenced by Chestrich, on 25 July 2002.

16. By this action Chestrich seeks to recover its deposit in the sum of HK$3.8 million, together with interest and costs. Damages also are claimed against the 3rd and 4th defendants.

17. In addition, several forms of declaratory relief are sought, in particular (against Mr Wang) that Chestrich has a lien on the property the subject of the sale and purchase agreement for the sum of HK$3.8 million and interest thereon, and (as against Richyork) that the S&P Agreement has been rescinded by reason of the failure of Richyork to prove good title to, and beneficial ownership in, the property.

The scope of the argument

(1) The application to strike out

18. Resolution of this matter unfortunately has been delayed, initially due to diary difficulties and thereafter due to late discovery, which necessitated a further adjournment.

19. Mr Lo, who has appeared for the 2nd defendant/applicant throughout, submitted that the plaintiff's assertion of a lien over the property was demonstrably incorrect. In expounding on this theme, he maintained two distinct lines of argument.

20. First, Mr Lo submitted that in light of the resolution of the earlier proceedings before Deputy Judge Woolley, in HCA No.4317 of 1998, which had resulted in the declaratory relief earlier described, that the present action constituted an abuse of process by reason of the fact that the earlier judgment was a judgment in rem, and that as a consequence that judgment had determined the status of title to the property, and not merely Richyork's absence of title thereto.

21. As a judgment in rem, he said, it was conclusive against the world, including Chestrich, it was a decision on the merits, and was a judgment which had determined the same question as that raised in the present proceedings. Accordingly, Mr Lo argued, Chestrich must be estopped or otherwise precluded from relitigating the identical issue on title. Moreover, he said, although Chestrich had not been joined to the earlier action, nevertheless from the beginning it had been informed by Mr Wang of the existence of those proceedings in which the judgment of Deputy Judge Woolley had been pronounced, and that Chestrich had chosen not to apply to be joined to those proceedings, the writ in which had been registered as early as 19 March 1998.

22. For his part Mr Chain, appearing for the plaintiff, Chestrich, in this action, strongly argued against the "fundamentally wrong" contention that the earlier judgment of Deputy Judge Woolley either bound his client, who had not been a party thereto, or that such judgment could possibly be classified as a judgment in rem. He also noted that in the circumstances it was difficult to see how it was open to Mr Wang now to allege abuse of process given that it was he whom, with knowledge of Chestrich's claim, had chosen not to join Chestrich to the earlier proceedings - in fact, it was precisely that choice, he said, which had resulted in the element of duplication of proceedings.

23. I consider that Mr Chain is correct in his submissions under what I will call the 'abuse of process' head.

24. It is difficult to appreciate how that which in effect was a default judgment in chambers (Richyork having chosen neither to file evidence nor to defend Mr Wang's application for summary judgment), and which had resulted, somewhat surprisingly if I may say so, in declaratory relief being rendered in chambers after no trial on the merits, and wherein a crucial party, namely Chestrich, had not been joined to those proceedings, can be juridically classified as a judgment in rem, good against the whole world including, of course, Chestrich, the purchaser from Richyork which had been induced to hand over its deposit on the sale, only to find Richyork being unable to complete by reason of Mr Wang's action.

25. Accordingly I have concluded that the earlier chambers' judgment in the earlier set of proceedings neither is a judgment in rem, nor is it a judgment which binds Chestrich, which was not a party thereto. In this context I agree with Mr Chain that if Mr Wang wishes to pursue what is effectively a plea of non est factum, and thereby to establish his contention that he did not know what he was signing when he entered into what appears, at least on its face, to be a proper sale and purchase transaction with Richyork, he will have to do so in the present proceedings - in which, no doubt, the trial judge may hear evidence from Mr Wang and his Canadian lawyer, and will be in the best position to rule upon any privilege/admissibility argument as may be pursued by Mr Wang.

26. It follows that I reject the first line of argument put forward on behalf of Mr Wang.

27. The next main element within the applicant's submission was that in the pleadings in the present case Chestrich was, in effect, approbating and reprobating in that it was purporting to maintain its lien over the property the subject of the S&P Agreement whilst at the same time, in its pleaded case, praying in aid the judgment of Deputy Judge Woolley as justifying the assertion that Richyork was in breach of the Agreement in failing to make good title to or to prove beneficial ownership in the property, and that this amounted to wrongful repudiation on behalf of Richyork, a repudiation which now was accepted. In addition, it was said that the plea of fraudulent and /or reckless misrepresentation maintained in the current pleading against Richyork served to emphasise that Chestrich clearly recognised that Richyork was in no position to pass good title to a property which it no longer wished to purchase, but over which it continued to maintain a lien, thereby 'clogging' the title.

28. In responding to this submission, Mr Chain somewhat took the wind out of the fraudulent and/or reckless misrepresentation point by immediately requesting leave to delete these allegations, leave so to do being granted by the court. Mr Chain did so, I apprehend, for the avoidance of doubt, so that if there should have been thought to have been anything in the point as mooted, this problem was now removed. In this connection I am assuming, I hope correctly, that a suitably engrossed amended pleading has been filed in the terms agreed, or will be so filed in the very near future.

29. In any event, said Mr Chain, such pleaded assertions as his client had chosen to put in with regard to the alleged effect of the earlier judgment of Deputy Judge Woolley was nothing to the point, in that his client, Chestrich, was perfectly entitled to maintain a lien in the circumstances as had arisen, Mr Chain at this juncture relying upon the commentary in Halsbury's Laws, Vol 28, paras.763 and 764, which read, in relevant part :

"A purchaser of land who has paid a deposit or money on account of the purchase price to the vendor and has then lawfully repudiated the contract has ... an equitable interest on the vendor's interest in the land agreed to be sold for all sums paid by him under the contract on account of the purchase money, together with interest on it ..."

and

"The purchaser's lien is not lost when the contract is rescinded by the purchaser if he is entitled to rescind by the terms of the contract ..."

30. In addition, Mr Chain relied upon the Court of Appeal case of Karex (Hong Kong) Ltd v. Fortune Talent Development Ltd [1999] 4 HKC 203. In that case the court held that where money was paid in advance by the purchaser of property on the faith of the vendor's performance of the contract, those sums of money thus paid became a lien from the time of payment. Consequently the purchaser had a lien both when the contract went off for want of title and when the contract was rescinded under a condition enabling the purchaser to rescind, although if the purchaser himself was in default the case would be entirely different. As Nazareth LJ pointed out, op cit, (at p.210), the predominance of authority was to the effect that a vendor becomes a constructive trustee for the purchaser who has paid part of the purchase money.

31. I accept these citations as supporting the position that is adopted by the plaintiff in this application. In fact, Mr Chain further relies upon Karex, op cit, as convenient authority for the proposition, if such be needed, that upon a strike out application all that had to be established was that on the facts before the court the plaintiff's claim in relation to the lien asserted was arguable. As Rogers JA observed, op cit, at p.210 :

"It is trite law that upon an application to strike out a pleading or part thereof on the basis that it does not disclose a cause of action or defence, as the case may be, that such an application should only be granted if there is no arguable case. It is not for the court to strike out a pleading simply on the basis that there is a slim chance of success ..."

32. Looking at this matter in the round, therefore, I am unable to accept Mr Lo's persuasive submission that this is a suitable case for a strike out. To the contrary. In my view it is eminently desirable in all the circumstances that it should proceed to trial.

Order

33. The application by the 2nd defendant by summons dated 17 April 2003 is dismissed.

34. I make an order nisi that the costs of the application be to the plaintiff, to be taxed if not agreed.

(2) The alternative application : vacation by means of payment into court

35. As noted at the outset, this application is of considerably more recent vintage, having been taken out by summons dated 11 February 2004 during the period in which argument upon the strike out stood adjourned.

36. Without prejudice to the 2nd defendant's case and to his application under the strike out summons of April 2003, this summons seeks an order that the registration of the Agreement for Sale and Purchase dated 10 February 1998 by Memorial 7415881, and the registration of the Re-amended Writ of Summons in these proceedings, by Memorial 8786399, "be respectively vacated forthwith by the 2nd defendant's payment into court in the sum of HK$3.8 million".

37. The idea is not without merit. Once the plaintiff is adequately secured in its present claim, the registrations in question can be vacated, and the property can be sold; in this connection I am told that the 2nd defendant has a third party purchaser waiting in the wings, and Mr Lo naturally is concerned, given the age of his client, that this sale, which is desired by the 2nd defendant, should take place as soon as possible.

38. Nor does the plaintiff object in principle, and no jurisdictional issue is raised. The ambit of the argument on this application devolves solely on the quantum of security to be provided by the 2nd defendant by way of payment into court, and to this end there has been a certain amount of inter-solicitor correspondence which, in true Hong Kong fashion, occasionally borders upon the acerbic.

39. The real dispute in terms of the quantum of the anticipated payment in is not focused on the amount of the deposit, namely, the sum of HK$3.8 million, but upon the ambit of interest and costs.

40. In this regard I consider that Mr Chain is correct in principle when he submits that the correct approach of the court in the present situation is analogous to that adopted when security is posted in order to free a ship from arrest. In such instances, he said, in estimating the correct amount of security, be it posted by bail or by P&I Club guarantee, the court should work on the basis of the plaintiff's best case, and that to do otherwise may result in potential unfairness. In considering the present application I am inclined to think that this represents an appropriate approach to be adopted in these circumstances.

41. As to interest, counsel differ in their views both as to duration and rate.

42. For his part Mr Lo submitted that the period for which allowance for interest should be made should commence from 23 July 2002, which was the day on which the plaintiff purported to accept Richyork's contractual repudiation, and that the period should extend to 23 January 2005, by which time this action realistically can be resolved. On this basis, therefore, there is a period of two and a half years of interest to be calculated, and as to rate, he suggested that such should be "anything less than 8%". Mr Lo did not suggest, however, that in attempting a calculation of this sort that the approach of the court should be other than 'broad brush'.

43. Mr Chain agreed, I think, with the approach, but differed on the constituent elements. He maintained that the interest element should extend from the date of payment, by his client, of the deposit, namely on 10 February 1998 upon the signing of the Sale and Purchase Agreement, and that the period represented by such interest payment should extend to mid-2005; in this connection he noted that this interlocutory skirmish itself has wasted a number of months when, more usefully, the case should have been driven to trial, and that his client, which now was in the position of having its lien over the property replaced by monies in court, should not be placed at a potential disadvantage in underestimating the further period required to attain resolution of this case.

44. In this I consider that Mr Chain is correct. In my view the period for which interest is to be calculated for this purpose should err on the generous side, and doing the best that I can I consider that the relevant period should be from 10 February 1998 to 10 August 2005, namely a period of seven years and six months.

45. However, I take a harder line when it comes to the relevant rate. I decline to apply a figure of 1% over prime from time to time prevailing, as Mr Chain requested, and consider that in the circumstances a straight line calculation should be effected at the rate of 5% per annum on the stipulated period.

46. Thus, if my mathematics is correct, this produces an interest rate calculation of HK$1.425 million.

47. This then leaves the issue of costs. I have reflected on whether in principle this element should be included at all, but ultimately I have decided that there is no good reason in the circumstances not to make provision for costs liability; in this connection I note, for example, that the commentary in Halsbury, op cit, observes that the equitable lien extends to the costs of a vendor and purchaser summons, which whilst not the current situation is at least analogous. As to quantum, I am given little information with which to work, and on this issue I am disinclined to be over-generous in any estimation. After some reflection I have chosen a flat figure of HK$1 million.

48. Accordingly, on the material available before me, and recognizing that any such estimate can be no better than 'broad brush', in my view the sum required to be paid into court to achieve that which the 2nd defendant now seeks is the sum of HK$6.225 million ($3.8m + 1.425m + 1m).

49. I confess that I have not found this exercise entirely satisfactory. This application was set down for but 15 minutes, and was argued very much at the tail-end of the strike out application; moreover, in my view it raises difficult points of principle, and is compounded by the apparent absence, so far as counsel are aware, of authority on the point. However, as I have said, no jurisdictional argument has been raised, and the ambit of the dispute has been confined to quantum. As to which I have concluded in the foregoing terms.

Order

50. Accordingly, upon the 2nd defendant's summons dated 11 February 2004, the order of this court is as follows :

(i) Upon the 2nd defendant making payment into court, within 28 days of the date hereof, of the sum of HK$6.225 million, such sum to be held in an interest-bearing account, the registrations in the Land Registry by Memorial No's 7415881 and 8786399 against the property the subject of these proceedings be vacated;

(ii) There be liberty to apply for the disposition of such payment into court as aforesaid.

(iii) There be a costs order nisi that the costs of this application be costs in the cause.

Finally

51. In my view this action has dragged on for far too long. It should now be driven to trial, and I trust that all parties will co-operate to achieve that aim.