WINFULL DEVELOPMENT LTD. and Others v. LOBLEY CO. LTD. and Another

IN THE COURT OF APPEAL

1996, No. 82
(Civil)

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is the defendants' appeal from an order of Sears, J., who, on 7 December 1995, found the defendants liable to the plaintiffs for breach of contract and, on 10 January 1996, assessed the damages at HK$137.4m. The defendants now appeal; they argue that they never entered into any contract with the plaintiffs, and that, if they did, they committed no breach of contract. They do not appeal against the award of $137.4m; this appeal is an appeal only against the judge's conclusions as to the liability of the defendants to the plaintiffs. In response to a query raised with him by a member of this court, Mr. Adrian Huggins Q.C., for the plaintiffs, agreed that the contract or, rather, contracts, on which the defendants were said to be liable were made (as in fact the plaintiffs had themselves pleaded) with the 3rd plaintiff alone; accordingly, even if the defendants fail in this appeal, the judge's orders will have to be varied so as to exclude the 1st and 2nd plaintiffs from benefit under the judge's award of damages.

The facts

2. The facts admitted or proved to the satisfaction of the judge (so far as I need to rehearse them) may be stated as follows.

3. The 3rd plaintiff, one Tsang ("Mr. Tsang"), and one Sasmito ("Mr. Sasmito"), were associated in the business of the development (through corporate vehicles) of properties in Hong Kong. Unfortunately, they eventually fell out with each other. At a meeting on 2 September 1991, at which both were present, the future of two such properties, one a site at Ma Tau Wai Road, and the other a site at Dundas Street, was considered. The Ma Tau Wai Road site was owned by the 1st defendant and the Dundas Street site by the 2nd defendant (in which two companies Mr. Tsang and Mr. Sasmito were interested) and the meeting was a meeting of the respective boards of directors of the two companies. The directors did not find it possible to achieve unanimity but in the case of each company, as the relevant minutes show, did resolve that the meeting be adjourned to 9 September 1991 "during which time the directors or other parties would be invited to submit offer bids in respect of the sites ..... The offer should be an irrevocable offer accompanied by a cashier order being 10% of the proposed purchase price. Completion shall be made within one month from the date of the signing of the formal agreement for sale and purchase which shall take place within 7 days of the acceptance of the offer, the properties will be sold to the highest bidder .....". Mr. Tsang abstained from voting on these resolutions. However, he remarked that he would like another site (with which we are not concerned) to be disposed of in the same way.

4. On 9 September 1991 the meetings of the two boards reconvened. Four bids were tabled for the Ma Tau Wai Road site, and a similar number for the Dundas Street site, as follows :

So the highest bidder for the Ma Tau Wai Road site was On Wealth Ltd, at $36,200,000 and the highest bidder for the Dundas Street site was Profit Sight Investment Ltd, at $51,000,000. The under-bidder for the Ma Tau Wai Road site was Wincheer Investments Ltd (the 1st plaintiff in the action, and a corporate vehicle of Mr. Tsang) at $36,000,000. The under-bidder for the Dundas Street site was Winfull Development Ltd (the 2nd plaintiff in the action, and similarly a corporate vehicle of Mr. Tsang). I should add that Sunco Properties Ltd and Good World Enterprises Ltd were corporate vehicles of Mr. Sasmito.

5. The bids of the under-bidders, Wincheer Investments Ltd and Winfull Development Ltd, were accompanied by cashier orders for 10% of the bid price. The bids of the highest bidders, On Wealth Ltd and Profit Sight Investments Ltd, were not. They were accompanied by cheques, drawn by a company called K. Wah Concrete Co. Ltd, and made payable to Philip K.H. Wong, Kennedy Y.K. Wong & Co., a firm of solicitors. The cheques were drawn on the Mitsubishi Bank Ltd and were endorsed by the bank "certified good for payment".

6. Objection was taken by or on behalf of Mr. Tsang to these bids on the ground that, being unaccompanied by a cashier order, they did not conform with the terms on which it had been resolved that bids would be received. (Subsequently on the same day, the cheques to which I have referred were substituted, not by cashier orders, but by cheques drawn by the solicitors in favour of the defendants; however, nothing turns on this.) The defendants resolved to sell the two sites to the highest bidder in each case, Mr. Sasmito describing what had happened as "a technical error". Mr. Tsang's protests that each such bid "was an irregular bid and should be disqualified" and that "the other directors break the rules which they set out themselves" were of no avail. Hence this action.

The grounds of appeal

7. The defendants raise three grounds of appeal.

8. The first ground of appeal goes to the orders made by the judge in favour of the 1st and 2nd plaintiffs. It has been accepted, as I have already indicated, that these orders ought not to have been made. I need say so more about this ground of appeal. It does not affect the award made by the judge in favour of Mr. Tsang and has no impact on the financial implications of that award. It discloses a good ground for varying the judge's order but not for allowing the appeal.

9. The defendants' second ground of appeal is founded on a pleading point. The contract on which Mr. Tsang relies is a contract described in paragraph 5A of the Amended Statement of Claim as "a contract between, inter alios, the 3rd plaintiff and the 1st and 2nd defendants respectively whereby the 1st and 2nd defendants were respectively bound to accept the highest offer made by any of the directors and other parties invited to submit offer bids complying in all respects with the conditions pleaded in paragraph 5 above [these were the conditions mentioned in the defendants' board resolutions]". But how is it pleaded that this contract was constituted? What is pleaded in paragraph 5A is that the board resolutions themselves "took effect" as such a contract. The point taken under this ground of appeal is that the resolution was a "purely internal" matter and "that contractual consequences, vis-a-vis potential bidders, could only flow from the companies' communication of the terms of any offer to all such bidders, treated equally". This is clearly correct. But Mr. Tsang and Mr. Sasmito were present at the meeting at which the resolutions were passed. Both he and Mr. Sasmito were fully aware of what was decided. Both rightly treated themselves as having been invited, either directly or through a corporate vehicle, to submit bids; and both did so. If paragraph 5A had pleaded the contract relied on and referred to the resolutions merely as evidencing the terms on which the invitations to bid were extended, instead of alleging that the resolutions themselves had "contractual consequences" it would have been unobjectionable. Indeed, the defendants in paragraph 12 of their defence admitted that they had bound themselves to accept the highest offers which complied with the conditions of tender, thereby, in my judgment, pleading over any deficiency, real or alleged, in the Statement of Claim in pleading the manner in which that binding obligation had been created. In the end, therefore, it has been shown that there is no real substance in the defendants' second ground of appeal.

10. The defendants' third ground of appeal consists of an invitation to this court to hold that, for the purposes of the exercise held on 9 September 1991, the tender of the highest bidder's cheques, made payable to the solicitors named and certified by the bank as "good for payment" was in conformity with the condition of tender requiring tender of a cashier order. I have no hesitation in rejecting this invitation, for these reasons. First, the nature of the tendering exercise contemplated was such that, in my judgment, no bid could properly have been accepted which did not strictly conform with the conditions of tender. The requirement of a cashier order must in my opinion be taken as demonstrating the prospective seller's requirement that the 10% deposit was to be put up in a form equivalent to cash (indeed, even cash, many millions of it, would be inferior to a cashier order, because of the inconvenience of counting it). The risk of default on the cashier order on the part of the bank issuing it is so small that it may properly be disregarded as de minimis. A cheque certified by the bank as "good for payment" may, or may not, be treated by the law as having been accepted by the bank; the law is unclear and this is certainly not the time for this court to attempt to clarify it. What is beyond all question, as it seems to me, is that one who stipulates as part of a bidding exercise for payment by cashier order is not bound or entitled to accept payment of certified cheque instead, with its greater uncertainty and risk, a fortiori if the cheque is not made payable to him but to his solicitors. In my opinion, the third ground of appeal fails also.

The result

11. This was a simple case of an agreed sale by tender (otherwise known as a "fixed bidding" sale), under which intending purchasers must each submit a single bid in conformity with the conditions of tender, all bids being considered at the same time. An offer to sell property in this way constitutes a unilateral contract with each offeree, which gives rise to a bilateral contract with the highest conforming bidder when the bids are tabled : Harvela Investments Ltd. v. Royal Trust Co. of Canada (CI) Ltd. [1986] AC 207. In our case, the highest conforming bids, as the judge found, were those made by Mr. Tsang's corporate vehicles, the 1st and 2nd plaintiffs. Those bids ought to have been accepted. They were not. The defendants were accordingly in breach of their contracts with the offerees, including Mr. Tsang, to sell the properties to the highest conforming bidders. Mr. Tsang was entitled to an award of damages against the defendants for their breach of contract. The judge made such an award. We should uphold it.

12. The issues which the judge had to try were not sufficiently clarified on the parties' pleadings; to the judge's credit, he did his best to remedy this as soon as he was seised of the case and he is not to be criticised, as the defendants have sought to criticise him, for failing to deal with all sorts of matters that were never properly adumbrated before him at all.

13. The judge, having ascertained from the parties what the issues were which he was being invited to decide, duly decided them; in my view, quite correctly.

14. For these reasons, I would dismiss the appeal; but I would vary his order as indicated at the outset of this judgment so that it operates as an award of damages in favour of Mr. Tsang alone. As to the costs of the appeal, I would not be disposed to make any order. The defendants have demonstrated that the award of damages here ought to have been made in favour of Mr. Tsang alone and they have demonstrated as misplaced what they understandably took as the plaintiff's reliance in their pleadings on the resolutions of the companies as themselves constituting the defendants' contracts with Mr. Tsang. However, none of this has done the defendants any good. In all these circumstances, it would in my opinion be unjust to make either side pay the costs of the other. If this is not accepted, the case must be restored to the list for argument as to costs.

Mayo, J.A. :

15. The main feature of this appeal was that as a consequence of the approach adopted by Sir John Swaine, for the Appellants, the issues which we were invited to determine were very different from those determined by Sears, J. at the trial.

16. Sears, J. was primarily concerned with the comparatively narrow issues as to whether the bids for the two properties in question made by On Wealth Ltd. and Profit Sight Investment Ltd. were conforming bids and if they were not whether the bids made by the 3rd Plaintiff through his nominee companies the 1st and 2nd Plaintiffs were conforming bids.

17. This situation was brought about largely as a result of what has been described as the concession contained in Paragraph 12 of the Re-amended Defence.

"12. (1) It is admitted that upon the receipt of offer bids complying with the conditions of tender,

(a) the 1st Defendant had bound itself towards every offeror of such a bid to accept the highest offer to purchase the Ma Tau Wei Road site which complied with the conditions of tender;

(b) the 2nd Defendant had bound itself towards every offeror of such a bid to accept the highest offer to purchase the highest offer to purchase the Dundas Street site which complied with the conditions of tender.

(2) It is averred that

(a) by reason of the matters plead in paragraph 6 hereof, the offer bid from On Wealth Limited to purchase the Ma Tau Wei Road site was in compliance with the conditions of tender, further or alternatively, the 1st Defendant was entitled to accept the said offer bid notwithstanding the fact that it was accompanied by earnest money tendered in the form of a certified cheque made payable to PKW & Co.;

(b) by reason of the matters pleaded in paragraph 7 hereof, the offer bid from Profit Sight Investment Limited to purchase the Dundas Street site was in compliance with the conditions of tender, further or alternatively, the 2nd Plaintiff was entitled to accept the same notwithstanding the fact that it was accompanied by earnest money tendered in the form of a certified cheque made payable to PKW & Co.

(3) Save as hereinbefore pleaded, paragraph 10 of the Amended Statement of Claim is denied."

18. Before us Sir John submitted that this so-called concession was misconceived. He contended that the respondents had wholly failed to make out a case that there was any contract between the two Defendant companies and any of the plaintiffs such as to entitle them to require the companies to accept the plaintiffs bids which were 'tabled' at the meeting on 9 September 1995.

19. He contended that if paragraph 12 above was properly construed in the context of all of the issues framed it was not the case that the appellants had accepted the validity of the bidding procedure contended for by the respondents. In particular he placed reliance upon the appellants pleaded denial of Paragraph 5A of the Statement of Claim which was central to the case being advanced by the respondents.

20. Paragraph 5A of the Statement of Claim is as follows:

"5A. The said resolution took effect as a contract between inter alias, the 3rd Plaintiff and the 1st and 2nd Defendants respectively whereby the 1st and 2nd Defendants were respectively bound to accept the highest offer made by any of the directors and other parties invited to submit offer bids complying in all respects with the conditions placed in paragraph 5 above."

21. While attacking para 5A Sir John also submitted that it was manifest from the Resolution which was passed at the meeting on 2 September 1991 that what had been contemplated was that there would be a further tendering of invitations to make bids for the said properties. In this respect he relied upon para 5(b) of the Statement of Claim which referred to invitations being extended in the period between the 2nd and 9th September.

22. He went on to argue that documents which had been prepared by Mr Felix Wong, one of the Alternate Directors of the Defendants had incorporated terms and conditions which did not correspond with the conditions which apparently had been resolved at the 2 September meeting.

23. None of this is relevant. It was common ground before Sears J that Mr Felix Wong was not authorised by the companies to act on their behalf and so there could be no question of them being so bound. The conditions if any which were applicable were those resolved by the companies.

24. The main issue which has to be determined on this appeal is whether para 5A of the Statement of Claim is drafted with sufficient clarity to plead a unilateral contract such as was envisaged by Lord Diplock in Harvela Investment Ltd. v. Royal Trust Co. of Canada [1986] 1 AC 207.

25. At 224 he describes with great elegance and precision the circumstances and requirements of a situation which can arise when a party binds itself unilaterally to accept bids on terms and when this can lead to what he then refers to as a synallagmatic contract.

26. In the present case I am satisfied that on a sensible reading of the said Resolution it was not contemplated that there would be a further invitation procedure prior to bids being made for the properties.

27. In this connection it is pertinent to observe that all of the parties concerned appeared to have no difficulty in lodging their bids. Both the 3rd plaintiff and Mr Sasmito lodged bids through nominee companies and no question arose concerning the necessity for a further invitation to be extended to them. Also at the time when the bids were considered at the meeting on 9 September no one raised the point.

28. Once this is established I have no difficulty in accepting that para 5A is pleaded with sufficient precision to form a basis for the claims being made by the plaintiffs.

29. When I say the plaintiffs I have formed the view that the rights of action were reposed in the 3rd plaintiff rather than the 1st and 2nd plaintiffs. I consider that the submissions made by Sir John in this respect were somewhat artificial particularly in the light of Mr Huggins' acceptance of the position that there could clearly be no question of any double jeopardy or of plaintiffs being able to recover damages severally.

30. As a matter of tidying up the judgment should be amended so as to limit the benefit of it to the 3rd plaintiff.

31. So far as the merits of the issues which were ventilated before Sears J are concerned I have no doubt that he was right to hold that the bids made by On Wealth & Profit Sight Investment were non-conforming bids. Essentially I accept the validity of the submissions made by Ms Yuen for the respondents that there is a significant difference between a certified cheque and a cashiers order.

32. It is also clear on the evidence which was accepted by Sears J that the bids made by the plaintiffs were conforming bids and were the highest conforming bids.

33. For these reasons in my view the appeal should be dismissed.

Nazareth, V.-P. :

34. I agree with Godfrey and Mayo, JJ.A. There is nothing, I think, that can be usefully added.

The appeal is accordingly dismissed. There will be an order varying the order made by the judge so that it operates as an award of damages in favour of Mr. Tsang alone. There will also be an order nisi that there be no order as to costs.