LEI SAI WA AND ANOTHER v. MIDLAND REALTY INTERNATIONAL LTD

DCCJ 1782/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1782 OF 2010

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BETWEEN

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REASONS FOR DECISION

Background

1.  This is an application by the Defendant ("Midland") under Order 18 rule 19 (1) (a) to strike out parts of the Amended Statement of Claim, on the ground that they disclose no reasonable cause of action, and for the claim of $813,600 which relates to the offending paragraphs of the Amended Statement of Claim to be dismissed.

2.  At the hearing on 19 October 2010, I made an order in terms of Midland's application, with costs. These are my reasons for the order. Except otherwise indicated, all references below to paragraph numbers are references to paragraph numbers of the Amended Statement of Claim filed on 15 July 2010.

3.  According to the Amended Statement of Claim, the Plaintiffs appointed Midland as their estate agent in the purchase of Flat D, 4th floor, Block 4, Hong Kong Garden (Phase I) at 100, Castle Peak Road ("Intended Property"). A Provisional Sale and Purchase Agreement dated 18 May 2008 ("Provisional Agreement") was signed by the Plaintiffs as purchasers and Hamberg International Ltd. ("Hamberg") as vendor, for the sale and purchase of the Intended Property at the price of $1,800,000.

4.  On the same day, a document was signed by the Plaintiffs evidencing the Plaintiffs' appointment of Midland as agent and their agreement to pay to Midland 1% of the purchase price of the Intended Property for Midland's services to be rendered.

5.  The Plaintiffs plead (in paragraph 10) that in preparation for the financing of the acquisition of the Intended Property, the Plaintiffs appointed another estate agent to sell their own property at Flat 3, 4th floor, Koon Kay Mansion, 55 Fuk Wing Street ("Plaintiffs' Property"). On 25 May 2008, the Plaintiffs entered into a provisional agreement for sale of the Plaintiffs' Property to one Mr. Wong at the price of $1,190,000. Completion of the sale of the Plaintiffs' Property took place on 8 July 2008.

6.  Under the Provisional Agreement, it was stated that Midland was the agent for both Hamberg and the Plaintiffs.

7.  In paragraph 17, it is pleaded that Midland knew or ought to have known that the Intended Property was mortgaged or charged by Hamberg in favor of the Shanghai Commercial Bank Ltd. ("Bank"), that the sum owed by Hamberg and secured by the Intended Property in favor of the Bank exceeded or might exceed the purchase price of $1,800,000 or 90% of $1,800,000, and that the Plaintiffs would suffer loss and damage if the deposits of the purchase price are paid to Hamberg directly and the balance of the purchase price for the Intended Property is insufficient to discharge the existing legal charge or mortgage in favor of the Bank ("Mortgage").

8.  In short, the Plaintiffs claim that Midland was negligent and in breach of its duty of care, or in breach of implied terms of Midland's contract with the Plaintiffs, when it failed to advise the Plaintiffs of the risk of deposits of the purchase price being paid directly to Hamberg under the Provisional Agreement; failed to provide in the Provisional Agreement that the deposits for the purchase price under the Provisional Agreement should be paid to Hamberg's solicitors as stakeholders, and to release the same to Hamberg only if and provided that the balance of the purchase price is sufficient to discharge the existing Mortgage secured by the Intended Property.  The Plaintiffs plead in paragraph 20 that Midland had negligently deleted the relevant clause in the Provisional Agreement which makes provision for stakeholding of the deposits to be paid under the Provisional Agreement.

9.  According to the Amended Statement of Claim (paragraph 23), the Plaintiffs made payment of HK$90,000 by cheque dated 18 May 2008 made payable to Hamberg, which cheque was immediately released by Midland to Hamberg, and Hamberg obtained payment of the sum. The Plaintiffs then instructed a firm of solicitors to continue with the formalities of the purchase of the Intended Property.

10.  The sale and purchase of the Intended Property fell through. According to paragraph 26, it fell through because the redemption payable by Hamberg to the Bank exceeded the balance of the purchase price of the Intended Property payable on completion, and the Bank refused to discharge the Mortgage. According to the Amended Statement of Claim, the Plaintiffs had paid a further deposit upon signing a formal agreement and the balance of the purchase price on completion, but their claim for return of the money paid for the intended purchase is confined to the initial deposit of $90,000, which they were unable to recover from Hamberg.  According to paragraph 27, Hamberg had absconded with the said payment.

11.  The Plaintiffs therefore originally sought from Midland damages in the sum of $119,990.90, representing the initial deposit of $90,000 paid to Hamberg, and other incidental costs such as legal costs incurred by them in the purchase of the Intended Property which had fallen through.

12.  The above facts are discernible from the Amended Statement of Claim, or from the original form of the Statement of Claim dated 20 May 2010.

13.  On 15 July 2010, the Plaintiffs filed the Amended Statement of Claim, pleading further facts and including an additional claim for $813,600. I regret to say that these amendments cease to be easily comprehensible. The amendments were made by the Plaintiffs without leave under Order 20 rule 3, and the Amended Statement of Claim was filed.  On 10 August 2010, Midland issued the Summons for striking out.

Applicable legal principles

14.  The principles are clear. It is only in plain and obvious cases that the court should exercise its summary powers to strike out the endorsement on any writ or any pleading under Order 18 rule 19. Disputed facts are to be taken in favor of the party sought to be struck out. The court should not decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleading unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. It is for the party seeking to strike out to demonstrate that the case is a plain and obvious one in which the other party's claim is bound to fail.

15.  As Midland's application for striking out is made under Order 18 rule 19 (1) (a), evidence from either the applicant or the respondent is excluded (para 18/19/3 Hong Kong Civil Procedure). The court is obliged to look only at the pleading without extrinsic evidence and to decide whether on the assumption that the facts as pleaded are true, the pleading discloses a cause of action in law.

16.  In opposition to the striking out application, Mr. Kong who appeared for the Plaintiffs sought simply to argue that the amendments should be allowed, as they show a meritorious claim with reasonable prospects of success, and that there is no prejudice caused to Midland as a result of the amendments.  However, the issue in dispute on the striking out is not whether the amendments should be allowed, but whether the amendments made disclose a reasonable cause of action for the relief claimed.

17.  The grounds of Midland's striking out are that even if there was a breach of duties, either in contract or in tort, by Midland, the offending paragraphs of the Amended Statement of Claim do not disclose a cause of action against Midland, and the damages sought in the offending paragraphs are caused, not by Midland's breach or negligence, but by Hamberg's inability to discharge the Mortgage in favor of the Bank and secured by the Intended Property.

Whether paragraphs 32 - 44 disclose a reasonable cause of action for $813,600

18.  Assuming that all the facts pleaded in paragraphs 32 to 44 are true, the Plaintiffs’ claims, so far as discernible, are that: Midland's employee, Mr. Tang, failed to advise the Plaintiffs to have the initial deposit of $90,000 held by the solicitors on stakehold; Midland failed to check the financial capacity of Hamberg and the risk of Hamberg's financial incapacity to discharge the mortgage; Midland had breached all the applicable guides for estate agents and even had failed to take anti-money laundering precautions, causing Mr. Tang's estate agent licence to be suspended. Assuming that these constitute Midland's breach of its contractual duties and its negligence, has Midland caused the Plaintiffs to sustain the loss of $800,000, the costs of transportation of the Plaintiffs' chattels in and out from storage, and the wastage of the furniture and fixtures in the Plaintiffs' Property, as sought in paragraphs 45 (5) to (7)?

19.  I have difficulty in understanding from the Plaintiffs' pleading in paragraphs 44 and 45 (5) how the sum of $800,000 is arrived at. Paragraph 44 pleads that "as the result of the frustration on conveyancing of (the Intended Property), the Plaintiffs became homeless and suffered monetary loss of $800,000 on the marked-to-market basis". The Plaintiffs further plead that "the market price reference for (the Intended Property) is not only fair and equitable but also openly available from public/professional stakeholders for reconciliation purpose".  I took this to mean that the sum of $800,000 represents the loss in market value of the Intended Property, suffered by the Plaintiffs as a result of their inability to purchase the Intended Property as a result of the completion falling through.  Mr. Kong did not indicate otherwise, or explain what else the sum of $800,000 represents.

20.  Even if Mr. Tang of Midland had not been negligent, and had not crossed out the relevant provision which the Plaintiffs say should have been retained in the Provisional Agreement, i.e. to have the deposit of  $90,000 paid to the solicitors as stakeholders, and had procured the Plaintiffs to make payment of the initial deposit of $90,000 to the solicitors as stakeholders, and not to Hamberg directly, the sale and purchase of the Intended Property would still have fallen through because, as the Plaintiffs plead, Hamberg was not able to discharge the entire outstanding debt due to the Bank under the Mortgage.  This was, on the pleading, an independent and the material cause of the Plaintiffs’ loss.  The only damages for which Midland can be said to be liable in respect of its negligence is the initial deposit of $90,000 which, as the Plaintiffs plead, Midland had negligently released to Hamberg directly without due regard for the Plaintiffs' best interests, and with which Hamberg had absconded (paragraph 27). Midland therefore is happy to have the Plaintiffs' claim for the initial deposit of $90,000, the legal costs incurred for the purchase of the Intended Property, and other minor expenses incurred as a result of the Plaintiffs' envisaged purchase of the Intended Property, retained in the Amended Statement of claim.

21.  Counsel for the Plaintiffs has not addressed to me at all as to how the rest of the damages sought, mainly being the loss in market value of the Intended Property, can be recoverable from Midland as a result of any breach of duties by Midland. The fact of Mr. Tang being found not to be a fit and proper person to hold a sales person's licence, and his failure to comply with the relevant codes of practice, as the Plaintiffs emphasize and repeat in their pleading, are only evidence of Mr. Tang's and Midland's negligence or breach. They do not establish Midland's liability for the loss in market value of either the Intended Property or the Plaintiffs' Property.

22.  On the Plaintiffs' own pleading, they sold the Plaintiffs' Property and agreed to purchase the Intended Property "for the dual purpose of upgrading the enjoyment of private life and hedging the residential property price under inflationary condition" (paragraphs 34 and 37). The Plaintiffs' Property was sold not as a result of Midland's negligence or breach. I cannot see how the loss of the Plaintiffs’ home can be said to be materially caused by Midland’s breach of duties, as the Plaintiffs allege.

23.  Obscured in the rambling and repetitious pleading in paragraphs 32 to 44 is an allusion to forgery. First, it is claimed in paragraph 32 (2) that Mr. Tang of Midland had conspired with a third party, an unlicensed estate agent Ms. Christy Tang ("Christy"), to defraud the Plaintiffs, and that Christy had forged a signature on a document. On the Plaintiffs' own pleading, therefore, the forgery was not made by Mr. Tang.

24.  Further, the alleged forgery is of a signature of the vendor under an agreement, defined in paragraph 32 (2) as "Agreement 1". On the face of the Amended Statement of Claim, Agreement 1 is not the same as the Provisional Agreement which is itself referred to in paragraph 9 as "PASP 1". If paragraph 32 (2) is to be understood to refer to the Provisional Agreement, then it contradicts the pleading in paragraphs 23, 26 and 27 which contain references to Hamberg receiving payment under the Provisional Agreement from the Plaintiffs and Mr. Tang, and cannot make sense.

25.  I therefore simply cannot discern from the Amended Statement of Claim how the forgery can be said to be relevant to the Plaintiffs' claim that the sale and purchase of the Intended Property had fallen through as a result of Midland's negligence or breach, or to their claim for the damages sought as a result of Midland's breach of duties.

26.  Nor can I see how the concept of frustration is applicable to the facts of the case by virtue of the alleged forgery, as pleaded in paragraph 43.

27.  The allusion to Mr. Tang's alleged conspiracy with Christy is totally unparticularized, as required for a pleading of conspiracy (para 18/12/8, Hong Kong Civil Procedure). In view of the manner in which the claims are pleaded in the Amended Statement of Claim, I cannot see how I can give serious consideration to this reference to conspiracy.

28.  Paragraph 32 (10) also makes a passing reference to Midland "misleading" the Plaintiffs that the market value of the Intended Property was much higher than the amount outstanding under the Mortgage. In the absence of any additional particulars as to how Midland had "misled" the Plaintiffs, I can only take this claim as being based on the same acts and omissions constituting the negligence and breach of implied terms set out elsewhere in paragraph 32 and the other paragraphs of the Amended Statement of Claim, i.e. Midland's failure to advise the Plaintiffs of the risk of the negative equity of the Intended Property. It adds nothing to the Plaintiffs’ cause of action.

Conclusion

29.  Despite the repetitions made from paragraphs 32 to 44 of the Amended Statement of Claim, I consider that the Plaintiffs cannot establish that but for Midland's or Mr. Tang's negligence and breach of implied contractual duties, the Plaintiffs would not have suffered the damages sustained as a result of the purchase of the Intended Property falling through, and the sale of the Plaintiffs' Property. On the pleading, these damages would still have been sustained by them because of Hamberg's inability and failure to make payment of the entire outstanding sums due to the Bank under the Mortgage and the Bank refusing to discharge the Mortgage.  As Counsel for Midland has pointed out, Midland cannot be said to be under any duty in law to compel Hamberg to complete the sale to the Plaintiffs.

30.  For the above reasons, I consider that paragraphs 32 to 44 and paragraph 45 (5) to (7) of the Amended Statement of Claim do not disclose any cause of action for the claim of $813,600 and should be struck out, and the Plaintiffs' claim for the sum of $813,600 is dismissed.

31.  As ordered, the Plaintiffs are to pay Midland's costs of the striking out application, with certificate for counsel.