LAU SUK CHING PEGGY v. MA HING LAM AND OTHERS

cacv 360/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 360 of 2006

(on appeal from HCA NO. 2408 of 2004)

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Mr Recorder Chan given on 25 August 2006.  In the action the plaintiff sought specific performance of an agreement set out in a set of minutes dated 11 May 2004.  Although the judge dismissed the plaintiff’s claim for specific performance he granted relief on the basis of the alternative claim for damages.  However he assessed those damages at a nominal $10 because he held that the plaintiff would not have been able to fulfil her part of the agreement because she had insufficient funds at her disposal.  He also gave judgment in favour of the third defendant on the counterclaim for the sum of $245,933.33.

2.  At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

3.  As the judge said in his judgment there was no issue between the parties that in 2003, during the time when Hong Kong was struck by SARS, the plaintiff together with another person provided financial consultancy services to the first and second defendants.  As a result, the second defendant was able to increase its banking facilities.  During the course of their cooperation discussions were held with a view to a long-term relationship between the parties.  That however fell apart in about February 2004.

4.  It was the first defendant’s evidence at the trial, and there does not seem to have been any major dispute about this aspect, that the plaintiff had acquired the third defendant as a shelf company.  She had done so through an accounting firm with which the first and second defendants had had no business or other contact.  The plaintiff retained the third defendant to herself.  Furthermore, without the prior knowledge of the first and second defendants, the plaintiff caused the third defendant to enter into a provisional sale and purchase agreement dated 28 September 2003 to purchase a flat, which has been referred to as the Winfield Property.  The price of that flat was HK$8.3 million.

5.  The first defendant’s evidence continued that the plaintiff had originally intended to acquire the Winfield Property as a personal investment, using the third defendant as the corporate vehicle to hold that investment.  It was said that the acquisition had nothing to do with the second defendant and that there had been no agreement or understanding that the second defendant would acquire the Winfield Property to be used as the plaintiff’s director’s quarters.  Indeed, it had been the understanding between the plaintiff and the first defendant that there would be no directors’ quarters or housing subsidy provided to the plaintiff.  The first defendant’s witness statement went on:

“

22.

I only came to learn about the Plaintiff’s purchase of Winfield Property after the Provisional Agreement was made.  I recalled that one evening after 28th September 2003, when the Plaintiff and me were at the entrance of Sogo Department Store at Causeway Bay in Hong Kong, the Plaintiff informed me that she had purchased Winfield Property but she had difficulty in raising finance to complete the purchase.  She persuaded me to take up the purchase of Winfield Property as it was a good investment the assets portfolio of Kingsway Group would be strengthened after acquiring Winfield Property which would enable the Kingsway Group’s credit line to be augmented.  The Plaintiff further told me in tears that she had in fact used the money of her father’s company to pay for the initial deposit and that she had to reimburse her father’s company as soon as possible as the accounts would be checked shortly.”

6.  There is no dispute between the parties that the plaintiff resided in that property, or at least used it as her own after its purchase.  It was in those circumstances that apparently there was a meeting on 11 May 2004.  The minutes of the meeting showed that in addition to the plaintiff and the first defendant there were present at the meeting Artwill Limited and the second defendant.  The minutes, which are in Chinese, record that the first defendant represented the second defendant at the meeting.  The opening paragraph confirms what was said about that meeting namely that it was intended to resolve all the differences between the parties with a view to their parting.  The translation read:

“

Parties A, B, C and D all agreed to substitute all previous agreements of cooperation in respect of (1) the operation of Semi HK Ltd and (2) the assistance rendered to Party D in the application for the bank for general banking facilities clean portion of $16,800,000 with the following terms/principles:”

7.  The next two paragraphs relate to the assumption of all liabilities, obligations and expenses of the first defendant’s company by the first and second defendants and also the payment of the consultancy fees to the plaintiff and Artwill Ltd.  The third paragraph is the most important paragraph for the purposes of this case and that read:

“

3.

The parties present at the meeting had previously and unanimously agreed that the property held by Multi Capital Ltd, namely, Flat 1, 27th Floor, Block 3, Winfield Building and Car park No. D9 (“Property A”), should be continued to be held by Multi Capital Ltd.  However, the parties present at the meeting and Party D all agreed to grant Party B-an option (option), so as to enable Party B and/or her nominee to purchase Property A on or before 28 September 2004 at the price of HK$8,905,282 (see Annexure 1).  The purchase may be carried out in the form of sale and purchase of the company.  If Party B fails or is unable to exercise the option on or before that day, then Party B should be deemed to have relinquished the option.”

8.  The Annexure 1 was in English and as follows:

“	Property :		Flat 01, 27/F., Block C and Car Park No.D9, Winfield Building, Nos.1-5 Ventris Road, Happy Valley, Hong Kong
	Owner :		MULTI CAPITAL LTD.
	Purchase Price :		HK$8.3 Million
		Initial Deposit			400,000.00
		Further Deposit			430,000.00
		Balance Payment			2,470,000.00	3,300,000.00
		[Bank Loan of HK$5 Million from United Commercial Bank]
		Stamp Duty				311,350.00
		Legal Fee				10,490.00
		Valuation Fee				1,700.00
		Fire Insurance				1,935.00
		Commission – Centaline Property				83,000.00
		Cost of the Company – Multi Capital Ltd.				8,200.00
		Loan Repayment from Dec 2003 to Sept 2004
		[HKD34,527.90 X 10 instalments]				345,279.00
		Total paid out up to 28 Sept., 2004				4,061,954.00
		Add :	Outstanding Principal as at 28 Sept., 2004			4,777,552.80
			Bank Penalty [1% on Repayment Amount]			47,775.53
			Estimated Legal Fee on Sales of Property			18,000.00
						8,905,282.33		”

9.  It will be noted that this Annexure is drafted on the basis that the Winfield Property was purchased at HK$8.3 million.  The calculations are precise as to everything even down to the fire insurance.  Moreover, specific calculations were clearly made up to 28 September 2004 because they included the mortgage payments up to that date.  The calculations also included the outstanding principal as that date and an amount for the penalty that would be incurred for early repayment of the mortgage.

10.  In paragraph 37 of the judgment the judge set out the history of the communication between the plaintiff and her solicitors and the first and second defendants and their solicitors.  It is unnecessary to repeat the full terms of that.  It suffices to say that it would appear that it was not until about 14 September 2004 that an indication was given on behalf of the plaintiff that she wished to exercise the option by purchasing the shares of the third defendant.  Thereafter there was an exchange of correspondence between solicitors on both sides with a draft contract commented on.  It would seem that the draft contract included, perhaps it might be said tentatively simply because it was in brackets, a completion date in October and later in November but the liabilities of the third defendant were as of 28 September.

11.  The completion date of 28 September 2004 came and went without any agreement and on 30 September 2004 solicitors for the first and second defendants wrote a letter marked “Subject to Contract” enclosing a revised sale agreement with a completion date in November for the plaintiff’s solicitors’ review.  The last paragraph of the letter read:

“

Please be reminded that your client’s option to purchase Multi-Capital Ltd or the Properties has already elapsed on 28 September 2004.  As such, our client agrees to extend the acceptance period for a further 8 days from the date of thereof.  In the event that the Agreement is not entered into by our respective clients on or before Your client should execute the Shares Sale Agreement on or before 6 October 2004, the said option shall lapse.”

12.  No agreement was concluded and the attempt to reach any such agreement stopped after 15 October 2004 when the first and second defendants’ solicitors made clear in correspondence that that they considered the matter over.

13.  The judge came to the conclusion that neither party had performed the contract because completion by way of sale of shares had to be by way of concurrent performance.  He held that because of that the agreement remained on foot after 28 September and that the completion of the sale of shares should take place within a reasonable time.  He considered that the 8 days which the first and second defendants’ solicitors gave in their letter of 30 September 2004 was not sufficient.  Importantly, he held that, by the letter of 15 October, the first and second defendants’ solicitors put their client in breach of contract.  It was because the judge held that the plaintiff would not have been able to pay the required money to complete the purchase that the judge held that she was only entitled to nominal damages.

14.  I consider that the fundamental question in the case is the meaning of the grant of the option in clause 3 of the Minutes of 11 May 2004.  It was an option to purchase.  Mr Chan SC, who appeared on behalf of the plaintiff in this court, argued that that option had been exercised on or about the 14 September 2004 when notice was given by the plaintiff that she wished to purchase shares rather than the property itself.  I do not agree that that construction is correct.  The option which is given is clearly an option to purchase.  Purchase is the transfer of property and not an agreement to transfer property.  Whilst the option exists, as Mr Tong SC, who appeared on behalf of the defendants, submitted there is no obligation on the party who has been granted the option to exercise that option; but once an agreement for the sale and purchase is entered then such an obligation does exist.

15.  I do not find any difficulty with the point made that the plaintiff would have to give notice as to whether she wished to take an assignment of the property or assignment of the shares.  The documents required to complete either transaction would be simple documents; all that was required was that the plaintiff should pay the money and an assignment given in exchange.  Clearly the plaintiff did not pay any money nor did she attempt to pay any money on or before 28 September 2004.  There was nothing unreasonable in the first and second defendants’ solicitors giving notice on 30 September that the matter should be completed by 6 October, but in any event that was in a letter that was subject to contract.

16.  To a large extent it would appear that the reasoning of the judge below was in accord with what I have set out in respect of the option being an option to complete a purchase on or before 28 September.  He however held that the first and second defendants were in breach of the agreement in the Minutes when they refused to complete the transaction by the letter of 15 October 2004.  In my view, the matter was the other way round.  The plaintiff had simply not exercised the option by 28 September.

17.  In those circumstances it appears to me that the plaintiff’s claim must fail and that the first and second defendants must succeed on their respondents’ notice.  I would therefore dismiss the plaintiff’s appeal and allow the cross appeal with an order nisi of costs here and below.

Hon Kwan J:

18.  I agree with the judgment of the Vice President.  The judge mentioned in his agreement that the action was for specific performance of an agreement embodied in the Minutes of 11 May 2004.  The agreement in paragraph 3 of the Minutes was not an agreement for the sale and purchase of the property, but an agreement to grant an option for the purchase of the property or the shares of the company which holds the property.  The agreement for sale and purchase did not come into existence unless and until the option was exercised, strictly in accordance with the terms of the option, by tendering the purchase price on or before 28 September 2004.  As the option was not exercised on 28 September 2004, the plaintiff’s claim must fail.

Hon Wright J:

19.  I agree with the judgment of the Vice President and have nothing to add.