LEUNG HOI v. MA KOON SIK and Another

1992, No. A3054

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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Parties

1. The Plaintiff and the 1st Defendant are business associates. The Plaintiff had a minority shareholding in a joint hotel development project in Macau which the 1st Defendant held a majority interest. They are both self-made, experienced and very successful businessmen. They invest heavily in properties and are developers.

2. The 2nd Defendant is the wife of the 1st Defendant. Because of a matrimonial problem they are not on very good terms.

3. The 1st and 2nd Defendants are the only shareholders of Good Development Ltd. (the Company), a private company incorporated according to the laws of Hong Kong. There are only 2 shares issued and each Defendant holds one share.

4. The Company is the registered owner of all that piece or parcel of land registered in the Land Office as New Kowloon Inland Lot No. 736 together with the messuage or tenement and other erections and buildings thereon known as No. 33 Cumberland Road in Kowloon Tong (the Property). This is the only asset of the Company.

The Plaintiff's claim

5. The Plaintiff claims that during lunch on 18th March 1992, the Plaintiff agreed to purchase from the 1st Defendant the Company. By subsequent conduct of the 1st Defendant, he had repudiated the agreement. The Plaintiff now sues against the Defendants and each of them for specific performance of the agreement, injunction restraining the Defendants from disposing of the shares of the Company and damages in addition to or in lieu of specific performance.

Issues to be tried

6. The main issue is whether there was a concluded agreement. If I find that there was no agreement then that is the end of the matter. On the other hand, if I find that there was a concluded agreement then the next issue is whether the 2nd Defendant was a party to that agreement. Following that, I have to consider whether there was repudiation and acceptance of repudiation by the Plaintiff before coming to consider whether the Plaintiff is entitled to specific performance if there is no acceptance of repudiation.

7. The outcome of my finding depends on finding of facts. The assessment of credibility of witnesses is essential. Hence, apart from witnesses statements, detailed oral evidence were given in chief and counsel for all parties have indulged in very detailed cross-examination arising out of the evidence given in Court as well as their statements. Also parties have called for discoveries in the course of their cross-examination which necessitated adjournments. The trial had gone on for much longer than scheduled.

Facts which are not in dispute

8. Facts which are not in dispute and in chronological order are as follows :-

18th March 1992

1) The Plaintiff and the 1st Defendant had lunch in a restaurant in Landmark. The 1st Defendant told the Plaintiff of his intention to sell the Property by way of selling the shares of the Company. They eventually agreed on the price of $17.5 million.

2) The Plaintiff went to the 1st Defendant's office at No. 8 Dorset Crescent in the afternoon where he paid a sum of $300,000.00 and further agreed to pay another sum of $3.2 million within 14 days and that completion should take place on 4th August 1992 without guarantee as to vacant possession of the Property.

3) The 1st Defendant after meeting the Plaintiff by telephone asked his accountant, Stephen Lo, to prepare a draft agreement.

4) Stephen Lo duly drafted the agreement in the Chinese language and faxed the same to the 1st Defendant at 5.30 p.m.

5) The 2nd Defendant was at the bank of the safe deposit boxes of Wing Lung Bank in Central opposite Central Market at 4.06 p.m.

20th March 1992

9. Stephen Lo faxed the draft agreement to secretary of the Plaintiff.

27th March 1992

10. The 1st Defendant took the draft agreement to Walter Liu & Co. and instructed Albert Au, the Conveyancing Clerk, to prepare a formal Sale and Purchase Agreement.

30th March 1992

11. There were a number of phone calls enquiring if the 1st Defendant could grant indulgence of 1 day for payment of the $3.2 million and the 1st Defendant refused.

31st March 1992

12. The Plaintiff through Leong Lam & Co. sent the $3.2 million to Walter Liu & Co. Walter Liu & Co. was to act as stakeholder of that sum.

1st April 1992

13. The cheque for $3.2 million was marked good at Wing Lung Bank.

3rd April 1992

14. Leong Lam & Co. wrote to Walter Liu & Co. requesting for the draft of Sale and Purchase Agreement, title deeds and other relevant documents.

6th April 1992

15. Leong Lam & Co. received the draft Sale and Purchase Agreement together with some documents.

13th April 1992

16. Walter Liu & Co. received the proposed amendment of the draft Sale and Purchase Agreement.

Prior to 14th April 1992

17. The 1st Defendant received a telephone call from the agent of Shek Tin enquiring about the sale of the Property.

15th April 1992

18. Walter Liu & Co. by letter dated 14th April 1992, sent a cheque in the sum of $3.2 million to Leong Lam & Co. informed them that they had no further instructions to act for the 1st and 2nd Defendants.

16th April 1992

19. Leong Lam & Co. by letter sought clarification from Walter Liu & Co. as to whether the Defendants were represented by other legal representatives and that the Plaintiff would not accept any departure from what had been accepted. Copies of the letter were sent to the Defendants.

23rd April 1992

20. Walter Liu & Co. replied reiterating that they had no further instructions to act for the 1st and 2nd Defendants.

27th April 1992

21. Meeting between the Defendants and Shek Tin where the Defendants agreed to sell the Property to Shek Tin.

28th April 1992

22. Leong Lam & Co. wrote two letters to the Defendants. In one letter, the Defendants were asked which new firm of solicitors had been instructed to represent them to proceed with the sale failing which legal proceedings would be instituted without further notice. In the other letter, they enquired about a cheque in the sum of $300,000.00 which the Plaintiff received.

4th May 1992

23. Leong Lam & Co. issued the writ in respect of the present proceedings.

6th May 1992

1) Sealed copies of the writ were served on the Defendants by registered post.

2) Leong Lam & Co. issued a receipt for the cheque for $3.2 million to Walter Liu & Co.

3) Leong Lam & Co. paid in the cheque for $3.2 million.

Was there a concluded agreement?

24. In essence the Plaintiff and the 1st Defendant had on 18th March 1992 agreed to the following terms in respect of the selling of the shares in the Company namely :-

(1)	Price - $17.5 million

(2)	Payment -	(i) $300,000 forthwith
		(ii) $3.2 million within 14 days
		(iii) balance on the date of completion i.e. 4th August 1992

(3) Each party to instruct his own solicitors to prepare a formal Sale and Purchase Agreement.

(4) 1st Defendant did not guarantee vacant possession at the time of completion eventhough, he had caused a notice to quit to be served on the tenant.

25. 1st Defendant did not dispute that he had agreed to the above. His defence is that the agreement will not be binding on the parties until the Plaintiff signed the Chinese Agreement prepared by Stephen Lo and faxed to him on the 20th March 1992.

26. He gave evidence to the effect that, on 18th March 1992 at No. 8 Dorset Crescent he told the Plaintiff that to make the matter clear "words of month is no proof, the transaction could not be considered as agreed unless you (the Plaintiff) have signed in black and white". To support his contention he further said that on or about 20th March 1992 he had a telephone conversation with the Plaintiff he told the Plaintiff to sign on the agreement and send it back. On another occasion when the Plaintiff asked him who was his solicitors he told the Plaintiff that he had not signed the agreement, if the Plaintiff did not sign it he would consider the transaction invalid. In his 3rd witness statement dated 28th April 1995 he said that on the 25th March 1992 he attended a "dinner" in Danshui in China in connection with a construction project. The Plaintiff and Mr. Tang of CF & Associates were present. In the course of the dinner he told the Plaintiff that he had not signed the agreement and the Plaintiff replied that he would. In his 4th statement dated 29th May 1995 he said that it was a lunch and not dinner.

27. He said that the $300,000 and $3.2 million were paid by the Plaintiff as earnest money and they were not deposits.

28. Stephen Lo in his evidence said that the 1st Defendant did mention to him that the Plaintiff must sign the Chinese Agreement and have it returned.

29. Apart from that his counsel also submitted that all correspondence between solicitors were subject to contract indicating that there was no binding agreement.

30. On the evidence on balance I find that it is unlikely the 1st Defendant had made it a condition that the agreement would not be binding until the Plaintiff signed on the Chinese Agreement and that the sums of $300,000 and $3.2 million were paid as earnest money.

31. The Chinese agreement drafted by Stephen Lo was on the instructions of the 1st Defendant who had read and approved the same before Stephen Lo faxed to the Plaintiff's secretary on 20th March 1992. On top of the agreement was the Chinese character " " meaning draft. It is extremely unlikely that if that document was intended to be signed by the Plaintiff Stephen Lo, an accountant, would have faxed over only a draft. Further there was no covering letter nor any note to the effect that the Plaintiff had to sign on that draft. In cross examination Stephen Lo said he was not sure if the 1st Defendant did tell him, over the phone, to get the Plaintiff to sign on the agreement.

32. The Plaintiff denied that he had telephoned the 1st Defendant after 18th March 1992. On 20th March 1992 before he left for Guangzhau he had instructed Wilfred Lam of Leong, Lam & Co. to handle this transaction. It is natural for Lam to find out who was acting for the 1st Defendant after he received instructions from the Plaintiff.

33. The 1st Defendant filed his 3rd statement shortly before Plaintiff gave evidence. He stated that in Danshui on the 25th March 1992 in the presence of Mr. Tang of CF & Associates reminded the Plaintiff to sign. He maintained his stance in his 4th statement saying that it was not dinner but lunch when he met Plaintiff in Danshui. To this the Plaintiff and Mr. Tang of CF & Associate produced their travel documents to China which conclusively proved that they were not in China on 25th March 1992.

34. If it were the case that the Plaintiff had to sign before the agreement would be binding, 1st Defendant did not specify when the document had to be signed. Even assuming that he made it know to the Plaintiff of this condition, it has to be presumed that the Plaintiff had to sign within reasonable time yet as late as 31st March 1992 the 1st Defendant had instructed Albert Au of Walter Liu & Co. to pay in the cheque for $3.2 million and to proceed with the agreement for Sale and Purchase. His conduct is inconsistent with him having laid down the condition that Plaintiff must sign on the agreement before it was binding.

35. Further on 1st April 1992 the 1st Defendant met Mr. Tang of CF & Associate at the Kowloon Tang Club. On that occasion Tang told the 1st Defendant that he had a client who wanted to purchase the Property. The 1st Defendant told him that for the time being the property could not be sold to his customer because he had an agreement with Leung Hoi (the Plaintiff). Again this points to the fact that he had concluded the deal with the Plaintiff.

36. According to the draft agreement the $300,000 and $3.2 million respectively were paid and to be paid by way of deposit and further deposit. Stephen Lo drew up the agreement on the 1st Defendant's instructions and the same was approved by the 1st Defendant. The 1st Defendant could not have been mistaken as to that. It lies ill in the mouth of the 1st Defendant now to say that they were just earnest money.

37. From the attendance note of Albert Au there is further evidence of a concluded agreement. On 31st March 1992 the 1st Defendant told him to pay in the cheque and if honoured proceed with the agreement for Sale and Purchase. On 1st April 1992 when being told the cheque had been honoured the 1st Defendant instructed him to proceed with "Shares Agreement S/P".

38. So in my judgment all the evidence showed that there was a concluded agreement on 18th March 1992 and the Plaintiff had adhered to the terms of the agreement by first of all paid the $300,000 on 18th March 1992 and the $3.2 million on 31st March 1992.

Subject to contract letters

39. As to Mr. Lee's contention that all correspondence between the Plaintiff's and Defendants' solicitors were subject to contract, the simple answer is that neither the Plaintiff nor the 1st Defendant was affected. According to the solicitors they were just formal and standard phrases in their conveyancing practice. In fact from the attendance notes of Albert Au mentioned earlier the 1st Defendant, despite the correspondence, asked him to proceed with the agreement for Sale &Purchase.

40. Barnsley's Conveyancing Law & Practice 3rd Ed. at pp 130-131 states, "'Subject to contract' negotiations between solicitors do not negative any prior contract between their clients. The vital question is to ascertain whether the parties have concluded any prior contract".

41. In W.J. Rossiter, George Curtis & others v. Daniel Miller (1878) 3 App Cas 1124 HL at pp 1138-39 Lord Carins L.C. agreed with and cited Lord Westbury's judgment in Chinnock v. The Marchioness of Gly 4 De G.J. & G. 638 ".......if there had been a final agreement, and the terms of it are evidenced in a manner to satisfy the Statement of Frauds, the agreement shall be binding, although the parties may have declared that the writing is to serve only as instructions for a formal agreement, or although it may be an express term that a formal agreement shall be prepared and signed by the parties. As soon as the fact is established of the final mutual consent of the parties to certain terms, and those terms are evidenced by any writing signed by the parties to be changed or his agent lawfully authorized, there exist all the materials which this court requires to make a legally binding contract".

42. In the present case it was for the purchase of shares, the enforceability does not require any memorandum in writing. The agreement may be oral. The Plaintiff and the 1st Defendant had agreed on the terms on 18th March 1992 as evidenced by the draft agreement so notwithstanding the subject to contract letters there is still a binding agreement.

Did Plaintiff meet the 2nd Defendant on 18th March 1992?

43. The Plaintiff's case is that he had lunch with the 1st Defendant in Szechuan Garden in Landmark on 18th March 1992 where the 1st Defendant offered the sale of the Company and they agreed to the price of $17.5 million. After lunch he went back to his office drew a cheque in the sum of $300,000 without the name of the payee and took some airline stickers and proceeded to the office of the 1st Defendant at the basement of No. 8 Dorset Crescent. He stopped briefly at No. 33 Cumberland Road to look at it's frontage.

44. At the office the 1st Defendant gave him a copy of the NTQ and showed and explained to him the construction plan of No. 33 Cumberland Road. The 1st Defendant then suggested that they should go upstairs to his residence to have a chat. He met the 2nd Defendant and the 1st Defendant's daughter at the sitting room. He gave a vivid description of the appearance of the 2nd Defendant and the 1st Defendant's daughter. In the sitting room the 1st Defendant told the 2nd Defendant that at lunch he and Plaintiff had discussed and reached an agreement to sell to Plaintiff the Property and the Plaintiff was bringing money to him. To that the 2nd Defendant said "thank you". The 2nd Defendant then made a cup of tea for him. He then wrote in the 1st Defendant's name in the payee section of the cheque at the 1st Defendant's request.

45. The Plaintiff was cross-examined in great detail as to time in order to show that he could not have met the 2nd Defendant. As the events happened some 3 years ago and that no one expected a law suit so it is difficult for anyone to give evidence with any precision or accuracy.

46. However, on 1st June 1995 the 2nd Defendant made further discovery. A document from Wing Lung Bank was disclosed showing that on 18th March 1992 she filled in a form to go to the safe deposit vault of Wing Lung Bank opposite Central Market at 4.06 p.m. Based on that document and the fax Stephen Lo sent to the 1st Defendant at 5.30 p.m. on 18th March 1992 witnesses were recalled and further evidence given.

47. The Plaintiff was recalled. He was asked to estimate the time he took as to his movements that afternoon having regard to the fact that the 2nd Defendant was at Wing Lung Bank at 4.06 p.m. He said he finished lunch at about 2.30 p.m. and then took MTR back to his office at Hanoi Road. The journey from the restaurant to his office took about 15 minutes. He spent another hour or 1¼hour at his office before he went to No. 8 Dorset Crescent. The journey took another 10 minutes. He stayed at the 1st Defendant's office for about ¼ hour before going up to his residence where he spent another 10 to 20 minutes before he left. So assuming he had accurately estimated the time he would have left No. 8 Dorset Crescent by 4.45 p.m. and latest 4.50 p.m.

48. The 1st Defendant's evidence is that after the Plaintiff left he went back to his office where he rang Stephen Lo and gave him instructions to draw up the agreement. He then hurriedly went to the MTR station to go to meet his friends at Excelsior Hotel in Causeway Bay. He was supposed to meet his friends at 5.15 p.m. he was late on that occasion. The journey by MTR from Kowloon Tong to Causeway Bay station took approximately ½ hour. He could not have left his home before 4.45 p.m.

49. Stephen Lo said that it was almost time for him to leave his office when the 1st Defendant rang. After talking to the 1st Defendant he asked his employee to take out the company's file. It took him a few minutes to look at the file before he drafted the agreement which took him about ½ hours. He then faxed the agreement to the 1st Defendant at 5.30 p.m. So working backwards from 5.30 p.m. he would have started drafting the agreement at around 5 p.m. and he would have talked with the 1st Defendant over the phone sometime around 4.45 p.m. to 4.50 p.m.

50. So evidence from both the Plaintiff and Defence indicated that the Plaintiff left the 1st Defendant's residence sometime between 4.45 p.m. and 4.50 p.m.

51. Chu Cheuk Kin, the 2nd Defendant's driver, said that his daily routine in March 1992 in the afternoon was that he would pick up the 1st Defendant's daughter at school at 4 p.m. After taking the girl home he would drive to Prince Edward station to pick up the 2nd Defendant. The 2nd Defendant normally would arrive at 4.45 p.m. He would then take her to the market before taking her home. By the time she reached home it would be sometime around 6 p.m. He could not recall if the 2nd Defendant had departed from her daily routine in March 1992.

52. The 2nd Defendant's evidence as to her daily routine was similar to what Chu said. She said that she did not have a mobile phone in March 1992 and the only way the 1st Defendant could have contacted her was to telephone the office of her stock broker. She did not receive any phone call from the 1st Defendant on 18th March 1992. She said that on that date she took delivery of some shares and went to deposit them at the safe deposit box in Wing Lung Bank. She entered the bank at 4.06 p.m. She opened her safe deposit box, noted down the price she paid on a piece of paper in respect of the shares she bought that day before putting them in the box. She then left and went across the road through Pottinger Street to Po Sang Bank in Des Vouex Road Central where she retrieved a deposit receipt before going up to the mezzanine floor to look at foreign exchange rate before going to the MTR station in Central. She took the MTR to Prince Edward station where she boarded her car to go to market before going home. She arrived at No. 8 Dorest Crescent sometime after 6 p.m.

53. Richard Hung on behalf of the Plaintiff said he followed the route of the 2nd Defendant and marked the time. It took him about 10 minutes from Wing Lung Bank to MTR station in Central. The journey from Central by MTR to No. 8 Dorset Crescent took him about ½ hour.

54. It seemed unlikely that the 2nd Defendant had been told by the 1st Defendant to hurry home to meet the Plaintiff. Had she been told of that she would certainly have gone to the bank earlier bearing in mind that the stock market closed at 3.30 p.m. Alternatively she could go to the bank at some other time.

55. Even assuming that she had been told to meet the Plaintiff she could not have met the Plaintiff in the manner Plaintiff described.

56. She was at the entrance of the bank in Wing Lung Bank at 4.06 p.m. It would take her at least 3 minutes to open the box, make entry, put the shares in the box, lock it again before she left. By the time she left it would have been about 4.10 p.m. She then went to Po Sang Bank where she took the deposit receipt and went to watch the forex board in the mezzanine floor before going to the MTR station. This would take another 10 minutes. So by the time she reached the platform it would have been about 4.20 p.m. The journey home by MTR would have taken her at least another ½ hour. So the earliest she could have arrived back at No. 8 Dorset Crescent would be 4.50 p.m. by which time the Plaintiff would have left or was about to leave.

57. According to Richard Hung he also had taken a taxi to go from Prince Edward station to No. 8 Dorset Crescent. The time taken from Central to Prince Edward was about 20 minutes and the journey by taxi was about 8 to 10 minutes. So whether the 2nd Defendant went straight home by MTR or went to Prince Edward Station and then took her car home the time she spent would have been more or less the same.

58. According to the Plaintiff when he arrived at the sitting room the 2nd Defendant was already there and made him a cup of tea. In my judgment this is simply impossible.

59. Further I do not believe that he had filled in the cheque for $300,000 in the presence of the 2nd Defendant because firstly the Plaintiff did not expect he would meet the 2nd Defendant in that afternoon and secondly the purpose for his visit was to pay the deposit, it was just natural that he would have given the cheque to the 1st Defendant at his office. I also accept the evidence of Joyce Wu that the 1st Defendant handed her the cheque at the office.

Did the 2nd Defendant agree to the sale?

60. Having found that the 2nd Defendant was not at No. 8 Dorset Crescent when Plaintiff was there it does not mean that the 2nd Defendant did not give her consent to the sale because there is still the evidence from Walter Liu & Co.

61. In all the correspondence between solicitors Walter Liu & Co. wrote that they had instructions from both Defendants. If that firm had actual instructions that means the 2nd Defendant had consented to the sale.

62. The 2nd Defendant's evidence was that she has a strained relationship with the 1st Defendant because of their marital problem. In view of their strained relationship she had to look after her own affairs. She had never agreed to and did not know of the sale until one morning on 15th April 1992 when she went to Mr. Wu Hong Cheung's office where Wu told her that the Plaintiff complained to him that the 1st Defendant backed out of the sale. She had not seen Walter Liu nor Albert Au and had not given instructions to Walter Liu & Co.

63. The Plaintiff argued that both Defendants lived together, they were partners in business, travelled together, she knew of the 1st Defendant's investments and property values. Her acrimony was more directed at "the other woman" rather than the 1st Defendant. Given those facts the information as to the sale of the Company must have been known. Counsel for the Plaintiff had questioned the 2nd Defendant in detail showing that the 2nd Defendant could not have witnessed the telephone conversation between Wu and the Plaintiff. Be that as it may there was no other positive evidence to the effect that the 2nd Defendant knew of the sale by the 1st Defendant.

64. The 1st Defendant gave evidence that he did not tell the 2nd Defendant of the sale. He said he would try to persuade her once the Plaintiff signed the agreement. Albert Au said that in respect of the Property he had on a previous occasion handled the re-finance or further charge, he accepted instructions only from the 1st Defendant but the 2nd Defendant eventually signed all necessary documents. So on this occasion he assumed the 1st Defendant had authority from the 2nd Defendant. In fact he had not obtained instruction from the 2nd Defendant.

65. On 13th July 1992 Charles Yeung & Co. for the 2nd Defendant wrote to Walter Liu & Co. asking them to confirm that the 2nd Defendant had neither authorised nor instructed them to proceed with the sale. Walter Liu & Co. on 24th June 1992 replied saying "we consider that our confirmation is not necessary in the circumstances and accordingly we make no comment on your client's allegation". Albert Au's explanation is that it was embrassing to admit as he had not obtained instructions from the 2nd Defendant.

66. On the evidence before me there is clear evidence that

1) The 2nd Defendant was not present on 18th March 1992 when Plaintiff met the 1st Defendant

2) Walter Liu & Co. had not obtained instructions from the 2nd Defendant.

In the absence of any evidence which tend to show that the 2nd Defendant knew of the sale and had acquiesced the same I cannot be satisfied on balance that the 2nd Defendant agreed or consented to the sale.

67. In the circumstances the claim by the Plaintiff against the 2nd Defendant must fail.

Vacant possession clause in the proposed amendment to the draft sale and purchase agreement

68. Having disposed of the case against the 2nd Defendant I now deal with the issue concerning the proposed amendment by the Plaintiff by the insertion of the vacant possession clause in the draft Sale and Purchase Agreement.

69. On 27th March 1992, the 1st Defendant went to Walter Liu & Co. He brought along the Chinese draft agreement and told Albert Au to follow that document to prepare an English version.

70. On 6th April 1992, Leong Lam & Co. received the draft Sale and Purchase Agreement from Walter Liu & Co. together with other documents. The vacant possession clause was inserted by Wilfred Lam as a proposed amendment. According to him he added in that clause without instructions. His motive was purely to get a better deal for the Plaintiff.

71. A lot of time had been spent in cross-examination of the Plaintiff, and his other witnesses Wilfred Lam, Richard Hung & Ronald Chiu. There were microscopic examination of indentation marks found in the draft agreement returned to and kept by Walter Liu & Co.

72. However, it turned out to be a non issue and the 1st Defendant's representatives knew or ought to have known of that. According to Albert Au he told the 1st Defendant that concerning the Sale and Purchase Agreement the other side had added many things, the main thing was the vacant possession clause but the Plaintiff had not crossed out the non vacant possession clause. No doubt this required clarification. However, the 1st Defendant immediately told him he was not going to sell. Albert Au then advised the 1st Defendant that it was only a draft and it could be amended. The 1st Defendant then thought for a while and said still he was not going to sell. Au told him he had received $300,000 and he may be sued. Upon hearing that the 1st Defendant told him that he would settle the matter himself and that Walter Liu & Co. needed not represent him and that they should return the $3.2 million to Leong Lam & Co.

73. So nothing turned out of this clause save and except that it was just the 1st Defendant who was trying to look for some excuse to get out of the contract.

Repudiation

74. On instructions of the 1st Defendant Walter Liu & Co. on 14th April 1992 by letter to Leong Lam & Co. enclosed a cheque for $3.2 million and at the same time informed Leong Lam & Co. that they had no further instructions to act for the Defendants. A few days later the 1st Defendant sent to the Plaintiff a cheque in the sum of $300,000.

75. Despite of letters from Leong Lam & Co. to Walter Liu & Co. and the Defendants making enquiries about the Defendants new legal representatives there was no reply.

76. By conduct, the 1st Defendant had evinced an intention not to perform the agreement. The 1st Defendant had therefore by conduct repudiated the contract and is in breach.

Acceptance of repudiation

77. Acceptance of repudiation was not pleaded as an alternative defence until the Plaintiff in answer to a question in cross-examination said that the $3.2 million cheque had been cashed after counsel's advice had been sought. The 1st Defendant in evidence said that on 8th May 1992 Walter Liu & Co. told him that the cheque had been cashed. So his solicitors should know of this fact even before cross-examination of the Plaintiff. Irrespective of that, I gave leave to amend so as to enable all the real issues to be raised and determined even though at a late stage.

78. The facts relied on by the 1st Defendant is that when Walter Liu & Co. returned the $3.2 million cheque that cheque was cashed by Leong Lam & Co. without protest or qualification. The banking in of that cheque must have been authorised by the Plaintiff. Thus the Plaintiff evinced an intention not to be bound by his contractual obligation.

79. With respect, I do not agree.

80. Originally the $3.2 million was to be paid as a deposit. However, when Leong Lam & Co. tendered that amount to Walter Liu & Co. they stated that the amount should be treated as stake money and Walter Liu & Co. was to be stakeholder. This was agreed to by the 1st Defendant. Hence the terms of the agreement had been varied to the extent that the $3.2 million instead of being the further deposit had became stake money. The only deposit paid pursuant to the agreement as varied was the $300,000.

81. On 14th April 1992, Walter Liu & Co. returned the $3.2 million which they held as stakehold because they were told by the 1st Defendant and that they had no further instruction.

82. On 16th April 1992, Leong Lam & Co. replied and made known the Plaintiff's position by stating the following:-

"We note that you have stated that you have no instructions to act for the vendors. Please clarify to us if the vendors are represented by other legal representatives and if by chance you know of the particulars please let us know, so that we might be able to follow up the matter with them.

If, however, such notice to us means that the vendors wish to depart from what have been agreed, please however also let us know. At this stage, we are instructed that our client would not accept any departure from what has been accepted and hope that you might be able to convey the message to the vendors."

A copy of this letter was also sent to the vendors.

83. When the Plaintiff received the $300,000 cheque Leong Lam & Co. wrote to the Defendants twice on 28th April 1992. In one letter they enquired whether it was the Defendants who sent the cheque and for what purpose. In the other letter they asked the Defendants to reply with 2 days which new firm represented them to proceed with the sale failing which they would institute proceedings without further notice.

84. On 4th May 1992, the Plaintiff instituted the present proceedings and served the client on the Defendants on 6th May 1992 by registered posts.

85. What Leong Lam & Co. had done was to cash the cheque on 4th May 1992. This was the stakeholder's money which Walter Liu & Co. was bound to return irrespective of whether being told to do by the 1st Defendant or not once the Defendant's instructions had been withdrawn. Leong Lam & Co. did not immediately cash the cheque, they held onto the cheque and had written to both Walter Liu & Co. and the Defendants for directions and clarifications which were not forthcoming. In the absence of any further directions from the Defendants there was no longer any stakeholder to whom the Plaintiff can pay the money to even though the term that the $3.2 million should be held by a stakeholder remained unchanged.

86. The 1st Defendant has thereby created a situation whereby the Plaintiff was unable to carry out his obligation under the contract. It would be absurb to suggest that had Leong Lam & Co. not cashed the cheque, the money would have remained with Walter Liu & Co. Walter Liu & Co. had no further instructions, they would certainly not accept such responsibility as there was no obligation for them to do so. Besides there is no commercial sense to lay idle the $3.2 million.

87. When a party is in breach the innocent party can hold onto the contract or accept his breach.

88. The law and principle on repudiation and acceptance of repudiation are clearly set out in the following cases:-

89. In Johnson v. Agnew [1980] AC 367 at 382 per Lord Wilberforce "If the vendor treats the purchaser as having repudiated the contract and accepts the repudiation, he cannot thereafter seek specific performance. This follows from the fact that, the purchaser having repudiated the contract his repudiation having been accepted, both parties are discharged from further performance."

"If a man is entitled to one of two inconsistent rights it is fitting that when with full knowledge he has done an unequivocal act showing that he has chosen the one, he cannot afterwards persue the other, which after the first choice is by reason of the inconsistency no longer his to choose" per Lord. Atkin in United Australia Ltd. v. Barclay Banks Ltd. [1941] AC 1 at 30.

90. Persons are judged by their words or conduct to see whether they have made the election rather than their subjective intention. See Central Estates (Belgravia) Ltd. v. Woolgan (No. 2) [1972] 1WLR 1048 at 1052, 1054, 1056.

91. Further, acceptance of repudiation must be communicated to the party in breach or at least overtly evinced. State Trading Corp. of India Ltd. v. M. Golodetz Ltd. [1989] 2 Lloyd's Rep 277 at 286.

92. The election must be communicated to the other party though no particular form is needed. It is sufficient if the innocent party makes it unequivocally clear to the other party that he is treating the agreement as being at an end. See Car & Universal Finance Co. Ltd. v. Caldwell [1965] 1QB 525.

93. The 1st Defendant had created the situation which rendered the Plaintiff impossible to perform his 2nd obligation i.e. payment of the stake money. The 1st Defendant had never directly or through his solicitors made it clear that he was not going to sell.

94. The Plaintiff had through his solicitors made it known to the Defendants that he intended to persue the contract. He has thereby done an unequivocal act showing he has chosen to keep the contract alive. The cashing of the $3.2 million in my judgment was not an unequivocal act which if communicated to the Defendants would make it clear that the Plaintiff is treating the agreement as being at an end. The fact remained that the Plaintiff did not cash the $300,000 cheque showing the he had not accepted the return of the deposit. Further from correspondence and ultimately the commencement of these proceedings all these pointed to the fact that he had not accepted the repudiation.

Was the plaintiff ready and willing to perform

95. The Plaintiff had performed all his obligations under the agreement.

96. A lot of time had been spent by the 1st Defendant in cross-examination as to the means of the Plaintiff in raising the $3.2 million on 31st March 1992 and had asked for late discoveries of many documents in respect of the Plaintiff's financial position. This exercise was aimed at discrediting the Plaintiff's evidence only.

97. In my judgment it is irrelevant how the Plaintiff financed the payment as long as the $3.2 million had been paid in time. There is no suggestion that the party was unable to pay at the time of completion. In any event this is of no relevancy because of the anticipatory breach on the part of the 1st Defendant. Even if this were relevant I am satisfied from the evidence that the Plaintiff is a man of very substantial means and he would be able to complete at the date of completion.

Liability of the 1st defendant

98. The 1st Defendant had on 18th March 1992 entered into agreement with the Plaintiff for the sale of the Company without qualification. He cannot escape liability merely because he needed the 2nd Defendant's consent.

99. In Malhotra v. Choudhury [1980] 1 Ch 42 it was held that the Defendant "had shown no enthusiasm for carrying out his duty and had given no evidence of an attempt by himself to obtain his life's consent to the sale, he had not discharged the burden of proof that he was able to convey the property to the Plaintiff and in those circumstances the Plaintiff was entitled to substantial damages". Stephen LJ. at p.72 said "If a man makes a promise and does not use his best endeavours to keep it, it cannot take much and, in my judgment, may not need more to make him guilty of bad faith and to entitle the victim of his bad faith to his full share of damages to compensate him for what he has lost by reason of that breach of contract and bad faith."

100. No doubt the facts in Malhotra are different but the principle must be the same. In the present case the 1st Defendant had not discussed nor made any attempt to obtain the 2nd Defendant's consent. On the contrary the 1st Defendant immediately made up his mind not to sell upon hearing from Albert Au that the Plaintiff's solicitors had in the proposed amendment of the draft Sale and Purchase Agreement put in the vacant possession clause.

101. The 1st Defendant in cross-examination admitted that having seen the proposed amendment he thought it was a perfect excuse for him to get out of the deal.

102. The 1st Defendant is therefore in breach and is liable to the Plaintiff for damages for the loss of bargain.

The 1st defendant implied warranty of authority

103. The Plaintiff at the conclusion of the trial applied to amend yet again his statement of claim this time to plead damages as a result of the 1st Defendant's breach of implied warranty of authority. To this Mr. Lee for the 1st Defendant strenuously objected on the basis that it is too late and that when he opened his defence he had already addressed this problem and yet the Plaintiff had seen fit then not to amend.

104. The cardinal principle on amendment is that "... generally speaking, all such amendments ought to be made 'for the purpose of determining the real question in controversy ...'" (GL Baker Ltd. v. Medway Building and Supplies Ltd. [1958] 1 WLR 1216 at p.1231.

105. "It is a well established principle that "the object of the Court is to decide the rights of the parties and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights ... I know of no kind of error or mistake which, if, not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding matters in controversy, and I do not regard such amendments as a matter of favour or grace ... It seems to me that as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as such a matter of right on his part to have it corrected if it can be done without injustice, as anything else in the case is a matter of right" Cropper v. Smith (1883) 26 Ch. D. 700 at pp 710-711.

106. In Watts v. Spence [1976] 1 Ch. 165 far reaching amendments were allowed at the conclusion of the evidence. At p.175 per Graham J. "I do not think that any further evidence by, or cross-examination of, the witnesses could change my conclusions on this matter, nor do I think that there could properly be said that in the circumstances permitting the amendment was unfair to the Defendants. By it they were faced, albeit for the first time, with the real point in the case and it could I think have been unfair to the Plaintiff not to have allowed him to bring out the legal consequences of the evidence which had been given."

107. All the evidence were before the Court at the time of the application. There was no necessity for further cross-examination nor further witnesses need be called. What the Plaintiff did was to plead in the alternative so as to enable the Court to decide on the evidence and facts the legal consequences and matters in controversy. So subject to costs thrown away I allowed the amendment. There is no injustice caused by the amendment. In fact counsel for the 1st Defendant after having considered the amendment indicated that he did not require recalling of witnesses, nor call further witnesses nor any further submissions.

108. It is common ground that the sale was for all the shares in the Company. I have already found that there was a concluded agreement and terms to implement the agreement had been agreed in the afternoon of 18th March 1992 at the basement of 8 Dorset Crescent. The 1st Defendant had by his conduct implied that he had authority to sell the 2nd Defendant's share as well. Since the 1st Defendant gave evidence to the effect that he had never sought the 2nd Defendant's prior consent nor did the 2nd Defendant know anything about the Sale the 1st Defendant was in breach of his implied warranty of authority.

109. Hence the 1st Defendant is also liable to the Plaintiff for damages in respect of his breach of implied warranty of authority.

Specific performance or damages

110. The Plaintiff claims against the Defendants, inter alia, for specific performance of the agreement and damages in addition to or in lieu of specific performance. In law an innocent party in the face of a repudiatory breach can elect either to affirm the contract and sue for specific performance or to accept the repudiation and sue for damages. If he proceeds to persue the remedies in the alternative he will have to elect at trial which remedy to persue. See Johnson v. Agnew [1980] AC 367 at pp 392-4.

111. The Plaintiff's primary claim is for specific performance against both Defendants. This is on the premises that I find the 2nd Defendant was a party to the agreement. However as I had already found that the 2nd Defendant was not liable on the contract, I cannot give an order for specific performance

112. That being the case and in view of my finding that there was a concluded agreement the 1st Defendant would still remain liable as on the evidence he had acted on his own to sell all the shares of the Company. The Plaintiff is therefore entitled to damages for the loss of bargain arising out of the deal. Alternatively the Plaintiff is entitled to damages by reason of the breach of implied warranty of authority.

113. Section 17 of the Supreme Court Ord. Cap 4 entitles me to award damages in addition to or in substitution for specific performance.

114. In the premises the Plaintiff is entitled to claim damages either for loss of bargain or for breach of implied warranty of authority against the 1st Defendant.

115. It is quite proper for the Plaintiff to keep the contract alive but by 4th August 1992 it is clear beyond doubt the 1st Defendant was not going to fulfil his commitment the Plaintiff therefore has a duty to hedge his loss by either buying another property of similar shape and size in similar location or to accept the repudiation.

116. In the premises the date in which damages should be assessed is the date of the completion i.e. 4th August 1992 and I so order.

Conclusion

117. For reasons above I find that the 1st Defendant was in breach of the agreement and the Plaintiff is entitled to damages. Hence I make the following order:-

1) Claim against the 2nd Defendant dismissed.

2) Damages for breach of agreement or alternatively for breach of implied warranty against the 1st Defendant.

3) By consent assessment of damages adjourned to a date to be fixed before a Registrar.

118. As there were a lot of applications for adjournment due to the late filing of additional witness statements, discoveries and amendments I will hear counsel on costs.