XCHRX MISTRAL GLOBAL LTD. v. THE KWONG SANG HONG INTERNATIONAL LTD.

1998 No. A4363

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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Introduction

1. By an agreement in writing dated 10th December 1997, the Plaintiff appointed the Defendant to market and sell various properties. Clause 4(1)(b) of the agreement expressly provided for the Defendant to pay the sum of US$200,000.00 to the Plaintiff on the execution of the agreement. The Defendant did not pay that sum, and the Plaintiff issued proceedings for its recovery. Mr. Registrar Betts entered summary judgment for the Plaintiff under Ord. 14, and the Defendant now appeals.

The agreement

2. To understand the nature of the defences which have been advanced, it is necessary to say something about the agreement itself. The recitals to the agreement show that the Government of the Russian Federation owned a number of embassies and trade delegations throughout the world. The Plaintiff was appointed the agent for some of those properties, and it was authorised to appoint persons to market and sell those properties on terms agreed by the Plaintiff. The agreement under which the Plaintiff is suing the Defendant is an agreement made pursuant to that authority. The Defendant's appointment was for two years from the date of the agreement.

3. The inclusion of a particular property in the agreement did not of itself mean that the Defendant had the automatic right to market and sell that property. Before the Defendant had that right, the property had to be "available to market". That phrase was defined in clause 2(5) of the agreement as follows:

" 'Available to market' ... means in relation to each Property when:

(i) all relevant consents from the Owner are obtained by [the Plaintiff];

(ii) the title of the Property is clear and free from all encumbrances; and

(iii) all necessary governmental regulatory or other approvals are obtained from the country where the Property is located.

Notwithstanding the above, [the Defendant] may in its sole discretion waive strict compliance with this clause 2.5."

However, once a property became available to market, the Defendant's right to market and sell that property crystalized. The Plaintiff was required by clause 3(1)(a) of the agreement to inform the Defendant in writing of the fact that the property had become available to market, and to provide the Defendant with all relevant information relating to the property.

4. The fact that the Defendant was then entitled to market and sell the property did not mean that it was obliged to do so. The Defendant could decide whether it wanted to market and sell any particular property. That is the effect of clause 2(4) of the agreement. In effect, the Defendant could decide whether it wanted to accept instructions to market and sell any of the properties. It could accept instructions in relation to those properties which it thought were marketable, and it could refuse instructions in relation to those properties which it thought were less so. It should also be noted that the Defendant was to have the field to itself in relation to the marketing and selling of the properties to which the agreement related. That is the effect of clause 2(2), which provided that during the period of the Defendant's appointment, the Plaintiff would not appoint any other person or company to market or sell the properties - except in relation to those properties for which the Defendant chose not to accept instructions.

The defences to the Plaintiff's claim

5. Three defences to the Plaintiff's claim for the payment of the $200,000.00 are relied upon, and I must deal with each in turn.

(i) Total failure of consideration. In para. 5 of his helpful skeleton argument, Mr. Anthony Houghton for the Defendant argues that:

"on a true construction of the agreement, the consideration to be received by [the Defendant] was the opportunity to perform agency services in connection with the sale of 50 properties on an exclusive basis, for a period of two years. No part of that consideration has been supplied."

In other words, what is alleged is that none of the properties have become available to market, and the Defendant has therefore not had an opportunity to perform the services which it was appointed to perform.

6. The evidence filed on behalf of the Defendant is that it has not received notice that any of the properties had become available to market. The evidence filed on behalf of the Plaintiff is that at least three of the properties referred to in the agreement have become available to market. Indeed, they became available to market before the agreement was even executed, and by the date of the agreement the Defendant had already introduced prospective buyers for those properties to the Plaintiff. In the circumstances, it is said by the Plaintiff that the giving of formal notice under clause 3(1)(a) of the agreement was in effect dispensed with, as the giving of such notice would have been superfluous.

7. But even if the Defendant had not been informed in writing that any of the properties had yet become available to market, the crucial point is that the Plaintiff's appointment does not expire until December 1999 - unless, of course, it has already been terminated pursuant to clause 8(1)(b) of the agreement, to which I shall come later. Assuming in the Defendant's favour that there is an obligation on the Plaintiff to make at least some of the properties available to market, the Plaintiff cannot be said to be in breach of that obligation until the Defendant's appointment has expired. The Defendant therefore had to pay the $200,000.00 on the execution of the agreement. The Defendant would be entitled to its return at the end of the two years if, but only if, there was an obligation on the Plaintiff to make at least some of the properties available to market, and if the Plaintiff was in breach of that obligation.

8. As it is, there is, in my view, no obligation on the Plaintiff to make at least some of the properties available to market. There is no express obligation on the Plaintiff to do so, and the Defendant has not filed any evidence which would support the implication of such an obligation. What the Defendant agreed to pay the $200,000.00 for was an exclusive agency to market and sell those of the properties which became available to market, though there was no guarantee or contractual promise on the part of the Plaintiff that any of them would.

(ii) Force majeure. The force majeure clause to which the agreement was subject reads as follows:

"Both parties will be released from their respective obligations in the event of national emergency, war, changes in government which will materially affect the ability of either party to perform its obligation under the Agreement reasonable control of the parties renders performance of the Agreement impossible whereupon [the Defendant] shall forthwith cease entering into the Contracts or carrying out the Services."

Something has plainly gone wrong with the drafting of this clause, but it makes sense if it is read in this way:

"Both parties will be released from their respective obligations in the event of national emergency, war, changes in government and other changes beyond the reasonable control of the parties which will materially affect the ability of either party to perform its obligations under the Agreement or renders performance of the Agreement impossible whereupon [the Defendant] shall forthwith cease entering into the Contracts or carrying out the Services."

9. Upon the assumption that the force majeure clause should be read in that way, three points are taken by Mr. Houghton. First, it is asserted that, since the Plaintiff has not performed its obligations under the agreement, that suggests that the Plaintiff is unable to do so in circumstances which could give rise to the operation of the force majeure clause. I reject that argument. For the reasons I have given, there was no obligation on the Plaintiff to make any of the properties to which the agreement relates available to market.

10. Secondly, it is asserted that there has been a change in government in Russia this year, and that that fact is notorious. Whether that has materially affected the Plaintiff's ability to perform its obligations under the agreement or renders performance of the agreement impossible is, partly at any rate, said to be a question of fact which can only be decided after discovery at trial. I cannot go along with this argument either. Assuming that there has been a change in government in Russia, it is for the Defendant to place before the court at least some evidence that that change has materially affected the Plaintiff's ability to perform its obligations under the agreement or renders performance impossible. The Defendant has not done that. Moreover, in view of my finding that there was no obligation on the Plaintiff to make properties available to market, there is nothing at all to suggest that the change in government (if there has been one) could affect the Plaintiff's ability to perform such obligations which it has under the agreement. And in any event, the Defendant's obligation to pay the sum of $200,000.00 arose on 10th December 1997, which was before the occurrence of the event which is said to have given rise to the operation of the force majeure clause.

11. Thirdly, one of the recitals to the agreement records the fact that the Defendant is a subsidiary of Peregrine Investments Holdings Ltd. ("Peregrine"). Peregrine is now in liquidation, and Mr. Houghton contends that the reference to Peregrine in the recitals shows that the involvement of Peregrine in the transaction was "clearly of fundamental importance", and that its liquidation is "highly likely" to fall within the ambit of the force majeure clause. I reject that argument for precisely the same reasons as I have rejected the argument based on the supposed change of government in Russia.

(iii) The termination of the agreement. Clause 8(1)(b) of the agreement provides:

"This Agreement shall terminate ... if either of the parties fails to comply with any of the terms and conditions of the Agreement and such failure, if capable of remedy, is not remedied within 14 days of receipt of a written notice of such failure from the other party."

Mr. Houghton contends that if this clause had the effect of terminating the agreement, the sum of $200,000.00 is no longer due to the Plaintiff because it was a debt which did not survive the termination of the agreement. I confess that I have not discerned any rational basis for saying that the Defendant's obligation to pay the $200,000.00 would not have survived the termination of the agreement. It would be absurd if the very breach of the agreement which caused the termination of the agreement, namely the failure to pay the $200,000.00, could result in that sum not being payable at all. It is, in my judgment, not possible to say that simply because certain clauses in the agreement made provision for what was to happen in the event of the agreement being terminated, therefore the absence of a provision relating to the payment of the sum of $200,000.00, if it had not been paid by the termination of the agreement, meant that it could not be recovered at all.

Conclusion

12. For these reasons, therefore, Mr. Registrar Betts was entirely correct to conclude that summary judgment should be entered for the Plaintiff under Ord. 14, and this appeal must therefore be dismissed.