CHUNG LAI PING ISABETHLA AND ANOTHER v. WIN UNITED DEVELOPMENT LTD

DCCJ2416/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2416 OF 2002

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JUDGMENT

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Introduction

1. I have before me two summonses taken out by the Plaintiffs in the original action, who are the 1st Defendants' in the counterclaim, and by the 2nd Defendant in the counterclaim to strike out the Defendant's counterclaim (in the original action) because it is said to disclose no cause of action or otherwise falls foul of the remaining grounds available under O.18 r.19 of the Rules of the District Court (RDC) which provide for the striking out of a pleading or parts of it.

2. For ease of identification I propose to refer to the 1st Defendants to the counterclaim as the Chungs', the counterclaiming Defendants as Win United and the 2nd Defendant to the counterclaim as the Chans'.

3. The history and background to this matter can be stated shortly. Much of it appears in the judgment of Judge Lok dated 7th November 2002 (page 303). This all dates back to an agreement dated 9th October 2001 whereby the Chungs' agreed to sell to Win United a house in the New Territories for $2.6 million. Under the agreement completion was to take place on 11th March 2002. This date was extended, by two subsequent agreements, to 8th April 2002. Under the terms of these agreements Win United paid the Chungs' a deposit, representing 20% of the purchase price, amounting to $520,000. Win United failed to complete on the due date and the Chungs' brought an action against it in the sum of $593,000. This amount is the alleged loss suffered by the Chungs' due to Win United failure to complete the conveyance. It is quantified in the following way. On the day following Wing United's repudiation of the agreements the Chungs' sold the property to the Chans' for the considerably lower price of $1.5 million. Their gross loss therefore was $1.1 million, less the deposit which they purported to forfeit, plus $13,000 in wasted conveyancing fees, giving the amount claimed.

4. The Chungs' then took out a summons under Order 86 RDC which was heard by Judge Lok. Having rejected a number of submissions, which were said to give rise to a triable issue, the judge entered an interlocutory judgment in favour of the Chungs' in terms that Win United were to pay the Chungs' damages to be assessed. He declined to enter a final judgment in the amount claimed because he was of the view that the Chungs' claim was one that required investigation beyond mere calculation and he also observed that the sale to the Chans', which occurred the day immediately following Win United's repudiation, was 42% lower than the price contracted for between the Chungs' and Win United. This he said must give rise to an inquiry as to whether the Chungs' had sufficiently discharged their duty to mitigate their loss. Win United should be allowed to dispute quantum on the assessment. There was also an additional issue as to whether the 20% 'deposit' is to be properly viewed as a deposit and as such amenable to being forfeited, or whether it is a part payment of the purchase price, in which circumstances it may not be forfeited. Win United should therefore be able to bring a counterclaim to recover this amount. For these reasons therefore Judge Lok considered it right to only enter an interlocutory judgment. There has been no appeal from that judgment.

The counterclaim

5. Given the nature of the summonses that I am required to rule on it is helpful to set out the counterclaim, which fortunately is a short pleading, in full.

"1. Unless otherwise indicated

(1) The Plaintiff (by counterclaim) shall hereinafter be referred to as "Win United";

(2) The 1st Defendant (by counterclaim) shall hereinafter be referred to as "Chungs";

(3) The 2nd Defendant (by counterclaim) shall hereinafter be referred to as "Chan Lin Fa";

(4) References herein to numbered paragraphs are references to paragraphs in the Statement of Claim, and

(5) Win United adopts the abbreviations used in the Statement of Claim.

2. Paragraphs 1 to 7 of the Statement of Claim are admitted.

3. Save that it is denied that Win United was in breach of any provisions of the Agreement as varied by the provisions of the Supplemental Agreement and the Further Supplemental Agreement as alleged, paragraph 8 is admitted.

4. Save that it is admitted that by a letter of 8th April 2002 from Chung's solicitors to Win United's solicitors, Chungs alleged repudiation/breach of the Agreement by Win United, accepted Win United's alleged repudiation/breach, purportedly forfeited all the monies and deposit received, purported terminated the Agreements and reserve their rights, paragraph 9 is denied.

5. Paragraph 10 and 11 are denied.

6. Chungs was entitled to forfeit the sum of HK$520,000.00 being deposits and part payment of the Purchase Price paid under the Agreement. The said sum of HK$520,000.00 represents 50% of the Purchase Price. Chungs is obliged to refund the said sum of HK$520,000.00 to Win United.

7. Chungs purportedly entered into a provisional agreement for sale and purchase dated 9th April 2002 with Chan Lin Fa for the sale of the Property at the price of HK$1,500,000.00. A formal agreement for sale and purchase was purportedly entered into by Chungs and Chan Lin Fa on 22nd April 2002. The purported sale was purportedly completed on 21st June 2002.

8. The purported sale by Chungs to Chan Lin Fa was not a genuine and/or bona fide transaction. The purported sale took place immediately on the next day following the purported termination of the Agreements. The purchase price of the purported sale was at a gross undervalue. Therefore the purported sale of the Property by Chungs to Chan Lin Fa is void and of no effect.

9. Further or alternatively, the Chungs failed to act reasonably in re-selling the Property at the market price.

10. In the premises, Chungs is not entitled to claim any loss or damage as alleged or at all.,

AND THE PLAINTIFF (BY COUNTERCLAIM) CLAIMS AGAINST:

(A) THE 1ST DEFENDANT (BY COUNTERCLAIM):-

1. the sum of HK$520,000.00 according to paragraph 6 above;

2. interest pursuant to Sections 49 and 50 of the District Court Ordinance Cap. 336 at such rate and for such period as the Court thinks fit;

3. an order that the alleged sale from Chungs to Chan Lin Fa be set aside;

4. further or other relife;

5. costs.

(B) THE 2ND DEFENDANT (BY COUNTERCLAIM):-

1. an order that the alleged sale from Chungs to Chan Lin Fa be set aside;

2. further or other relief;

3. costs."

It becomes clear therefore that two aspects of the Chungs' claim come under challenge. Firstly, whether the $520,000 (20% of the purchase price) is a genuine deposit and therefore amenable to forfeiture and secondly, the bona-fides, to use a general expression, of the subsequent sale to the Chans' at a 42% discount to the original purchase price, with a prayer that this said sale should be set aside.

The summonses

6. The Chungs', inter alia, seek to strike out paragraph 3 of the prayer which asks for an order setting aside their sale to the Chans'. The Chans' summons is to the same effect. It is convenient therefore to take this first.

7. As is clear from the note to O.18 r.19 a party that applies to have its opponent's pleading or part of it struck out as disclosing no cause of action takes on a very difficult burden. It needs to show that its opponent's pleading is bound to fail. In assessing this matter it is crucial to have regard to the effect of Judge Lok's judgment. Quite clearly the judge found that Win United was in breach of its obligation to complete on 8th April and that the Chungs' were entitled to accept that repudiation, which they did. Thereafter, they were free to do with the property has they wished, including to sell it at whatever price they decided upon. The fact that it is said that they have sold it at a gross undervalue is not a ground for setting aside that particular transaction. The alleged undervalue can only sound in quantum on the assessment of the Chungs' losses arising from Win United's breach of contract. There is simply no prospect whatsoever of a court, on the basis of these pleadings and, assuming everything in Win United's favour on the facts, of setting aside the conveyance to the Chans'. Accordingly I will strike out paragraph 3 of the prayer against the Chungs' and paragraph 1 of the prayer against the Chans'. The effect of it therefore must be that there will be an order in terms of the Chans' summons save that the order for costs will an order nisi. As to the Chungs' summons I make an order in terms of paragraph 1(c) and (d) and now proceed to consider the rest of their summons.

8. Paragraph 1(a) seeks to strike out the following from paragraph 3 of the counterclaim:

"save that it is denied that Win United was in breach of any provisions of the Agreement as varied by the provisions of the Supplemental Agreement and the Further Supplemental Agreement as alleged,...."

It seems to me that this plea simply cannot stand in the face of the interlocutory judgment. The judge found that Win United was in breach of the agreement - this after all was the whole basis of his having entered interlocutory judgment from which, as I have already observed, there has been no appeal. A pleading in these terms cannot be allowed to stand where such a plea must be res judicata and simply not maintainable.

9. Where I have had no difficulty in finding in the Chungs' favour in respect of the matters which I just decided, equally, I have no difficulty in finding against them on the application to strike out paragraph 10 of the counterclaim which is as follows:

"In the premises, Chungs' is not entitled to claim any loss or damage as alleged or at all."

Plainly, this plea must be allowed to stand putting in issue, as it does, the losses now claimed by the Chungs'. On the assessment the court will be required to investigate the question of the deposit and all of the circumstances surrounding the sale to the Chans'. If it holds that the sale was, in all the circumstances, at a material undervalue then such paper losses as may have been proved may well not be recoverable from Win United. This all remains a live issue and the plea in paragraph 10 is an entirely proper one.

Costs

10. As to costs, on the Chungs' summons I would have thought that the costs should be in the assessment. I appreciate that they have succeeded on two of the three issues raised but the final outcome may well have a real bearing on the overall matter of costs. Let the judge hearing the assessment decide how costs should be disposed of between these two parties once he has decided on quantum. The dispute between them differs from the discrete issue concerning the Chans' where Win United would have had no prospect of success on their plea to set aside that conveyance. This order for costs will also be an order nisi.

11. The Chans' have also taken out a summons dated 13th May for security of costs and for the vacation of the lis pendens caution on the property register. In view of the fact that I have struck out the action against them it follows that the caution must be vacated. As to the application for security for costs that is no longer a live issue and so I make no order in respect of that application. As to the costs of this summons I would have thought that the costs of and occasioned by the registration and the vacating thereof should be paid by Win United to the Chans'. For the sake of completeness, I will also abridge time for the service of that summons. Again this order for costs must be an order nisi in the usual way. There is also a summons by the Chans' for interrogatories which is dated 14th May. Having regard to the orders that I have already made this summons is no longer required and I will give the Chans' leave to withdraw it with no order for costs. This order for costs will also be an order nisi. That, I think, now has the effect of disposing all of the summonses currently before the court.