POZDNYAEV, DENIS AND ANOTHER v. KINVAST LTD

HCA 1808/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1808 of 2014

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J U D G M E N T

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Background

1. The 1^st plaintiff (“P1”) is, and was at all material times, the director (ie the head) of The Orthodox Brotherhood of Apostles Saints Peter and Paul (“the Church”).  P1 sues in his personal capacity.  The 2^nd plaintiff (“P2”) sues in his capacity as representative of and for and on behalf of the Church. 

2. The Church is a society registered under the Societies Ordinance (Cap 151).  The Church is an unincorporated association of persons for the dissemination of theory and practice of the Orthodox Church which carries on business at Room 701, 7^th Floor, Arion Commercial Centre, 8 Queen’s Road West, Hong Kong.

3. The defendant (“D”) is, and was at all material times, the registered owner of the property known as 7^th Floor, Kingdom Power Commercial Building, 32‑36 Des Voeux Road West, Hong Kong(”the property”).

4. By a provisional sale and purchase agreement made on 30 April 2014 (“the PSPA”) entered into between D as vendor , the Church as purchaser, and Landscope Real Estate Services Ltd (“Landscope”) as the agent, D agreed to sell the property to the Church at the price of $15,800,000 on the terms and conditions contained therein.

5. It was agreed in the PSPA that the purchase price of $15,800,000 be paid by the Church as follows:

(a) $1,000,000 as initial deposit (“the initial deposit”) on signing the PSPA;

(b) $580,000 as balance of deposit “upon signing of formal agreement for sale and purchase on or before 14 May 2014”;

(c) $14,220,000 as balance of the purchase price upon completion on or before 16 June 2014.

6. The PSPA was signed by Mr Hugo Kwan (“Mr Kwan”) on behalf of D, P1 on behalf of the Church and Mr Tang Chi Keung (“the estate agent”) on behalf of Landscope.

7. The initial deposit of $1,000,000 was paid by the Church to D on 30 April 2014 upon signing the PSPA.

8. Although the PSPA provided that the balance of deposit in the sum of $580,000 be paid by the Church upon signing of the formal agreement on or before 14 May 2014, the balance of deposit was not paid.  The formal agreement was also not signed on or before 14 May 2014 or at any other time.

9. On 18 May 2014 D gave notice to the estate agent of its decision to forfeit the initial deposit.

10. By the amended statement of claim, P1 and/or P2 claim the return of the initial deposit.  They also claim a further sum of $1,000,000 as liquidated damages under the PSPA.

11. D denies that it has been in breach of contract and denies that it is liable to P1 and P2 as claimed.

12. When the writ was issued on 15 September 2014, P1 was the sole plaintiff.

13. By a summons dated 6 November 2014, D applied for an order to strike out the claim brought by P1.  D’s case is that P1 was not a party to the PSPA.

14. On 3 March 2015 P1 issued a summons (“the O.14A summons”) for an order that the issues of law identified in the Schedule to the O.14A summons (“the Schedule”) be determined under Order 14A, rule 1 of the Rules of the High Court and that consequential upon the determination of the issues of law, such judgment or order be made as the court considered appropriate.

15. On 16 April 2015 the master gave leave to P1 to amend the writ by adding P2 as the 2^nd plaintiff with an order that the costs of the striking out application by D and the costs of and occasioned by the amendment of the writ be costs in the cause.  The master also ordered that the O.14A summons be adjourned sine die with liberty to restore.

16. On 21 May 2015 D issued a summons seeking leave to amend the defence on 2 June 2015.  On 2 June 2015 D issued another summons (“D’s summons”) seeking an order that its earlier summons issued on 21 May 2015 be withdrawn and that D do have leave to amend the defence as shown in red in the copy annexed to D’s summons.

17. On 17 November 2015 the master gave O.14A judgment in favour of both P1 and P2 for the sum of $2,000,000 with interest and costs.  The master also dismissed D’s summons.

The appeal

18. By a notice of appeal dated 30 November 2015 D gave notice of appeal from the order of the master made on 17 November 2015 ordering that judgment be entered for P1 and P2.  By the notice of appeal D seeks an order that the master’s order be set aside with costs to D.

19. This is the hearing of the appeal.

20. By the O.14A summons P1 and P2 asked the court to determine the issues of law identified in the Schedule.  There are 4 issues of law set out in the Schedule as follows:

“(1) Whether, upon a true construction of the [PSPA] of 30 April 2014, and in particular the signature of the Plaintiff thereon as the authorized agent of [the Church] a non‑existing body, the Plaintiff would have contracted personally;

(2) Whether, in the event of an affirmative determination of Issue (1) above, the Plaintiff has both the right and liability under the [PSPA];

(3) Upon the express terms of the [PSPA] and the Defendant’s pleaded case that it called off the sale and purchase and forfeited the Plaintiff’s deposit on the ground that the Plaintiff had not made payment of the balance of the deposit on 14 May 2014, whether the Plaintiff or the Defendant would have repudiated the [PSPA];

(4) Having regard to the determination of Issues (1) to (3), the effect of the Defendant:‑

(a) admitting that demands having been made by the Plaintiff between 13 May 2014 and 14 May 2014, through the estate agent, for the contract to be performed by the Plaintiff (in his own name) or for the Plaintiff to nominate a company as the purchaser; and

(b) refusing the Plaintiff’s proposals to proceed with the sale and purchase”

21. When the O.14A summons was issued there was only one plaintiff, namely P1 suing in his personal capacity.

22. At the time of the hearing of the O.14A summons before the master, P2 had been added as the 2^nd plaintiff and leave had been given for the writ and the statement of claim to be amended.  Surprisingly, no leave was given to D at that time to file and serve an amended defence to the amended statement of claim.

23. Ms Eu SC, with Mr Choi, for D submitted, correctly in my view, that there are 3 issues in this case:

(a) Who is the purchaser;

(b) Who was in breach of the PSPA; and

(c) What is the consequence of such breach?

24. Mr Chong, with Mr Poon, for P1 and P2 submitted that issue (a) was no longer relevant at the time of the hearing before the master.  Mr Chong submitted that at that hearing he had informed the master that there was no need to answer the issues of law (1) and (2) in the Schedule as P2 had been added as the 2^nd plaintiff on 16 April 2015.

25. I am unable to accept the submission that it was no longer relevant to determine who the purchaser was under the PSPA.

26. P1 and P2 accept that the Church, being an unincorporated body, does not have a legal entity of its own and that the Church cannot itself sue or be sued.  Hence the addition of P2 as the 2^nd plaintiff.

27. However, by para 6 of the amended statement of claim, it is pleaded that P1 “in his personal capacity or alternatively [P2] in his representative capacity was and remained to be the purchaser as a matter of law who would be entitled to enforce and be liable under the [PSPA]”

28. It is a matter of construction of the PSPA as to whether P1 entered into the PSPA as principal or as agent for the Church.

29. Where the agent makes it clear that he is contracting on behalf of an unincorporated association, the contract will be made only with the persons who are his principals (para 7.03 Stewart on The Law of Unincorporated Associations).

30. In Hollman v Pullin (1884) C & E 254 it was held that there is no rule of law by which an agent professing to contract on behalf of a principal, either non‑existent or under a legal disability to contract, is to be deemed to be himself the contracting party.

31. As Ms Eu submitted, the evidence shows that P1 was authorized to act on behalf of the Church in signing the PSPA.  P1 signed the PSPA as the Church’s representative.  P1 signed the cheque for the initial deposit drawn on the Church’s account.

32. On the evidence, it seems to me that it is likely that P1 was not the purchaser and was not entitled to sue for breach of the PSPA.  I am unable to accept the assertion made at para 6 of the amended statement of claim that P1 in his personal capacity was and remained the purchaser as a matter of law.

33. I would observe that the master gave judgment to both P1 and P2 without a determination of who the purchaser was and who was entitled to sue.

34. In my view, it was not appropriate to ask the court to determine the issues of law as set out in the Schedule.  The determination of the issues of law are fact sensitive and where there are disputed facts, it was not appropriate to ask the court to proceed with the O.14A summons.

35. It is useful to bear in mind the observations of the Court of Appeal in Netwell Properties Ltd v JCG Finance Co Ltd [2004] 2 HKLRD 138. At para 6 Rogers VP said:

“The first observation which should be made is that the O.14A procedure is one to determine a question of law or construction of a document which arises in an action where the question is suitable for determination without a full trial of the action and the determination would finally determine the entire cause or matter of the claim. If there is a dispute as to the facts, it is difficult to see how judgment can be entered in favour of a claimant. Where a claimant seeks judgment under O.14A, the facts would have to be based on either established facts or agreed facts. As set out in the Hong Kong Civil Procedure 2002, Vol 1 at pp178‑179 para 14A/2/4, there should be no hypothetical facts and where the issues of fact are interwoven with the legal issues raised, it will be undesirable for the court to split the legal and factual determination, for to do so would in effect be to give legal rulings in vacuo or on a hypothetical ruling, which the court will not do.”

36. P1 and P2’s case as pleaded in the amended statement of claim is that:

(1) in the course of preparing for the formal sale and purchase agreement between 30 April 2014 and 12 May 2014 P1 and/or P2 discovered that due to a want of legal entity of its own, the Church could not, as a matter of law, become the owner of or to hold title in the property (para 8);

(2) on 13 May 2014, P1 and/or P2, through the estate agent notified D of the facts and matters referred to in (1) and P1 and/or P2 proposed to D “that the contractual purchaser would be changed to [P1] or a company to be formed by the [Church] …” (para 9);

(3) despite repeated demands between 13 May and 14 May 2014 , D failed or refused to proceed with the sale and purchase of the property inclusive of:

(a) cancelling the PSPA and entering into a new agreement by substituting P1 as the purchaser; and/or

(b) entering into a formal sale and purchase agreement in the name of P1 as the purchaser; and/or

(c) entering into a formal sale and purchase agreement in the name of a corporation to be incorporated by the Church as the purchaser (para 10);

(4) on 15 May 2014, D by an email of 10.20 am to the estate agent purported “to call off the sale and purchase under the [PSPA] on the ground that the ‘balance of deposit’ had not been paid” (para 11); and

(5) on 18 May 2014, D gave notice to the estate agent of its decision to forfeit the initial deposit of $1,000,000 (para 12).

37. Essentially, P1 and P2 rely on an implied term of the PSPA (“the implied term’) that the parties to the PSPA should co‑operate with each other so as to enable the sale and purchase of the property to be brought to a successful conclusion (para 5).

38. P1 and P2’s further allege that in breach of the implied term D:

(a) failed or refused to co‑operate with P1 and/or P2 so as to enable the PSPA to be brought to a successful conclusion and/or

(b) evinced an intention no longer to be bound by the PSPA thereby wrongfully repudiating the same.

By a letter dated 4 August 2014 P1 and/or P2 accepted D’s wrongful repudiation of the PSPA (paras 13 and 14).

39. P1 and P2 claimed the return of the initial deposit of $1,000,000 and also the further sum of $1,000,000 as liquidated damages under clause 7 of the PSPA.

40. D denies that there was the implied term in the PSPA and denies that it was in breach of the PSPA.

41. The evidence shows that on 12 May 2014 the estate agent sent a Whatsapp message to Mr Kwan informing him that the Church as a registered society had no legal status to buy the property.

42. On 13 May 2014 the estate agent informed Mr Kwan by a Whatsapp message that the purchaser’s solicitors would write to D’s solicitors to propose two solutions:

“Declaring this non‑enforceable sales agreement voidable and asking to refund 1 million. Second, cancel the previous preliminary sales agreement and change the buyer to enforceable entity ie Church bishop individual name”.

43. There is no evidence that such a letter was sent by the purchaser’s solicitors to D’s solicitors.

44. Another Whatsapp message was sent to Mr Kwan by the estate agent on 14 May 2014 at 1:49 pm stating:

“We propose to draft a cancellation agreement, stating that the provisional sales agreement is non‑enforceable ……”

And between 1.52 pm and 1.59 pm the estate agent proposed to Mr Kwan by Whatsapp:‑

“And immediately, we draft another sales agreement between you and individual person names from church ……. Please note the church is illegal to buy properties……”

45. The evidence also shows that on 14 May 2014 at 6.59 pm the estate agent sent an email to Mr Kwan informing him that the estate agent had visited the offices of D’s solicitors at about 4.15 pm that day and had left a message that the leader of the Church recently found out that the Church is not a legal entity and cannot buy property and that the PSPA was:

“actually non‑enforceable at the very beginning and must be cancelled. In this connection, today formal sales agreement cannot be executed between [D] and a non‑existent company.”

The email went on to say that the Church was forming a limited company in order to execute a new preliminary sales agreement and formal sales agreement and further requested an extension of the completion date from 16 June 2014 to 7 July 2014.

46. D refused to accede to the proposals put forward by the estate agent

47. It seems to me that whether or not there was the implied term in the PSPA is a matter in dispute between the parties.  Even if the court were to find that there was the implied term in the PSPA, there is still a dispute as to whether D was in breach because it refused to agree to cancel the PSPA and enter into a new sale and purchase agreement with a different entity.

48. Mr Chong relied on clause 3 of the PSPA which provided that:

“The said premises are to be sold to the Purchaser of (sic) its nominee(s) , sub‑purchaser (s) free from encumbrances”

49. It was submitted that the Church was entitled to compel D to sell the premises to its nominee or its sub‑purchaser.  However, the evidence shows that D was asked to cancel the PSPA (because it was said that the PSPA was unenforceable) and to enter into a new agreement with a different entity.  A request was also made to extend the time for the completion from 16 June 2014 to 7 July 2014.

50. It is arguable, in my view, that by seeking to compel D to cancel the PSPA and enter into a new agreement with a different entity it was P1 and/or P2 and not D who was in breach of contract.  It seems to me that unless there is a determination of the disputed facts, it cannot be ascertained whether P1 and/or P2 were in breach of contract or whether D was in breach of contract.

51. There is no dispute that the formal sale and purchase agreement was not signed.  The reason why it was not signed is a question of fact to be determined.

52. As Yuen JA said in See To Keung v Sunny Way Ltd [2009] 5 HKLRD 300 at para 4:

“As I understand it, the law relating to provisional sale and purchase agreements (as they are generally drafted) may be summarised as follows:

(a) A provisional agreement is immediately binding on the parties. Although it provides for a formal sale and purchase agreement to be signed, such formal agreement would only be to incorporate the express terms of the provisional agreement, to express any implied terms, and to add any new terms that may subsequently be agreed (Chu Wing Ning v Ngan Hing Cheung (unrep., HCA 9409/1991, [1992] HKLY 603)).

(b) Accordingly it is perfectly possible for the parties to proceed to completion without a formal agreement being signed.  However if no formal agreement is signed because one party has insisted on the inclusion of a clause that is unreasonable, that insistence may be regarded, depending on the individual circumstances, as conduct evincing an intention no longer to be bound by the terms of the provisional agreement (DH Shuttlecocks Ltd v Keung Shiu Tang [1994] 1 HKC 286.”

53. If P1 and/or P2 were found to be in breach of contract, then it is arguable that D was entitled to forfeit the initial deposit.

54. I would observe that the master not only ordered D to refund the initial deposit of $1,000,000 to P1 and P2, he also ordered that D pay $1,000,000 as liquidated damages.

55. In respect of the claim for the liquidated damages, Mr Chong relied on clause 7 of the PSPA which provided that:

“Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and be responsible for the reimbursement or payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific performance”.

56. The authorities show that a clause similar to clause 7 allows a vendor to resile from a transaction after signing the preliminary sale and purchase agreement by paying the purchaser a sum equivalent to the deposit paid in addition to the repayment of the deposit.  This clause has been described as an “escape clause” allowing a party who wishes to resile from the transaction within a short period of time after the provisional agreement to buy his way out (Yuen JA in See To Keung at para 4(c)). 

57. Mr Chong submitted that D had called off the sale and that it was, therefore, obliged to pay the further sum of $1,000,000 as liquidated damages under clause 7.  However, there has been no finding of fact made that it was D who called off the sale.  As I have said, unless there has been a determination of the disputed facts, it cannot be ascertained whether P1 and/or P2 were in breach or whether D was in breach.

58. The consequences of breach only arise after it has been determined which party was in breach.

59. Without a determination of the disputed facts, it seems to me that the court should not determine the issues of law (3) and (4) in the Schedule.

60. The master was asked to determine the issues of law set out in the Schedule without a determination of the disputed facts.  In my view, the master should have declined to determine the issues of law set out in the Schedule.

61. I allow the appeal and set aside the master’s order.

62. I make an order nisi that the costs of the hearing before the master and the appeal be costs to D, such costs to be taxed, if not agreed.