CHUNG SIU KONG AND OTHERS v. KITTY SO & TONG SOLICITORS (a firm)

CACV 157/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 157 OF 2010

(ON APPEAL FROM HCA NO. 643 OF 2010)

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BETWEEN

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J U D G M E N T

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Hon Rogers VP:

1.  These were 2 appeals made in respect of orders made in 2 separate but related actions. The first order appealed from was an order of Stone J, made on 24 June 2010, whereby it was ordered that the plaintiffs should have 50% of their costs of the application for injunctive relief against the defendant. The defendant, a firm of solicitors, appealed against that order and sought an order that the plaintiffs should bear the costs of those proceedings.

2.  The second order was made by Suffiad J on 27 May 2010 in a second action. By that order the plaintiffs were given leave to discontinue that action but the first, second, third, fourth and sixth plaintiffs were ordered to pay the defendant’s costs of defending the action and of the inter partes summons.  The plaintiffs appealed against that order.

3.  At the conclusion of the hearing of these appeals judgment was reserved which we now give.

Background

4.  The plaintiffs were 6 out of 8 persons appointed as Representatives of the overwhelming majority of owners of flats in Kai Tak Mansion under the terms of an agreement dated 27 March 2009 (“the Agreement”).  The terms of the Agreement that are important for the purposes of this case are as follows:

“1. Each of the Owners agrees to sell his Own Property jointly with the other Owners by way of public tender and on the terms and conditions as set out herein to the intent that the Building is sold as a whole.

2. Messrs. Kitty So & Tong, Solicitors be and are hereby appointed as solicitors for the Owners in relation to the Tender and in the subsequent sale of the Building.

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4. (The 8 representatives were named) be and are hereby appointed as the representatives of the Owners (“the Representatives”) and any five of the Representatives shall have and only have the following rights and powers to be exercised by any five of them jointly: -

(a) to discuss with and give instructions to Messrs. Kitty So & Tong and the Estate Agent regarding all matters incidental to the Tender;

(b) to sign and accept the Tender for and on behalf of the Owners if and when the price equal to or exceed the Reserved Price as stated in Clause 17 hereof and in accordance with the Tender Conditions as stated in Clause 10 hereof;

(c) to sign and accept an offer for and on behalf of the Owners if a private offer is received from any purchaser at any time prior to the Tender Closing Date provided that the price of such offer is equal to or exceed the Reserved Price as stated in Clause 17 hereof and the Terms are in accordance with the Tender Conditions as stated in Clause 10 hereof upon acceptance of the private offer by the Representatives for and on behalf of the Owners as aforesaid, all the references to the “Tender” in this Agreement shall include the “Offer” referred to herein as the context permits;

(d) If none of these offers to purchase the Building on the Tender received has a tender price equal to or exceeds the Reserved Price to negotiate with any tenderer (after the Tender Closing Date) for an increase of the offer price to a sum equal to or exceeds the Reserved Price;”

5.  Clause 10 provided that the defendant should prepare the tender conditions which had to be approved by the owners.  Clause 15 provided as follows:

“15 (a) If none of the offers to purchase the Building on the Tender received on or before the Tender Closing Date has a tender price equal to or exceeds the Reserved Price but any Tenderer thereafter increases his offer price to a sum equal to or exceeds the Reserved Price within 14 days of the Tender Closing Date, each of the Owners hereby agrees and undertakes that he will accept the offer.

(b) If none of the offers to purchase the Building on the Tender Received on or before the Tender Closing Date has a tender price equal to or exceeds the Reserved Price and no tenderer is willing to increase the offer price to a sum equal to or exceeds the Reserved Price within 14 days of the Tender Closing Date then and in such case the said Representatives shall within four months of the Tender Closing Date proceed with a second tender PROVIDED ALWAYS that if the Representatives shall be of the opinion (in consultation with the Estate Agent) that the then current market value of the Building shall be less than the Reserved Price then and in such case the said Representatives shall convene a meeting of the Owners to fix the new Reserved Price for the second tender;

(c) If the second tender is again unsuccessful this Agreement shall be terminated and the title deeds shall be returned to the respective Owners and/or the mortgagee(s) as the case may be.”

The background

6.  Prior to the issue of the first writ there had been a first, albeit unsuccessful, tender exercise.  It was therefore necessary to have a second tender exercise.  The upset price of the tender was $1.5 billion.  Prior to the closing date for the second tender, 31 March 2010, one tender had been submitted.  That had been unopened. On 29 March 2010 the defendant’s solicitors received a letter from another firm of solicitors which was headed WITHOUT PREJUDICE AND SUBJECT TO CONTRACT.  That letter stated:

“We are instructed that our client ( named in the letter as Oriental Generation Ltd) is interesting in purchase of the whole 100% shares of and interest in Kai Tak Mansion (Block 1 to Block 4), Kwun Tong Road, Kowloon (“ the property”) for HK$1,400,000,000 subject to the relevant necessary searches of the property.”

7.  The accompanying document indicated that the offer was in fact HK$1,500,000,000.  Although in the course of this appeal, Mr Leong SC, who appeared on behalf of the plaintiffs, persisted in arguing that this was an offer, it clearly was not an offer.  It was, at best, an invitation to treat.

The first Order

8.  In the first action the plaintiffs sought the delivery up of the unopened tender that had been submitted by the sole tenderer.  The defendant firm considered that they were bound by their instructions and that the letter which had been received from the other firm of solicitors did not constitute an offer which fell within the terms of clause 15 of the Agreement.  The defendant firm was unwilling to comply with that request by the Representatives on the basis that it did not conform with the Agreement which the owners had entered.  The matter came before Stone J and, to be brief, the matter was concluded when the defendant firm’s instructions were withdrawn.

The second Order

9.  The second action was commenced on 6 May 2010 and by that action the plaintiffs sought the delivery up of all title deeds and documents of title relating to Kai Tak Mansion.  Those title deeds, of course, belonged to the various owners of flats in Kai Tak Mansion and the relevant mortgagees, if there were any.

These appeals

10.  Despite the sustained arguments which were raised on behalf of the plaintiffs, I consider that the defendant firm had acted in a proper way and had performed their function as solicitors in a way which would be expected of a firm of solicitors acting properly in the interests of those for whom they were acting.  The invitation to treat which had been received did not conform to an offer which would have permitted the Representatives to entertain that offer in preference to any tender offer.  There was clearly a tender offer and the owners were entitled to know what that offer contained and were entitled to have it considered and not pre-empted by any invitation to treat such as that which had been received.  In my view, the defendant firm had acted properly and should be entitled to their costs of the first action.  They had relinquished the tender when their instructions were withdrawn.

11.  Mr Leong attempted to rely on clause 4(a) of the Agreement and he argued that the Representatives were entitled to give instructions to the defendant firm.  That is as may be. Nevertheless, the defendant firm was acting on behalf of all the signatories to the Agreement and was bound to protect their interests and to adhere, on their behalf, to the terms of the Agreement.  The Representatives were not entitled to act outside the terms of the Agreement.

12.  As regards the second action, the matter is even more clear.  The Representatives were not entitled to the title deeds.  If and when the second tender had proved to be abortive, clause 15 of the Agreement made clear that the title deeds had to be returned to the various owners or their mortgagees.  On the face of the Agreement, the Representatives, in this respect the plaintiffs, were not entitled to them.  The order by the judge below was clearly correct.

13.  I would therefore allow the appeal in respect of the first order and order that the costs of the action including an order nisi that those in this court should be to the defendant firm.  I would dismiss the appeal in respect of the second order with an order nisi of costs in favour of the defendant.

Hon Le Pichon JA:

14.  I agree with the judgment of Rogers VP.

Hon Cheung JA:

15.  I agree.