XCHRX Laurence Pang & Co. (a firm) v. Lai Cheong Metal Button Manufacturing Ltd. & another

DCMP1309/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 1309 OF 2001

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J U D G M E N T

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1. I have before me an originating summons for interpleader relief taken out by the Plaintiff, a firm of solicitors, against the purchaser and vendor of a property, the sale and purchase of which was completed on 23 December 1999, the 1st Defendant being the purchaser in the transaction and the 2nd Defendant being the vendor.

2. Prior to the completion of the sale and purchase, a matter relating to certain renovation work to the common parts of the building in which the property was situated came to light. And after some solicitors' correspondence and prior to the completion of the sale and purchase, in a letter written by those representing the purchaser to the Plaintiff who were then solicitors acting for the vendor, the 2nd Defendant in the present case, the solicitors for the purchaser enclosed the balance money required for completion of the sale and purchase, imposing the usual solicitors' undertakings for completion as well as an additional undertaking relating to the renovation matter I referred to above. The relevant part of that undertaking read:

"To stakehold a sum of [HK$300,000] pending settlement of the contribution payable by the vendor as one of the co-owners of the captioned building towards the costs for such renovation and/or maintenance work as required and approved under a meeting of the incorporated owners of the captioned building held on 10 December 1999."

3. Although there was no formal reply from the Plaintiff, i.e. the solicitors for the vendor, it is clear and not disputed between the parties that by their subsequent conduct in accepting the payment of the balance of the purchase price so sent over to them by the purchaser's solicitors and by the completion of the sale and purchase of the property, the required undertaking had been given by the Plaintiff solicitors.

4. Subsequently, it was ascertained that the renovation cost payable by the owner of the property in question well exceeded $300,000. The vendor refused to pay the money and that led to further correspondence between the solicitors acting for both parties after completion. So on 31 January 2000, writing on behalf of their client (the vendor), the Plaintiff solicitors wrote that in their opinion, their client was not responsible for bearing or contributing towards such portion of the renovation cost demanded by the management of the building on the ground that the renovation cost had not been finalised before completion and pursuant to clause 25 of the Sale and Purchase Agreement in question, their client as vendor was not responsible for the cost, it being post-completion renovation cost rather than pre-completion renovation cost, to put the matter shortly.

5. Correspondence ensued and the vendor still refused to pay the renovation cost. A sum of $300,000 had been withheld by the Plaintiff solicitors. Eventually, the 1st Defendant as the new owner of the building, for quite understandable reasons, paid the renovation cost repeatedly demanded by the management which in fact exceeded $400,000, and after payment of the renovation cost, the solicitors acting for the purchaser continued to press the Plaintiff solicitors for their client's repayment of the renovation cost. They also made demand on the Plaintiff solicitors personally for the release of the sum of $300,000 stakeheld by the solicitors on the ground that the contribution towards the renovation cost had actually been paid by the purchaser and there was no further reason for the Plaintiff solicitors to hold on to the sum of money in question.

6. The 1st Defendant, i.e. the vendor, through its solicitors, threatened to sue the Plaintiff solicitors for the release of the sum of $300,000 and at the same time, the Plaintiff solicitors wrote to the 2nd Defendant asking her whether she made any claim to the sum of $300,000 in question. The 2nd Defendant wrote back. Amongst other things, she queried whether it was her responsibility to pay the renovation cost and she did not permit the Plaintiff solicitors to release the sum of money to the 1st Defendant.

7. So, less than one month after those letters representing adverse claims to the sum of $300,000 then stakeheld by the Plaintiff were written, the Plaintiff took out the present proceedings asking for interpleader relief.

8. The sum of money, the subject of this application, has since been paid into court pending the outcome of a separate District Court action between the vendor and purchaser relating to the renovation cost. In that separate District Court action, the vendor did not take any steps to defend the claim of the purchaser for the payment of the renovation cost amounting to over $400,000. A default judgment was entered against the vendor. The vendor subsequently took out an application to set aside the default judgment, but since then she again defaulted in making appearance at the hearing of the setting aside application. As a result, her application to set aside the default judgment was dismissed.

9. Pursuant to an earlier order made in the present interpleader proceedings, the destiny of the sum of $300,000 rests in the hands of the court.

10. It is now clear from the development described above that subject to one matter, the money belongs to the purchaser who has won the separate District Court action. The sum of $300,000 paid into court should be released to the 1st Defendant, as I say subject to one matter which took up some time for argument this morning.

11. The Plaintiff said, in accordance with the usual practice in interpleader proceedings, that the money to be released to the successful claimant should be subject to the Plaintiff's first charge for their costs of the interpleader proceedings. The Plaintiff said their case falls within the provisions in Order 17 of the Rules and therefore the usual order as to costs should apply.

12. This was resisted by Mr Choi, solicitor acting for the successful claimant, i.e. the purchaser. After some argument and clarification, it became clear to me that Mr Choi's objection was based on two grounds, he not disputing that usually the party taking out the interpleader relief should get costs in the form of a first charge over the subject matter of dispute. His argument was a twofold one:- There was on the proper construction of the undertaking given by the Plaintiff solicitors in the aforementioned situation a breach of that undertaking. Second, in any event, the Plaintiff solicitors had acted improperly or wrongfully and that led in fact to the making of a wrongful adverse claim by the vendor to the sum of money in question, which as I said, in turn led to the need for the Plaintiff's taking out an application for interpleader relief.

13. Mr Choi's first point was that on the proper construction of the undertaking, in the event that the vendor did not pay her share of the renovation cost and in the event that that cost was paid by the purchaser, the whole reason for stakeholding the sum of $300,000 would be gone, particularly when the share of renovation cost exceeded the sum of $300,000, and the Plaintiff solicitors ought to have, in that event, released the sum of $300,000 to the purchaser as partial repayment of the share of renovation cost which ought to have been paid by the vendor.

14. Mr Choi accepted that the actual undertaking imposed on the Plaintiff solicitors did not spell out the above construction in so many words and that was why he had to say that it must have been the obvious intention behind the undertaking that in the eventuality which I have just described, the stakeholder, i.e. the Plaintiff solicitors, ought to have released the money to his client.

15. I can see the force of this argument. I can understand the sentiment behind and I can see the common sense behind this argument. The whole point of stakeholding a sum was to ensure that the vendor would pay her share of contribution towards the renovation cost. If she did not pay it and if the money was paid by the purchaser, then of course the sum of $300,000, which acted as a sort of security, should be released to the purchaser. But an undertaking is a serious matter, particularly an undertaking given by solicitors. Whilst on the one hand it should be strictly enforced in case of any breach, on the other, it should not be lightly considered as having been breached unless it was plainly so. Whilst I can understand the logic and common sense behind the construction of the undertaking put forward by Mr Choi, I am not convinced that the undertaking actually went that far in the present case in the light of the wording of the undertaking.

16. One very reasonable and possible interpretation, and in my judgment the correct interpretation or construction of the undertaking, is that in the eventuality which I have described, the Plaintiff solicitors should continue to stakehold the money and must not release the sum of $300,000 to their client, i.e. the vendor, and on the other hand, it would be for the purchaser to sue the vendor to establish his entitlement to repayment of the renovation cost from the vendor and after obtaining judgment, that judgment can be enforced against the sum of $300,000 held by the Plaintiff solicitors by the purchaser's taking out appropriate execution process like an garnishee order. In my judgment, that should be the more correct construction of the undertaking in question. So I would not hold against the Plaintiff solicitors as having acted in breach of the undertaking.

17. I would only add that had I found myself in agreement with Mr Choi's argument, then according to Lau Mui-fun v K C Chan & Co [1993] 2 HKLR 90, a case I personally have some reason to have some good recollection of, the Plaintiff solicitors would not be entitled to obtain interpleader relief at all because ex hypothesi the solicitors would have been acting in breach of their own undertaking and it would not be right for the solicitors to get round their own undertaking by seeking interpleader relief. But as I say, I am not with Mr Choi on this point, so this argument does not assist me in the question of costs.

18. But there still remains Mr Choi's second argument which is this: it is clear from the wording of the undertaking that by accepting the undertaking and by giving the undertaking in the context, the Plaintiff solicitors must have accepted on behalf of their client, amongst other things, that their client, i.e. the vendor, was responsible for settling the contribution payable by the vendor, as one of the co-owners of the building, towards the renovation and maintenance cost as to be demanded by the incorporated owners. In other words, the fundamental premise of the undertaking was that the vendor was liable to pay the contribution. It did not say that the vendor might be liable to pay contribution. It simply said that the sum was stakeheld pending settlement of "the" contribution payable by the vendor. The words "if any" did not appear in the undertaking to qualify the vendor's liability for payment.

19. So regardless of the true or proper construction of clause 25 in the Sale and Purchase Agreement imposing an obligation on the part of the vendor to be responsible for pre-completion renovation cost but not post-completion renovation cost, and regardless of whether the renovation cost in question had been quantified or the liability to pay the cost had accrued pre-completion or post-completion, by agreeing to give the undertaking, the Plaintiff solicitors had on behalf of their client conceded their client's, i.e. the vendor's, responsibility to pay the renovation cost in question. As I said, that was the basic premise of the undertaking.

20. Viewed in that light, the subsequent letters written by the Plaintiff solicitors on behalf of their client disputing the vendor's liability to pay the renovation cost went directly against the basic premise of the undertaking and was, in my view, quite wrongful and improper given the concession embodied in the undertaking.

21. So, for instance, as I mentioned above, in the Plaintiff solicitors' letter dated 31 January 2000, the Plaintiff solicitors on behalf of their client put forward an argument which was totally against the basic premise of the undertaking, i.e. that the vendor was responsible for the renovation cost.

22. In those circumstances, I cannot say, and in this regard I agree with Mr Choi's submission, that the Plaintiff solicitors were not interested in the present interpleader application which was a prerequisite for somebody obtaining interpleader relief. In fact, it was pursuant to such wrongful or improper course maintained by the 2nd Defendant, i.e. the vendor, through the Plaintiff solicitors, which, in my judgment, eventually led to the making of an adverse claim by the 2nd Defendant to the sum of money in question and thus eventually, as I also said, the need for the Plaintiff solicitors to seek interpleader relief. Put another way, in a sense, the need to seek interpleader relief on the part of the Plaintiff solicitors was a self-induced one; and put yet another way, the Plaintiff solicitors had only themselves to blame for being faced with an adverse claim by their client, i.e. the 2nd Defendant, to the sum as a result of the wrongful denial of the vendor's responsibility towards the payment of the renovation cost, the vendor having through the Plaintiff solicitors conceded the responsibility to do so as embodied in the undertaking given by the Plaintiff solicitors.

23. In this regard, I note that the court's discretion as to costs is wide and the court can, and in fact must, take into account all relevant considerations and circumstances in the exercise of its discretion as to costs.

24. In this regard, I bear in mind what Woo J (as he then was) said in Leung Ho-yui v Winner Godown Limited [1994] 1 HKC 503, involving an interpleader case but rather different facts. So for this reason, in my judgment, it would not be right for me to give the costs of the application for relief to the Plaintiff. Rather, it should be the other way round. But for the wrongful stance maintained by the 2nd Defendant through the Plaintiff solicitors since shortly after the completion of the sale and purchase, there would have been in all likelihood no adverse claim at all to the sum of money in question. Any possible dispute would have been between, I would have thought, the Plaintiff solicitors and their own client (regarding whether the undertaking ought to have been given in the first place); and the sum of money in question ought to have been released earlier to the 2nd Defendant by one way or another.

25. So in those circumstances, not only am I not ordering costs in favour of the Plaintiff, in the exercise of my discretion I order costs against the Plaintiff solicitors in favour of the 1st Defendant. So for all these reasons, I order that:

1) The Plaintiff and 2nd Defendant pay the 1st Defendant its costs of these proceedings to be taxed if not agreed.

2) No order as to costs in respect of the Plaintiff's own costs of these proceedings.

26. That deals with costs. I should also make a substantive order relating to the disposal or the payment out of the money paid into court:

1) The money paid into court by the Plaintiff in these proceedings together with all accrued interest thereon be forthwith paid out to the 1st Defendant in partial satisfaction of the judgment dated 20 September 2001 in DCCJ 12733 of 2001 entered by the 1st Defendant as Plaintiff therein.

2) A costs order in favour of the 1st Defendant against the Plaintiff and the 2nd Defendant (as aforesaid).

3) Subject to the above, no order as to costs in respect of the Plaintiff's own costs of these proceedings.