HONG KONG TUNG PANG INTERNATIONAL LTD. v. SENLAVEER (PACIFIC) CO., LTD.

1996, No. A7319

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. On 29th August 1996 the Plaintiff herein entered Judgment against the Defendant in default of defence in the sum of HK$10,749,409.46, for rates to be paid and damages to be assessed, and for costs.

2. Pursuant to that Judgment the Plaintiff obtained a Charging Order on 8th October 1996 upon property assets belonging to the Defendant, and thereafter on 25th October 1996 the Defendant took out an application to, inter alia, set aside that Judgment and the Charging Order issued consequent thereon.

3. That application was heard by Mr. Registrar Betts on 17th March 1997, and at its conclusion the learned Registrar dismissed the Defendant's application with costs. I note that after the learned Registrar had rendered his decision the Plaintiff successfully applied, on the hoof as it were, to amend downwards the terms of the Judgment; the individual details appear on the face of the amended Judgment but in total the sum was reduced to HK$8,393,633.01 (from the original HK$10,749,409.46), the most significant element in such reduction being the crediting of the sum of HK$2,150,000.00 representing the total sum which had been deposited by the Defendant pursuant to the transaction in question and purportedly forfeited by the Plaintiff.

4. I mention this at this stage simply for the purpose of clearing the decks, as it were. On the second day of the resumed hearing before me Mr. Whitehead, who appeared for the Defendant, drew my attention to the Marginal Notes in the White Book at M/N 13/1/13. He has suggested that, certainly at the outset of the hearing below before Registrar Betts, that in the absence of any amendment the Defendant was entitled to have the whole Judgment set aside ex debito justitiae, that the incorrect procedure was used to effect the amendment (albeit telegraphed on affidavit) and (somewhat tenuously I think) since this was an appeal from Registrar Betts this aspect of the matter was inevitably "rolled up" within the present appeal. However, after hearing Mr. Mok in reply on the point with regard to the relevant procedures, and after further considering the manner in which this rather odd situation arose below, the fact that no point was taken in these terms below or indeed before me until right at the end of the hearing, and the fact that no appeal was made from the order of the learned Registrar in so amending, I have come to the conclusion that I should continue to approach this appeal on the basis that the Judgment in question is regular, which of course was the basis of the substantive argument both before me and also before the learned Registrar. Needless to say, if I thought (which I do not) that the amended Judgment now before me was irregular, I would immediately set it aside upon the usual principles.

5. But to revert to the sequence of events. As I have indicated Registrar Betts dismissed the Defendant's application, and it is from such dismissal that the case now comes before this Court pursuant to the Defendant's Notice of Appeal dated 20th March 1997, whereby the Defendant seeks the setting aside of the Judgment in default so entered, together with the discharge of the Charging Order, which was made absolute by Order dated 28th October 1996.

6. The hearing before me took a somewhat unusual course and was effectively in two parts. When the case came before this Court on 22nd April there was little, if indeed any, evidence as to the particular circumstances in which the Judgment had come to be entered, and I indicated fairly forcefully to Mr. Whitehead, who appeared for the Defendant, that this was a matter which caused me concern. It was my view that, absent any such evidence, I would be disinclined to consider the exercise of my discretion to set aside a regular Judgment.

7. Accordingly, at the conclusion of argument on that day Mr. Whitehead applied for an adjournment in order to put in evidence on the specific point, an application which was allowed; as a result the case was stood down and was restored before me for further argument on 21st May, hence the bifurcated nature of this hearing.

8. At the outset I remind myself of the relevant principles to be applied with regard to the setting aside of regular default Judgment: see in particular the commentary in the White Book at M/N 13/9/14; also the leading Hong Kong authority of Premier Fashion Wears Limited and Another v. Lee Hing Chung and Another [1994] 1 HKLR 377 (CA) in which the Court of Appeal laid down the relevant principles. As Bokhary J.A. pithily observed in the course of his Judgment:

"No defence is any good if it will not work in law even if based on fact. Likewise, no defence, whatever its effect in law if believed, is any good if it does not enjoy any real prospect of being believed. (Emphasis added)"

9. Does the Defendant in this case have "merits to which the Court should pay heed", merits which are sufficient to meet the required benchmark? Does the Defendant's case carry some degree of conviction, and is it one which enjoys a real prospect of being believed?

10. The Plaintiff's case is based upon a written agreement dated 21st December 1994, whereunder the Plaintiff agreed to sell and the Defendant agreed to purchase shop premises in a building called "Kamga Mansion". The purchase price was to be HK$21,500,000.00, and the Defendant paid an initial sum of HK$300,000.00 as deposit followed by a further deposit of HK$1,850,000.00, making a total sum deposited of HK$2,150,000.00 (as I have earlier indicated this latter figure was a major element in the amendment to the sums appearing face of the Judgment).

11. In a nutshell, the completion date was repeatedly extended or postponed by collateral or oral agreements on condition (and I believe that this is common ground) that the Defendant paid interest on the amount outstanding at such rate as was being charged by the Plaintiff's mortgagee under a mortgage agreement covering the property, and that the Defendant reimbursed the Plaintiff in respect of management fees and rates. The Defendant further contends that these sums as paid would be set off against the purchase price although, I gather, this latter aspect is disputed.

12. In any event, the completion date was repeatedly postponed by way of oral agreements. And it is in this area that the real dispute between the parties lies. The Plaintiff alleges that the last extension granted by the Plaintiff to the Defendant was to extend the date to 15th March 1996. To the contrary, the Defendant alleges that the date was further postponed in March 1996 so that the Defendant could arrange the necessary funding for the acquisition; in this context the Defendant's solicitors wrote to the Plaintiff's solicitors by letter dated 13th April 1996 setting out the agreement between their respective clients to extend the completion date until 10th May 1996. Such agreement is hotly disputed. The Plaintiff strongly denies any such agreement, both in correspondence and in the evidence, although at the same time I think it is fair to observe that it is less than certain on the papers before the Court which date is actually the operative date so far as the Plaintiff is concerned: three dates are mentioned in various places, namely, 15th March, 31st March and (somewhat oddly) 9th April 1996.

13. Be that as it may. The Plaintiff treated the Defendant's non-completion on or before 9th April 1996 as a repudiatory breach, and by letter dated 29th April 1996 the Plaintiff's solicitors wrote to the Defendant's solicitors accepting such repudiation and forfeiting the total monies deposited in the sum of HK$2,150,000.00. Thereafter, on 23rd May 1996 the Plaintiff exercised its right under Clause 10 of the Sales and Purchase Agreement and sold the property in question for the sum of HK$13,542,400.00, thereby allegedly incurring a loss of HK$7,957,600.00 on the resale (that is the sale price under the Agreement of HK$21.5 million less the sum actually received from the third party purchaser).

14. Accordingly, the claim as prayed was for this deficiency in sale price, together with sums for legal costs and expenses (HK$38,375.00) and for interest (HK$2,739,611.88) and management fees (HK$13,922.58) for the subject premises for the period 1st January 1995 to 22nd May 1996.

15. The total of these various sums amounted to the sum on the face of the original Judgment, although that Judgment has of course now been amended in the manner I have described. That, in substance, is the background.

16. Mr. Robert Whitehead, who has argued this case on behalf of the Defendant with his usual forcefulness and candour, maintains that his client indeed has merits to which the Court should pay heed. There is no need, I think, at this stage should do any more than to outline the main thrust of his argument. In brief, he takes three main points:

17. First, the evidential conflict as to the completion date. Clearly, he says, the date for completion is fundamental to the resolution of the dispute, because if the Plaintiff is found to have revoked the agreement before the due date, this would be a complete defence. Ergo, the date of completion is a primary factor to be determined at trial;

18. Second, he takes a point about the provisions of Clause 10 of the Sale and Purchase Agreement, which provided both for the forfeiture of the deposit qua liquidated damages and for "any deficiency" arising from such resale, also as liquidated damages. He asserts that it is a matter of construction for the trial judge as to the meaning of Clause 10 and as to whether it contains, as he asserts, penalty provisions and therefore whether the same are enforceable;

19. Third, Mr. Whitehead complains about the so-called "forced sale" of the premises apparently because of third party mortgagee pressure, and he says therefore the property has been sold at a gross undervalue, which raises issues as to the quantum of recoverability and whether, if the Defendant was indeed in breach (which is denied) the Plaintiff has properly mitigated its loss. Again, therefore, a matter for trial.

20. Mr. Mok, who has conducted the Plaintiff's case with his usual distinction, naturally seeks to maintain the Judgment as amended, and has argued cogently and persuasively that the points raised on the merits are, upon analysis, without substance sufficient to permit the Judgment to be uplifted. Descriptive compression does not do justice to his arguments; in outline, on the completion point he attacked to the quality and logic of the evidence placed before the Court by the Defendant, in particular with regard to the alleged final extension, on the penalty point he cited the recent Judgment of Lord Hoffman in Union Eagle Limited v. Golden Achievement Limited [1997] 1 HKC 173 at 178, which he submitted went diametrically against Mr. Whitehead's argument as to penalty within Clause 10, and on the "firesale" issue, he criticised the quality of the valuation evidence put in by the Defendant and pointed out, correctly, that there was no allegation whatever in the evidence that this sale at the price achieved was anything but a proper arm's length commercial transaction.

21. I feel bound to say that I have considerable sympathy with Mr. Mok's submissions particularly (and without expressing any concluded opinion thereon) in terms of his responses to points 2 and 3, but at the end of the day I am minded to let the Defendant back in, albeit by a very short head, so to speak, and to permit the case to go to trial on the merits.

22. Are there, therefore, other circumstances which should preclude such a cause? As Litton J.A. observed in Premier Fashions, op. cit., in such cases as this "all the relevant circumstances must be considered."

23. In this connection I have taken into consideration the evidence now lately put in as to the manner in which the Judgment came to be entered by the Plaintiff in the face of an apparently imminent, but unissued, Defendant's time summons, and I have also weighed in the balance Mr. Mok's trenchant criticism of such evidence as failing to improve the factual situation any further. At the end of the day, the Defendant's solicitor or members of his staff were clearly not as astute as they should have been in face of a case in which the solicitors acting on the other side had made it perfectly clear that the previous extension which had been consensually given had been given on the basis that time would run during the vacation.

24. However, what really gives me pause, and serious pause, is the existence of the time gap between the initial entry of Judgment, on 29th August 1996, and the date of the application to set aside the Judgment, on 25th October 1996. Mr. Mok submits, with considerable force, that the catalyst for the application to set aside was the Charging Order upon the Defendant's property assets consequent on the default Judgment obtained on 8th October 1996, and that until this process of execution began to "bite" the Defendants were happy to do nothing and to leave matters as they were.

25. I have encountered this type of time sequence before, and I do not think that Mr. Mok's surmise is far fetched, although I am obviously in no position at the moment to finally decide one way or the other. Accordingly, it is for this reason, and also in light of my general view of the case as a whole, that I am going to allow this appeal and to uplift this Judgment and to send this case to trial, but on terms. This is somewhat unusual but I clearly have power in the exercise of my discretion to impose such terms: see White Book M/N 13/9/14. As to this issue Mr. Mok asked for the total sum on the face of the amended Judgment to be paid into Court, i.e. some HK$8.39 million, whilst Mr. Whitehead suggested that if I was minded to impose terms on the giving of leave to come in and defend, that any such sum should be no more than the sum of HK$2,150,000.00, which sum represented the deposit monies purportedly forfeited by the Plaintiff and thereafter, of course, the subject of the amended Judgment.

26. After reflecting on the case, I consider that the just and appropriate course in all the circumstances is to adopt this figure of HK$2,150,000.00, and accordingly I so order, although I will of course hear counsel on the mechanics of such payment into Court and upon the provision of any bank guarantee in lieu.

27. In summary, therefore, to revert to the terms of the Notice of Appeal presently before me, the consequence of this Judgment is that the Order of the learned Registrar dated 17th March 1997 is set aside, that the Judgment entered by the Plaintiff on 29th August is to be set aside and the Charging Orders dated 8th and 28th October 1996 also so set aside, on terms that the Defendant do pay into Court (or furnish such other satisfactory security as may be appropriate) in the sum of HK$2.15 million.

28. As I have indicated, I will hear counsel on consequential procedural matters, on further directions for the conduct of this case, and also, of course, on the issue of costs.

(Submissions from counsel)

29. Having now heard from both counsel, I make the following further orders:

(i) that the primary term imposed, namely the payment into court of the sum of HK$2.15 million, is to be effected within 14 days from the date hereof, and that pending the furnishing of such security, the Judgment, and the Charging Orders collateral thereto, are to remain in place;

(ii) the Defendant to have liberty, in lieu of the payment of such monies as aforesaid, to provide an irrevocable guarantee of a first-class bank in a form acceptable to the Plaintiff and/or, if the matter is in dispute, to the Registrar of the Supreme Court;

(iii) Further Directions - that the Defendant do have 14 days from today in which to file and serve its Defence herein, with the Plaintiff having a further 14 days to file and serve its Reply, if any. Thereafter discovery by list to take place within 14 days of close of pleadings, followed by inspection 7 days thereafter.

(iv) Costs - in all the circumstances of this case, and in light of the terms of the Judgment I have just delivered, I am of the view that the Plaintiff is to have the costs of and occasioned by this appeal in any event, and also that the Plaintiff is to have its costs below in any event, such costs to be taxed if not agreed. This is one of those cases in which I consider that this sort of blanket order is indeed justified.

30. Lastly, in what has not been a straightforward case, I would like to express my thanks to both counsel for the precision of their submissions and for generally making what was a difficult task considerably easier.