PANLEAD DEVELOPMENT LTD v. CHUNG YEE FONG HELEN

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JUDGMENT

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Liu, JA:

1. The background of this case is uninvolved. On 28 June 1992, a Provisional Agreement for Sale and Purchase was signed. For a consideration of $4.8 M, the appellant agreed to sell to the respondent a Braemar Hill Mansions flat. An initial deposit of $200,000 was thereupon paid. It was envisaged that upon the signing of the Formal Agreement for Sale and Purchase, a further deposit was to be paid, but that did not come about.

2. In fact, earlier in May 1988, the appellant sold this property to a company known as Sarrayo Investment Company Limited. The Agreement for Sale and Purchase in respect to this sale in May 1988 was duly registered against the property in the Land Office.

3. Subsequent to the signing of the 1992 Provisional Agreement for Sale and Purchase between the appellant and the respondent, when matters were left in the hands of solicitors, it soon transpired that the same flat had been sold to Sarrayo Investment Company Limited as evidenced by its 1988 Land Office Memorial. Therefore, solicitors for the respondent queried solicitors for the appellant as to whether a good title could be given and how the appellant as vendor proposed to execute a valid assignment. Exchange of correspondence ensued. Solicitors for the respondent insisted on an answer to the query they raised and generally on an explanation as to how it was that the appellant could effectuate the sale. The judge concluded in his determination on costs that it was proper for the respondent's solicitors so to inquire. Matters finally came to a head when the appellant decided, in effect, that enough was enough, and through her solicitors, the appellant accused the respondent of a breach of the 1992 Provisional Sale and Purchase Agreement and purported to forfeit the initial deposit of $200,000.

4. Reverting to the Sale Agreement to Sarrayo Investment Company Limited in May 1988, the appellant, as vendor of the same premises, did not proceed to complete. In February 1989, an action was instituted in the then Supreme Court by Sarrayo Investments Limited, a name different from that of the purchaser in the May 1988 Agreement for Sale and Purchase. It was a company with a similar name save for the addition of an "s" after "Investment" and the omission of the word "Company". Sorrayo Investments Limited as plaintiff claimed specific performance on the May 1988 Agreement for Sale and Purchase signed between the appellant and Sarrayo Investment Company Limited. The latter-named Company, i.e. the purchaser in the May 1988 Agreement for Sale and Purchase, was not a company registered under our Companies Ordinance. The claim for specific performance by Sorrayo Investments Limited was resisted by the appellant. In her defence, the subsistence of a legal entity under the laws of Hong Kong having the capacity to sue was raised. The February 1989 action was allowed to become dormant. For reasons with which we are unconcerned in this appeal, there is nothing to show that by 1992 the appellant had taken any steps to dismiss the action brought against her in February 1989. The appellant had no clear title to pass at the time when the 1992 sale to the respondent was due to complete.

5. There was a further slight twist in the history of this case. Eventually, the appellant caused to be acquired a shelf limited company by the name of Obion Limited. She changed its name to Sarrayo Investment Company Limited. She and her sister became subscribers. The appellant had herself appointed a director and secretary. Her sister was likewise appointed a director. In effect, the newly acquired limited company now known as Sarrayo Investment Company Limited came under the control of the appellant. The Sarrayo Investment Company Limited which came under the appellant's control was not the Sarrayo Investment Company Limited in the May 1988 Agreement for Sale and Purchase.

6. The respondent was, to say the least, unhappy with the appellant and commenced an action against her in the Court of First Instance claiming as substantial relief, return of the $200,000 deposit together with interest, damages and costs.

7. The action came before Hartmann, J. On the 2^nd day of the trial, the appellant conceded liability and a judgment was duly given against her in these terms: (1) "A declaration that at all times material to the (respondent's) agreement to purchase the property known as Flat C, 14^th Floor, Block One and Carport E 64, Braemar Hill Mansions, Hong Kong, the (appellant) was unable to pass good title thereto"; (2) Return of the $200,000 deposit plus interest, (3) Damages and (4) costs. There is no dispute before us that the declaration was made and the refund of the $200,000 deposit was ordered. The appellant sought a determination on the rate of interest to be paid and the duration for that interest to run. The quantum of damages was also a matter left to be decided by the judge as was the scale of costs. The judge ordered the return of the $200,000 deposit with interest to be calculated at the rate of 9% per annum commencing from 1 September 1993 until judgment and thereafter at judgment rate until payment. Damages were assessed at $190,000 with interest thereon at judgment rate from the date of judgement until payment. The appellant was ordered to pay the respondent costs on an indemnity basis with a certificate for two junior counsel.

8. On 15 July 1998, the respondent caused to be waived the granted certificate for two counsel. Therefore, apart from the declaration, the return of the $200,000 deposit and the interest rates, the remaining orders of Hartmann, J form the subject-matters of this appeal.

9. The declaration made by the judge was in the clearest possible terms. At all times material to the sale of the property by the appellant to the respondent, the appellant was "unable to pass good title". It was clearly admitted that she was at no time in a position to execute an effective assignment, free from encumbrances.

10. In determining the scale of costs to be awarded, with the consensus of both parties the judge took into account the witness statement of the appellant. It is pertinent to set out portions material to this decision.

The appellant intended to resort to her newly created Sarrayo Investment Company Limited for completing the sale and purchase with the respondent.

11. I need hardly hark back to what I have recounted earlier. The appellant came to be in control of Sarrayo Investment Company Limited, a company she caused to be created and registered in the Companies Registry of Hong Kong. Thereafter, the appellant purported to cancel the Agreement for Sale and Purchase entered into in May 1988 between herself as vendor and Sarrayo Investment Company Limited as purchaser. It was under that May 1988 Agreement that Sorrayo Investments Limited claimed specific performance against the appellant in February 1989. Clearly, the judge was well supported in his view that the appellant misconducted herself in what is known as the Cancellation Agreement dated 18 November 1993 and was grossly misleading in assuring the respondent that the Sarrayo Investment Company Limited she created could "formally cancel at will" the Agreement for Sale and Purchase entered into in May 1988. It was equally false for the appellant to maintain that she could "show and make a good title" in 1992 during the subsistence of the 1989 action by Sarrayo Investments Limited. It is not to be forgotten that the appellant finally allowed a declaration to be granted by Hartmann, J on the basis that at no time she was able "to pass good title".

12. This well contrived Cancellation Agreement dated 18 November 1993 was a manipulation commented upon by Hartmann, J. The judge concluded that that Cancellation Agreement, signed by the appellant with herself representing Sarrayo Investment Company Limited, must have been intended to deceive. Her Sarrayo Investment Company Limited was not the same Sarrayo Investment Company Limited to which she sold the property in this appeal in May 1988. The judge frowned upon the appellant's intended deployment of the Sarrayo Investment Company Limited she created for completing her 1992 sale to the respondent. The judge's critical view cannot be faulted. Moreover, at all times material to the sale to the respondent in 1992, the earlier May 1988 Agreement had not been satisfactorily disposed of but was at least still very much a live issue in the February 1989 action, albeit dormant. The appellant was then unable to pass a good title. The judge observed : "It is difficult to see how a solicitor could have had an honest belief in the truth either of what she represented to the Plaintiff's solicitors in June and July 1992 or, if title had in fact been passed, of the honesty of the passing of that title".

13. On all these known facts, the appellant nevertheless persisted in defending the respondent's action over a protracted period. On the face of what had transpired and the appellant's openly declared intention, it was indeed conduct highly unbecoming on the part of the appellant and she had proffered no explanation.

14. There was ample justification for the judge to find her defence to the claims in the respondent's action against her an affront which provoked the court's indignation. I need not repeat any part of the judgment. Suffice it to say that the judge invoked the correct principles, that his views are justified and that his decision on costs to be taxed on an indemnity basis cannot be flawed. The judge was entitled to exercise his discretion as regards indemnity costs in the way he did.

15. The appellant had the use of the $200,000 deposit. It is suggested that there were in between periods of dilatoriness. But those periods have not been said to have, in any way, deprived the appellant of her use of this $200,000 deposit. For the period ordered by the judge to run for calculating the interest on the deposit, the judge's decision is clearly right.

16. Lastly, I turn to the award of damages. What is being complained of in this appeal is that regard should have been paid to the sitting tenant whose occupation would reduce the market value of the property, the subject-matter of the 1992 Agreement for Sale and Purchase. The judge had the benefit of expert evidence to the effect that an existing tenancy would not diminish property value. In other words, in the circumstances and prevailing market conditions, property with vacant possession would fetch the same price as that of a property saddled with such a sitting tenant. The appellant did not seek to rebut the expert evidence. Clearly, there is no substance in this remaining ground of appeal.

17. It is not necessary for me to go through specifically the Grounds of Appeal in the amended Notice of Motion. The primary issues all go against the appellant on the evidence and the facts available to Hartmann, J. We need not trouble Sir John. For the reasons I have given, I would dismiss this appeal.

Arthur Leong, J.A.

18. On the issue of indemnity costs, the Judge was entitled to conclude on the material before him that the appellant was aware at all times that she was not in the position to pass good title to the respondent and that the cancellation agreement of 18 November 1993 signed on behalf of Sarrayo Investment Company Limited for the purpose of cancelling the memorial of the previous agreement of sale, was intended to deceive.

19. The appellant accepted that she would have sought to pass good title to the respondent in the same manner had the sale to the respondent proceeded to completion. In these circumstances the appellant could not have honestly believed that she could pass a good title when required and could have a good and arguable defence. Nevertheless the appellant persisted with her defence and resisted the respondent's claim for the return of the deposit. The Judge was correct to conclude on such material that the conduct of the appellant in her defence was underhand and an affront to the court. The Judge's exercise of his discretion to award costs on indemnity basis cannot be disturbed unless it can be shown that the Judge was plainly wrong.

20. As regards the other issues raised in this appeal on the date from which the interest on the sum of $200,000 should run and the assessment of damages, the Judge is clearly right.

21. For the reasons given by my Lord, Liu, J.A., I agree that the Judge could not be faulted. I, too, would dismiss the appeal.

Nazareth V-P:

22. I agree with what my Lords have said and would add the following:

23. Mr Collins for the defendant has said that she was not legally obliged to show title until a reasonable time before completion. He acknowledges that the concerns of the plaintiff about title were entirely proper and that the defendant could have been more open, as he puts it. But he submits that she was entitled to stick to that" opaque position", to use his words, and it did not mean that she had acted improperly.

24. So how did she act. It all goes back to the provisional agreement she entered into in May 1988. As the judge found, it was handled by the real estate agents who entered the name of the other party, the purchaser of her flat, on the provisional sale and purchase agreement as Sarrayo Investment Co Ltd. It appears to have been the solicitors who registered the memorial of that agreement against the title in the Land Office who used the same name in doing so. However, the proceedings against the defendant intended to compel her to complete the transaction in February 1998 gave the name of the purchaser as Sorrayo Investments Limited. That must have been the right name of the purchaser if one has regard to all the facts of the matter.

25. Returning to the facts the judge gave, it appears that in 1988 or 1989 when the defendant encountered difficulties with the purchaser, she caused a search to be made at the Companies Registry and discovered that there was no company registered in Hong Kong under the name of Sarrayo Investment Co Ltd. This would not be surprising as the true name must have been that used in the proceedings. Sorrayo Investments Limited.

26. So what did the defendant do? She says in her statement that was presented to the court that eventually to safeguard against any person claiming any interest in the name of Sarrayo Investment Co Ltd, she acquired a limited company in the name of Obion Limited, having a registered capital of $10,000 in the name of herself and her sister. Having acquired the company, she changed the name of the company to Sarrayo Investment Co Ltd, the name of the purchaser in the first provisional agreement of May 1988.

27. Returning to the judge's account of the facts, she then on 18 November 1993, in her personal capacity entered into an agreement with this company she controls, Obion Limited, renamed as Sarrayo Investment Co Ltd and by that agreement she purported to record that the sale and purchase agreement registered in the Land Office was cancelled and that a deposit of $30,000, which it mentioned. had been refunded. As the judge reproduced it, clause 2 of that agreement read:

28. Even a layman would understand that the parties who could cancel an agreement would have to be the parties who entered into it, not some third party who gets hold of a shell company and merely changes its name to accord with the name of the actual party to the agreement.

29. Returning to the judge's account, he noted the agreement was signed by the defendant on her own behalf and again by her on behalf of the purchaser. Quite clearly, in the light of the litigation which had been instituted against her and the plaintiff's query, the defendant had to know that reliance upon this cancellation agreement was fraudulent. Obion Limited, whether under its original name or its changed name, had never entered into any agreement to purchase the apartment and had never paid a deposit of $30,000. How then could it profess to cancel an agreement it had never entered into and have obtained a refund of a deposit it had never paid? The judge rightly concluded that the agreement must have been intended to deceive.

30. I return to whether the defendant was entitled to take the stance she did, insisting that the plaintiff complete the sale and purchase agreement and that she had not acted improperly. It has been suggested that the defendant might have intended to use one of the legitimate ways of having the memorial removed from the register in the Land Office. Indeed, it has not been disputed in this case that there are legitimate means; one could have procured a cancellation agreement by the parties to the original agreement or their successors or one could have obtained a court order. But the judge rejected the possibility that she had one of those legitimate means in mind on the basis of the way she ultimately got rid of the memorial, and particularly, on the basis of her statement. Having referred to the statement, it seems to me that the judge was entirely correct in his conclusion.

31. At the end of the day, we have a situation where the defendant can be seen to have drawn up a false agreement with an intention to deceive. Clearly, she intended to rely upon it and did rely upon if in her repeated assurances that she was and would be able to show good title. She likewise relied upon it in her defence against the claim for specific performance by Sorrayo In vestments Limited filed in. March 1989. It is also apparent that it was this same strategy that she relied upon before Hartmann J. Indeed, from what Mr Collins said, she seems actually to have succeeded in getting the memorial cancelled upon the basis of the cancellation agreement. The question then is whether her conduct in resolutely defending the action until the second day when she admitted liability entitled the judge to award indemnity costs. Plainly, in my view, it did. In addition to the reasons my Lords have given, with which I agree, the award of indemnity costs is made in the exercise of discretion. It can only be upset if the judge was plainly wrong or proceeded upon some error of law or principle. No such error of law or principle has been demonstrated or even suggested. As to whether he was plainly wrong, that, too, has not bee shown. On the contrary, it seems to me he was entirely right.

32. I do not find it necessary to add anything to what my Lords have said upon the matter of interest or damages.

33. I would also dismiss the appeal.

[Having heard counsel's submissions upon costs]

34. Not only was the continued reliance upon the deceitful agreement an affront to this Court, but it was compounded by a total lack of merit. The appeal is dismissed with costs to the plaintiff upon the indemnity basis.