POZDNYAEV, DENIS AND ANOTHER v. KINVAST LTD

CAMP 50/2022

[2022] HKCA 1685

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 50 OF 2022

(ON AN INTENDED APPEAL FROM DCCJ NO 3347/2020)

________________________

________________________

________________________

J U D G M E N T

________________________

Hon Barma JA (giving the Judgment of the Court):

1.  This is a renewed application by the defendant for leave to appeal against the judgment given by His Honour Judge Harold Leong (“the Judge”)  on 13 September 2021 [2021] HKDC 1066 (“the Judgment”).

2.  Following a trial that lasted four days, the Judge ordered the defendant to pay the plaintiffs a sum of HK$1 million, being the return of the initial deposit (“the Initial Deposit”)  for the purchase of a property at 32-36 Des Voeux Road West, Hong Kong (“the Property”), plus interest, and that the plaintiffs be entitled to an equitable lien over the defendant’s interest in the Property until the said sum is repaid.  The Judge also awarded costs of the action to the plaintiffs.

3.  Subsequently, each of the parties applied to vary the costs order nisi made by the Judge, and also applied for leave to appeal against the Judgment.  On 31 January 2022, the Judge handed down his decision on those applications: see [2022] HKDC 55 (“the Decision”), by which he (i) varied the costs order nisi (see [41] to [46] of the Decision); (ii)  granted leave to the plaintiffs to appeal against the Judgment (see [63] to [70] of the　Decision); and (iii)  refused to grant leave to the defendant to appeal against the Judgment (see [47] to [62] of the Decision).

Background

4.  The material facts of this case and the parties’ respective cases have been set out at [2] to [58] of the Judgment.  They need not be repeated in detail.

5.  For the purposes of the defendant’s present application for leave to appeal, it suffices for us to highlight the following aspects of the parties’ dispute and the evidence relating to it.  The underlying facts, and the issues for determination before the Judge, were straightforward.

6.  On 30 April 2014, a provisional sale and purchase agreement in respect of the Property (“the PSPA”)  was executed.  Under the PSPA, the Orthodox Brotherhood of Apostles Saints Peter and Paul (“the Church”), which was an unincorporated association, was named as purchaser, while the defendant was named as vendor.

7.  It was uncontroversial that Father Denis Pozdnyaev (“Fr Denis”), the 1^st plaintiff, was at all material times the representative of the Church who acted on its behalf in relation to the sale and purchase of the Property.  He signed the PSPA, purportedly on behalf of the Church.  Upon the signing of the PSPA, Fr Denis himself paid the Initial Deposit to the defendant (see [2] of the Judgment).

8.  Clause 2(b)  of the PSPA provided that the balance of the deposit (a sum of HK$580,000.00)  should be paid by the purchaser to the vendor upon signing of the formal agreement for sale and purchase, on or before 14 May 2014 (see [4] of the Judgment).

9.  However, shortly before the intended signing of the formal agreement, Fr Denis was advised by his solicitors that the Church, being an unincorporated association, had no separate legal personality and could not itself hold any title in land (see [7] of the Judgment).

10.  Accordingly, Fr Denis on various occasions, via the estate agent acting in the sale, Mr Tang Chi Keung (“Mr Tang”), proposed to Mr Hugo Kwan (“Mr Kwan”), the director and representative of the defendant acting on its behalf in relation to the sale of the Property, that the time for completion should be extended in order to enable either Fr Denis himself or a company to be incorporated by the Church to be substituted as purchaser in place of the Church (see [9] of the Judgment). Mr Kwan however rejected these proposals, apparently without proffering any explanation or reasons (see [12] of the Judgment).

11.  In the event, the parties did not sign a formal agreement on 14 May 2014.  On 18 May 2014, the defendant informed Mr Tang that it intended to forfeit the Initial Deposit, on the basis that the purchaser had failed to pay the balance of the deposit by 14 May 2014 (see [17] of the Judgment).  This led to these proceedings being issued. 

The parties’ cases and the Judge’s findings

12.  Simply stated, the crux of this dispute was that each of the opposing parties contended that the other’s conduct amounted to a repudiatory breach of the PSPA.  The question the Judge had to decide was which party was in repudiatory breach, and thus had wrongfully terminated the PSPA.

13.  The plaintiffs claimed that the forfeiture of the deposit by the defendant amounted to a repudiatory breach of the PSPA.

14.  The defendant’s pleaded case, by the time of trial, was that the plaintiffs were in repudiatory breach by seeking to compel it to cancel the PSPA and to enter into a new agreement with a different entity (see [20] & [39] of the Judgment).

15.  The following factual findings and conclusions reached by the Judge are of particular relevance to the present application:

(1)  Fr Denis, upon obtaining advice from his lawyers that there was a problem with the Church holding title to property (“the legal entity problem”), immediately instructed Mr Tang to consider and make various proposals to Mr Kwan, such as cancelling the PSPA and entering into a new agreement with Fr Denis himself as the purchaser, or entering into a formal sale and purchase agreement with a company to be incorporated by the Church as the purchaser, or to execute the formal sale and purchase agreement with Fr Denis as the purchaser (see [7] to [11] and [13] of the Judgment);

(2)  Mr Kwan did not respond to these proposals, save for a brief message indicating that he would not accept them, without providing any reasons (see [12] of the Judgment);

(3)  under cross-examination, Mr Kwan admitted that he never had any objection for the Church to proceed with the purchase of the Property via a nominee.  The Judge (unsurprisingly, in our view)  found this evidence to be fatal to the defendant’s case that it was being compelled to enter into a new agreement with a different entity (see [20] to [23] of the Judgment);

(4)  Mr Kwan admitted in his evidence that notwithstanding the “legal entity problem” with the Church being the purchaser, he (for the defendant)  was willing to sell the Property to anyone properly nominated by the Church.  However, Mr Kwan at no time conveyed this willingness to Mr Tang or Fr Denis (see [31] of the Judgment);

(5)  Mr Kwan was all along aware of the “legal entity problem”, but deliberately chose not to inform or alert Fr Denis about it (see [47] of the Judgment);

(6)  Mr Kwan admitted under cross-examination that the defendant had no intention to sell to the Church on the date of completion as stipulated by the PSPA (see [56] of the Judgment);

(7)  on the evidence, the Church (or Fr Denis)  had all along been very eager to proceed with the purchase of the Property, as evidenced by the proposals made by them to preserve the bargain under the PSPA (see [32], [34] to [36] of the Judgment);

(8)  there was no evidence to support the allegation that the Church has repudiated the PSPA by seeking to compel the defendant to enter into a new agreement with someone else (see [39] to [40] of the Judgment);

(9)  Mr Kwan (acting on behalf of the defendant)  was an “uncooperative and unwilling” vendor (see [41] and [67] of the Judgment);

(10)  applying well-established legal principles to the facts, the Judge held that it was the defendant who had acted in repudiatory breach of the PSPA by unjustifiably forfeiting the Initial Deposit.

Legal principles

16.  Section 63A(2)  of the District Court Ordinance, Cap 336, provides that leave to appeal shall not be granted unless this court is satisfied that the appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard.

17.  It is well-established that there is a high threshold for any challenge to a trial judge’s findings of fact, as they are reached with the benefit of live oral evidence and an appreciation of the overall circumstances of the case.  The Court of Appeal will accordingly not intervene in or disturb such findings unless they are shown to be plainly wrong.  A mere assertion that the finding of the judge is against the weight of the evidence is not an error coming within that category.  See Ting Kwok Keung v Tam Dick Yuen & Ors (2002)  5 HKCFAR 336; China Gold Finance Ltd v CIL Holdings Ltd & Ors (unrep, CACV 11/2015, 27 November 2015); Young Ivy Shui Heung v Yau Koon Sum & Ors [2019] HKCA 221.

18.  Having considered the papers, we consider that it is appropriate to exercise our power under Order 59 rule 2A(5)(a)  of the Rules of the High Court, Cap 4A to determine this application without an oral hearing and on the basis of the written materials filed with this court.

19.  The defendant has put forward three grounds of appeal in its draft Notice of Appeal annexed to its Summons filed on 14 February 2022.  These grounds are identical to the proposed Grounds 1 to 3 in the defendant’s application for leave to appeal before the Judge (with Ground 4, an intended appeal on costs, no longer being pursued).

20.  We shall deal with each proposed ground in turn.

Ground 1

21.  By Ground 1, the defendant contends that the Judge failed to (i) make a determination on the issue of who the purchaser was under the PSPA; (ii)  distinguish between the 1^st and 2^nd plaintiffs; and (iii)  find that only the 2^nd plaintiff was the purchaser under the PSPA.

22.  Mr Henry Cheng (with Mr Jasper Wong), for the defendant, contended in his written submissions (at [4])  that:

(1)  the Judge committed a fundamental error in treating the 1^st and 2^nd plaintiffs as a collective and for giving judgment in favour of both plaintiffs, as there was a difference on who would be personally liable under the PSPA (i.e. Fr Denis or the members of the Church); and

(2)  the distinction between the 1^st and 2^nd plaintiffs would make a “significant difference” to whether the defendant was entitled to refuse the proposals put forward by the 2^nd plaintiff and whether the 2^nd plaintiff had repudiated the PSPA by evincing an intention not to be bound by it.

23.  With respect, we are unable to see any merit in these arguments.

24.  At the outset, it must be noted that the 1^st plaintiff (i.e. Fr Denis)  and the 2^nd plaintiff (i.e. Fr Denis as representative of the Church)  are factually both the same natural person – Fr Denis.  As found by the Judge, Mr Kwan was aware of the “legal entity problem” with the Church (namely, that as an unincorporated association it was unable to hold property).  It follows that defendant knew that the Church itself could not hold property, and that only Fr Denis was capable of holding the title to the Property, whether in his own personal capacity or in his name but in fact on behalf of the Church. 

25.  In law, voluntary associations such as the Church, being unincorporated, have no legal entity, and therefore cannot enter into any contract, such as the PSPA (see Halsbury’s Laws of Hong Kong, 2^nd ed, Vol 18 at [115.171]).  For instance, a lease may not be granted to an unincorporated association, but should be granted to nominees or trustees for the association.  Such nominee or trustee will be personally liable for any breaches of the terms of the tenancy by the members (see Halsbury’s Laws of Hong Kong, 2^nd ed, Vol 36 at [235.034]).

26.  Warburton on Unincorporated Associations, 2^nd ed at p.43 (referred to and adopted by Le Pichon J (as she then was)  in Chap Yick Clansman’s Association Ltd v Mok Fai [1997] HKLRD 580)  outlines the ways in which property may be held on behalf of an unincorporated association and the potential complications which may arise, as follows:

“Property always has to be held by some individual or individuals on behalf of an association. An unincorporated association itself has no capacity to hold property. There are four different ways in which property can be held on behalf of an unincorporated association. First, property can be held by all members of the association as joint tenants. Secondly, property can be held by trustees on trust for the members. Thirdly, property can be held by trustees on trust for the purposes of the association. Lastly, property can be held by the members subject to their contractual rights and liabilities to each other as set out in the rules of the association.

Difficulties in relation to the holding of property by associations occur for various reasons. The association may not have directed their minds as to what to do with any property they acquire beyond opening a bank account in the names of one or more of the officers. The members may not have adopted any rules in relation to property or, alternatively, the association may have a rule dealing with property but a rule that is open to one of several interpretations. Confusion can also arise from the fact that it is quite possible for different types of property to be held by the same association in different ways…”

27.  Accordingly, the “legal entity problem” with the Church having itself been named as the purchaser in the PSPA was indeed a legitimate concern, but it was a concern of which Mr Kwan was all along well aware, and of which Fr Denis had been duly advised and had attempted to resolve on numerous occasions prior to the envisaged execution of the formal sale and purchase agreement, but to no avail.

28.  For the purpose of the present application, it is unnecessary for this court to determine which method of property-holding on behalf of the Church could have been viable.  However, the above authorities demonstrate that (i)  the Church cannot itself hold property and (ii)  Fr Denis himself could hold the Property on behalf of the Church.  It therefore seems clear to us that the 2^nd plaintiff was the appropriate plaintiff in these proceedings, rather than the 1^st plaintiff (Fr Denis in his personal capacity), as it was never Fr Denis’ nor the Church’s intention that he should own the Property personally.

29.  While it was therefore probably inappropriate for the Judge to have found in favour of both plaintiffs, the matter seems to us to be entirely academic.  It clearly would not be the case that the defendant would be liable to both plaintiffs so as to be liable twice over.  Only one of the plaintiffs could effect recovery, and obviously that plaintiff would be the 2^nd plaintiff. Either way, judgment would be entered in favour of Fr Denis, and there is no suggestion from him that he would not hold any benefit of the judgment on behalf of the Church.

30.  Even if this is regarded as a technical error by the Judge, there is no purpose to be served in granting leave to appeal, as it can serve no useful purpose – because it could not exonerate the defendant from its liability. 

31.  The same goes for the complaint that 1^st plaintiff (Fr Denis personally)  was not a party to the PSPA and therefore not entitled to sue for breach.  The plaintiffs do not dispute that the 2^nd plaintiff (i.e. Fr Denis acting on behalf of the Church)  was the purchaser.  The defendant’s position is that the 2^nd plaintiff was the only purchaser under the PSPA (Mr Cheng’s written submissions at [3]).  Even if the Judge had found that the 1^st plaintiff was not a party to the PSPA, he would still have found the 2^nd plaintiff to be a party to it (i.e. the purchaser), and judgment would in any event be given, and the Initial Deposit ordered to be returned, to Fr Denis (on behalf of the Church).

32.  We therefore agree with the Judge’s comments at [50] and [51] of the Decision that there would not be any practical difference as to liability even if the defendant’s proposed distinction between the plaintiffs was upheld, and especially in light of the plaintiffs’ concession as to the costs prior to the joinder of the 2^nd plaintiff.

33.  Ultimately, as we have stated above, the single material issue in this case was which party was in repudiatory breach of the PSPA (Fr Denis on behalf of the Church or the defendant).  Applying the relevant authorities to the facts, and after detailed analysis and discussion, the Judge concluded that it was the defendant who had in fact repudiated the PSPA (see the Judgment at [28] to [53]).  We can see no arguable basis or reason to disturb these findings and conclusions.

34.  Mr Cheng also suggested that the distinction between the 1^st and 2^nd plaintiffs would make a difference as to whether the defendant was entitled to refuse the proposals put forward by the 2^nd plaintiff and whether the 2^nd plaintiff had repudiated the PSPA by evincing an intention not to be bound by the PSPA.

35.  This argument is wholly devoid of merit.  As discussed above, the 1^st and 2^nd plaintiffs are the same natural person albeit acting in different capacities.  Either way, Mr Kwan was dealing with Fr Denis (or with Fr Denis via Mr Tang), and the proposals were at all material times put forward by Fr Denis or on his behalf, whatever his capacity.

36.  As to Mr Cheng’s second point on repudiation, in any given case, whether the conduct of a party, or the cumulative effect of such conduct, is so serious that it amounts to repudiatory breach of an agreement, and whether there has been valid acceptance of such repudiation (if so found), are questions of fact and are context-sensitive.  See e.g. Able Contractors Limited v Wui Loong Scaffolding Works Company Limited (unrep, HCA 2587/2008, 13 June 2012 at [61]); Cheung Yuen Yee v Rock Trading Company Limited (unrep, HCLA 2/2010, 27 May 2010 at [22]); Zheng Chulin v Wo Kee Hong Kong Industrial Limited (unrep, CACV 56/2012, 12 June 2012 at [17] to [18]).

37.  The findings of facts by the Judge, which in our view the defendant has no valid basis to disturb, are that the defendant was the party in repudiatory breach as it was Mr Kwan who had displayed the conduct of an “uncooperative and unwilling” vendor.

38.  There is therefore no merit in Ground 1.

Ground 2

39.  In our view, the defendant’s arguments based on nomination and novation are misconceived.

40.  Mr Cheng contends that the Judge had failed to consider that the 2^nd plaintiff had sought the signing of a new contract for the sale and purchase of the Property by the substitution of a new party, and that the 2^nd plaintiff’s requests amounted to requests for novation of the PSPA (see [6] to [7] of Mr Cheng’s written submissions).

41.  This argument is a non-starter, as the Judge had found as a matter of fact that the plaintiffs were not seeking to compel the defendant to enter into a new agreement, but were simply trying to explore ways of carrying through the transaction, and that the proposals were mere proposals and no more.  The Judge also found that the plaintiffs never indicated that they would not be buying the Property even if the defendant rejected these proposals (see [40] of the Judgment).  On the contrary, the Judge found that the Church had always been “eager” to complete the purchase, and that the proposals were made with the intention of preserving the bargain under the PSPA (see [32] of the Judgment). Against this, the Judge also found that on the facts and the evidence elicited from Mr Kwan during trial, the defendant had no intention in any event to sell the Property to the Church on the date of completion (see [56] of the Judgment, and see also [41] to [47] of the Judgment).

42.  Accordingly, Ground 2 is also entirely unmeritorious.

Ground 3

43.  Given our conclusion reached in respect of Ground 2, this ground may be dealt with shortly.

44.  This ground is premised on – as Mr Cheng put it – “the defendant’s rightful refusal of the 2^nd plaintiff’s requests for novation” (at [8] of his submissions), which as we have already noted, is starkly at odds with the findings of fact made by the Judge and referred to in [41] above.

45.  This ground predominantly comprises attacks on the Judge’s findings of fact.  In our view, it cannot be shown that the Judge’s findings were plainly wrong in light of the evidence.  We are wholly unpersuaded that there is any arguably valid basis for disturbing any of the Judge’s findings of fact in this case.

46.  We are therefore of the view that Ground 3 is also devoid of merit.

Disposition and costs

47.  The threshold requirement for granting leave to appeal has plainly not been met. In our view, there is no reasonable prospect of success in this intended appeal, nor is there some other reason in the interests of justice why the appeal should be heard nevertheless.

48.  For the above reasons, we refuse to grant leave to appeal to the defendant, and we accordingly dismiss the summons filed on 14 February 2022.

49.  As the leave application is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8)  that no party may request the determination of this application to be considered at an oral hearing inter partes.

50.  Costs should follow the event.  We make an order nisi that the defendant do pay the plaintiffs the costs of this application.  Having considered the statement of costs of the plaintiffs for summary assessment, we consider the sums stated therein to be reasonable, and we assess them on a gross sum basis in the amount claimed, i.e. HK$45,550.

51.  Any party seeking to vary the costs order nisi shall lodge written submissions within 7 days of the handing down of this judgment, failing which the order shall become absolute.