XCHRX CHOI SZE FAI v. PRETTY FULL DEVELOPMENT LTD. AND OTHERS

HCA10132/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.10132 OF 1998

------------------------

------------------------

-----------------------------------------------------

REASONS FOR DECISION

-----------------------------------------------------

1. There are before me two notices of appeal. The first is against Master Au Yeung's Order of 7 September 2001 dismissing the plaintiff's application for judgment by admission, striking out the Re-amended Statement of Claim and dismissing the claims against all defendants with costs ("the 1st Appeal"). The second appeal concerns the order of Master HC Wong made on 10 December 2001 ordering the plaintiff to furnish further security for costs in the sum of $500,000, in default of which the 1st Appeal be stayed ("the 2nd Appeal").

BACKGROUND

2. This is an action arising out of a Condominium Client Sales Contract dated 12 May 1992 made between the plaintiff and the 1st defendant ("the Formal Contract"). In about April 1994, the plaintiff assigned his interests and rights under the Formal Contract to Madam Lam Lai Kuen.

3. On 22 June 1998, the plaintiff commenced these proceedings against the defendants for declaratory relief, return of money paid under the Formal Contract and for damages in misrepresentation, fraud/forgery and/or conspiracy to deceive/defraud. The plaintiff was and is an undischarged bankrupt. As a result of the defendants' application to strike out, the plaintiff amended the claim to sue as trustee of and on behalf of Madam Lam.

4. The background of the action can be briefly stated as follows. The Formal Contract is for the purchase and sale of an unit in an uncompleted condominium in Thailand. Pursuant to the Formal Contract, the plaintiff had paid 40% of the purchase price. On 27 October 1993, the 1st defendant, through its solicitors, gave notice to the plaintiff that it is in a position to transfer legal ownership and requested him to pay the 60% balance of the purchase price within 30 days. No payment was made by the plaintiff. On 7 December 1993, the 1st defendant by its solicitors gave notice to the plaintiff that the plaintiff's interest in the Formal Contract was terminated and the deposits and money paid under it were forfeited. Subsequently on 14 December 1993, the plaintiff and the 1st defendant executed a supplemental agreement ("the Supplemental Contract") whereby the plaintiff was allowed to pay the balance of the purchase price by instalments. The instalment payments were not made. Hence on 7 May 1995, the 1st defendant gave notice terminating the plaintiff's interest.

5. On 22 June 1998, the plaintiff instituted this action against the defendants. The 2nd and 3rd defendants were until 30 September 1997 the shareholders and directors of the 1st defendant. They are daughter and father. The 4th to 6th defendants become the shareholders of the 1st defendant on and after 30 September 1997. The 2nd defendant is one of the five shareholders in the 4th defendant.

6. The Statement of Claim was amended on 27 November 1998 and re-amended on 23 April 1999. On 10 June 1999, the defendants filed their defence. On 8 September 1999, Acting Registrar Chan ordered the plaintiff to provide security for costs up to the date of the order in the amount of $200,000 together with consequential directions.

7. The defendants applied for further security of costs by summons filed on 12 May 2001. On 7 September 2001, when Master Au Yeung dismissed the claims against the defendants, she ordered that no order be made on this and another nine outstanding summonses. After the plaintiff filed the Notice of appeal in respect of the 1st Appeal, the defendant issued a summons on 11 October 2001 for further security of costs on the basis that he is a nominal plaintiff ("the defendants' Summons").

8. The defendants' Summons came before Master Kwan on a three minutes hearing on 19 October 2001. Master Kwan adjourned the application for further security for costs for argument, made no order on two other paragraphs of the Summons and ordered that there be no stay in the meantime. There is some controversy as to what the Master said or ordered on the question of stay, a matter to which I shall return.

9. On 10 December 2001, the defendants' Summons was argued before Master Wong. Master Wong ordered that the plaintiff provided further security of costs in the amount of $500,000 by 4 p.m. on 14 December 2001, failing which the 1st Appeal be stayed. On 13 December 2001, the plaintiff filed the notice of appeal against Master Wong's Order. The plaintiff has not made further security for costs by 14 December 2001 or at all.

10. On my direction, the 2nd Appeal was heard first, though it is later in time. This, in my view, is the logical way of dealing with the matters before the court.

THE APPEAL AGAINST MASTER WONG'S ORDER

11. The plaintiff advances two arguments in support of his appeal. The first is that the Order of Master Wong is ultra vires. Alternatively, it is argued that the merits of the plaintiff's case and/or on the 1st Appeal is so strong that security for costs should not be ordered. I will deal with them in turns.

(1) Ultra Vires

12. The defendants' Summons filed on 11 October 2001 seeks the following relief :

"1. The Plaintiff do within 7 days of the date of the order made herein furnish security in the sum of HK$1,424,870.00 or such sum as the Honourable Court considers fit for the Defendants' costs of and occasioned by the Plaintiff's appeal herein under his Notice of Appeal filed on 20th September 2001 from the order of Master Au Yeung made on 7th September 2001, such security to be furnished by payment into court;

2. Until such security be given in compliance with the order to be made herein, the said appeal be stayed;

3. In default of such security being furnished within the aforesaid time the said appeal do stand dismissed without further order with costs to the Defendants with Certificate for Counsel, to be taxed if not agreed; and

4. Costs of this application be to the Defendants with Certificate for Counsel, to be taxed if not agreed."

13. Two sealed orders had been obtained in respect of the order made by Master Kwan. According to the sealed order obtained by the defendants on 8 November 2001, Master Kwan, in adjourning paragraph 1 of the defendants' Summons for argument and giving directions for filing of evidence, also ordered that "No stay in the meantime" (paragraph 6). Paragraphs 5 and 6 of the sealed order of the plaintiff filed on 6 December 2001, however, state :

"5. No stay of the Plaintiff's Notice of Appeal filed on 20th September 2001; and

6. No order as to paragraphs 2 and 3 of the Defendant's Summons."

14. It is plain that paragraph 5 of the plaintiff's order is different from paragraph 6 of the defendant's order. The latter clearly refers to an interim stay whereas the former does not appear to be so limited. I pause here to observe that I am at a loss as to how two orders, the terms of which are different, came to be perfected and sealed. Under Order 42 rule 5(5) Rules of the High Court, the order shall be drawn up by the party who initiates the application, and in the event the applying party fails to do so within seven days from the making of the order, the other party may then draw up the order. In this case, the defendants who had the carriage of the summons, had already perfected and filed the order on 8 November 2001. There is no basis for the plaintiff to obtain another sealed order especially when the terms are at variance with the order already filed in Court. Even if the plaintiff is of the view that the order obtained by the defendants does not reflect the actual order granted by the Master, he should have sought clarification or amendment or variation of the sealed order, but not to obtain a second sealed order.

15. The plaintiff had, shortly before the hearing of the appeal, filed his 29th affirmation in which he attempted to give an account of what transpired at the hearing before Master Kwan. In particular, it was said that the Master had assured him there was no stay of the 1st Appeal. It is argued by the plaintiff this amounts to "judicial promise". The endorsement by the Master on the summons, however, reads : "No stay in [the] meantime". There can be no doubt that the Master was dealing with the question of interim stay of the appeal pending the substantive hearing of the application for security of costs. The suggestion that the Master had decided and promised that there would be no stay even if the defendants succeeded on the application for security for costs clearly cannot stand.

16. As to paragraphs 2 and 3 of the defendants' Summons filed on 11 October 2001, they are in the nature of relief consequential upon the making of an order for further security for costs. When Master Kwan stated that no order be made on these paragraphs, she could only be taken to mean that she was not making any order on the consequential directions. This must be so because the consequential directions only come to be considered after the main application for security has been dealt with.

17. Under Order 23 rule 2 of Rules of the High Court, a master has wide discretionary power to direct on the terms to be imposed when making an order for security for costs. One of the usual terms is to provide that the proceedings be stayed pending the giving of security by the plaintiff. The other usual and very important term imposed upon the making of an order for security for costs is to provide for the sanction for non-compliance with the order. Often, it provides for the claim to be struck out or dismissed.

18. In the present case, when Master Wong ordered that the 1st Appeal be stayed in the event further security for costs as ordered was not provided, she was making a consequential order and providing for the sanction for failure to comply with the order. Her power to grant such order does not depend on paragraphs 2 and 3 of the defendants' Summons filed on 19 October 2001. She was not revisiting paragraphs 2 and 3 of the defendants' Summons nor is she overriding the order of Master Kwan. Further, the stay ordered by Master Wong is different from that envisaged by paragraph 2 of the defendant's Summons. It is within her discretion to order that the 1st Appeal be stayed if further security is not made. Master Wong's order for security of costs will become futile if she cannot impose a sanction or a term to deal with the failure to comply with her order for security of costs.

19. In short, the argument that the Order of Master Wong is ultra vires or made without jurisdiction is misconceived.

(2) Merits of the plaintiff's case

20. In considering an application for security for costs, the court may consider the merits of the plaintiff's claim. Where it can be shown that the plaintiff's claim is a genuine and strong one or that the ordering of security will stifle a genuine claim, then the court will exercise its discretion against the ordering of security. But an Order 23 application is not the occasion for a detailed examination of the merits of the case and the parties should not attempt to go into the merits unless it can be clearly demonstrated that the claim has a high degree of probability of success or failure : Hong Kong Civil Procedure 2001 para. 23/3/3.

21. In the present case, the decision of Master Au Yeung, made after hearing two days' argument, to strike out the Re-amended Statement of Claim and to dismiss the application for judgment on admission provides some indication as to the strength and weaknesses of the claim and the defence.

22. That aside, a cursory look at the pleading and documents in this case will show that this is not a case where the merits of the plaintiff's claim is so overwhelming that the discretion should be exercised in the plaintiff's favour.

23. In a nutshell, the plaintiff's claim as pleaded is that the defendants are guilty of misrepresentation, fraud and/or deceit in issuing the notice in October 1993 when they knew that the 1st defendant was unable to deliver vacant possession of the property to be sold under the Formal Contract. The very first issue is therefore what are the conditions or entitlement for the giving of the notice. Paragraph (e) of the Fourth Schedule of the Formal Contract provides that the remaining 60% of the purchase price is payable within 30 days of the seller giving written notice that it is in a position to transfer legal ownership of the unit. The Formal Contract makes no reference to delivery of vacant possession at all. The witness statements of the defendants' experts on Thai law and the letter from the Land Department, Bangkok, are all to the effect that since 18 May 1993 all works and construction are deemed to be completed and the developer is free to transfer title and legal ownership to the buyers. The plaintiff's own expert on Thai law accepts this much.

24. What the plaintiff seeks to argue is that there is a collateral requirement for the giving of the notice, namely, the vendor is in a position to deliver vacant possession. He bases his argument, firstly, on the contention that this was the common intention of all the Hong Kong buyers at the time of signing the contracts. Secondly, he relies on the rental guarantee given by the seller in clause 11 of the Formal Contract and argues that in order for the guarantee to be effective, the unit must be ready for letting out. Hence, the seller must be ready to deliver vacant possession before it can issue the notice for payment. Thirdly, the plaintiff refers to clause 7 of the Formal Contract which provides that the seller shall register, or cause the head-seller to register the transfer of the ownership in the property to the buyer at the Land Office upon the occurrence of certain conditions. One of these conditions is the giving of all necessary approvals by the relevant Thai government authorities regarding the use and occupation of the condominium in question. The plaintiff says that this shows that the parties' intention is that the seller must be ready to deliver vacant possession before it can call upon the buyer to pay the balance of the purchase price.

25. As the plaintiff acknowledges, the wordings of paragraph (e) of the Fourth Schedule is against him. The reference to guaranteed rental and clause 7 do not really assist him in that there are remedies in damages for their breaches. Clause 7, for example, expressly provides for a refund of purchase price paid in the event the seller fails to have the transfer registered. The argument on the intention of the Hong Kong buyers is, putting it mildly, a difficult one. Much of the mattes relied upon for this argument are events and documents that arose well after the conclusion of the Formal Contract and even after the plaintiff had entered into the Supplemental Contract with the 1st defendant for payment by instalments. After all, the plaintiff has not even begun to lay the foundation for the court to look to external aids in constructing the unambiguous terms of the Formal Contract.

26. In another attempt to overcome the defendant's undisputed evidence that the legal ownership of the property was ready to be assigned in May 1993, the plaintiff relies on his expert's witness statement which mentions that a certificate on construction, modification or relocation of building was only issued on 30 June 1995. According to this expert, this certificate is for occupation purpose and it means the condominium is only permitted to be used and occupied since 30 June 1995. But it is equally clear from this expert's witness statement that his opinion is premised on the change in the Thai law in 1998 which requires such a certificate to be issued before the certificates enabling the transfer of legal ownership will be issued. Therefore irrespective of the argument whether this 1995 certificate is equivalent to an occupation permit under the Hong Kong system, the certificate is irrelevant in 1993 when the application for permission to transfer legal ownership was made. It is also to be noted that in arguing that the property could not be lawfully used and occupied, the plaintiff is equating delivery of vacant possession with the right to use and occupation, which does not necessarily hold true. The plaintiff's pleaded case has always been that the 1st defendant was unable to deliver vacant possession because the construction of the building had not been completed.

27. The claim against the 4th to 6th defendants also require some scrutiny. Admittedly and on the plaintiff's own pleaded case, the 4th to 6th defendants became the shareholders of the 1st defendant on 30 September and 1 October 1997, some years after the 1993 notice was given and the Supplemental Contract was signed. There is nothing on the pleading to link them to the alleged fraud or misrepresentation made before they were transferred or allotted the shares in the 1st defendant. The plaintiff argues that the defendants could seek particulars if the pleading is unclear, but it is not for the defendants to help the plaintiff by seeking particulars of a missing link in the claim. It is also not to be forgotten that the plaintiff has already had three attempts at formulating his claim and if that is the best he can make of his case then it is not for the defendants or the court to assist him.

28. Additionally, the defendants also point to clause 19 of the Formal Contract which prohibits the plaintiff from transferring his interest and rights under the contract to others except with the seller's consent. It is not pleaded that the 1st defendant had consented to the assignment by the plaintiff to Madam Lam of his rights under the Formal Contract. It is therefore questionable whether the plaintiff could have mounted these proceedings.

29. The above analysis demonstrates that the merits of the plaintiff's case is far from being one that has a high probability of success. It is not open to the plaintiff to point to his claim to say that security for costs should not have been ordered.

30. For the reasons indicated above, the appeal against Master Wong's Order is dismissed with costs to be taxed if not agreed.

APPEAL AGAINST MASTER AU YEUNG'S ORDER

31. As the order of Master Wong remains, and as further security has not been provided, the 1st Appeal is stayed.