XCHRX CHAN TAN v. TONG HOI, LO

1996 No. A11667

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE OF THE HIGH COURT

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D E C I S I O N

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1. This is an appeal against the Order of Master Chu who, on 23 April 1997, granted an application by the Plaintiff for specific performance of an agreement dated 23 August 1994 pursuant to Order 86 RSC and dismissed the Counterclaim by the Defendant.

2. On 23 August 1994, the Plaintiff agreed to sell to one Leung Sum Wing and the Defendant as joint purchasers who agreed to buy the Plaintiff's 5% shares, equivalent to 7,500 shares in Wide Tech Shipping Limited at a price of HK$2,500,000 to be paid by instalments. Under the Agreement, the Defendant would assume all the liabilities should Leung Sum Wing, who was named as the 1st Purchaser, failed to perform his contractual obligations. Leung defaulted in payment from February 1996 onwards after having paid instalments totalling HK$432,255.10 and on 30 March 1996 he notified the Plaintiff and the Defendant that he no longer had any intention to continue to perform his obligations. On the same day, the Defendant wrote to the Plaintiff acknowledging his contractual obligations and agreed to complete the purchase of the shares by the end of July 1996. Through her solicitors, the Plaintiff sent two letters to the Defendant dated 16 May 1996 and 5 August 1996 demanding the Defendant to complete the purchase of the shares and pay the balance of the purchase price strictly according to the provisions of the Agreement.

3. The defence is contained in paragraphs 5, 8 and 9 of the Defence and Counterclaim.

4. Paragraph 5:

"................................................... The Defendant was reluctant but finally agreed so to act as the relief, or the second purchaser on condition that an option be given to him to avoid performing the Agreement upon payment of a specific sum. The Defendant suggested the said specific sum to be HK$1,500,000 less any payment made by or on behalf of the 1st Purchaser and interests or dividends paid by Wide Tech. The Plaintiff agreed and suggested that she may be given the same option to avoid performing the Agreement. The Defendant agreed."

5. Paragraph 8:

"Save the Defendant says and avers that Clause 4 of the Agreement gives him and the Plaintiff the right or option to avoid performing the Agreement upon payment of the sum of HK$1,500,000 less the said partial payments, paragraph 4 is admitted."

6. Paragraph 9:

"Alternatively, if, which is denied, the Court finds that Clause 4 of the Agreement does not have the effect as pleaded in paragraph 8 hereinabove, the Defendant says and avers that Clause 4 of the Agreement has by reason of a mistake common to the contracting parties been drawn up so as to militate against their intentions and oral agreements as pleaded in paragraph 5 hereinabove, and that the same ought to be rectified to embody and put into effect the said oral agreements."

7. This last paragraph was repeated in paragraph 21 to form the basis of the Counterclaim. It is necessary to look at Clauses 3 and 4 of the Agreement: Clause 3 provides, inter alia, that in case the 1st Purchaser fails to perform all the terms and conditions of the Agreement the Defendant as 2nd Purchaser will substitute the 1st Purchaser to perform the Agreement to acquire from the Plaintiff the Shares and to settle all the remaining balance of payments of the price of the Shares in full to the Plaintiff before the end of July 1996 or to the option of the Defendant within 60 days counting from the end of the month in which the 1st Purchaser fails to perform and further that immediate legal transfer of the Shares from the Plaintiff to the Defendant will be completed as soon as final payment of the purchase price is made by Defendant.

8. Clause 4:

"If either the Vendor or the Second Purchaser is found offending against this agreement, the offending party, if in case of the Vendor, the Second Purchaser will receive from the Vendor compensation of HK$1,500,000 together with all partial payments have been made by the Purchaser and the Second Purchaser according to the payment terms of this Agreement. In case the Second Purchaser offends against this Agreement, the Vendor will have the rights to forfeit all the partial payments received from the Purchaser and/or the Second Purchaser, and the Vendor will have the rights to collect from the Second Purchaser the difference of payment, together with all forfeited partial payments by the vendor to make up the total amount of HK$1,500,000 for compensation within 30 days counting from the day when the Second Purchaser offends this agreement, and the Vendor will deal with these subject shares freely without any objection of and/or any obligations to the Purchaser and/or any obligations to the Purchaser and/or the Second Purchaser, and this Agreement will be null and void."

9. It is clear that the deadline was the end of July 1996 by which time the transaction must be completed. Even if Clause 4 does create the option which was contended for, what is the factual issues to be tried to support the defence of rectification of a common mistake. The Defendant clearly knew what he had contracted for. He wrote to the Plaintiff to acknowledge his obligations under the Agreement and at the end of the letter he said:

"(I) wish that both parties can complete all relevant procedures and formalities within the period prescribed by the provisions, that is, the deadline is before the end of July, 1996, all consequences (thereof) should be borne by you."

10. That was on 30 March 1996. Then came the two demand letters from the Plaintiff's solicitors. On 16 October 1996, the Defendant wrote again to the Plaintiff pleading friendship, favour and bad business and offered to pay HK$800,000. The offer to pay HK$1,500,000 less the amount paid only came on 6 November 1996 from Sit, Fung Kwong & Shum acting for the defendant which was promptly rejected.

11. In my view, the issues are clear and there is nothing for a trial to resolve. The Defendant knew all the time what his obligations were and the deadline was the end of July 1996. He would have to pay the sum of HK$2,500,000 if he wanted to take the shares and if he did not want the shares he would pay HK$1,500,000 less any amount already paid in either event. This is clearly a case that the Defendant 'has not a shadow of defence', Reichel v Magrath (1889) 15 App Cases 665. The appeal is dismissed. I make an Order Nisi for costs in favour of the Plaintiff.