XCHRX EDWARD WONG FINANCE CO. LTD. v. PROFIT MAKING INVESTMENT LTD. AND OTHERS

HCA 3022/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3022 OF 2000

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REASONS FOR DECISION

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1. This is an appeal by the Plaintiff against the order of Registrar Chan granting the Defendants unconditional leave to defend.

2. The Plaintiff's claims against the four Defendants arise out of the sale of four houses at No.8 Tai Tam Road, Hong Kong.

3. By four provisional agreements dated 1 November 1999, the Plaintiff agreed to sell and the 1st, 2nd, 3rd, and 4th Defendants agreed to purchase respectively House No.1, House No.4, House No.3 and House No.2 at No.8 Tai Tam Road. The prices for Houses No.1 and 4 were $33 million each and the prices for Houses No.2 and 3 were $31 million each. The formal Sale and Purchase Agreements were executed on 8 December 1999 and each of the Defendants had paid the total of 10% of the purchase price as deposit. The date of completion was 8 March 2000 when the balance of the purchase prices had to be paid.

4. It is the Plaintiff's case against the Defendants that they had failed to complete the transactions and had failed to pay the balance of the purchase prices in time when time is the essence of the content. Such failure constitutes repudiation of the agreements in question which repudiation the Plaintiff had accepted. Hence, the Plaintiff's claims against each of the Defendants for declarations that the agreements had been terminated and that the deposits paid by the Defendants had been lawfully forfeited. The Plaintiff also claims for damages to be assessed.

5. The Defendants raise only one matter as defence to the Plaintiff's claim. The suggestion is that the Plaintiff had, through Mr Michael Chan and his brother Eric Chan, assured them that if they had difficulty in making mortgage arrangement, the Plaintiff would provide them with 70% mortgage at a rate slightly above the prime rate to enable the Defendants to complete the transactions.

6. The Defendants claim that throughout November 1999 to March 2000, they had tried to seek the mortgage of over 70% from other financial institutions but without success. They claim that the Plaintiff had refused to honour its previous promise made through Michael Chan and/or Eric Chan to provide the Defendants with the 70% mortgage and hence they were unable to complete the transactions.

7. The Defendants emphasis that had the Plaintiff provided the 70% mortgage to them in accordance with the assurance, they would have been able to complete the transactions.

8. The Defendants' allegations could of course give rise to issues of facts, namely whether the 2 Chans were the agents of the Plaintiff and whether they had made the representation to the Defendants as alleged. If the answers to these questions are positive, there are the further issues of law as to whether the representations are binding and enforceable in the light of the terms of the agreements in question and the background of the case.

9. Mr Griffiths SC, on behalf of the Plaintiff, places heavy reliance on Clause 28 and Clause 29 of the formal Sale and Purchase Agreements. Clause 28 of the Agreements provides:

"This Agreement sets forth the entire agreement and understanding between the Vendor and the Purchaser in connection with the sale and purchase hereby agreed and no party has relied on any representation, warranty or undertaking of any other party save for any representation, warranty or undertaking expressly set out or referred to in this Agreement."

And Clause 29 also provides:

"This Agreement supersedes all previous contracts or agreements entered into between the Vendor and the Purchaser in respect of the sale and purchase of the Property (if any) and it is expressly declared that no variation hereof shall be effective unless it is made in writing and signed by both the Vendor and the Purchaser."

10. Mr Griffiths SC suggests that such clauses prohibit the Defendants from raising the issue of collateral warranty.

11. This is, in my view, a very powerful point and much assistance can be derived from the case of Inntrepreneur Pub Company (GL) v. East Crown Ltd [2000] All ELR at p.1100. Indeed if a party to an agreement with an entire agreement clause were to be allowed to rely on a collateral warranty to vitiate the validity of the agreement, such entire agreement clauses would be rendered completely useless.

12. In my view, the Defendants' contention on the issue of collateral warranty is unarguable.

13. On the issue of misrepresentation, I accept that the exact relationship between the Plaintiff and Michael Chan and/or Eric Chan, may have to be further examined to decide if they had been properly authorised to make the alleged representation and that such exercise may involve the question of discovery on the part of the Plaintiff or the service of interrogatories by the Defendants.

14. I also accept that at this stage of the proceeding, I should not be having a mini trial on the affirmation evidence and that the question of uncertainty of terms of the alleged misrepresentation is not fatal to a claim of misrepresentation.

15. It is also clear to me that a party to a contract should not always be allowed to rely on an exemption clause to defeat a claim of misrepresentation which misrepresentation is said to be conducive to the very existence of the contract in question. (See the judgment of Cheung J in Green Park Properties Ltd v. Dorku Ltd [2000] 2 HKLRD 400 and the case of Thomas Witter Ltd v. TBP Industries Ltd [1996] 2 All ER 573.)

16. Indeed, if a party to a contract can rely on an exemption clause to exclude liability for pre-contractual misrepresentation, an unreasonable or even unconscionable result is that a party can derive benefit from its own wrong doings.

17. Having said that, it is also trite law that the mere assertion in an affirmation of a given situation which is to be the basis of a defence does not itself provide leave to defend to the Defendants. The Defendants have to satisfy the Court that there is a fair and reasonable probability of them having a real or bona fide defence.

18. With respect, the Defendants' assertion that the Plaintiff had agreed to provide them with the 70% mortgage is indeed a mere assertion. Such assertion, in my view, not only is unsupported by any document, is indeed inconsistent with the terms of the agreement and the parties' behaviour throughout the material times.

19. If the alleged assurance of providing 70% mortgage had been made, it is difficult to understand why the Defendants did not consider it necessary to include such assurance in the Sale and Purchase Agreements in question.

20. Despite the assertion that throughout November 1999 to March 2000, the Defendants had tried to seek a mortgage of over 70% from other financial institutions but without success, there is not a scintilla of documentary evidence of any attempt, either by the Defendants personally or through their solicitors, to contact the Plaintiff direct with a view to obtain or make enquiries about the 70% mortgage.

21. If the Plaintiff had indeed made the assurance as alleged, it would be logical for the Defendants to press the Plaintiff by all means possible in order to persuade the Plaintiff to keep to its assurance. At the very least, they should have made enquiries from the Plaintiff.

22. Instead, it was not until after the time for completion had elapsed on 8 March 2000 that the Defendants' solicitors wrote to the Plaintiff for the first time that the Plaintiff's representative "assure our client that your client would take all necessary steps to arrange for a mortgage".

23. The terms of the alleged assurance as set out in the Defendants' solicitor's letter is quite different from the Defendants' present position, as suggested by Mr Chan Hoi Lam that "Michael Chan assured me ..... the Plaintiff would provide us with a 70% mortgage at an interest rate slightly above prime lenders rate ......"

24. I must not ignore that as late as 4 March and 6 March 2000, just a few days before completions were to take place, the Defendants' solicitor was still writing to the Plaintiff's solicitor and in those letters, there was no mention whatsoever of the alleged assurance. Instead in the letter dated 4 March, the Defendants' solicitor wrote:

"We enclose herewith our draft Assignment in respect of the above premises for your approval. Kindly let us have your specific instruction as to how we should draw the cheques for the balance of the purchase price of HK$29,700,000.00 in due course."

And in the letter dated 6 March 2000, the Defendants' solicitors again wrote:

"We refer to the above matter and enclose herewith the amended pages 2-4, 7-10, 61-62 to the draft Deed of Mutual Covenant and Management Agreement in respect of the above premises for your consideration."

25. If the Plaintiff had made any assurance as alleged by the Defendants, it is simply impossible for the Defendants' solicitor not to mention such an assurance in their letters to the Plaintiff.

26. The Court should not of course shut the door of defence to a defendant who has a fair and reasonable probability of a real or bona fide defence. On the other hand, the Court must not encourage any party to an action to concoct a defence in order to escape from or delay the consequences of his contractual obligations, and in so doing wasting the Court's time.

27. I have considered the fact of the case as well as counsel's submission carefully. I am firmly of the view that there is absolutely no credibility in the Defendants' defence.

28. The learned Registrar was wrong not to grant judgment in favour of the Plaintiff.

29. In the circumstances, the appeal must be allowed. I order that the Registrar's order is to be set aside and in its place there will judgment for the Plaintiff against each of the Defendants in terms of prayers 1, 2 and 3 of the minutes of order.