A.V.C. Property Development Co Ltd v. Joyful Grace Trading Ltd and Another
Read the full judgment text of HCA 529/2013 on BabelCite. This High Court CFI judgment was delivered on 30 September 2016.
1. On 2 April 2013, the plaintiff, A. V. C. Property Development Company Limited, issued the writ against:
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HCA 529/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 529 OF 2013 ________________________ BETWEEN
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________________________ JUDGMENT ________________________ 1.On 2 April 2013, the plaintiff, A. V. C. Property Development Company Limited, issued the writ against:
2.Judgment in default of notice of intention to defend was given against the 2nd defendant on 14 May 2013. By an Order dated 25 October 2013, Master S Kwang ordered that the default judgment against the 2nd defendant dated 14 May 2013 be set aside. 3.Judgment dated 3 September 2013 was entered by Master S Kwang against the 1st defendant for:
4.By an Order dated 21 February 2014, Deputy Judge Marlene Ng dismissed the appeal by the 1st defendant against the Master’s Order and Judgment. MR PATRICK CHONG’S STRIKING OUT APPLICATION 5.The 2nd defendant was originally legally represented, but subsequently became unrepresented and was absent from the trial. 6.On the first day of trial, Mr Patrick Chong, counsel for the plaintiff, applied to strike out the 2nd defendant’s defence under the abuse of process ground contending that the 2nd defendant’s absence at the trial constituted abuse of process. No authority had been cited in support of the abuse of process assertion. I was not satisfied that mere non‑attendance amounted to abuse of process. I had no hesitation to reject, and did reject, Mr Patrick Chong’s application. PLAINTIFF’S PLEADINGS 7.Messrs Robertsons drafted the Amended Statement of Claim dated 21 April 2015. The pleading:
8.As for point (4), what is a guarantee “substantially similar”? What are the differences and why? 9.Crucial allegations were made by way of bare assertions, without pleading the dates when, the persons by whom and the persons to whom the acts were done or how, etc. Thus, the pleading did not tell the defendants the case they had to meet. The defendants had not been given crucial information to decide on the witnesses to call to dispute the plaintiff’s case. Mr Patrick Chong repeatedly argued that the defendants did not ask for particulars. His approach evidenced some confusion in thought. The query on lack of crucial information came from the court, not the defendants. The court had no duty on its own motion to order particulars before trial. Moreover, blaming others was hardly helpful to the court. It is frustrating for the court to read pleadings which are not properly done. 10.As for point (6), there were only two months, not three, between 1 February 2013 and 31 March 2013. Less importantly, sincethe last column in the table was for the outstanding amount in “HKD”, there was no need to put the “$” sign before the figures in that column. 11.The “Reply to Defence of 2nd Defendant” was drafted by Mr Patrick Chong. It is alleged in §4 that:
12.This is a conclusion without any factual foundation having been pleaded in support. I asked Mr Patrick Chong to tell me the date when, the person by whom, the person to whom consent was given and how. He failed to give a direct answer. It would have been easy for him to have done so if he had a case to support the pleaded conclusion. It was not until the following day that he sought to file a two‑page “Voluntary Particulars under paragraph 4 of the Reply to Defence of the 2nd Defendant”. To start with, there was no statement of truth. Secondly, Mr Patrick Chong felt able to ask me to dispense with service on the 2nd defendant. There was no explanation why the “Particulars” were not put forward until the middle of trial. There was also no reason for not serving it on the 2nd defendant. It would have been procedurally unfair to dispense with service. There was no reason why the 2nd defendant should not be afforded an opportunity to consider and deal with the “Particulars”. I rejected Mr Patrick Chong’s application. THE TRIAL BUNDLES 13.By §§7 and 8 of his Order dated 16 June 2016, Chow J ordered that:
14.The following is a catalogue of non‑compliance:
15.The worst default was to completelyignore §8 of the Order of Chow J. 16.There were further problems with the trial bundle. For emails, what were included in the bundle were not the relevant emails themselves, but were emails from one member of Messrs Robertsons to another member of the firm. If somebody in Messrs Robertsons did locate the relevant email, the relevant email itself should have been included in the hearing bundle. To forward it to another person and then include the forwarding email is simply incorrect. Further, nearly 100 pages of documents were included under one single item of “emails” without any index or description of the emails. The combined effect of (a) using an email forwarding another email, instead of the forwarded email itself, (b) the absence of any list of emails and (c) the liberal inclusion of documents which were not fully legible made it frustrating and confusing for the court in pre‑reading the papers. SOME PROVISIONS IN THE TENANCY AGREEMENT 17.Clause 5 of the Special Conditions provided:
I do not understand the reason for inclusion of this clause since it is the plaintiff’s case that it had already received the 2nd defendant’s written guarantee. To provide that “the tenant shall cause” execution when the Guarantee had already been executed was puzzling. 18.Clause 7 of the Special Conditions provided:
19.The Third Schedule provided:
JUDGMENT AGAINST 1ST DEFENDANT AS EVIDENCE AGAINST 2ND DEFENDANT 20.Mr Patrick Chong sought on a number of occasions to rely on the judgment against the 1st defendant as evidence against the 2nd defendant. There is no contractual provision that the judgment shall be evidence against 2nd defendant. No such provision has been pleaded. The 2nd defendant did not have a chance to be heard in the application for judgment against the 1st defendant, nor in the 1st defendant’s appeal. There is no basis for Mr Patrick Chong’s reliance. PLAINTIFF’S DENIAL OF FORGERY OF THE GUARANTEE 21.By §5 of the Reply to Defence of 2nd Defendant, the plaintiff denied that “the Guarantee referred to in the Statement of Claim was a forged document as alleged or at all.” WITNESS STATEMENTS AS EVIDENCE IN CHIEF 22.Mr Patrick Chong contended that the witness statements of the plaintiff’s witnesses should stand as evidence in chief but cited no authority in support. I did not agree with such contention and ruled that the plaintiff should adduce oral evidence in chief. This is a case in which much turns on the credibility and reliability of the witnesses and witnesses should give oral evidence in chief. InHanwa Kozai (HK) Co Ltd v Hangyiu Ltd and another [1995] 1 HKLR 333 at p 334, Keith J (as he then was) said:
CONTENTS OF WITNESS STATEMENTS 23.In addition to applying HanwaKozai, there was another reason why I did not permit the witness statements of the plaintiff’s witnesses to stand as their evidence‑in‑chief. The witness statements contained much evidence which was clearly inadmissible. Hearsay evidence is not by itself inadmissible but it must not, as is the case for the witness statements in this case, be disguised as evidence from the maker’s personal knowledge. Statements of information or belief must disclose the sources and grounds thereof. The court should have a chance to assess the weight, if any, to be attached to the hearsay evidence. 24.A related but different matter is the scope of the oral evidence. It is alarming that despite the reported elucidation by Keith J (as he then was) over two decades ago, the witness statements in this case did not benefit from the elucidation. In NgKam‑chun,Stephen(tradingasChunMouEstateAgency Company) v Chan Wai‑hing,Janet and others[1994] 2 HKLR 89 at pp 90 – 91, Keith J (as he then was) said:
THE GUARANTEE AND ALTERATION OF THE UNDERLYING TRANSACTION 25.I turn now to the issue of alteration of the Tenancy Agreement after the execution of the Guarantee. It is the plaintiff’s case that the Tenancy Agreement had been altered by the addition of clause 7 of the Special Conditions and alteration of clause 5 of the Special Conditions. 26.Under the original Tenancy Agreement, the tenant had a one‑month rent‑free period for a term lease of two years. The maximum liability of the Guarantor on payment of rent was 11 months’ rent. 27.By the addition of Clause 7 of the Special Conditions, the two‑year term could start as late as 30 September 2012. There was nochange of the rent‑free period in the rent‑free provision in the Third Schedule, see §19 above. The rent‑free period of one month was defined by reference to two specific dates, “starting from 1stSeptember2012 to 30thSeptember2012 (both days inclusive)”, and not by reference to, eg the first month of the term. Mr Patrick Chong relied on the word “dates” in plural in the last sentence of clause 7 of the Special Conditions. I am not impressed by such argument. The “dates” were “of the Term”, not of “the rent‑free period”. The “term” of any lease necessarily has more than one date. The “term” has a commencement date and an expiration date. The Tenancy Agreement and the Guarantee were drafted by the plaintiff and the contraproferentem rule applies. 28.The maximum liability of the guarantor on payment of rent was increased by virtue of the subsequent addition of clause 7 in the Special Conditions. 29.Mr Patrick Chong relied on the copying of emails to Mr Lee whom he alleged was the representative of the 2nd defendant. It is not part of the plaintiff’s pleaded case that Mr Lee was the representative of the 2nd defendant and that is the end of Mr Patrick Chong’s contention of consent by the 2nd defendant. I note that on the plaintiff’s case, the Guarantee was signed by Mr Lee’s son, not Mr Lee, and Mr Lee was neither a director or shareholder of the 2nd defendant. 30.Further and in any event, the emails were merely copied to Mr Lee, not sent to him. The consent of Mr Lee or the 2nd defendant had not been asked for. To contend that Mr Lee was duty bound to respond if the 2nd defendant did not agree was tenuous. I reject Mr Patrick Chong’s contention. 31.The liability of the guarantor was increased by reason of the subsequent alteration of the underlying transaction. The plaintiff has not begun to make out a case of consent by the 2nd defendant of the variation. It follows that the plaintiff’s claim against the 2nd defendant falls to be dismissed. QUANTUM 32.Having reached this conclusion, it is not necessary to deal with the amounts claimed. Nevertheless, I shall deal briefly with it if I am wrong on liability. Rent and management fees 33.The amount is for two months only since only two months of rent and management fees were alleged to be in default in §14 of the Amended Statement of Claim. Contractual interest 34.Clause 2 in section VIII of the Tenancy Agreement provided that:
35.Thus, daily interest at the “monthlyrateof$3%” is claimed as liquidated damages and not as penalty. 36.To claim interest under Clause 2 in section VIII:
37.The plaintiff forfeited the Tenancy Agreement by the issue of the Writ on 2 April 2013, see §16 of the Amended Statement of Claim. 38.There is an unparticularised allegation of demand in §15 of the Amended Statement of Claim. Mr Patrick Chong accepted that the latest demand was made on 14 March 2013. As rent was due on the first day of each month, rent for March 2013 had not been in default for 14 days at the time of demand by letter dated 14 March 2013. Only the rent for February 2013 had been in default for 14 days or more at the time of demand. 39.But the primary question is whether it is liquidated damages or penalty. Mr Patrick Chong made no submission and cited no authority in support. 40.Lord Dunedin set out various tests in DunlopPneumaticTyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. These tests may prove “helpful, or even conclusive” in determining whether a provision is a valid liquidated damages clause or a penalty. The relevant tests for present purposes are:
41.Default in “payment of rent or rate or management fees or any monies” consists only in not paying stipulated sums. The greatest loss is the stipulated sums plus interest at commercial rates which in the absence of evidence is taken as banks’ best lending rate plus 1%. 42.Daily interest at the “monthlyrateof$3%” on top of the stipulated sums is clearly extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. In my judgment, it is clear and obvious that the clause is a penalty and is unenforceable as such. Mesne profits 43.There is no basis for this claim. Management fees from 1 May 2013 44.There is no basis for this claim. Rates from 1 April 2013 45.There is no allegation in §14 of the Amended Statement of Claim of non‑payment. Damages for breach of the Tenancy Agreement and interest 46.It seems to me to be triple counting to claim liquidated damages, plus damages to be assessed, plus interest for breach of an obligation to pay a stipulated sum. CONCLUSION AND DISPOSITION 47.For reasons given above, I dismiss all the plaintiff’s claims against the 2nd defendant. 48.I make an order nisi under Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A, that the 2nd defendant’s costs be taxed and paid by the plaintiff to the 2nd defendant.
Mr Patrick Chong, instructed by Robertsons, for the plaintiff The 2nd defendant was not represented and did not appear |
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