Cotteen Investments Ltd v. Tomases Investments Ltd and Another

HCA005015/1982

BETWEEN

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Coram: Hon. LIU J. (In Chambers)

Date: 1st March 1983

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JUDGMENT

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1. The matters before me have been so exhaustively canvassed by Mr. Kwok who, in his usual ability and fairness, has led the court through the case of as well the 2nd defendant as the plaintiff, that in the end, I do not find it necessary to call upon Mr. Mok, counsel for the plaintiff.

2. Registrars and Judges are, as it were, fair games for debtors in this present economic climate of Hong Kong. I make that observation not so much on the conduct of the present appeal but by way of general experience. While having said that, I should really guard myself against any adverse impression possibly so gained in my consideration of the merits of the parties in these proceedings. I cannot remind myself more constantly that I should approach these matters with an open mind and completely detached attitude, uninfluenced by the all too often recent occurrences.

3. The plaintiff and the 1st defendant entered into an Agreement for Sale and Purchase dated the 22nd August 1981. Suffice it for me to refer to clause 14 of the Agreement, the rest of which relate to rights and obligations of the plaintiff and the 1st defendant inter se. Clause 14 of the Agreement reads as follows:-

"If from any cause whatever other than non-completion caused by the default of the Vendor any further deposit or part payment or payments of the purchase money or the balance of the purchase money shall not be paid by the Purchaser at the time and in the manner provided in this Agreement, the Vendor shall be entitled (without prejudice to any other right or remedy available to it) to forfeit the deposit and all other monies (if any) paid by the Purchaser to the Vendor pursuant to this Agreement and (without tendering an Assignment to the Purchaser or its solicitors) rescind the sale and resell the said premises either wholly on in parcels and either by public auction or private contract or partly by public auction and partly by private contract with power upon any such sale to make any stipulation as to title or evidence or commencement of title or otherwise and any deficiency in price and all expenses attending such resale(s) shall be borne by the Purchaser and shall be recoverable by the Vendor as and for liquidated damages. Any increase in price on resale(s) shall belong to the Vendor."

4. Prior to the 11th March 1982, the 1st defendant was in breach. By a letter dated the 11th March 1982, solicitors for the plaintiff wrote to the 1st defendant in the following terms:

"We, on behalf of our client, Cotteen Investments Limited, hereby rescind the Agreement for Sale & Purchase dated the 22nd day of August 1981 entered into between you and our client for the sale and purchase of the above premises. Our client exercises its power to rescind by virtue of Clause 14 of the said Agreement following your failure and/or refusal to pay the instalment of purchase price due on the 3rd February 1982 amounting to HK$2,280,000. All moneys paid by you under the said Agreement are hereby forfeited and our client reserves the right to recover damages against you for breach of contract."

The letter was copied to Messrs. Fairbairn & Kwok. Admittedly, there were negotiations and such negotiations proved to be fruitful as can be seen from the letter dated the 17th March 1982 to Messrs.  Fairbairn & Kwok who, I am told, were solicitors for the 1st and 2nd defendants from Messrs. F. Zimmern & Co., solicitors for the plaintiff. This letter is set out in toto below:-

5. The court was told that the calculation of interest was inaccurate, but nothing turns on that aspect. It need be mentioned that in the meantime between the 11th March 1982 and the 17th March 1982, there was an action instituted by the plaintiff against the 1st as well as the 2nd defendants, being High Court Action No.2013 of 1982. Conditions set out in the letter of the 17th March 1982 were apparently complied with, and High Court Action No. 2013 of 1982 was subsequently aborted.

6. Further default was made by the 1st defendant, particulars of which I need not go into. The present action was instituted against the 1st defendant as the principal debtor and the 2nd defendant as the guarantor. There is also no dispute in these proceedings that the 2nd defendant was the guarantor of the obligations of the 1st defendant towards the plaintiff under the said Agreement for Sale and Purchase dated the 22nd August 1981.

7. After institution of the present action, the plaintiff caused to be issued a summons under Order 86 rule 9 against the 1st defendant and purportedly the 2nd defendants. That summons was heard by the Master before whom the plaintiff scored prefect success. It is the Master's decision in favour of the plaintiff against the 2nd defendant, that forms the subject-matter of this appeal.

8. In the interim, shortly before the hearing of this appeal, the plaintiff caused to be filed a summons said to be under Order 14 against the 2nd defendant by way precaution to safeguard the plaintiff's interests in the event of the Master's decision against the 2nd defendant in favour of the plaintiff being disturbed.

9. It is necessary for me to turn to the decision against the 2nd defendant before the learned Master first. At that decision, the 2nd defendant through Mr. Kwok launched two frontal attacks which can conveniently be divided into one of technical and one on the merits.

10. As far as the technicalities on which the 2nd defendant relied are concerned, it was urged by Mr. Kwok on behalf of the 2nd defendant that Order 06 rule 1 and Order 14 are mutually exclusive Orders providing mutually exclusive procedures for summary judgment. Order 86 rule 1 refers to, in general, specific performance in relation to disposition of property, grant of an assignment of a lease of landed premises with or without any alternative claim for damages, rescission of such an agreement or the forfeiture or return of any deposit made thereunder. It was also common ground that the Guarantee Agreement of the 2nd defendant in favour of the plaintiff would fall into none of those categories. Broadly speaking, the case against the 1st defendant is on a breach of the said Agreement for Sale and Purchase, dated the 22nd August 1981 and the cause of action against the 2nd defendant arose from the Guarantee Agreement between the 2nd defendant and the plaintiff. The liability of the 2nd defendant as a guarantor would accrue upon a breach by the 1st defendant of the said-Agreement for Sale and Purchase and it was that breach of the said Agreement for Sale and Purchase that founded a cause of action for the plaintiff against the 2nd defendant. Although a breach of the said Agreement for Sale and Purchase would bring about the operation of the Guarantee Agreement against the 2nd defendant, it was on account of the 2nd defendant's own default in meeting its liability under the Guarantee Agreement that the plaintiff was entitled to sue the 2nd defendant in the present action. In another words, the 2nd defendant's liability did not arise out of the said Agreement for Sale and Purchase. It is evident in my view that the liability of the 2nd defendant under its own Guarantee Agreement does not fall within any of the categories prescribed by Order 86 rule 1 of the Rules of Supreme Court. Consequently the summons issued by the plaintiff against both defendants before the. Master was irregular, so far as it sought to involve the 2nd defendant. There was no waiver of such irregularity. As a matter of fact, before the Master the 2nd defendant strenuously objected to its joinder in the plaintiff's summons issued under Order 86 rule 1.

11. A further valid criticism against the plaintiff on that particular summons was succinctly explained by Mr. Kwok who informed the court that the 2nd defendant returned an Acknowledgment of Service including an intimation of its intention to defend some three days after the issuance of the plaintiff's summons under Order 86 rule 1. Counsel drew attention to the provision that the only interlocutory application which would have been open to the plaintiff against the 2nd defendant under Order 14 could not have been validly made before the declaration of the 2nd defendant's intention to defend. Before the Master, the plaintiff proceeded against the 2nd defendant purportedly under Order 14 on its then summons which, as an order 14 summons, could not have been properly issued before the 2nd defendant's Acknowledgment of Service.

12. None of these technical objections would appear to be answerable, but as the merits of the parties involved are beyond doubt, agony should not be, in my view, further prolonged by inviting arguments from Mr. Mok on behalf of the plaintiff. Thus Mr. Mok was not called upon.

13. Mr. Kwok had proceeded to render assistance to court on merits. It was contended that whatever the effect of the plaintiff's letter to both defendants dated the 11th March 1982 was, the averments in paragraph 8 of the Statement of Claim in the present action were open to the argument that the plaintiff had not effectually rescinded, in the proper sense of the word, as the plaintiff had pleaded in that paragraph that it was "leaving the plaintiff's rights under the said agreement intact".

14. Lep Air Services v. Rolloswin Investments Limited, [1973] A.C.331 was cited in extenso. The speeches delivered in their Lordships' House do not go beyond the basic proposition that upon a proper acceptance of a repudiation in a rescission, the contractual relationship terminates and the unperformed promises under the rescinded agreement also come to an end. An acceptance of repudiation would deprive the party not in breach of his right to hold the party in breach to his continued performance of the unexecuted obligations.

15. It was submitted on behalf of the 2nd defendant by Mr. Kwok that by preserving all the plaintiff's "rights" under the said Agreement for Sale and Purchase "intact", it was at least arguable for the 2nd defendant that the plaintiff had not validly terminated the same with the 1st defendant; hence the liability of the 2nd defendant never arose.

16. It was further submitted on behalf of the 2nd defendant that as a matter of fact, the circumstances were such that before the institution of this action, the liability of the 2nd defendant had long been terminated. The circumstances relied upon by the 2nd defendant were these: In the letter dated the 17th March 1982 to the solicitors of the 1st and 2nd defendants from the plaintiff's solicitors as set out above, only the relationship between the plaintiff and the 1st defendant was revived without any guarantee from the 2nd defendant. I cannot accept that preposition. Messrs. Fairbairn & Kwok were then acting for both defendants, and negotiations leading to the compromise were in respect to the earlier action by the plaintiff against both defendants. It is beyond argument that the compromise was between all parties concerned, and the agreement was to be "considered as subsisting and unaffected by the earlier rescission. Moreover, paragraph (c) in that said letter sought to correct a typographical error in Proviso (2) of the Guarantee Agreement between the plaintiff and the 2nd defendant by substituting the word "your" for the word "our". If, in fact, the Guarantee Agreement between the plaintiff and the 2nd defendant had been brought to and left at an end, there would have been no necessity for any correction of any typographical error in an expired document.

17. Reverting back to the first argument of Mr. Kwok advanced on behalf of the 2nd defendant, in my view, on a fair reading of the allegations in the Statement of Claim, there can be no doubt that the allegations were plainly that the plaintiff accepted the 1st defendant's breach as its repudiation of the said Agreement for Sale and Purchase and stated the obvious on/the pleading that rescission was without prejudice to its rights and remedies consequential upon such wrongful repudiation as envisaged by Clause 14. There is certainly room for improvement in draftmanship in paragraph 8 of the Statement of Claim, but on a fair and perhaps less critical reading in its proper context and in conjunction with the rest of the allegations as pleaded, it cannot truly be said that the plaintiff was, in the words of Mr. Kwok, blowing hot and cold or uncommitted in its attitude. The plaintiff cannot be properly described as having had any reservation in its acceptance of the 1st defendant's repudiation which has irrevocably put an end to the agreement.

18. Technically, therefore, the plaintiff should not be permitted to proceed against the 2nd defendant on its summons before the learned Master, but on the merits, the plaintiff's claim against the 2nd defendant as a result of its unreserved acceptance of the repudiation of the 1st defendant cannot be resisted. The present Order 14 summons of the plaintiff has not been served with promptitude by reason of the judgment obtained under its former summons before the learned Master. Its service or attempted service on the 2nd defendant was rejected, but it would seem that it was properly served. In any case, the 2nd defendant is now before the court. Counsel for the 2nd defendant in all his modesty would like the court to take the view that his client could have been in some way better assisted by a leading counsel, though it was fairly conceded that no further arguments could have been advanced on behalf of the 2nd defendant on that summons. Mr. Kwok has said everything there is to be said on behalf of the 2nd defendant. The court was left in the end with the satisfying realization that it had been exhaustively assisted. I feel compelled to conclude that no further time should be wasted and no more litigation need be pursued. The plaintiff's claim against the 2nd defendant is manifestly unanswerable in the circumstances. I am prepared to and do grant an order in terms of the plaintiff's summons against the 2nd defendant. Naturally, in view of my decision, the appeal must be allowed, the judgment set aside, and judgment is to be granted in terms of paragraph (1) of the plaintiff's summons against the 2nd defendant and subject to what counsel will say, I would award costs before the Master in favour of the 2nd defendant against the plaintiff, and cost of today i.e. cost of the appeal and cost of the plaintiff's summons against the 2nd defendant be fourth-fifths to the 2nd defendant and one-fifth to the plaintiff. I would also award costs of this action proper to the plaintiff against the 2nd defendant.

Representation:

Mr. Y.C. Mok instructed by Messrs. F. Zimmern & Co. for the Plaintiff/Respondent.

Mr. Kenneth Kwok instructed by Messrs. Cheung, Chan & Chung for the 2nd defendant, Appellant.