Lau Chun Ming v. Ma Koon Sik
Read the full judgment text of HCCL 111/1996 on BabelCite. This HCCL judgment was delivered on 21 March 2001.
1. This is a dispute between two businessmen in the construction world. Each alleges the other is in breach of an Agreement entered into between them in December 1995. Notwithstanding the assembled documentation, there is for determination but one issue on liability and two issues on quantum. Before turning to these matters, I should, however, set out the background to this litigation.
Cited by 3 cases · Cites 1 case
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HCCL000111/1996 HCCL111/1996 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMMERCIAL ACTION NO.111 OF 1996 ---------------------
--------------- Coram: Hon Stone J in Court Dates of Hearing: 14 and 15 March 2001 Date of Judgment: 21 March 2001 ____________________ J U D G M E N T ____________________ 1. This is a dispute between two businessmen in the construction world. Each alleges the other is in breach of an Agreement entered into between them in December 1995. Notwithstanding the assembled documentation, there is for determination but one issue on liability and two issues on quantum. Before turning to these matters, I should, however, set out the background to this litigation. THE UNDISPUTED FACTS 2. There is little, if any, factual contention in this case. The plaintiff herein is Mr Lau Chun Ming ("Mr Lau"). He is the Managing Director of two companies, one is Sam Woo Bore Piling Foundation Limited (which engages in piling foundation projects) and the other is Sam Woo Engineering Equipment Limited (which trades construction plant and equipment). 3. Mr Ma Koon Sik ("Mr Ma"), the defendant, is Director and shareholder of one S.Y. Engineering Company Limited ("S.Y. Engineering"). It is, I gather, his company. In the summer of 1995, this company, as main contractor, was undertaking piling works for the Hong Kong Housing Authority in Ma On Shan, pursuant to Contract No.5 of 1992. This Ma On Shan project had begun to encounter severe problems, the piling process being rendered particularly difficult due to the frequent collapse of underground caverns. 4. Mr Lau, the plaintiff, initially was interested in becoming a subcontractor on the project, believing that his company possessed the necessary expertise to solve the problems which were being encountered in Ma On Shan. However, towards the end of November 1995, as difficulties were escalating on-site, Mr Lau was led to believe that Mr Ma might be inclined to consider a take-over bid rather than merely subcontracting certain of the piling work. 5. And so it was that at the beginning of December 1995 Mr Lau got in touch with Mr Ma who was then in Los Angeles. It transpired that Mr Ma indeed was interested in selling his company and its assets, which would include its plant and machinery, together with the Group II licences which would enable the buyer to continue with the current piling projects in Ma On Shan and elsewhere. 6. For his part, Mr Lau also was interested, and on 9 December 1995, accompanied by one of his staff, Mr Peter Lau, he left Hong Kong for Los Angeles to negotiate with Mr Ma. (a) The Agreement 7. The Sale and Purchase Agreement which was entered into between these businessmen forms the focus of this case. It is dated 10 December 1995. It is the product of the discussions which took place between them, and it was reduced into writing by Mr Lau's assistant, Mr Peter Lau, who appears to have had some knowledge of legal terminology, with the aid of Mr Peter Lau's laptop computer. 8. Somewhat curiously, the Agreement is said to be between Mr Ma Koon Sik (referred to as 'Mr K.S. Ma') "jointly and severally with S.Y. Engineering Company Limited" and Mr Lau Chun Ming (thereafter referred to as 'Mr C.M. Lau'). Mr Ma's company, S.Y. Engineering, is not and has never been a party to this action, and for the purposes of this case counsel have contented themselves with fighting the respective positions of Mr Ma and Mr Lau. 9. The Sale and Purchase Agreement is not a lengthy document, containing nine clauses only, although it has annexed thereto five appendices A-E, dealing with a Plant List (A), Receivables (B), Financing Arrangements for Certain Items of Plant (C), Amounts Outstanding (D) and a Summary (E). 10. Clause 1 recites that :
11. Clause 2 contains the substance of the bargain struck between the two men. The sub-clauses are most relevant to this case read as follows :
12. Clause 3 deals with certain terms and conditions underpinning Mr Lau's agreement to acquire the entire shareholding of Mr Ma's company, and to continue to make payment for the goodwill and licences of that company, whilst paragraph 4 makes provision for Mr Ma's personal guarantee against the truth and accuracy of all the "financial, trading and company debt information" given by Mr Ma. 13. Clause 6 deals, in substance, with the erasure of the HK$45 million bank overdraft at that stage held by S.Y. Engineering, whilst Clause 7 makes transition provisions for Mr Lau and his staff to use premises at Dorset Road and Ping Che rent-free for six months from the day Mr Lau assumed ownership of S.Y. Engineering. 14. Clause 8 of the Agreement is one of the clauses which is directly in issue in this case. It reads :
15. Finally, Clause 9 recites that the Agreement "shall be governed and construed" under Hong Kong law. (b) The aftermath 16. That which occurred after the Agreement was signed on 10 December 1995, the initial instalment of HK$5 million having been paid shortly thereafter, is again the subject of little real dispute. 17. It is common ground that the contractually stipulated completion date of 21 December 1995 was not met. Perhaps unsurprisingly, the detailed execution of the broad structure envisaged by Mr Lau and Mr Ma, as reflected in the Agreement, meant that the transaction could not be processed as quickly as had been envisaged. On 21 December 1995, for example, the situation was clear : the accounts of Mr Ma's company were not updated sufficiently for stamping purposes, the plant and equipment, as outlined in Appendix (A), were not yet inspected (and in fact were only so inspected on 31 December 1995 and 1 January 1996, at which time certain items were not located), and a Provisional Sale and Purchase Agreement for the Ping Che land had not been prepared. 18. Accordingly, it is accepted that the parties continued to work to sort out the pre-completion matters relating to the shares, the plant and the land. In terms of the land, for example, a Provisional Agreement never actually was prepared, but by letter dated 6 January 1996 Messrs Peter Mo & Co. ("Peter Mo"), Mr Ma's solicitors, forwarded a draft formal Sale and Purchase Agreement for approval, Messrs Baker & McKenzie ("Baker & McKenzie"), for Mr Lau, thereafter replying with suggested amendments by letter dated 8 January 1996. 19. Moreover, whilst the Instruments of Transfer and the Bought and Sold Notes with regard to the shares were dated and stamped on 28 December 1995, and inspections in terms of plant and equipment were held at the turn of the year, there were further problems with the anticipated receivables of the company, the interim payments being made by the Hong Kong Housing Authority to S.Y. Engineering amounting to some $12.15 million less than the sums specified in the Agreement. 20. It is again common ground that Mr Lau and Mr Ma spent some time after the originally anticipated completion date negotiating on the terms of an intended supplemental agreement, albeit it is alleged by neither side that any such an agreement was ever entered into; by letter dated 3 January 1996, Baker & McKenzie forwarded the first draft of such a document for review, followed by a revised draft for approval by letter dated 8 January 1996. 21. No response was received. Accordingly on 10 January 1996, Baker & McKenzie wrote a further letter to Peter Mo, the material part of which read thus :
22. Curiously, this letter does not appear to have attracted a response either. On the following day, that is, 11 January 1996, Peter Mo sent Baker & McKenzie a lengthy letter, but in specific reply to an earlier letter of Baker & McKenzie dated 29 December 1995, which letter had asserted that, for the reasons therein set out, it was not Mr Lau but Mr Ma who was in breach of the Agreement of 10 December 1995. Suffice to say that in their delayed response, Peter Mo countered that it was Mr Lau who had breached the December Agreement "by failing to pay the balance of HK$40 million as agreed by 21 December 1995". This letter outlined a litany of complaints, none of which are relevant for the purpose of the present proceedings, and concluded by giving notice that unless HK$40 million be paid by noon on Friday, 12 January 1996, it would be assumed that Mr Lau did not intend to proceed with the transaction "and our client will take whatever action he deems fit and appropriate". 23. By this stage, it is fair to say that the correspondence was entering combative mode, with the defendant focusing upon payment of the contractual balance of HK$40 million, notwithstanding that there were clearly outstanding matters arising out of the original December Agreement that required resolution. 24. Be that as it may. By "without prejudice" letter dated 12 January 1996 (referred to by consent) from Peter Mo, payment of the sum of HK$40 million was made a condition of Mr Ma "being prepared to proceed with a suitable time table to be agreed for completion", the date for payment therefor being extended by open letter of the same day to noon on Tuesday, 16 January. 25. On 16 January 1996, Baker & McKenzie wrote a letter responding to the Peter Mo letters of 11 and 12 January. As matters have transpired, this letter of 16 January has become the key document in this case. It asserts that should Mr Ma resile from the Agreement after noon on 16 January that such would amount to a wrongful repudiation of the contract between Mr Lau and Mr Ma, and continues :
26. This letter then proceeds to assert the defendant's non-compliance with the requirements under the December Agreement relating to lack of documentary title and undetailed/missing plant and machinery, inaccuracy of receivables and, further, the size of the Ping Che land lots :
27. The letter concludes with a reiteration of the plaintiff's willingness to acquire S.Y. Engineering subject to certain provisos, and it is to this concluding paragraph that I shall shortly return, since it provides the heart of the sole liability issue in the case. (c) Termination 28. Eight days after Baker & McKenzie's letter of 16 January, Peter Mo, on behalf of the defendant, purported to terminate the December Agreement. By letter dated 24 January 1996 the defendant's solicitors referred to their earlier letters of 11 and 12 January, and continued :
29. The same letter remitted the plaintiff's initial deposit cheque for HK$5 million. 30. The plaintiff did not accept the defendant's position, in turn by letter of 27 January 1996 asserting that the letter purporting to accept the plaintiff's "repudiation" itself amounted to a wrongful repudiation, and stating that the plaintiff elected to treat the contract as continuing, giving notice of anticipated completion at the offices of Baker & McKenzie on 30 January 1996 at 4.00 p.m. "when our client will deliver to your client or its representative a cheque in the amount of HK$40,000,000". 31. Such completion did not occur. By letter of 31 January, Baker & McKenzie repeated "that our client remains ready, willing and able to complete the sale and purchase in question", and on 18 March 1996 Baker & McKenzie wrote again to Peter Mo, stating that their client wished to proceed and to complete this transaction and that further delay would not be tolerated, and that :
32. Matters finally came to head when, by letter dated 23 April 1996, Baker & McKenzie informed the defendant's solicitors of the plaintiff's acceptance of "your client's wrongful repudiation" of the December Agreement as represented by the Peter Mo letter of 24 January 1996. The Writ in the proceedings herein was issued on the same day. LIABILITY 33. Against this somewhat convoluted and detailed background, it is perhaps surprising that the dispute on liability is of extremely narrow compass. Nor was this a case which depended upon vica voce evidence. Both parties entered the witness box and gave evidence in terms of asserting the truth of their witness statements, but neither Mr Lau, the plaintiff, nor Mr Ma, the defendant, was more than perfunctorily cross-examined. At bottom this was a case which, as Mr Chan SC submitted, could as easily have been decided on the documents. 34. The shape of the case is thus : the plaintiff seeks damages for breach of the December Agreement, and pursuant to such claim the plaintiff has served Amended Voluntary Particulars of Loss and Damage. 35. The defendant makes no counterclaim. The defendant's Defence is based squarely upon the Baker & McKenzie letter of 16 January 1996. The defendant says that the statement that the plaintiff was ready and willing to proceed provided that the Supplemental Agreement was entered into epitomizes the defendant's case that the plaintiff, through its solicitors, was attempting to rewrite the December Agreement. In this context, Mr Yu, who conducted a difficult case with ability and good sense, specifically accepted that the liability issue in this case turned upon whether the Baker & McKenzie letter of 16 January - and in particular the final paragraph thereof - constituted a repudiatory breach on the part of the plaintiff. Paragraph 30 of the Defence pleads that by insisting that the plaintiff execute the draft Supplemental Agreement (the provisions of which are said to be inconsistent with and contrary to those contained in the December Agreement), "the Plaintiff evinced an intention not to perform the [December Agreement], thereby repudiating the same". Paragraph 31 of the Defence then pleads that by a letter dated 24 January 1996, the defendant accepted the plaintiff's wrongful repudiation, whereupon the plaintiff ceased to be entitled to treat the December Agreement as continuing. 36. Mr Yu accepted, also, that the basis of the defendant's solicitors' letter dated 24 January 1996, in purporting to accept the plaintiff's repudiation by reason of the non-payment of the contractual balance of HK$40 million, is fundamentally different from the basis pleaded, but asserted that this is of no consequence if in fact (as, he says, is here the case) that circumstances existed wherein the defendant was entitled to, and did, accept the plaintiff's repudiation and terminate the contract. And, maintained Mr Yu, the final paragraph of the Baker & McKenzie letter of 16 January clearly evinced a desire on the plaintiff's part to rewrite the basic Agreement. 37. The final paragraph of the Baker & McKenzie letter of 16 January reads thus :
38. Mr Yu submitted that there are, in effect, two provisos at play in this paragraph, and that the sentence referring to the "constructive way forward for further negotiations" refers to the first proviso (i.e. resolution of outstanding matters) and not to the second proviso (entry into a Supplemental Agreement). And that it is this Supplemental Agreement which cuts across the original December Agreement. 39. For his part, Mr Chan strongly differed. He suggested that any letter canvassing "further negotiations regarding these matters" could not be elevated into a repudiatory breach. As for the proviso(s) argument of Mr Yu, Mr Chan argued that if indeed there was an ambiguity in terms of precisely what in that paragraph related to what, that in itself was a powerful indication demonstrating that this paragraph plainly is insufficient to amount to a repudiation. 40. Mr Chan also reminded the court of the relevant principles regarding the identification of a repudiation, conveniently summarised by Godfrey JA in Keung Shiu Tang v. D.H. Shuttlecocks Ltd, [1994] 1 HKC 286 at 291 :
41. For my part, I am unable to discern how the final paragraph in the letter presently under scrutiny can be regarded as having "made it plain", to adopt the words of Harman LJ, that this plaintiff did not intend to perform the contract. To the contrary. The sequence of the correspondence, including the letter of 16 January, leads the objective reader to conclude that the plaintiff indeed did desire to perform the bargain that had been struck on 10 December 1995. In this connection, I do not consider that the prospect of a Supplemental Agreement - which clearly involved ultimately fruitless additional negotiation - should detract from this conclusion. The devil is often in the detail, and the fact that particular disputes had arisen which might have been thought to merit a Supplemental Agreement does not, in my view, justify the contention now propounded to the effect that the plaintiff, by the letter of 16 January, was clearly in repudiatory breach. What perhaps is apparent, although in the present context it does not greatly matter, is that the alleged import of the letter of 16 January manifestly was not thus recognised at the time by those acting for the defendant. In the circumstances thrown up by this case, it is hard to escape the conclusion that it was with hindsight that the Baker & McKenzie letter of 16 January was regarded as more promising in seeking to establish repudiation than the non-provision of the H$40 million contractual balance, the repudiatory breach which was originally alleged and which (perhaps understandably) is now disavowed. 42. I hold, therefore, that the Baker & McKenzie letter of 16 January 1996 did not constitute a repudiation of the 10 December 1995 Agreement. I further hold that the letter from Peter Mo, dated 24 January 1996, did constitute a repudiation of the December Agreement, which repudiation subsequently was accepted by the plaintiff by his solicitors' letter dated 23 April 1996, thereby terminating the contract and permitting the plaintiff to assert a claim in damages for its breach. 43. The plaintiff having established his case on liability, I turn now to consider the question of quantum. QUANTUM 44. Agreement between counsel has greatly diminished the scope of the quantum dispute, the result being that there was no necessity to hear evidence from expect witnesses in the context, for example, of contested valuations. 45. The plaintiff's quantum claim is pleaded in terms of the Amended Voluntary Particulars of Points of Claim, filed on 7 June 1996. There are five heads of claim in this document, the first four of which are relatively small :
46. There is no need further to comment upon any of these categories, all of which are agreed, if and in so far as liability be established. 47. This leaves the fifth head of claim, pleaded as '(e) Loss of Bargain'. The constituent elements of this claim relate first to the Ping Che land, and second, to the plant and machinery. Once again, valuations have been agreed, the plant and machinery figure being accepted by each side at HK$88,372,000, and the Ping Che land attracting agreed figures for the market value of the land as at 23 April 1996, the date of acceptance of the repudiation, in the alternative sums of HK$5.9 million or HK$7,868,574, the appropriate figure in any damages calculation being dependent upon resolution of the issue as to precisely what was the subject of the bargain. 48. This latter element is, therefore, the first substantive issue to be decided under the quantum head, the second being argument over what further sum, if any, should be deducted from the plaintiff's claim in order to arrive at the appropriate overall damages figure. The points are short, and I deal shortly with each. (i) The Ping Che land 49. References to the Ping Che land are to be found in four clauses of the December Agreement, namely Clauses 1, 2a, 2c and 8 respectively. 50. Clause 1 identifies Mr Ma as the "owner of all those parcel(s) of land lots in Ping Che in the New Territories", as to which "reference should be made to the land lease to be supplied by Mr K.S. Ma as soon as possible". Whilst Clause 2c simply recites that on or before 21 December 1995 (which was the then anticipated completion date), Mr Ma would be "in readiness to sign a Provisional Sale and Purchase Agreement of the Ping Che land lots to be prepared by Mr K.S. Ma for Mr C.M. Lau's signature". 51. The dispute that has arisen centres upon the description of the land, and the meaning to be attributed thereto. 52. Clause 8 provides that :
53. Whilst pursuant to the carriage of Clause 2, which recites that Mr Ma will sell the company shareholding "and the said land lots in Ping Che" to Mr Lau subject to the following terms and conditions, sub-clause 2a provides :
54. The argument which has arisen is thus. Mr Yu says, in essence, that the land element the subject of the sale and purchase was simply the land identified with reference to the Land Lease, subsequent measurement by surveyors revealing that these parcels of land had an area of but 41,240 sq. ft. He argued that the December Agreement contained no provision to the effect that the defendant had warranted the land area to be 55,000 sq. ft (in contrast with warranties as to the accuracy of other types of information, see for example Clauses 3a and 4), and he stressed that the wording of Clause 8 emphasises and records the commercial value of the land having been agreed at HK$3.8 million. Thus, Mr Yu submitted that the subject of the bargain, inter alia, was not the sale and purchase of parcels of land with an area of 55,000 sq. ft, but certain identified land with an agreed commercial value, and that therefore the correct figure for the market value of the land in question as at 23 April 1996 should be HK$5.9 million (namely, 41,240 sq. ft x HK$143 per sq. ft). 55. For the plaintiff, Mr Chan asserted that analysis of this issue in terms of warranty was unnecessary. He submitted that the true position is and was evident on the face of the Agreement, in particular Clause 2a, and that the correct market value figure to be inserted in the quantum calculation should be HK$7,868,574 (i.e. 55,000 sq.ft x HK$143 per sq. ft). 56. In my view, Mr Chan is correct . Looking at the words of the Agreement itself (and that is all that I should look at in this context), I am disinclined to hold that reference in the Agreement to the land area, albeit upon an approximate basis, should be considered simply as descriptive absent any contractual significance, which is the necessary inference arising from Mr Yu's argument. Looking at the Agreement as a whole, and in particular reiteration of the approximate land area, it would be curious if these references were to be consigned to the category of mere surplusage. Through their amanuensis, Mr Peter Lau, the parties specifically chose to use the words "approximate area of 55,000 sq. ft", and it is difficult to justify an argument that holds that the words used are not intended to convey what they in fact say. De minimis considerations apart - and on the facts none arise in this case - it is legitimate to consider whether it confidently could be asserted that the cumulative price of HK$45 million (encompassing the shares, the plant and the land) would have remained unaffected had the actual land area then been appreciated to be some 14,000 sq. ft smaller than in fact was stated. On the basis of the words actually used in the Agreement, the answer to this, I should have thought, is 'probably not'. 57. At the end of the day, this is not a matter susceptible to elaboration. Either Mr Chan or Mr Yu is correct, and after some reflection, I have come down on the side of the plaintiff. During the course of argument, Mr Chan drew the court's attention to the observations of Lord Hoffmann NPJ in Jumbo King Ltd v. Faithful Properties Ltd, [1999] 2 HKCFAR 279 at 296, observations which, with respect, might be thought particularly apposite in the circumstances arising in the present case :
58. Accordingly, for the purpose of quantum calculation, I find that the relevant agreed sum to be inserted in terms of the loss of bargain on the Ping Che land is the plaintiff's figure of HK$7,868,574. (ii) The HK$18 million debit 59. This issue was a late entry into the debate, by way of amendment made at the outset of the trial. In his application to amend, Mr Yu sought to include a new paragraph 35A, which pleaded that if, which was denied, the plaintiff was entitled to loss or damage as alleged, then such loss or damage should be extinguished or reduced by the sums particularised. These were two. In substance, both canvassed sums of money which, it was said, would have been incurred had the plaintiff taken over the Ma On Shan project. Particular (2), for example, extrapolated that losses at Ma On Shan and Homantin between them would have resulted in losses of some HK$283 million. This element of the amendment was disallowed, absent any adequate explanation as to why it had not arisen before, and in light of Mr Chan's strong objection that, if permitted, there would have been no alternative but for the trial to come off. 60. The first element of the amendment was, however, allowed. This pleads the contract price for the licences and goodwill of the company, pursuant to Clause 2f of the December Agreement, in the sum of HK$18 million. And so, the argument goes, had the transaction gone through as envisaged the plaintiff would have had to pay this sum in four (4) equal monthly instalments, commencing at the end of March 1996, and that this sum was an expense necessarily to be incurred to complete the bargain, loss of which formed the subject matter of the plaintiff's claim. Further, whilst Clause 2f provides that if "at any time any of SY's Contractor Licences is likely to be in jeopardy or revoked" the plaintiff would be entitled to "withdraw or stop further payment", there was no evidence that after completion of the December Agreement that there would have been any likelihood of any of those licences being jeopardized or revoked. Accordingly, the sum of HK$18 million must be deducted from the plaintiff's loss of bargain claim. 61. I do not accept this argument, persuasively though it was broached by Mr Yu. The loss of bargain claim made by the plaintiff in this case, for which payment of the sum of HK$45 million was agreed and has been taken into account, specifically excluded "the various licences and goodwill of SY which it currently enjoys specifically the ASD and Housing Authority Land Piling Licence Group II", to use the words of Clause 2f. The HK$18 million in question was an additional contingent payment (dependent upon the status of the licences) and does not, it seems to me, fairly arise for consideration in the context of the present claim. I agree with Mr Chan that it would be akin to double recovery if Mr Ma, who has retained the licences and has not had to transfer them to Mr Lau, were now to benefit from an HK$18 million attribution against a loss of bargain claim which goes solely to the Ping Che land and to the plant and machinery. It follows, therefore, that I reject this argument also. SUMMARY 62. Given the primary agreement as to the figures in the quantum claim, and in light of the decisions on the two issues of principle canvassed in the argument on quantum, the arithmetical computation set out in the Amended Voluntary Particulars produces a sum of HK$30,664,432.94. ORDER 63. Accordingly, there is to be judgment for the plaintiff against the defendant in the sum of HK$30,664,432.94. 64. I will now hear counsel on interest and costs and, in addition, I should be assisted with verification of the arithmetic within the quantum calculation. [Submissions from Counsel] 65. There will be interest on the judgment sum of HK$30,664,432.94 at the rate of 1% over prime for the period from the date of the issue of the Writ, namely, 23 April 1996, to 21 March 2001, the date of judgment herein, and thereafter at the judgment rate from time to time prevailing until payment. 66. The defendant is to pay the plaintiff's costs of this action, such costs to be taxed if not agreed. 67. Finally, Mr Yu has asked for the indulgence of four weeks in order for his client to pay the sum adjudged due. Mr Chan SC makes no objection. Accordingly, the Order of the court will now include the following additional words : "such sum to be paid within four weeks of the date hereof". 68. I thank counsel for their assistance.
Representation: Mr Warren Chan SC, leading Mr Au-yeung Kwan, instructed by Messrs Wilkinson & Grist, for the Plaintiff Mr Denis Yu, instructed by Messrs Peter Mo & Co., for the Defendant Please refer to CACV705/2001 for the relevant appeal(s) to the Court of Appeal. |
Cases cited in this judgment