Central Gem Ltd. v. Harvest Fair Investment Ltd.

HCA010222/1998

HCA 10222/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10222 OF 1998

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Coram: The Hon. Madam Justice Yuen in Chambers

Date of Hearing: 17 June 1999

Date of Delivery of Decision: 17 June 1999

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D E C I S I O N

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1. The Plaintiff purchased a flat from the Defendant under a Sale and Purchase Agreement dated 12th June 1997 at the price of $9,287,600.00. Clause 16 of the Agreement for sale and purchase provided at sub-clause 1 that:

"should the purchaser fail to observe or comply with any of the terms and conditions herein contained or to make the payments in accordance with schedule 4 or any interest payable hereunder within 7 days of the due date, the vendor may give to the purchaser notice in writing calling upon the purchaser to make good his default. In the event of the purchaser failing within 21 days from the date of service of such notice fully to make good his default, the vendor may by a further notice in writing forthwith determine the agreement."

2. Clause 16(3) further provided that:

"Upon determination of this agreement under sub-clause (1), the vendor may resell the property either by public auction or private contract subject to such stipulations as the vendor may think fit and ... On a resale, any deficiency in price shall be made good and all expenses attending such resale shall be borne by the Purchaser and such deficiency and expenses shall be recoverable by the vendor as and for liquidated damages Provided That the purchaser shall not be called upon to bear such deficiency or expenses unless the property is resold within 6 months of the determination of this Agreement."

3. Up to June 1998, the Plaintiff purchaser had paid the 10% deposit and had also made part payments of more than $1.85m. By a letter dated 4th June 1998, the Plaintiff purchaser alleged a breach by the Defendant vendor of the terms of the agreement and demanded the return of the deposit and part payments. A writ was duly issued on 23rd June 1998.

4. By a letter dated 26th September 1998, the Defendant gave notice determining the agreement. The letter read as follows:

"We refer to the Agreement for Sale and Purchase in respect of the premises entered into between our client as the Vendor and you as the Purchaser, your failure to pay the balance of the purchase price of the Premises and interest thereon which had fallen due for payment under the terms of the Agreement and our client's notice in writing, through Messrs. S.H. Leung & Co., Solicitors for our client in the Agreement, to you dated 29th July 1998 calling upon you to make good your default. More than 21 days have now elapsed since the said notice and you have failed to make good your default. Your breach amounts to a repudiation of the Agreement which repudiation is accepted by our client without prejudice to its rights, claims and remedies against you in the action.

We are instructed by our client to give you notice (which we hereby do) under the Agreement and/or common law to determine the Agreement forthwith and to forfeit absolutely the deposit paid by you under item (i) of schedule 4 of the Agreement. The Agreement is thus determined and the said deposit forfeited accordingly. All other monies paid by you in respect of the purchase price under the Agreement will be retained and applied towards settlement of the damages suffered and/or incurred by our client as a result of your breach of the Agreement.

Our client is entitled to resell the premises without further notice to you. In the event of a re-sale of the Premises any deficiency in price and all expenses attending such re-sale shall be recoverable from you by our client as and for liquidated damages ..."

5. On 30th September 1998, the Defendant amended its Defence and Counterclaim to claim firstly, a declaration that the Defendant is entitled to forfeit the deposit and also damages for breach of agreement. At para. 23 of the Amended Defence and Counterclaim, the Defendant pleaded that it had suffered loss and damage being the difference/deficiency between the contractual purchase price of the property and the market price of the property on the date of determination and such costs incidental thereto to be assessed or the difference/deficiency between the contractual purchase price of the property and the actual purchase price on the resale, either by public auction or private contract pursuant to clause 16 of the agreement, to be recovered together with the expenses attending such resale.

6. On 4th November 1998, the Defendant resold the property for $4,839,400.00 incurring resale expenses of $99,208.00.

7. On 23rd March 1999, Master Jones gave final judgment for the Defendant for the declaratory relief that it was entitled to forfeit the deposit, and entered interlocutory judgment for damages for breach of the agreement to be assessed. The Plaintiff's Amended Statement of Claim was struck out.

8. I pause to note that Mr. Andrew Cheung, counsel for the Defendant, said the Defendant's case is that it has not yet elected whether to proceed for common law damages or for the deficiency in price under clause 16 of the agreement. But he said that for present purposes, the deficiency under clause 16 could not be more than the common law damages, because if that were the case, the Defendant would then not elect to claim common law damages. And in any event, the difference between the relevant dates is not substantial. The common law damages would be assessed as at 26th September, and as far as clause 16 was concerned, 4th November was the date of the resale (and possibly a few days earlier on 31st October, being the transaction date shown on the estate agent's schedule).

9. On 26th March 1999, the Plaintiff issued a Notice of Appeal against the order of Master Jones which is to be heard 3 weeks away.

10. On 19th April 1999, the Defendant issued the present summons for 1) interim payment of $2,689,888.20 or such other sum as the Court shall think fit by way of interim payment on account of the damages as adjudged to be assessed under the order of Master Jones, and 2) security for costs in the amount of $1,666,718.00 or such sum to the satisfaction of the Court on the ground that there is reason to believe that the Plaintiff will be unable to pay the costs of the Defendant if successful in its defence upon determination of the said appeal.

11. First of all, in relation to the application for interim payment, Ord.29 r.11(1)(b) provides that:

"If on the hearing of an application under r.10 in an action for damages, the court is satisfied that the plaintiff has obtained judgment against the respondent for damages to be assessed, the Court may, if it thinks fit, order the respondent to make an interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the damages which in the opinion of the Court are likely to be recovered by the plaintiff ..."

12. The agreement having been determined on 26th September 1998, the property was resold within 6 months on 4th November 1998 (or 31st October 1998) to two individuals for $4,839,400.00; that agreement was subsequently registered. The Defendant is, therefore, claiming the difference between the contract price and the resale price which comes up to $2,690,000.00 odd.

13. The Plaintiff disputed that quantum on the basis that the Defendant has, according to Mr. Yip's submission, already elected for common law damages only. Mr. Yip, counsel for the Plaintiff, submits that there was no proper determination of the agreement under clause 16(1) so as to bring clause 16(3) into play, and he said that that was because the letter of 26th September 1998 refers expressly to "repudiation" and "acceptance of the repudiation".

14. I do not accept that submission. The mechanism provided under clause 16(1) was followed in that notice to make good the default had been given to the Plaintiff, and 21 days had been allowed to elapse before the letter of 26th September.

15. The language of that letter of 26th September which I have set out earlier permits the Defendant to submit that it was a determination under clause 16. For example, in the second paragraph of that letter, the Defendant's solicitors referred to the giving of notice in writing calling upon the Plaintiff to make good his default. It refers to 21 days having elapsed since the said notice and the Plaintiff having failed to make good its default, and in the following paragraph, it refers also to determination of the agreement. The actual words "the agreement is thus determined" are used. Also, in the following paragraph, there is a reference to resale of the premises and any deficiency in price and all expenses attending such resale being recoverable "as and for liquidated damages":- clearly the language of clause 16(3).

16. Therefore, I cannot accept Mr. Yip's submission that the Defendant had already elected and elected only for a common law termination of the agreement.

17. In any event, there is only a difference of about 1 month between 26th September and 4th November. There is no evidence before me that the market had suffered such a huge drop between late September and late October or early November that the price received on an actual resale did not reflect more or less the market price in late September. In the absence of any evidence that this was a sham resale, the actual sale price is the best evidence of the market price. No evidence has been produced by the Plaintiff of what it said was the true value of the property, or the true market price of the property, as at late September 1998.

18. In this regard, I must also refer to Mr. Yip's submission that the date should be a date in June (when it sent its letter of 4th June purporting to terminate the agreement for the Defendant's breach). It is clear law that a repudiatory breach which is not accepted is but "writ in water". The Defendant was at liberty either to accept that repudiation then and there, or to wait and see (as in fact it did) before accepting the repudiation on 26th September 1998 by way of that letter which kept its options open as between a termination under common law and a determination of the agreement under clause 16.

19. In the circumstances, I am satisfied that the relevant conditions for the present application have been made out.

20. As far as the expenses of resale are concerned, I was a little concerned as to what would appear to be a duplication in agency fees charged by Sun Hung Kai Real Estate Agency Ltd. since commission had also been charged by Centaline. However, Mr. Yip has not pressed this point, and accordingly I find that the necessary criteria have been shown by the Defendant for an order in terms of para.1 of its summons dated 19th April 1999.

21. Accordingly, I would order that the Plaintiff do pay the Defendant a sum of $2,689,888.20 by way of interim payment on account of damages to be assessed under the order of Master Jones dated 23rd March 1999.

22. In relation to the time within which this payment is to be made, I will hear the parties, given that the 7 days referred to there may need to be enlarged in view of the public holiday tomorrow and the intervening weekend.

23. In relation to that part of the summons, the Plaintiff has not submitted any evidence to show that the Defendant would be incapable of repaying the amount in the event that the Defendant fails on appeal, so there is no ground for ordering the interim payment to be made into Court as opposed to a payment to the Defendant.

24. I then deal with the application for security for costs in the amount of $1.66m. odd. The Plaintiff is a two dollar company. The evidence shows that it has no known assets. The registered office is in premises which is owned by another company with which it is associated. The Defendant has exhibited a skeleton bill in relation to future costs and it has also exhibited in evidence the Defendant's actual costs which are to be submitted for taxation pursuant to the order of Master Jones of 23rd March 1999.

25. Mr. Yip has not made any submissions relating to the quantification of such costs. His submission is simply that since some $1.86m. has been retained by the Defendant, that would be adequate for the costs involved. That would only be right insofar as the said amount $1.86m. need not be set off against damages, but if the Plaintiff loses (and that is the basis for the Defendant's application for security for costs) that amount would have to be set off against damages, so that that is not an amount for which the Plaintiff is, so to speak, "in credit".

26. Accordingly, I would also grant an order in terms of para.2 of the Defendant's summons of 19th April 1999 in other words, that the Plaintiff do give security for the Defendant's costs in the sum of $1,666,718.40 but I shall also hear Mr. Yip as to the time for payment.

Representation:

Mr. Simon S.M. Yip instructed by M/s Francis Yim & Co. for Plaintiff

Mr. Andrew K.N. Cheung instructed by M/s Woo, Kwan, Lee & Lo for Defendant