Kwok Siu Wing v. Modern Park Ltd. and Another
Read the full judgment text of HCA 11922/1998 on BabelCite. This High Court CFI judgment was delivered on 12 March 2001.
1. These are three separate actions for the recovery of deposits and related damages brought by the purchasers in each of three property transactions against the vendor because of its default under their agreements. They are in the same proceedings suing a former director of the vendor under a guarantee or in the alternative collateral contract. The claims against the vendor have resulted in order 14 summary judgments in favour of the purchasers for reimbursement of the deposits and liquidated d
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HCA 11920/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 11920 OF 1998 ____________
____________ (Consolidated by Order of Master Jones Coram: Deputy High Court Judge Gill in Court Dates of Hearing: 19-22, 26 February 2001 Date of Judgment: 12 March 2001 _______________ J U D G M E N T _______________ Introduction 1. These are three separate actions for the recovery of deposits and related damages brought by the purchasers in each of three property transactions against the vendor because of its default under their agreements. They are in the same proceedings suing a former director of the vendor under a guarantee or in the alternative collateral contract. The claims against the vendor have resulted in order 14 summary judgments in favour of the purchasers for reimbursement of the deposits and liquidated damages. The trial before me is in respect of the claims against the former director under the guarantees or collateral contracts. 2. The facts, issues and law are common to all three actions, and at a pre-trial directions hearing the same were consolidated. History 3. The three plaintiffs are Amy Wong (Miss Wong) and her friends, a married couple called Kwok Siu Wing and Rebecca Cheung (Mr and Mrs Kwok). The first defendant is a company registered in Hong Kong called Modern Park Limited (Modern Park). The second defendant is the former director of Modern Park called Chan Sai Kit (Mr Chan). Also featuring is another Hong Kong registered company called Daido Concrete (HK) Limited (Daido Concrete). 4. By provisional agreement of 6 October 1997 Daido Concrete as owner of certain units in New Territories village houses in a development known as Emerald Court, Tsing Chuen Wai, Tuen Mun agreed to sell the same to Modern Park. The agreed price was $17.8m. Of this $1m. fell due and was paid on the signing of the agreement, a further $2.56m. was due on the signing of the formal agreement, being 6 November 1997, and the balance was due and payable on the completion date being 6 January 1998. The agreement gave Modern Park the right to postpone the completion date to 6 March 1998 upon payment of interest on the balance purchase price outstanding. 5. Modern Park entered into this commitment for the purpose of resale of the individual units in the development for profit, ideally with the completion dates coinciding with that upon which it was due to complete with Daido Concrete. To that end Modern Park through a real estate agency called Anna Property Agency promoted the Emerald Court units for resale. Part of these comprised a house designated Block C, divided by stories into three. Miss Wong and Mr and Mrs Kwok entered into negotiations, the upshot of which was that through Anna Property Agency Modern Park entered into provisional agreements dated 24 November 1997 to sell the ground floor to Miss Wong, the first floor to Mrs Kwok and the second floor and roof to Mr Kwok. Mr Chan signed for Modern Park. The terms of the sales were common to all, save as to price. For the ground and first floors this was $1.9m. and for the second floor and roof it was $2.4m. The agreements provided for payment of 15% of the purchase price on or by execution, a further 15% on or by 25 November 1997 and the balance on completion being 6 March 1998. There was also a provision, common to all, that upon payment of the second deposit the vendor would hand over the keys to the purchaser. 6. The purchasers having paid the deposits by due date and having been given the keys Mr and Mrs Kwok visited the house on 26 November. They were concerned to find a notice attached to the building, whose English translation reads as follows:
7. This effectively barred their entry and was in breach of their contractual right of possession. 8. The notice caused concern. Mr and Mrs Kwok arranged to meet Mr Chan at his office with members of Anna Property Agency on 28 November. Mr Chan admitted he had not caused Modern Park to pay the second deposit then overdue to Daido Concrete because of a title dispute. The Kwoks, speaking for all three purchasers, announced an intention to rescind and demanded a refund of deposits. Mr Chan proposed that the transactions should proceed and offered to give an undertaking on behalf of Modern Park to refund the deposits in full if the transactions did not complete on or by 6 March 1998, supporting this undertaking by his personal guarantee. He further proposed to Mr Kwok that he would benefit by a car park being thrown in for no additional consideration. The Kwoks agreed on behalf of all three and Mr Chan wrote out a form of personal guarantee. The agreement between Modern Park and Mr Kwok was amended by Mr Chan adding in a section headed "remarks":- "The vendor is responsible to sell the property together with a car park." On advice the guarantee was redrawn and signed under seal. I reproduce its English translation as follows:
9. Pausing here, on a plain reading of this document, Mr Chan's guarantee was enforceable if the contract between Daido Concrete and Modern Park foundered and could not be completed on or before the due date for completion of the agreements between Modern Park and the Kwoks and Miss Wong, being 6 March 1998. It did not purport to bind Mr Chan post that date, in the event that the parties agreed to extend their completion dates. 10. Then it was that on 16 February 1998, but in circumstances now disputed, the parties agreed to postpone the completion date from 6 March to 30 June 1998. 11. The issue was initiated by Mr Chan or Modern Park, whose solicitors Messrs Chow, Griffiths & Chan (Chow Griffiths) were instructed to write to those engaged by the Kwoks and Miss Wong, Messrs Yeung Law & Co. (Yeung Law) as follows: "CHOW, GRIFFITHS & CHAN
12. The upshot was an agreement that the completion dates be extended to 30 June 1998. Whether or not there was an extension of Mr Chan's guarantee to that date or a collateral agreement having like effect is central to this litigation. 13. Three letters passed between the solicitors dated between 17 February and 9 March 1998 which I reproduce as follows: " YEUNG LAW & CO.,
" YEUNG LAW & CO.,
" CHOW, GRIFFITHS & CHAN
14. Meanwhile there was a development in the Daido Concrete - Modern Park relationship. By writ dated 7 March 1998 Daido Concrete sued Modern Park for breach of their agreement. But by 30 April 1998 the parties had settled the dispute by entering into a fresh agreement, at a reduced price and with a deferred completion date. 15. On 9 June 1998 Mr Chan resigned as a director of Modern Park. In his stead a company called Vital Gain Limited (Vital Gain) was appointed. 16. Then there was a development, curious in the light of the history to date but explained by Mr Chan as I shall come to. Modern Park entered into agreements to sell certain of the units it was in the throes of buying from Daido Concrete in Emerald Court to Vital Gain, including those already sold to Miss Wong and Mr and Mrs Kwok. 17. On 30 June 1998 none of the three transactions proceeded to completion. In turn each party claimed the other was in default and had repudiated. 18. The Kwoks and Miss Wong issued their writs. As I have already stated at the outset, these resulted in order 14 summary judgments against Modern Park, ordered on 16 April 1999. (These were appealed; the appeals were dismissed on 25 June 1999). But these judgments have proved worthless. To enforce them Miss Wong and Mr and Mrs Kwok petitioned Modern Park's winding up and an order followed. The winding up has been completed but only $350 in cash was available for distribution. The issues 19. Miss Wong and Mr and Mrs Kwok now seek redress from Mr Chan. It is their case that as a condition of the agreement to extend the completion date of their transactions from 6 March to 30 June made on 16 February Mr Chan agreed to extend his guarantee. Alternatively there was a collateral contract that the completion dates would be extended on Mr Chan agreeing to extend the due date of his guarantee. They have a further alternative, if it is held that there was no extension or collateral contract. The fact that as guarantor Mr Chan must have known of the extension to the completion dates as being also the controlling mind of Modern Park and having instigated it, meant that he was still bound under the guarantee even after the agreements with Modern Park, whose due performance by 6 March 1998 he had guaranteed, had been varied by extension of the completion dates. 20. Mr Chan's defence is that there was no agreement, collateral or otherwise, between the parties on 16 February whereby his guarantee was extended. The subject was not then nor at any time touched upon. Thus when the parties extended the completion dates without reference to the guarantee it ceased to be binding on him. 21. These then being the issues I am required to resolve I now turn to the evidence from which I shall derive findings of fact. The evidence 22. Miss Wong was called first. She said she has known Mr and Mrs Kwok for some 6 to 7 years and was good friends with them both. It was they who contacted her with the suggestion that they look at buying the three floors of one of the houses at Emerald Court. After they inspected them together she decided to proceed and to take the ground floor. This was her first venture into real estate in her own right. She had no firm plans concerning what she would do with the property; if a buyer had come along and offered her more than she paid she might have been tempted. But she did not promote the unit for resale. She played no significant part in the negotiating or any other event during the history of their involvement. The Kwoks are in business together; all along she has trusted them implicitly and was content to be guided by them. They kept her posted, particularly of events culminating in Mr Chan's guarantee and how and why the completion date was extended all of which she accepted without demur. 23. As the agreed completion date (as extended) approached she made her own arrangements to raise the balance purchase price and associated costs. On the due date she had drawn a cashier's order for such purpose and professed to be ready willing and able to complete. But then she learned from her solicitors that the vendor had not shown good title and it was doubtful that they could proceed. In the event, when all three transactions failed, she and the Kwoks decided to take legal action to recover the deposits and sue for liquidated damages against Modern Park under the agreements and Mr Chan under his guarantee. 24. Next came Mrs Kwok. She said she was introduced to Emerald Court by an employee of Anna Property Agency she knew as Shirley. She and her husband took Miss Wong along because they were only interested in buying two floors. It was their intention to move in after purchase. They had no thoughts of reselling or otherwise dealing in them. 25. On 25 November 1997 $930,000 was the balance due on account of the deposits under all three agreements. By arrangement with the others she drew the cheque for this amount, making it payable to Modern Park's solicitors Chow Griffiths. By arrangement she handed the cheque to Mr Chan on due date. He tried to get her to amend it making it payable to him. He said it was troublesome getting the money out of the solicitors; furthermore he told her he was the real owner and boss and in complete control of Modern Park; that any payment whether to Modern Park's solicitors or to Modern Park would be as if to him direct. Mrs Kwok did not agree to his request but did compromise by changing the cheque to make it payable to Modern Park. 26. It was she and her husband who saw the notice pinned to the house from Daido denying them entry. It was dated 24 November 1997. She immediately telephoned Daido Concrete, and spoke to an officer of the company, asking for an explanation. The response was of no comfort; that the purchaser had failed to pay a further deposit and the properties were back on the market for sale. It was because of this, they having already invested 30% of the total price with a defaulting vendor, that they called the meeting of 28 November. It was held at Mr Chan's office. Present were Mr Chan, Mr and Mrs Kwok, the proprietor of Anna Property Agency, called Anna Man (Anna) and her son and employee called Anson Au (Anson). Mr Chan informed them that he had not paid an instalment due under Modern Park's agreement with Daido Concrete because there was a title difficulty; it was in the process of being taken over and the mortgagee bank had declined to release the title deeds. I go now to her witness statement where she referred to Modern Park as the 1st defendant, Mr Chan as the 2nd defendant and Miss Wong as Amy:-
27. By this means the predecessor to the guarantee whose form I have already reproduced came into being. She went on to record:-
28. Then she dealt with events of 16 February 1998 I revert again to her witness statement, where in her own words she relates what happened, as follows:
29. She was cross-examined extensively on events of 16 February it being put to her that there was no telephone conversation at all between Mr Chan and her husband on that day. She disagreed. It was put to her that as a consequence there was no reference to the guarantee and no agreement that it was to be extended. She disagreed. 30. Prior to 30 June 1998 she completed the necessary bank formalities regarding the mortgage she was looking to raise to complete the purchase. This was arranged without a hitch and she drew the necessary cashier's orders on due date and stood ready to settle. But in the event good title was not shown and the transaction was aborted. 31. Next in order came Anson. He was taken in examination in chief and cross-examination to the meeting of 28 November 1997 held at Mr Chan's office. He agreed that Mr Kwok was cross, complaining that they had been deceived and talking of going to the police. It was his mother Anna who proposed the personal guarantee and when she did Mr Chan seemed happy to offer it without any qualms. He also offered to throw in the car park without being prompted. Following this Mr Kwok agreed to proceed on behalf of all parties. 32. The fourth and final witness for the plaintiffs was Mr Kwok. He was with his wife when she handed the cheque of $930,000 to Mr Chan and heard him attempt to persuade her, for reasons already recounted, to have the cheque made in his favour. And his account of what took place on 28 November matched that of his wife as confirmed by Anson. 33. Then it was that he was taken to events of 16 February 1998. He said he was working in his office alongside his wife when he received a telephone call from his solicitor Mr Yeung who told him of the contents of the letter he had just received from Chow Griffiths. He said he would speak to Mr Chan direct, to see what was going on, with which course his solicitor took no exception. He rang him, left a message and presently Mr Chan rang back. It was about 5 p.m. Mr Kwok asked him if he wanted an extension. He said he did. He then asked him if he had paid the second stage deposit to Daido Concrete. He replied he had not; there were minor matters still to resolve but these would be dealt with in time. Mr Kwok then asked him if the extension applied to the guarantee. He responded to the effect that there would be no problem. Mr Kwok referred to the proposed date of 30 April, and said that if that was the proposed extension date for the Daido Concrete Modern Park transaction it would be prudent to allow sufficient time after title was cleared for his mortgage application. He proposed 30 June with which Mr Chan agreed, confirming that the guarantee was to run for the same period. The conversation concluded. He said that had Mr Chan not agreed to extend the guarantee there would have been no question of his agreeing to an extension. The continued obligation under the personal guarantee was an essential feature. He repeated the conversation to his wife who had been present in the office as he took the call, and then telephoned Mr Yeung to tell him the same. The letter Mr Yeung then wrote to Chow Griffiths of 17 February was on his instructions. 34. When as 30 June approached his wife was preparing for completion by getting her mortgage sorted out he took no such steps, even though he too needed a mortgage to complete. That was because his solicitors had by then informed him that they could not see, on a search of the title documents, how Modern Park could supply the car park that Mr Chan had agreed on 28 November to include in the sale. As far as he was concerned that was now an essential ingredient; moreover, he was advised that any bank he approached for a mortgage would require this to be sorted out before it would consider lending, as it was an issue going to good title. As it was, by the extended completion date Modern Park could not show good title and the transactions foundered. The writs followed. 35. Under cross-examination it was put to him that at the time they met Mr Chan on 25 November, Mr Chan had not in fact said words to the effect that a payment to him at the end of the day was one and the same as if made to Modern Park. He denied that. 36. Taken to the meeting of 28 November it was put to him that Mr Chan's offer of a personal guarantee and his acceptance on behalf of the purchasers preceded Mr Chan's offer to include in the purchase a carpark, and that that was at his prompting. He denied that. He said the offer was made coincidental with that of the personal guarantee and he accepted both together. He had not particularly pursued a carpark, but in the event was happy to receive one at no extra cost, and it was a factor which he weighed when considering whether or not to proceed or rescind. 37. Then he was taken to 16 February. He said he made the decision to speak to Mr Chan direct because he personally wanted to hear from him what was happening; he knew him by then, having met him twice before and spoken to him on the telephone. It was put to him that there was no telephone conversation between himself and Mr Chan at all. He denied that. He was asked if he had told Mr Yeung, when reporting to him the conversation, if he had mentioned the extension to the guarantee. He said Mr Yeung raised the point and he responded that this, too, had been extended. He did not know why there was no reference to it in Mr Yeung's letter of 17 February. It never crossed his mind to require Mr Chan to record the extension in writing. He had no reason not to trust his word. He said this trust remained unshaken even when he read, as he did in March, that Daido Concrete had issued a writ against Modern Park. 38. Taken to the letter of Yeung Law to Chow Griffiths of 6 March, he said that this was the first time he came to know of its contents. He had not instructed that it be sent and was not aware that it had been. It was not true to say there was no agreement to extend the completion date, only an offer. He could only assume it was a tactic, designed to put pressure on for a reply. 39. That was the evidence for the plaintiffs. 40. I come now to that for the defence. 41. Only Mr Chan was called. He said Modern Park was a shelf company acquired for the purpose of investing in property. The transaction with Daido Concrete was the first. Its shareholders were two companies whose shares were wholly owned by him. There were three directors. He was one, one of the shareholder companies was another and his brother-in-law, also called Chan, who had no interest and voted as directed, was the third. In addition there were two silent partners who had invested capital but who had no formal interest or office. To all intents and purposes he was in charge of and in sole control. 42. In June 1998 Modern Park changed its structure. There was an allotment of shares to accommodate new investors whose stake was indirectly held by Vital Gain, one of the new shareholders. The deal required the resignation of himself and his brother-in-law from the board, and the appointment of Vital Gain. He then explained the purpose of the agreements entered into between Modern Park and Vital Gain. He described them as internal; in fact to be acted on only if, for any reason, the Kwoks, Miss Wong and another purchaser did not for any reason proceed, and were designed to encourage Daido Concrete to settle the dispute that had resulted in the writ of March 1998 and negotiate a fresh agreement. 43. He conceded that when in turn Miss Wong and the Kwoks were paying various instalments of the deposits he did invite them to make the cheques out to him. This was because at this stage Modern Park had no bank account. But he did not insist on this, and he did not go so far as saying to the effect that he and Modern Park were one and the same. 44. Taken to the meeting of 28 November he said he gave the guarantee with some reluctance only after non-stop pestering from the Kwoks and the threats from them to make a report to the police. He conceded however that when he finally did so it was willingly, and this included the substituted document that replaced it. On the issue of the carpark he denied that it was an offer made by him before the personal guarantee had been proffered and accepted. It was Mr Kwok who demanded it and he refused it, explaining that it was not there to be included in the title. He finally succumbed to the pressure they were bringing to bear but said all he could do was utilise vacant land alongside one of the other houses which would be licensed for 5 years at a nominal rental. In cross-examination on this point he conceded that the words written into the agreement under "remarks" were in his hand and did not spell out any limitation of ownership or tenure. 45. Taken to events of 16 February he gave a materially different account from the Kwoks as to what took place. There was no conversation at all with Mr Kwok, so that all that he has said was spoken and decided is not true. He said matters concerning a prospective extension were first considered on 15 February. By that date Modern Park and Daido Concrete were close to agreeing to an extension of their completion date to 30 April. He asked a real estate agent that he had been using to promote Emerald Court, called Dominic Cheung (Dominic) to talk to his counterpart at Anna Property Agency to see when the Kwoks and Miss Wong wanted to settle. At the same time he instructed Chow Griffiths to write the letter which they did of 16 February. Dominic got back to him that the other side proposed 30 June. He in turn spoke to Daido Concrete's representative who agreed to extend to that date; he told Dominic to pass on Modern Park's acceptance. There was no reference to a like extension to the personal guarantee; it was not raised at all. And had it been he would have refused to extend that. 46. In cross-examination he stood by this account of how the extension came to be sorted, whilst conceding there was no reference to it in his witness statement. 47. In the event, when the transactions with the Kwoks and Miss Wong collapsed he and his fellow investors made a commercial decision based on prevailing market conditions not to proceed with the purchase from Daido Concrete. By this time there was no money left in Modern Park's coffers. The deposits received from Miss Wong and the Kwoks and one other purchaser of Emerald Court had been spent, utilised as a deposit on the purchase of farm land which was forfeited to the vendor when Modern Park elected not to proceed and upon payment of legal fees. So when the order 14 judgment went against Modern Park there was nothing left for it to pay. 48. That was the evidence for the defence. Findings of fact 49. There is, as is apparent, only one crucial dispute of fact upon which the outcome of these proceedings depends and that concerns the circumstances surrounding the agreements to extend the completion dates made on 16 February 1998. But as the outcome of that to a great extent depends on one man's word against another's and thus on the credibility of those involved it is necessary for me to explore and resolve other areas of disagreement as well. 50. First, I am satisfied Mr Chan did try to get the deposit cheques made out to him instead of to the solicitors. Obviously there was discussion about this because otherwise Mrs Kwok would not have altered hers. And as Mr Chan admitted he did not invite that it be made out to Modern Park because it had as yet no bank account. Mrs Kwok's explanation that this was a compromise is the only feasible one. This finding also points to the 'oneness' that Mr Chan promoted as between himself and Modern Park. 51. I come to the meeting of 28 November. The account put up by Mr and Mrs Kwok is matched by Anson who had no reason to fabricate. Modern Park and Mr Chan were clearly under pressure to save the deals given Modern Park's situation as consignor, and given, as seems apparent, the deposits had been spent. It makes no sense that Mr Chan was prepared to throw in a carpark gratuitously, after the Kwoks had, on behalf of all three, been persuaded to stay with the transactions, particularly as there was going to be material difficulty to supply it. And why, as a man of experience in his field, did he not spell out in the remarks column the restricted tenure of what he was offering? Rather, the proposal has the hallmarks of a desperate ploy to preserve the three deals even if it was buying trouble later. 52. And so to the events of 16 February. 53. The letter of Chow Griffiths was couched in terms which reflected that Miss Wong and Mr and Mrs Kwok could hold Modern Park to the agreed completion dates. But obviously it was, in essence if not form, an application to extend so that Modern Park could similarly delay completion with Daido Concrete, for why otherwise would it invite an extension and pay a consequent enhanced purchase price which it could not recover from its own purchasers? When Mr Kwok was told of this it was not unnatural that he should want to find out why and directly so from Mr Chan, Modern Park's alter ego. Of course he could have instructed Mr Yeung to find out on his behalf. But he did not as the correspondence reveals. And I do not accept that the resultant agreement was settled by the agents. Apart from Mr Chan's account from the witness box (not hitherto raised either in pleadings or his statement) there was no evidence that they were involved. The first issue is whether there was or was not a telephone conversation. Having read the witness statements and heard and watched the witnesses and having considered not only what is before me as evidence but also what is not I am satisfied that there was a telephone conversation between Mr Kwok and Mr Chan and the agreement to extend the completion dates to 30 June resulted from that. The letter of Yeung Law of 17 February was written on Mr Kwok's instructions as he attested. But what was said? 54. Mr Kwok's account, that Mr Chan agreed to extend the personal guarantee as a condition of the extension is supported by simple logic. I have already concluded that Chow Griffiths' letter of 16 February was a thinly-veiled request for an extension, not the other way round. It makes no sense that having acquired the guarantee for good reason Mr Kwok would gratuitously give it up. But perhaps he did, or forgot to raise it. Or perhaps he thought that it would still be contractually binding. After all, the letter of Yeung Law of 17 February made no reference to it, and a prudent solicitor, asked to write confirming an agreement, would surely have included all the terms. And why did Mr Kwok not require Mr Chan to put it in writing? Was it really because he was prepared to take him at his word as he said, given his and Modern Park's track record? 55. It is apparent that there are factors that favour Mr Kwok's account and others that do not. It really boils down to credibility, not on the matter of resolving two conflicting accounts because I have already rejected Mr Chan's claim that there was no telephone conversation at all, but whether I am prepared to find, on balance, that Mr Kwok has told the truth. Having read Mr Kwok's witness statement, and that of his wife, and listened to and watched them both recounting events from the witness box, having paid heed that they have a motive to depart from the truth, I am not prepared to accept either has done so. I find that Mr Chan sounded out Mr Kwok for extended completion dates. He agreed to that, the acceptable date after discussion being 30 June, in consideration for an extension of Mr Chan's guarantee to like date. This amounted to a contract, evidenced and confirmed by Yeung Law's letter of 17 February. 56. But what of the letter of Yeung Law of 6 March? 57. I find that letter is an aberration, not supported by the evidence from either side. If it was written to bring pressure to bear for a response it was misconceived and brings no credit to its author. In the context of the case I can and do ignore it. Conclusion 58. Mr Chan is bound by his contract to pay to Mr and Mrs Kwok and Miss Wong the equivalent of the deposits they outlayed. I find in their favour for the full amounts claimed. Costs, nisi at first instance, will be to them taxed if not agreed, save for the costs of a late application to amend the statements of claim and consequent defences, which will be to Mr Chan taxed if not agreed.
Representation: Mr A Bell, instructed by Messrs Yeung Law & Co., for the plaintiffs Mr C Y Li, instructed by Messrs Hau, Lau, Li & Yeung, for the second defendant |
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