Lau Suk Ching Peggy v. Ma Hing Lam and Others
Read the full judgment text of HCA 2408/2004 on BabelCite. This High Court CFI judgment was delivered on 25 August 2006.
1. This is an action by the Plaintiff (“Lau”) for specific performance of an agreement (“the Agreement”) embodied in a set of minutes of meeting dated the 11 th May 2004 (“the Minutes”) in which Lau was granted an option (“the Option”) by the 1 st Defendant (“Ma”) and the 2 nd Defendant (“Kingsway”) to purchase the shares in the 3 rd Defendant (“Multi Capital”).
Cites 1 case
|
HCA 2408/2004 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 2408 OF 2004 ______________________ BETWEEN
______________________ Before : Mr Recorder A Chan, SC in Court Dates of Hearing : 7 – 10 August 2006 Date of Judgment : 25 August 2006 ______________________ J U D G M E N T ______________________ 1.This is an action by the Plaintiff (“Lau”) for specific performance of an agreement (“the Agreement”) embodied in a set of minutes of meeting dated the 11th May 2004 (“the Minutes”) in which Lau was granted an option (“the Option”) by the 1st Defendant (“Ma”) and the 2nd Defendant (“Kingsway”) to purchase the shares in the 3rd Defendant (“Multi Capital”). 2.Lau and Ma have known each other since about the end of 2002. Lau had some experience in the banking sector and she was at that time providing financial consultancy service to other people. Ma was (and is) the President of a group of companies called Kingsway Group which carried on the business of manufacturing and trading of electronics parts and components. Kingsway belonged to the Kingsway Group. 3.There is no issue between the parties that in 2003, during the time when Hong Kong was struck by SARS, Lau together with one Mr Eric Wong (“Wong”) provided financial consultancy service to Ma and Kingsway which resulted in the enlargement of Kingsway’s banking facilities. For their service, Kingsway agreed to pay each of them 2.5% of what was called the “clean portion” of the new banking facilities as their commission. As evidenced by the Minutes, such clean portion amounted to HK$16.8m and the aggregate commission (5%) payable to Lau and Wong was HK$840,000. I shall revisit Wong’s commission below. 4.At this juncture, I shall deal briefly with a factual dispute between the parties as to whether Kingsway or Kingsway Group was, at the time when the service of Lau and Wong was engaged, in financial difficulty. This point has little relevance save for the credibility of Ma. I accept Lau’s evidence, and hold against Ma, that the Kingsway Group was in financial difficulty. I find it difficult to accept Ma’s evidence that he was prepared to pay HK$420,000 for Lau’s service to have the banking facilities enlarged just to “boost” his company. Further, it is undisputed that Lau had to pay for, inter alia, the “down payment” for certain office premises rented by one of the Kingsway Group companies for which she was later reimbursed. 5.Whether the business relationship between Lau and Ma/Kingsway Group was confined to the enlargement of banking facilities is highly controversial. However, it is common ground that these matters only go to the point taken by Mr Li, who appears on behalf of the Defendants, on the consideration provided by Lau for the Option. By reason of the limited relevance, I do not intend to deal with the matters in great detail. 6.Lau’s case is that when she and Wong were negotiating with Ma about their consultancy service, they came to an agreement with Ma to form a joint venture in starting a loan brokerage business. That business would provide clients to be introduced by Lau and Wong with, e.g., advice on fund raising. Later, it was decided that the business would be carried out through Semi HK Ltd (“Semi”). It was intended that Lau and Wong would be given shares in Semi so that they together with Ma would have equal ownership of all the shares in Semi. Lau and Wong, in addition to their service, would inject their commission into the business as its working capital. Further, 3 properties were acquired with the use of different corporate vehicles – one situated in Winfield Building, Happy Valley (“the Winfield Property”); one at Tower 1, Les Saisons, No.28 Tai On Street (“the Les Saisons Property”) and one at Hong Lok Yuen, Tai Po. The Winfield Property was acquired with the use of Multi Capital and it will become apparent that it is very much at the centre of this action. The Winfield Property and the Les Saisons Property were to be used as quarters for Lau and Wong. All 3 properties were subsequently charged as securities to back up credit facilities granted to Kingsway. Lau was appointed as director of both Semi and Multi Capital. 7.It is common ground that the joint venture did not get very far. No business had been commenced before the relationship between Lau and Ma broke down in about February 2004. However, it is not disputed that Lau had found an office for Semi at the Sun Hung Kai Centre and had caused it to be decorated in preparation for business. She paid the down payment for those premises in the sum of over HK$140,000. As noted above, she was later reimbursed for that sum. 8.Ma’s case is that there was no joint venture at all. In short, he maintains that what Lau said is not true. Before I resolve this factual dispute, I should set out the terms of the Minutes. The Minutes 9.The Minutes are short and are set out in full below save for the execution part and Appendix 2 :
10.It is common ground that when the relationship between Lau and Ma turned sour, they agreed to an overall settlement so as to achieve a clean break. That agreement was embodied in the Minutes. However, Mr Li submits that no consideration was provided by Lau for the Option (see Clause 3 of the Minutes) in that the only entitlement which she had at the time of settlement was her claim to commission which was settled according to Clause 2 of the Minutes. Lau’s claim to entitlement to shares in Semi should not be believed. In the premises, the Option was entirely gratuitous. Consideration 11.The preferred route by which issues of facts are to be resolved should be one where the allegations are tested against the contemporaneous documents. There is no doubt in my mind that Lau’s evidence is consistent with the Minutes. In particular, (a) there is a reference in paragraph 2 of the Minutes to the previous co-operation between the parties in the operation of Semi; (b) Clause 1 specifically addressed Semi’s liabilities andand (c) Clause 2 referred to Semi receiving the commission earned by Lau and Wong (Artwill Ltd (“Artwill”) was his nominee). 12.Further, I accept the point made by Mr Yau, who appears for Lau, that the scope of the Minutes would have been considerably narrower had it been the case that the only outstanding issue between the parties was the commission. Furthermore, the fact that Lau paid a substantial sum as down payment for Semi’s office is another strong pointer in favour of her case. 13.I find Ma’s explanation over the terms of paragraph 2 highly unconvincing. He said that the Minutes were drafted by Lau (with some amendments by Wong who was representing him in the negotiations). At the time he signed them he was in Shenzhen. According to the usage of the Chinese language in the Mainland, the words “合作經營” as distinct from “合伙經營” did not involve any shareholding. In other words, he did not see that the words used in paragraph 2 suggested that any shareholding was involved. He was not advised by lawyer and although he found the wording of the Minutes to be lacking in clarity, he agreed to them because he was keen to see the back of Lau as soon as possible. There is no question that Ma was (and is) an intelligent person and a successful businessman. His explanation is difficult to accept. 14.There is another matter which is damaging to Ma’s credibility (and that of Wong). Wong has continued to work for Ma. He is the Financial Controller of Kingsway, although he also works for other people. He was called to give evidence for the Defendants. It is the evidence of Ma and Wong that the arrangement concerning Artwill as embodied in the Minutes was a sham. Wong said that he did not think that he was entitled to any commission for his work (Clause 2) and there was no genuine intention to grant an option to Artwill (Clause 4). The reason for the sham arrangement was that Lau wanted parity of treatment for her and Wong (Artwill) and although Wong did not regard himself to be entitled to anything, he played along with Lau so that he would be able to say to her that certain terms were not achievable from Ma. Such evidence cannot be taken seriously. At the material time, Wong was an undischarged bankrupt. I believe that, more likely than not, apart from contradicting Lau such evidence is designed to serve the purpose of covering the fact that Wong had received income which had not been declared to the Official Receiver. 15.Given my acceptance of Lau’s evidence, the Defendants’ contention on the lack of consideration must be rejected. Purchase of shares in Multi Capital 16.Under Clause 3 of the Minutes, Lau (or her nominee) was given an option to purchase either the Winfield Property or the shares of Multi Capital (“the Shares”). At all material times, the Shares were (and are) owned by Ma and Kingsway. There is no dispute that prior to the 28th September 2004 (“the Date”), Lau had opted to purchase the Shares. The central dispute in this action concerns whether the Date was one for the completion of the purchase (whether the Winfield Property or the Shares) and the legal effect of what transpired during the period between about mid September and mid October 2004. Admissibility of the Minutes 17.Mr Li takes issue with the admissibility of the Minutes based on the contention that it is an instrument chargeable with stamp duty. Lau cannot produce it without it having been stamped or without an undertaking to stamp it given by her solicitors. 18.Section 15 of the Stamp Duty Ordinance, Cap.117 (“the Ordinance”) provides that :
19.There are two limbs to Mr Li’s argument, namely, (a) the Minutes contain an option to buy shares and (b) they contain an option to buy the Winfield Property. In either case, an instrument containing such an option falls within the provisions of the Ordinance. Before dealing with each of the arguments, it should be borne in mind that the Option is to purchase either the Winfield Property or the Shares. Hence, Mr Yau’s first argument is that whilst the “ultimate instrument” effecting either the sale of the Winfield Property or the Shares may be charged with stamp duty (and at different rates), the Option itself cannot be chargeable to stamp duty. Mr Li submits that although the Ordinance contains no specific provision to cover the present situation, he relies upon para. I[605]-[650] of the Encyclopaedia of Hong Kong Taxation by Willoughby and Halkyard, vol.1 (“the Encyclopaedia”) which states that :
20.Mr Li further submits that I need to apply the definition provisions of the Ordinance to decide whether the Option is caught by the same. In light of para. I[605]-[650] of the Encyclopaedia, Mr Yau accepts the weakness of his first argument. Option to purchase shares 21.The general charging provision imposing stamp duty is set out in S.4(1) of the Ordinance. That section expressly states that it is only those instruments specified in the First Schedule which are subject to stamp duty. Mr Li submits that the option to purchase the Shares is stampable under Head 2(1) of the First Schedule : “CONTRACT NOTE for the sale and purchase of any Hong Kong stock …”. 22.Under S.2(1) of the Ordinance, the following definitions can be found :
23.S.19(1) of the Ordinance imposes a duty on any person who effects any sale or purchase of Hong Kong stock as principal or agent to forthwith make and execute a contract note and cause it to be stamped. S.19(2) provides that :
24.Mr Yau submits that (a) at the highest, the Minutes only constitute a contract to sell the Shares conditional upon the exercise of the Option and (b) the general view and practice is that an agreement for sale of shares is not a Contract Note within S.19(1). Mr Yau relies upon paras. [1408] and [1410]-[1420] of the Encyclopaedia. Those paragraphs state that:
25.Mr Yau further submits that the Minutes do not constitute and are not meant to be a Contract Note in that the requirements under S.19(2)(a), (c), (d) and (e) are not met. This submission is plainly correct. Further, in light of the authority cited by Mr Yau, I hold that the Minutes are not chargeable to stamp duty under Head 2(1). 26.For completeness, in respect of Mr Li’s point that to hold that an option to purchase shares is not chargeable to duty would render otiose the relevant definition provision of “stock”, I take the view that the scheme of the relevant provisions under the Ordinance is, firstly, to cast a wide net. However, it is only when a Contract Note is made (bearing in mind the duty to make them) that the liability for duty arises. In any case involving an option, the duty to make a Contract Note must arise at some stage if the option is exercised. At that stage, the liability for stamp duty materialises. Option to purchase the Winfield Property 27.Here, Mr Li’s submission is that the Minutes are stampable under Head 1 (“IMMOVABLE PROPERTY IN HONG KONG”), (1A) (“AGREEMENT FOR SALE”). Under S.29A(1)(b) of the Ordinance, an “agreement for sale” includes :
28.Mr Yau submits that, properly analysed, given the absence of Multi Capital as a party thereto, the Minutes can only constitute an agreement by the shareholders to cause Multi Capital to grant an option to Lau to purchase the Winfield Property. I suggest that a better way to put the proposition is that the Minutes constitute an agreement by the shareholders to cause Multi Capital to sell the Winfield Property to Lau in the event that she chooses to buy it. Mr Yau maintains that the right conferred on Lau in respect of the Winfield Property under the Minutes is not “an option or a right to purchase immoveable property” under S.29A(1)(b). 29.I should point out that at the time when the Minutes were signed Ma and Lau were the only directors of Multi Capital. However, there is no suggestion in the evidence that they were acting for and on behalf of Multi Capital in respect of the Minutes. Indeed, with the subject matter of the Minutes being the settlement of their personal affairs, it would not be right to infer that Ma and Lau were acting for Multi Capital. 30.I find some force in Mr Yau’s submission. However, I believe that there is a simpler answer to Mr Li’s contention, although the answer may be seen as the other side of the same coin that Mr Yau is holding up. In my view, to fall within S.29A(1)(b) the option or right to purchase immovable property must be a legally binding one. Multi Capital is not a party to the Agreement. It is highly questionable whether Lau can obtain specific performance of the purchase of the Winfield Property. The sale may not be in the interest of Multi Capital, e.g., the Winfield Property was undervalued and therefore Ma and Kingsway may not be able to impose the sale upon Multi Capital. Lau’s remedy is prima facie that of damages. It seems to me that this construction of S.29A(1)(b) must be right, otherwise, e.g., an instrument by which a fraudster purports to grant an option to a purchaser to buy immovable property would attract stamp duty. 31.I find some support for my view in para. [2231] of the Encyclopaedia which states that :
32.For these reasons, I hold that the Minutes are admissible evidence in this trial. The Date 33.As stated above, Lau had indicated her intention to purchase the Shares prior to the Date. On the documentary evidence, it is reasonably clear that on or before the 15th September 2004, Lau had caused a name card of her solicitor to be transmitted to Ma for the purpose of purchasing the Shares. However, it is uncontroversial that no completion of the sale took place on or before the Date. 34.Mr Yau accepts that time is of the essence for the Agreement. However, he contends that I should construe the Date “as being the date for notification of [Lau’s] intention to exercise the option”. On the other hand, Mr Li submits that the Date is the last date for completion of sale. 35.I need to construe the Minutes in order to resolve this issue. I find no particular element in the factual matrix which is of assistance to the present task. I shall construe the Minutes bearing in mind the circumstances under which they came to be made. I am convinced that the Date is the last date for completion of sale. The reasons are as follows :
36.Mr Yau submits to me that in order to be workable the exercise of the Option must involve Lau giving Ma and Kingsway notice of her decision prior to completion. Otherwise they may find themselves in a position of having to complete a sale the subject matter of which they have just been told. I do not believe that this argument is sufficient to overcome the intention which is derived from the contents of the Minutes. Further, the answer to the point rests on implying a term in the Agreement to the effect that reasonable notice should be given by Lau of her intention prior to the Date so as to allow Ma and Kingsway to fulfil their side of the bargain. Of course, there was no problem of such kind in this case. Alleged agreement to extend the date of completion 37.In the alternative, Mr Yau contends that there was an agreement to extend the date of completion arising from a series of correspondence. The relevant contemporaneous documents are as follows :
38.I have considered the above correspondence carefully. It should be borne in mind that there was no obligation in the Agreement for a shares sale agreement to be signed prior to completing the transaction. Whilst it is right that the parties were apparently in agreement that it was sensible to enter into such an agreement, I am unable to see that there was either an express or implied agreement to extend the completion date for the purchase of the Shares in the event that they failed to enter into such an agreement. 39.Mr Li has made a powerful point that DSC’s correspondences were all marked “Subject to Contract” (One of Lee’s letters was similarly marked.). It is trite that such words indicate that the writer does not intend to be bound unless a formal contract is drawn up [see Woodfall, Landlord and Tenant, para. 4.008]. I agree with Mr Li’s analysis that the offer to extend time given to Lau on the 30th September 2004 (see para. 37(ix) above) is of no effect given the absence of acceptance of the term offered. 40.Further, Lau was represented by Lee and one would expect that he would have formally recorded any agreement on extension of time for completion. It may be the case that Lee was under the erroneous belief that the Date was not the date of completion and that, as presently contended by Mr Yau, all that his client was required to do to exercise the Option was to give notice to the other side (and completion would follow within reasonable time thereafter). Even if that was the case, it would not help Lau on the variation argument. Estoppel 41.In the further alternative, Mr Yau submits that there was a representation made by Ma and Kingsway that they “would not insist on the original completion date”. Such representation arose from (a) “initiating a chain of correspondence with a view to reaching formal agreement”; (b) “still negotiating on the formal agreement on the day of completion”; and (c) “there was no advice or notice by [Ma and/or Kingsway] that they would complete on [the Date]”. These 3 points are factually correct save for the suggestion that the signing of a formal agreement was initiated by Ma and Kingsway. A fair reading of the contemporaneous documents suggests that both sides thought that it was a good idea. Indeed, on the 22nd September 2004 Lee asked DSC for a draft agreement. 42.Mr Yau’s case here is again built upon the contemporaneous documents as summarised above. Mr Li agrees that I should decide this issue on the contemporaneous correspondence. I ought to point out at this juncture that I regard the reason for the failure to sign a shares sale agreement as irrelevant, and neither Mr Yau nor Mr Li is arguing otherwise. 43.In support of his argument, Mr Yau has cited to me Hughes v Metropolitan Railway Co (1877) 2 App. Cas. 439. The House of Lords held at p.448:
44.I am unable to see that there was any representation made by Ma or Kingsway (by themselves or their agents) to the effect contended by Mr Yau. Firstly, it must be right that there was no such express representation. As to implied representation, I need to have regard to the e-mail from Lai which started the paper trail (see paragraph 37(i) above). In that e-mail, Lau was clearly warned about the “deadline” being the Date. Further, I cannot ignore the fact that the negotiations were on “Subject to Contract” basis. Lau was legally represented. It cannot be suggested that Lee did not appreciate that if no shares sale agreement came to be signed his client’s rights and obligations would be governed by the Agreement. At no time did he seek to clarify with DSC whether the original completion date should be extended in the event that the negotiations did not come to fruition. If he was under an erroneous belief (see paragraph 40 above), that could not constitute any representation on the part of Ma or Kingsway. 45.Mr Li has also made the point that it is Lau’s case that the Date is not one for the completion of the purchase of the Shares and that reasonable time for completion had not arrived at the material time. Therefore, she could not have relied on any representation made to her (which of course he denies) about not insisting on the original completion date. Mr Yau has provided no answer to the point save for pointing out Lau’s evidence that had she been told that she needed to complete the transaction on or before the Date she would have tried to do so. I shall deal below with Lau’s evidence on her ability to complete the transaction, which is contentious. I certainly see the force of Mr Lee’s point. However, given my finding on the alleged representation, the point does not fall to be decided. Concurrent performance at completion 46.Mr Yau has a stronger argument in contending that “where both parties to the contract were at fault in not performing the contract on the date of completion, the contract survives [for] the benefit of both parties and the time for performance of such contract would become reasonable time”. 47.Mr Yau submits that in the absence of a shares sale agreement the parties’ rights and obligations over completion were governed by implied terms, praying in aid para. 40-03 of Palmer’s Company Law, 24th ed., vol.1, p.610. There is no dispute that Lau did not tender the purchase price on the Date. On the other hand, says Mr Yau, Ma and Kingsway had failed to meet their end of the bargain by tendering the duly executed share transfer instrument and the original certificates of the Shares as well as the title deeds to the Winfield Property in exchange for the purchase price. Mr Li does not quarrel with the legal proposition. I have some reservation as to whether the title deeds were required on completion, but it does not change the picture that neither side sought to perform their obligations on the Date. 48.My first task is to determine whether, on a proper construction of the Minutes, concurrent performance was required on completion. One must bear in mind that normally when people make their purchase, they expect to get something in return for the purchase price simultaneously. The operative words here are “購買” (purchase) in Clause 3. I see nothing to displace the proposition that normally price and subject matter of a purchase are to be exchanged simultaneously. In this case, there is nothing to prevent the purchase price and the instruments of transfer and share certificates to be exchanged on completion. 49.Mr Li has an interesting argument that the last sentence of Clause 3 has the effect of rendering the tender of purchase price a condition precedent for the performance by Ma and Kingsway. He submits that in order to “行使其認購權” (exercise the Option), Lau must “購買” (purchase) the Shares, which is the only act identified for the purpose of triggering the Option. Mr Li reminds me that an option :
[see Barnsley’s Land Options, 4th ed., para. 1-002, p.1-2] 50.I believe that Mr Li’s argument ignores the fact that Lau must inform Ma and Kingsway as to what she chose to buy prior to completion. The purchase price was the same for the Winfield Property and the Shares. Simply tendering the purchase price on the Date would not enable the other side to know what was to be sold. Hence, I have held in paragraph 36 above that reasonable notice should be given by Lau of her intention prior to the Date so as to allow Ma and Kingsway to fulfil their side of the bargain. Such obligation arose by way of implied term. 51.For these reasons, I hold that the completion of the sale of the Shares should be by way of concurrent performance on the part of the vendor and purchaser. 52.I next have to decide the legal effect of the failure on both sides to complete the sale. There is little quarrel on this issue. The law is as set out in the Court of Appeal decision of Camberra Investment Ltd v ChanWai-tak [1989] 1 HKLR 568. That was a case concerning a failure to complete the sale of a landed property. At p.574C-F, Hunter JA held as follows:
53.Accordingly, I hold that the Agreement remained on foot despite the passage of the Date and that completion of the sale of the Shares was to take place within a reasonable time. 54.Mr Li does not seek to argue that Ma and Kingsway had given notice to Lau to complete the transaction within reasonable time. I would have held against him had he done so. DSC’s letter of the 30th September 2004 (see paragraph 37(ix) above) offered an extension of time. There are two problems with that letter: (a) only 6 days (from 30th September 2004) were in fact given for completion and (b) it required Lau to enter into a shares sale agreement when there was no obligation to do so. 55.For reason which will become apparent, I ought to make a finding as to what would have been a reasonable period for completion. I believe that the question has to be answered bearing in mind the prevailing circumstances that (a) the Agreement had provided ample time for completion and (b) notwithstanding the negotiations on the shares sale agreement, the parties should not have been idle in fulfilling their obligations. I also take into account Mr Yau’s submission that the completion time envisaged in the draft shares sale agreements was at least 1 month after the signing of agreement. I believe that a period of not less than three weeks would have been reasonable for the completion of the sale and purchase of the Shares when the parties were both at fault in not completing on the Date. 56.In light of the foregoing finding, Ma and Kingsway were in breach of the Agreement when they refused to complete the transaction as stated in DSC’s letter dated the 15th October 2004. Lau’s ability to complete the purchase of the Shares 57.Mr Yau accepts that even if I agree with him on the concurrent performance argument, Lau still has to satisfy this court that she was at all material times ready, willing and able to complete the purchase of the Shares. However, Mr Yau contends that the time for Lau’s performance has not been reached by reason of the refusal to complete on the part of Ma and Kingsway. The Defendants strongly contest Lau’s case that she was able to complete the purchase of the Shares in 2004. 58.There are two issues under this head. Firstly, the legal issue whether Lau has to satisfy this court that she would have been able to complete the purchase of the Shares had Ma and Kingsway not wrongfully refused to carry their side of the bargain. Secondly, if the answer to the first is in the affirmative, the factual question whether Lau has so satisfied this court on the evidence. 59.In my view, neither Counsel has referred me to any authority which clearly resolves this legal issue. I start with some general propositions on some of the requirements on a claimant seeking the relief of specific performance. Snell’s Equity, 31st ed., para. 15-36 at p.367-8 provides as follows :
60.Mr Yau has referred me to Specific Performance, 2nd ed., by Jones and Goodhart. At p.71-2, there is an interesting discussion by the learned authors on the obligation on the part of an innocent party who wishes to keep a contract alive to tender performance of his own obligations in the face of repudiation (unaccepted) of the contract :
61.Next, there is one authority that I can find which is relevant for the resolution of this legal issue (It is referred to in one of the footnotes of para. 15-36 of Snell’s Equity.) – Davis v Spalding, Ch D, 231 EG 373. It was a case concerning the sale and purchase of a house. After the contract was concluded, the vendor sought to back out from the same to the disagreement of the purchaser. One of the points taken by the vendor was whether the purchaser had satisfied the court of his readiness to complete the transaction. As reported, Mr Justice Walton held as follows :
62.It must be borne in mind that Davis was not a case where both sides were in breach of contract and consequently the contract remained alive to be completed within reasonable time. Therefore, the holding on the “first material time” is not, in my view, applicable in this case. Indeed, by definition I am dealing with a case where the purchaser did not come up with the purchase price on the agreed completion date. 63.In respect of the ruling that the purchaser was not obliged to demonstrate his ability to complete during the time when the “repudiation was running”, two points should be noted. Firstly, the purchaser had satisfied the court that they were so ready on the agreed completion date. Secondly, the point that I am now dealing with did not arise before Walton J. With respect, I do not regard the point decided by the learned Judge to be of general application. Indeed, I do not believe that it was meant to be so. 64.Bearing in mind the above legal authorities, I come to the view that I must be guided by basic principles in resolving this legal issue. I believe that there is a distinction between tendering performance when it would have been pointless so to do because of repudiation by the other side and satisfying the court that it would be proper to grant the discretionary relief of specific performance by demonstrating an ability to complete. In my view, in a case where a contract is on foot to be completed within reasonable time, there is no obligation on the innocent party to tender performance of his obligations when it is plain that completion is not going to take place, but he must satisfy the court if he wants the contract to be specifically performed that he would have been able to fulfil such obligations had the contract run its proper course. 65.I draw support for my view from, firstly, the well-established rule that a claimant seeking specific performance must satisfy the court that he is ready and able to perform his part of the bargain. 66.Secondly, an analogy can be drawn with the principle that a claimant is entitled to no more than nominal damages in a case where a contract has been wrongfully repudiated by the other side (and the repudiation was accepted thereby putting the contract to an end), but he cannot satisfy the court that he would have been able to perform his side of the bargain – see Samsung Hong Kong Ltd v Keen Time Trading Ltd, CA, [1999] 2 HKLRD 623. I am unable to see why a claimant should be in a better position when he elects the relief of specific performance (keeping the contract alive), e.g., he can have more time to come up with the purchase price because time for completion remains at large by reason of the refusal to complete by the other side. Indeed, I an unable to see the equity in such a situation. The lack of equity goes to the root of the relief of specific performance. 67.In this case, Lau has to satisfy this court that she would have been able to complete the purchase of the Shares within 3 weeks after the Date. 68.I now examine the evidence. The focus of the dispute is whether Lau was in a position to pay the purchase price. Ms Lau’s evidence is that she had in place certain loan arrangement with G E Capital (“GE”). There are two relevant documents before me. Firstly, an offer letter dated 19th October 2004 of a loan by GE to Multi Capital to be secured by way of mortgage of the Winfield Property with Lau acting as the guarantor. It was in the sum of HK$8.4m. Secondly, there is an offer letter of a personal loan by GE to Lau with Multi Capital acting as the guarantor. That document was dated 20th October 2004 and the loan was in the sum of HK$500,000. It is Lau’s evidence, which I accept, that she applied for a loan from GE on the 7th September 2004 and it was GE’s policy to break down the loan into two parts, namely, a mortgage on the Winfield Property and a personal loan. She said that the 19th October 2004 letter was a revised offer. The first offer was made by way of a telephone conservation which she rejected as the terms were not entirely satisfactory to her. 69.Lau was challenged in cross-examination on the viability of the GE loan. She agreed that she was not entitled to make use of the Winfield Property as security for the GE loan. Indeed, she accepted that she did not inform Ma (Lau and Ma were the only directors of Multi Capital) about her loan application. It must be right that without Ma’s consent Lau would not have been able to either use the Winfield Property to secure any loan or to cause Multi Capital to stand as guarantor for any loan. It should be noted that it is common ground that none of the draft shares sale agreement would have allowed Lau to make use of the Winfield Property to raise the purchase price. Lau explained that she did not obtain Ma’s consent because she had an understanding with him to the effect that the money to be raised by her would be used to repay the existing mortgage on the Winfield Property. When pressed in cross-examination, Lau said that she could not remember how the understanding came about, whether it was discussed during the meeting(s) which led to the Minutes or “under what specific circumstances we came across that”. All that she could remember was that it was discussed with Wong. 70.Whilst I take the view that Lau is generally a credible witness, I am unimpressed with her evidence in respect of the financing of the purchase of the Shares. It is clear to me that she recognised the fragility of her case in that area and her demeanour changed from being spontaneous and forthright to being somewhat evasive and vague in her answers. I do not accept her evidence on the “understanding”. In any case, I find the terms of the understanding too vague to be of any assistance to Lau’s case. Indeed, Mr Yau has made no submission to me as to how the understanding advances his case. Insofar as it is of any relevance, Ma’s evidence is that Multi Capital was in a position to discharge the existing mortgage on the Winfield Property without the purchase price in question and such evidence is not challenged. 71.In cross-examination, Lau also said that she had an oral arrangement with Yu Tai Hing, which was a property developer as well as a finance company, “for the finance of the property just in case”. Pressed further, she said that she could have raised the requisite funds with “Yee Fu”, which I understand to be another financial institute. I reject Lau’s evidence that she had in place an alternative arrangement to finance the purchase of the Shares. Apart from the unsatisfactory nature of the evidence, I believe that Mr Li is right to say that such evidence is unreliable in that it surfaced for the first time when Lau was giving evidence. This criticism carries considerable weight bearing in mind that, in the course of certain interlocutory proceedings herein, Lau was squarely challenged on her ability to pay for the Shares and the only evidence that she pointed to in answer to the challenge was the GE loan [see Bundle 1, p.92, para. (d) and p.112, para. 25]. 72.I accept Lau’s evidence that she had some money at the material time, e.g., she paid HK$400,000 for the down payment on the Winfield Property. However, Lau has declined to inform this court of what private means she had. Further, it has been demonstrated in cross-examination that in 2001, 2003 and 2005 Lau was sued for various sums which were not substantial. She was clearly embarrassed when asked about them. Whilst such evidence does not necessarily demonstrate that Lau was in financial difficulty, they do not in any way assist her case. 73.I have considered carefully whether I can infer that Lau could have somehow come up with the finance bearing in mind the unchallenged evidence that the Winfield Property was worth about HK$12.5m in September/October 2004 and that Lau was a financial consultant with experience and connection in the finance field. However, I am persuaded by Mr Li that such an exercise would amount to speculation. I must make my factual finding according to the evidence. 74.For these reasons, I conclude that Lau would not have been able to complete the purchase of the Shares had Ma and Kingsway not refused to proceed with the transaction. Consequently, I must refuse Lau’s claim for specific performance. Damages 75.Lau has an alternative claim for damages. In light of my finding that she would not have been able to complete the purchase of the Shares, it must follow that she is entitled to no more than nominal damages. I award her HK$10 in this regard. Mesne Profits 76.There is a counterclaim by Multi Capital against Lau for mesne profits which arose from the fact that Lau had the keys to the Winfield Property since its acquisition by Multi Capital and had refused to return the keys or to deliver up vacant possession of the Winfield Property to Multi Capital despite its demands. Possession of the Winfield Property was eventually recovered by Multi Capital via an application for injunction. There is no issue on the period for which mesne profits are claimed and the quantum thereof – from 15th November 2004 (when the Defendants demanded the delivery up of the Winfield Property) to 13th July 2005 (when Lau complied with the demand) at the total amount of HK$245,933.33. 77.Mr Yau’s only argument against the counterclaim is that Lau became the beneficial owner of the Shares upon entering into the Agreement. Taking that at the highest, I am unable to see how such beneficial ownership can become an entitlement to occupy the property of Multi Capital. I rule that Multi Capital is entitled to the aforesaid sum under its Counterclaim. Interest is to be paid on that sum at half Judgment Rate from 14th July 2005 until Judgment and thereafter at Judgment Rate until payment. In addition, I order the removal of the lis pendens as prayed for in the Counterclaim. Costs 78.I make an order nisi that the costs of the Counterclaim be paid by Lau to be taxed if not agreed. As for the costs of the action, I make an order nisi that there be no order as to costs. In making this order, I have taken into account Mr Li’s submission that the Defendants should be entitled to certain costs by reason of the late abandonment of Lau’s claim based on trust. Both order nisi shall become absolute in 14 days in the absence of application by either party.
Mr Albert Yau K C, instructed by Tso Au Yim & Yeung, for the Plaintiff Mr Li Chau Yuen, instructed by D.S. Cheung & Co., for the Defendants
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment