Sui Kan (HK) Ltd v. Kingspower Bullion Ltd

HCA 937/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 937 OF 2010

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J U D G M E N T

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Introduction

1.This is the trial of the Plaintiff’s action against the Defendant for breach of contract.  The Defendant was, and remains, a registered member of the Chinese Gold & Silver Exchange Society (“CGSE”).  Ms Kanny Cheung (“Ms Cheung”) has been the registered Manager for the purpose of the CGSE membership since 9 June 2000.  The Plaintiff was incorporated in Hong Kong on 4 June 2009.  On 11 August 2009, Ms Ivy Lam and Ms Ruby Lam were appointed as the directors of the Plaintiff and remained directors during the period with which I am concerned, namely, late 2009 to early 2010.  They were also the shareholders of the Company.  It appears, however, for reasons which were not explained to me that their Brother, Michael, had, at least during 2009 and 2010, a significant role in the Plaintiff’s business.

2.Sometime in about August 2009 Mr Lam met Teresa Pu Mei Lee, who he knew from the time he had worked for T & L Investment Limited of which Ms Pu was a shareholder and a director.  The precise contents of the conversation or conversations that they had at that time are the subject of dispute, but what seems clear is that Mr Lam asked Ms Pu about the Defendant’s membership and as a result the Defendant’s solicitors, Michael Li & Co, drafted a letter from the Plaintiff to the Defendant marked for the attention of Ms Cheung containing an offer to purchase the membership for $3,480,000. The offer also provided that a non-refundable deposit of $1,740,000 was to be paid.  The Defendant’s solicitors amended the terms contained in the letter substantially.  The amendments were agreed.  An agreement for sale and purchase of the membership of the CGSE (“Membership”) was signed and dated 14 September 2009 (“Agreement”).  The Plaintiff paid the consideration specified in the Agreement of $3,480,000.

3.It is helpful to set out the relevant terms of the Agreement at this stage in full:

“3.1  Completion is conditional upon all necessary approvals, consents, authorisations and licences in relation to the transfer of the Membership having been obtained, including but not limited to the Chinese Gold & Silver Exchange Society approving the change of Membership contemplated by the sale and purchase of the Membership.”

3.2   Each of the Vendor and the Purchaser shall use its reasonable endeavours to procure the fulfilment of the condition set out in Clause 3.1 and, in particular, shall procure that all information and documents required pursuant to the memorandum and articles of association or such other constitutional documents of the Chinese Gold & Silver Exchange Society, the Rules of the Chinese Gold & Silver Exchange Society and the rules of other relevant regulatory authorities be provided to the other party and the relevant regulatory authorities promptly and, in any event, not later than three Business Days (or such later day as the parties hereto may agree) after the request is made by the other party or the relevant regulatory authorities.

3.3   If any of the conditions set out in Clause 3.1 has not been satisfied on or before 12:00 noon on 31 January 2010, or such later date as the parties may agree, the obligations of the Purchaser and the Vendor under this Agreement in relation to the sale and purchase of the Membership shall cease and determine and neither party shall have any obligations and liabilities hereunder save for any antecedent breaches of the terms hereof.

4.1   The Consideration shall be HK$3,480,000 and has been or shall be satisfied by the Purchaser in the following manner:

(1)  a sum of HK$1,740,000 is a non-refundable deposit (“Non‑refundable Deposit”) and has been paid by the Purchaser on the date of the Offer Letter as part payment of the Consideration; and

(2)  no matter the transfer of Membership is still under the application or not, the balance of the Consideration of HK$1,740,000 (“Balance of Consideration”) shall be paid by the Purchaser on or before the date falling the 30^th Business Day after the date of this Agreement or the Completion Date (whichever is the earlier) by way of a cashier order issued by a licensed bank in Hong Kong made payable to the Vendor.

4.2  If the Completion cannot be done completely on or before 12:00 noon on 31 January 2010, it is mutually agreed that the Non-refundable Deposit and the Balance of Consideration will not be refunded to the Purchaser.

….

6.5  Notwithstanding the generality of the foregoing, the Vendor gives no warranty and/or representation as to whether the Chinese Gold & Silver Exchange Society would give the consent, approval and/or authorisation in relation to the transfer of the Membership to the Purchaser and the Purchaser shall not hold the Vendor liable howsoever in respect thereof.

….

9.1  This Agreement constitutes the entire agreement between the parties hereto with respect to the matters dealt with herein and supersedes all previous agreements, arrangements, statements, understandings or transactions between the parties hereto in relation to the matters hereof and the parties acknowledge that no claim shall arise in respect of any agreement, arrangements, statements, undertakings or transactions so superseded.

….

9.3  Time shall be of the essence of this Agreement but no failure by any party to exercise, and no delay on its part in exercising any right hereunder will operate as a waiver thereof, nor shall any single or partial exercise of any right under this Agreement (including a settlement with the Vendor) preclude any other or further exercise of it or the exercise of any right or prejudice or affect any right against any person under the same liability whether joint, several or otherwise.  The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.”

4.The Agreement clearly provided that so long as the Defendant used its reasonable endeavours to procure fulfilment of the conditions contained in clause 3.1, namely, obtaining approval from the CGSE to the change of membership from the Defendant to the Plaintiff, the risk of it proving impossible to complete the transfer of membership by 12 noon on 31 January 2010 lay solely with the Plaintiff.  If it proved impossible to complete by this date the Agreement would be cancelled and the Plaintiff would not be entitled to return of the consideration it had paid.

5.On 5 September 2009 the Plaintiff submitted an application to the CGSE for transfer of Membership.  Mr Lam was told that the application had been unsuccessful because of objections to its name, which by that time was Asia Gold Exchange Limited, and the identity of the proposed registered manager Mr Chow Wai Ho.  The implication of Mr Lam’s evidence that part of the problem was that he was associated with the Plaintiff.   With a view to addressing these problems he caused his sisters to enter into, what he acknowledged during re-examination, was a sham transaction on 2 October 2009 with Mr Yu Shu Kuen to sell his sisters’ shares to him and for him to appear to be the owner and registered manager of the Defendant in a newly submitted application for change of Membership.  The transfer of the shares was completed on 7 October 2009.  As a result, the name of the Plaintiff, the composition of the board of directors and the registered address of the Plaintiff were changed.  The Plaintiff’s name was changed to Koffman Bullion Limited (“Koffman”). 

6.I note in passing that in a letter dated 11 November 2009 from Mr Yu on behalf of Koffman to the CGSE explaining his recent acquisition of the Plaintiff that he refers in paragraphs 5, 6 and 8 to the fact that the purchase price paid to the Defendant was non-refundable.

7.By a letter dated 9 October 2009, Ms Ivy Lam, acting as the authorised representative of the Plaintiff, informed the Defendant, amongst other things, that the following changes had taken place as at 9 October 2009:

(1)   the Plaintiff’s name had become Koffman;

(2)   the directors of the Plaintiff comprised 4 different individuals, namely Mr Yu, Mr Tham Ming Yong, Ms Ng Kay Kwok and Ms Wong Wing Sze Agnes (“the New Management”);

(3)   the shareholder of the Plaintiff was Mr Yu.

8.Thereafter, all correspondence from the Plaintiff was made by the representatives of the New Management.  On 28 October 2009, Mr Yu on behalf of the Plaintiff sent to the Defendant a cashier order of HK$1,740,000 being the balance due under the Agreement.

9.On 7 January 2010, Mr Yu on behalf of the Plaintiff wrote to the Defendant, amongst other things, acknowledging that the transfer of Membership was unlikely to be successful and requesting acceptance of a proposal for the Plaintiff to introduce a new buyer to sign a new sale and purchase agreement at a higher consideration.  This proposal was not accepted by the Defendant.

10.On 14 January 2010, CGSE informed the Plaintiff that the new application for transfer of Membership would not be approved.  On 15 January 2010, the letter from CGSE dated 14 January 2010 was faxed to the Defendant for its reference by another director of the Plaintiff, Ms Agnes Wong.  Accordingly, no approval of the transfer was obtained by the Plaintiff by 12pm on 31 January 2010 and completion of the Agreement did not take place.  By a letter dated 1 March 2010, Mr Yu on behalf of the Plaintiff withdrew its application from CGSE in relation to the transfer of the Membership.

11.By a letter dated 18 March 2010, Mr Yu on behalf of the Plaintiff referred to the Plaintiff’s withdrawal of the transfer of membership application and sought a refund of the deposit totalling HK$32,000 from CGSE.  On 23 June 2010, the Plaintiff commenced the present proceedings against the Defendant seeking specific performance of the Agreement, an injunction and refund of the money paid under the Agreement.

12.On 1 November 2010, Mr Michael Lam became a director of the Plaintiff for the first time.

The Plaintiff’s Claim

13.In its Re-Amended Statement of Claim, the Plaintiff alleged that the Defendant was:

(1)   in breach of the condition precedent in clause 1.1 and Schedule 1 of the Agreement by failing to procure the approval for the transfer of the Membership from CGSE: paragraph 10;

(2)   in breach of clauses 3.1 and 3.2 of the Agreement (a) by failing to assist, and by withdrawing its assistance to, the Plaintiff in its application to CGSE for approval, (b) by deliberately avoiding contact by the Plaintiff, and (c) by withdrawing its application to CGSE for the transfer: paragraphs 11 and 12;

(3)   in breach of an implied term of the Agreement by failing to extend time beyond 12pm on 31 January 2010 for a reasonable period to enable the Plaintiff to process the application for transfer of the Membership at an enhanced consideration: paragraphs 13A-13C; and

(4)   in breach of an oral collateral contract in that the Defendant failed to honour the promise made by Ms Pu of the Defendant to Mr Lam of the Plaintiff that the Defendant would extend the operational period of the Agreement in case the transfer of the Membership could not be completed within 4.5 months: paragraphs 13D-13E.

14.As a result of the alleged breaches, the Plaintiff sought against the Defendant:

(1)   specific performance of the Agreement and/or a mandatory injunctions that the Defendant be ordered to (a) perform clauses 3.1 and 3.2 of the Agreement to procure the fulfilment of the conditions in clause 3.1 including procuring that all the information and documents required for CGSE’s approval be provided, or (b) to enter into an extension agreement extending the Agreement for a reasonable period of time pursuant to the implied term, or (c) to extend the Agreement for a reasonable period of time at no additional consideration: paragraph 14; or

(2)   refund of HK$3,480,000 for non-satisfaction of the condition precedent in clause 1.1 and Schedule 1: paragraph 15; or

(3)   refund of 90% of HK$3,480,000: paragraph 15A; and

(4)   damages to be further particularised: paragraph 16; and

(5)   interest.

The Plaintiff’s Case At Trial

15.The Defendant case as framed at trial was not identical to that pleaded.

Total Failure Of Consideration

16.Mr Geoffrey Chang, who appeared for the Plaintiff, submitted that the failure to transfer the membership constituted a total failure of consideration and that the Plaintiff is entitled in restitution to return of the sums it has paid.  Mr Eugene Fung SC, who appeared for the Defendant, correctly pointed out that this claim was never pleaded by the Plaintiff. It did not feature in the Plaintiff’s written Opening Submissions filed on 21 October 2012.  The first time it formed part of the Plaintiff’s case was in the Plaintiff’s Addendum to Opening dated 29 October 2012 handed to the Defendant and the Court on the first day of the trial.  The Defendant objects to the Plaintiff raising this new cause of action in this manner.  I accept that this claim should have been clearly pleaded.  However, as the claim is in my view manifestly bad I will deal with it anyway.

17.Although the commercial intent of the Agreement was no doubt the successful transfer of the Membership, it is quite clear that the Defendant’s obligations under the Agreement were to sell the Membership to the Plaintiff and to use its reasonable endeavours (see clause 3.2) to fulfil the conditions in clause 3.1.  There was no dispute at trial that the Defendant had done everything under the Agreement required of it and that the Defendant had no responsibility for the Plaintiff’s inability to obtain the CGSE’s approval to the transfer of Membership.  Therefore, the Defendant had fulfilled all its obligations under the Agreement and there is no failure of consideration at all.

18.Mr Fung SC also submitted that there was another difficulty with this new claim, namely, that it is inconsistent with the Plaintiff’s contractual claims 

19.As a general principle a claim for unjust enrichment cannot be advanced where a contract governing the benefit is still in force: Goff & Jones: The Law of Unjust Enrichment, 8^th ed para 3.16. This new claim is an afterthought and the formulation of the Plaintiff’s claim in the Re‑Amended Statement of Claim demonstrates that there was at the material time in existence an agreement, which clearly does deal with how the risk of completion not taking place for no fault of the Defendant is to be allocated. 

Implied Term

20.The second issue is whether or not the Agreement contained an implied term that if the transfer of Membership could not be completed by noon on 31 January 2010 “at the request of the Plaintiff, the Defendant should have an obligation to agree to an extension of the period of the Agreement for a reasonable period of time for further processing of the application for transfer of the Membership, at an enhanced consideration being the then market price of the Membership, if the then market price becomes higher than the original consideration of the Agreement.” 

21.The requirements for implying a term into a written contract were set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings [1978] 52 ALJR 20 at 26D:

“Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a term in a contract which the parties have not thought fit to express.  In their view, for a term to be implied, the following conditions (which may overlap) must be satisfied : (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that “it goes without saying”; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

22.This statement was applied by Ribeiro PJ in the Court of Final Appeal in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59.  In AG of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, Lord Hoffmann, giving the opinion of the Privy Council, offered a straightforward reappraisal of the approach to implying terms.  Although Lord Hoffmann was dealing with the question of whether a term should be implied into the articles of association of a company, rather than into a contract, he was clear that the process was the same for both and indeed for any written instrument.  He stressed that the implication of a term is an exercise in the construction of the instrument as a whole so that the central question for the Court is whether the implication “would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean”: paragraph 21.  At paragraphs 26 to 27, Lord Hoffmann referred to the five conditions set out by Lord Simon in BP Refinery and said that the list should be “best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so”.

23.The Agreement in my view clearly anticipated the possibility of completion not taking place by the completion date and expressly addresses the consequences of this eventuality: clauses 3.3, 4.2 and 6.7.  The Agreement is, therefore, clearly operable without the implied term advanced by the Plaintiff.

24.The implied term also contradicts clause 7.1 which gave the Defendant “an exclusive right to terminate [the Agreement] before Completion without the [Plaintiff’s] consent at any time on or before 12:00 noon on 31 January 2010”) and clause 9.3 (which provided, amongst other things, that time should be of the essence of the Agreement).  Mr Fung referred me to the decision of the Court of Final Appeal in Kensland Realty Ltd (supra) in which it held that because the parties in a conveyancing contract agreed that (1) completion was to take place by a stipulated time and (2) time was of the essence, there could not be implied into the contract a term to impose an obligation on the vendor to extend time.  At paragraph 61, Ribeiro PJ said:

“By the combined effect of Clauses 3 and 12, the parties expressly agreed (i) that the purchaser was bound to tender the balance on completion and, as completion was to take place between 10:00 am and 1:00 pm on 2 September, the balance was to be tendered by no later than 1:00 pm; and (ii) that time was of the essence in respect of that obligation, so that, in the absence of any supervening event excusing late tender, the vendor was entitled to treat non-observance of the time limit as a breach of an essential term entitling the vendor to rescind. To hold that the vendor was under a duty by virtue of an implied term to extend the time for completion beyond 1:00 pm and therefore under a duty to accept tender at 1:06 pm, is unsustainable since such a term contradicts the two express clauses and cannot be implied.”

Similarly in the present case it seems to me that to hold that the Defendant was under a duty to agree an extension of time because the Plaintiff could not complete on time would be unsustainable in the light of the express terms of the Agreement.

25.Also it does not seem to me that in the light of the express way in which the Parties addressed the consequences of completion not taking place it can sensibly be suggested that it is obvious that if the Parties had been asked at the time the Agreement was concluded did they intend the implied term to form part of it, they would have agreed they did.  On the contrary the express terms suggest strongly that the Defendant would not have agreed to this.  It also seems to me that the implied term contradicts the express terms of the Agreement and I agree with Mr Fung SC that it is non‑sensical for the Plaintiff to suggest the words “or such later date as the parties may agree” in clause 3.3 suggests that the parties contemplated an extension of time.  This is standard drafting in most commercial contracts and included to allow the Parties to extend a time period without having to worry about the need to produce a new contract.   

26.It also seems to me clear that the implied term is not capable of clear expression.  This is self-evident from the language that is used in paragraph 13A of the Re-Amended Statement of Claim: “agree to an extension … for a reasonable period of time” and “enhanced consideration”. What is a reasonable period?  What would the consideration be?

27.The flaws in the Plaintiff’s argument are highlighted by its evidence concerning what in practice it wanted to do.  It wanted, Mr Lam said, an extension of time of 6 months in order that it could sell its shares to a person who wanted to become a member of the CGSC and who would have no difficulty in getting his application accepted.  In other words the Plaintiff did not want an extension of time of, say a month, to iron out a few minor outstanding issues with the then existing application.  Mr Lam was going to reacquire the shares transferred to Mr Yu under the sham agreement referred to earlier and then try and find another buyer for them and recoup the amount paid to the Defendant out of the proceeds of the sale of the shares.  The suggestion that it is obvious that the Defendant intended that the Plaintiff should have the opportunity, if through no fault of the Defendant completion was not possible, to do this is implausible.

28.Mr Chang confirmed in closing that he was not pursuing the claims for breach of express terms of the Agreement pleaded in paragraphs 10 to 12 of the Re-Amended Statement of Claim.

Collateral Contract

29.Mr Chang has also confirmed during his oral opening submissions that the oral evidence of the witnesses is only relevant to the next issue that I need to deal with, namely, whether there was an oral collateral contract between the Plaintiff and the Defendant.  This is because the Defendant accepts that if there was an implied term as alleged or a collateral contract it was in breach.  Therefore, it is only necessary for me to resolve the factual dispute between the parties as to whether there was a conversation on or about 14 September 2009 between Mr Lam and Ms Pu where “Miss Pu … promised to Michael Lam … that the Defendant would agree to extend the operational period of the Agreement (then to be signed) in case the transfer of the membership could not be completed within the 4.5 months stipulated in the Agreement (then to be signed): paragraph 13D of the Re-Amended Statement of Claim.

30.In paragraphs 13D and 13E of the Re-Amended Statement of Claim the Plaintiff alleges that before the Agreement was reached, there was an oral collateral contract reached on or about 14 September 2009 between Mr Lam of the Plaintiff and Ms Pu of the Defendant where “Miss Pu of the Defendant promised to Michael Lam of the Plaintiff that the Defendant would agree to extend the operational period of the Agreement (then to be signed) in case the transfer of the membership could not be completed within the 4.5 months stipulated in the Agreement (then to be signed)”.  The Plaintiff alleges that the Defendant was in breach of this oral collateral contract by failing to extend the validity of the Agreement.

31.Courts are prepared in some circumstances to treat a statement intended to have contractual effect as a separate contract or warranty, collateral to the main transaction.  A collateral agreement must be objectively viewed and Litton PJ in Bank of China (Hong Kong) Ltd v Fung Chin Kan et al (2002) 5 HKCFAR 515 at paragraph 57 described the test for a collateral agreement as follows: “On the totality of the evidence, must the parties be taken to have intended that the representation made by one of them should form part of the basis of the legal relationship between them?”

32.Where a contract contains a clause stating that the written contract contains the parties’ entire agreement, that may refute a claim based on a collateral contract: see Inntrepreneur Pub Co v East Crown Ltd [2000] 2 Lloyd’s Rep 611 at §7 (Lightman J):

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search, and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations (which, in the absence of such a clause, might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence, as is suggested in Chitty on Contract (28th ed) vol 1 para 12-102; it is to denude what would otherwise constitute a collateral warranty of legal effect.”

33.It is clear that the entire agreement clause was included expressly to exclude claims such as this one.  Clause 9.1 provides that the Agreement supersedes all earlier agreements and the Parties acknowledge that no such claims shall arise in respect of any earlier agreements.  Thus, even if a collateral contract had been reached that would otherwise be enforceable it is caught by clause 9.1 and would fail for this reason.  There are, however, many other flaws in this claim.

34.First, the alleged collateral contract is not supported by the Plaintiff’s own evidence.  In order for this claim to succeed clear evidence would have had to have been adduced that proved that a representation was made in the terms pleaded in paragraph 13D of the Re-Amended Statement of Claim that I have quoted above.  In paragraphs 18 to 23 of his witness statement Mr Lam refers to a conversation with Ms Pu, wherein Ms Pu allegedly said to Mr Lam that she would help him even after the expiry of the 4.5 months. There is, however, no mention by Mr Lam in his witness statement about Ms Pu promising him that “the Defendant would agree to extend the operational period of the Agreement (then to be signed) in case the transfer of the membership could not be completed within the 4.5 months stipulated in the Agreement (then to be signed)”.  This is not surprising given that Mr Lam’s Witness Statement (dated 6 May 2011) was prepared before the Plaintiff re-amended its Statement of Claim (on 14 July 2011) to include paragraph 13D to plead the alleged collateral contract, but it does speak, negatively, to the veracity of this claim.  During cross‑examination, Mr Lam was asked why he did not mention the alleged collateral contract in his witness statement.  He pointed to paragraph 22 of his witness statement and said that alleged collateral contract is mentioned there.  However, this is clearly wrong.

35.Secondly, I am not satisfied that, whatever the witness statement says, the Plaintiff has demonstrated on the balance of probabilities that Ms Pu agreed anything on behalf of the Defendant.  Her evidence was clear and simple. In 2000 she sold her membership of CSGC which was held through the Defendant to Ms Cheung, who had worked for her for some years.  She also sold her shares in the company.  She ceased to have any further involvement with the Defendant from this time.  Sometime in 2009 she recalled having met Mr Lam, who she knew from the time he had worked for a company in which she had an interest, at the bottom of building in Duddell Street in which the Defendant had its office and in which she maintained a private office.  Mr Lam asked her if she still had her membership of the CGSC and if she did was she interested in selling it to him.  She told him that she had sold it to Ms Cheung and she would ask her if she had any interest in selling it.  She spoke to Ms Cheung, who said that she would be interested in selling it at the then market price.  Ms Pu telephoned Mr Lam and told him this.  As I understood her evidence she accepted that Mr Lam may have talked to her about the transaction, but as it did not concern her she has little recollection of what he said.  What she did recall was that she told him that he should talk to Ms Cheung about the sale of the Membership.

36.Mr Chang was able to make no inroads into Ms Pu’s evidence in cross-examination in this regard at all.  The Plaintiff has adduced no evidence to cast doubt on the veracity of either Ms Pu or Ms Cheung’s evidence that Ms Pu sold the Membership to Ms Cheung in 2000 by selling her shares in the Defendant other than for Mr Lam’s statements that Ms Pu was the real owner of the Defendant, a belief for which he gives no substantive reason.  If Ms Pu did sell her shares and thus her interest in the Membership to Ms Cheung, Ms Pu would have had no reason to do other than she says she did when she spoke to Mr Lam in August 2009.  I can, therefore, see no reason not to accept Ms Pu’s evidence in which case it follows the Plaintiff has not proved the collateral contract.  Although Mr Fung SC drew my attention to various other matters in his closing submissions which call into question Mr Lam’s version of events I do not feel it necessary to address them all as it seems to me that for the reason that I have just given the Plaintiff has failed to prove that a collateral agreement was made between the Plaintiff and the Defendant.  I would, however, add these comments.  Even assuming that Ms Pu did for some reason represent the Defendant it seems to me inherently unlikely that after a draft agreement in the terms that was finally signed had been sent to the Plaintiff she would have made a representation in terms that Mr Lam could have reasonably thought were intended to be understood as alleged in paragraph 13D of the Re-Amended Statement of Claim.  It may be that Ms Pu would have used words that suggested that she would do what she could to smooth the transfer of the Membership, but not words that could fairly be understood as stating that the Defendant would definitely agree come what may to an extension of the completion date regardless of the reason.

37.In the unlikely event that such an agreement had been reached one would expect it to have been mentioned as soon as Mr Lam realised that there was going to be a problem completing on time, but it was not.  The contemporaneous documents also show that the Plaintiff never believed that there was such a collateral contract.  In a letter dated 21 January 2010 from Mr Lam to Ms Pu, Mr Lam asked Ms Pu to extend the deadline from 31 January 2010 for another 6 months.  There was no mention of any previous promise or agreement by Ms Pu of any extension of time of the Agreement indeed the tone of the letter is one of supplication, not somebody requesting another person to honour an existing agreement.  As I have already mentioned the first time the Plaintiff mentioned the collateral contract was in its Re-Amended Statement of Claim dated 14 July 2011, over 18 months after the Agreement had been terminated. 

Penalty

38.The final issue is that raised by paragraph 5A of the Re‑Amended Statement of Claim in which the Plaintiff alleges that clause 4.2 of the Agreement is a penalty and as a result of it is entitled to a return of 90% of the price it has paid.

39.Where the parties to a contract agree that, in the event of a breach, the contract-breaker shall pay to the other a specified sum of money, the sum fixed may be classified by the courts either as a penalty (which is irrecoverable) or as liquidated damages (which are recoverable).  The clause is enforceable if it does not exceed a genuine attempt to estimate in advance the loss which the plaintiff would be likely to suffer from the breach of the obligation in question: it is enforceable irrespective of the loss actually suffered.  See Chitty on Contracts (30^th ed, 2008) vol 1, p 1681.

40.In my view clause 4.2 is clearly not a clause purporting to impose liquidated damages in the event that Plaintiff did not complete.  It simply provides that Plaintiff is not entitled to get back the money it has paid if through no fault of the Defendant the transfer of the membership is not completed.  I reject this claim.

41.In my view all the Plaintiff’s claims are hopelessly misconceived and I dismiss the Action.  I will now hear the Parties on costs.

Submissions On Costs

42.Mr Fung SC submits that the costs should be paid by the Plaintiff on an indemnity basis.  He submits this for the following reasons.  The Statement of Claim, which is dated 1 September 2010, only contains claims for breach of the express terms of the Agreement.  These claims were not advanced at trial and there is no evidence at all in support of them in Mr Lam’s witness statement.  The Statement of Claim was amended in December 2010 to add the claim based on an implied term and clause 4.2 being a penalty.  It was re-amended in July 2011 to add the claim based on a collateral contract and as I have already mentioned the claim based on unjust enrichment was raised for the first time at trial.

43.I accept Mr Fung SC’s submission that it is clear that a claim based on anything other than a breach of an express term of the Agreement was hopeless.  It seems to me that at the latest by the time Mr Lam’s witness statements were finalised in May 2011 it should have been clear to the Plaintiff’s legal team that the Plaintiff’s case was not viable.  In fact it seems to me that if he was given informed and comprehensive advice at the outset he would have been told that unless he could demonstrate a breach of clause 3.2, of which there was presumably no evidence, the Plaintiff did not have a viable claim.

44.I also accept Mr Fung SC’s submission that given the nature of the claim applying to strike it out was not a realistic option.

45.The upshot of this is that the Defendant has been faced with having to incur time and costs dealing with a claim that should never have been brought and which, certainly by May 2011, should have been abandoned.

46.Mr Chang contested Mr Fung SC’s application.  His argument amounted simply to this.  The Plaintiff found itself in an unfortunate situation and it would be unfair to penalise it further by awarding indemnity costs.

47.It seems to me clear that this is a case, which if the Plaintiff has been properly advised, which I assume it has, it should have appreciated its claim was not viable.  Commencing it and certainly pursuing it after May 2011 was an abuse of process and this is an appropriate case in which to award indemnity costs.

Mr Geoffrey Chang, instructed by Patrick Mak & Tse, for the plaintiff

Mr Eugene Fung SC, instructed by Vincent T K Cheung, Yap & Co, for the defendant