Dawn Jade Ltd and Another v. Himanshu Girdhar Dua

HCA 581/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 581 OF 2012

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D E C I S I O N

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INTRODUCTION

1.This is the defendant’s appeal against the master’s order dated 29 August 2013.  The order dismissed the defendant’s application to set aside the final judgment entered on 10 July 2012 in default of notice of intention to defend.

2.This action was commenced in April 2012.  The plaintiffs, investment companies incorporated in BVI but having a place of business here, sued the defendant for the refund of deposits earlier paid pursuant to two company share sale and purchase agreements (both in January 2011) (collectively “the Jan 2011 agreements”); the two companies were:

(a)   Greenair Ltd (“Greenair”);

(b)   Dua Forestal SRL (“Dua Forestal”)

(respectively “the Greenair agreement” and “the Dua Forestal agreement”).  The plaintiff was the purchaser thereunder whereas the defendant was the seller.

BACKGROUND

3.The background below appears to be undisputed.

4.The plaintiff are companies related to The Maxdo Group Ltd which has offices in Hong Kong and the Mainland (“Maxdo”). Maxdo’s business is financial and/or industrial and/or agricultural and/or forestry investments, resources development, in China and Asia.

5.Through Maxdo’s business dealings with a Phoenix Lumber SA (of which the defendant is a director and shareholder), the defendant became known to the plaintiffs since late 2009 (those dealings were related to investment in land and forestry rights in Nicaragua).

6.In around end of 2010, the defendant offered to sell to Maxdo his (and other shareholders’) interests (described as “exclusive rights” in the defendant’s skeleton argument) in Greenair and Dua Forestal. The former was said to operate a “reduced emissions from deforestation and degradation project” (or REDD project) and the latter was said to be holding interests in a forestry logging project.  Both projects were in Bolivia.

7.The total monetary consideration payable by the plaintiff pursuant to the Jan 2011 agreements was US$16 million (US$7 million + 9 million).  Deposits which totaled US$1 million were paid to the defendant by early February 2011 (these become the subject-matter of this action).

THIS APPEAL

(a)  Service of process and time of setting aside application

8.As stated above:

(1)   this action was commenced in April 2012;

(2)   no notice of intention to defend having been given, default judgment was entered on 10 July 2012.

The relevant court documents were served on the defendant in April 2012 in accordance with the terms of the Jan 2011 agreements.  But the application to set aside the default judgment was only taken out in March 2013 (about a year later).

9.The defendant contended before the master the default judgment was irregularly entered.  This is sensibly (and correctly) no longer pursued in this appeal (para 3, defendant’s skeleton argument).

10.Arguments have, however, been put forth by the defence regarding the reasonableness of its conduct in relation to this action.  These will be discussed below.

(b)  Merits of proposed defence

11.In gist, the proposed defence is:

(a)   deceitful conduct on the plaintiffs’ part which constituted repudiatory breach of the Jan 2011 agreements (which has been accepted by the defendant in January 2012);

(b)   despite the time set out in the Jan 2011 agreements for performing them (15 June 2011), the plaintiffs have by conduct after 15 June 2011 affirmed the Jan 2011 agreements.  This constitutes an estoppel on the plaintiffs’ part; alternatively, this constitutes a variation of the terms of the Jan 2011 agreements.

12.Before embarking on a discussion of the proposed defence (summarized above), it should be noted:

“The Defendant accepts that, by 15 June 2011, some of the conditions specified in Clause 3.1 of each [of the Jan 2011 agreements] had not been satisfied … ” (para 20, defendant’s skeleton argument).

13.The relevant part of condition 3.1 of the Jan 2011 agreements provided:

“Completion of sale and purchase of the Sale Shares shall be subject to and conditional upon the following conditions (‘Conditions’) being satisfied (or waived by [the plaintiffs] in [their] absolute discretion) on or before [15 June 2011] … ”.

Further, the relevant part of clause 3.4(i) provided:

“If any Condition is not satisfied (other than Condition 3.1(b) which shall be dealt with as per Clause 3.4(ii) below) on or before [15 June 2011], [the Jan 2011 agreements] shall immediately terminate upon which the [defendant] shall forthwith fully refund the Deposit to the [plaintiffs] … ” (emphasis supplied).

(condition 3.1(b), Greenair agreement is the same in effect as condition 3.1(c), Dua Forestal agreement (for convenience, they are both called “condition 3.1(b)” below, unless otherwise stated))

14.Thus, on the defendant’s admission, but for the proposed defence summarized in para 11 above, clause 3.4(i) has already become operative.

15.I agree with the plaintiffs that neither of the matters set out in para 11(a) and (b) above can be a defence with reasonable prospect of success.

16.In relation to the matter set out in para 11(a) above (plaintiffs’ alleged breach of contract), the defendant’s complaint is:

“The Plaintiffs’ conduct … amounted to repudiatory breaches … [It] revealed a clear plan to (1) string the Defendant along, deceived into thinking that the deal was progressing, (2) effect the cancellation or loss of the rights held by Dua Forestal and Greenair and (3) divert those rights to themselves by dealing directly with the Defendant’s agents … ” (emphasis supplied) (para 27, defendant’s skeleton argument).

17.It would appear such conduct would amount to the “economic torts” of:

(1)   procuring a breach of contract between those who, pursuant to contract(s) between them and Greenair and/or Dua Forestal, had conferred “exclusive rights” upon Greenair and/or Dua Forestal;

(2)   unlawful interference (if, and insofar as, the plaintiffs are alleged to have used unlawful means);

(3)   conspiracy

(see, for example, Clerk & Lindsell on Torts (2010) 20^th Ed, Ch 24).  I also agree with the plaintiffs that, based on the above causes of action, such conduct can ground a claim for damages (the subject-matter of a possible counterclaim).

18.But, as the plaintiffs correctly argue, it cannot be put forth as the repudiation of some unspecified term(s) of the Jan 2011 agreements.  Less still can it ground a right to forfeit the deposits pursuant to clause 3.4(ii) thereof (which, as has expressly been stated therein, was only exercisable upon the breach of condition 3.1(b)).  In this connection, condition 3.1(b), Jan 2011 agreements was concerned with the plaintiffs being satisfied with the defendant’s land and property titles (Greenair agreement) or forestry inventory count (Dua Forestal agreement).

19.Insofar as it may be necessary to observe (in relation to para 17 above, for example), there is no general principle of “good faith and fair dealing” in contract law in the performance of a contract: Chitty on Contracts (2012) 31^st Ed, Vol 1, para 1-039 to 1-041.

20.Similar considerations are applicable to the defendant’s allegation that the plaintiffs have breached the confidentiality provision of the Jan 2011 agreements (clause 11.1 thereof).

21.The defendant also relies on the following authorities for the proposition that deposits paid pursuant to contracts can be forfeited upon breach without the need for a contractual provision for forfeiture:

(a)   Soper v Arnold (1889) 14 App Cas 429, 435;

(b)   Howe v Smith (1884) 27 Ch D 89;

(c)   Samarenko v Dawn Hill House Ltd [2013] Ch 36, para 12.

22.The plaintiffs disagree, and point out that none of the above authorities supports the defendant’s above legal proposition.  In Soper:

“There was a contract for the sale of some real property. … There was a deposit paid, and there were the ordinary provisions as to the forfeiture of the deposit” (p 435).

In Howe:

“There is … a clause, clause 8, which I must … refer to … as giving the Plaintiff the right to the return of the deposit. … ” (p 92);

“It may be that this clause induced the Court to come to the decision which they arrived at in that case, and that they thought the vendor was precluded by it from retaining the deposit in consequence of the default of the purchaser. That decision [Palmer v Temple 9 Ad & E 508] turned on the express terms of that proviso, which is different from the proviso in the present case” (p 93);

“The question as to the right of the purchaser to the return of the deposit money must, in each case, be a question of the conditions of the contract … ” (p 97).

The Samarenko case was about the purchaser’s failure to pay the deposit (where there was an express term requiring such deposit), despite the lapse of a reasonable time period after the demand for its payment, being held as an act of repudiation of the contract (forfeiture of the deposit was not an issue therein).

23.In relation to the defendant’s complaint that the plaintiffs have breached condition 3.1(b), Jan 2011 agreements, and therefore the right to forfeit by the defendant (pursuant to clause 3.4(ii) thereof) should take precedent over the plaintiff’s right to a refund (pursuant to clause 3.4(i) thereof), I also agree with the plaintiffs’ contentions set out below.

24.To construe clause 3.4(ii), Jan 2011 agreements to take precedence over clause 3.4(i) would lead to a commercially absurd and unreasonable result.  It would mean that the defendant could retain the deposits when various conditions had been breached, provided one of them fell within condition 3.1(b) (as the defendant has in effect asserted in this appeal).

25.The language of clause 3.4(i) also militates against such a construction (see para 13 above).  The part of that clause which reads:

“If any Condition is not satisfied (other than Condition 3.1(b) which shall be dealt with as per Clause 3.4(ii) … ” (emphasis supplied)

shows that clause 3.4(ii) was intended to be an exception to clause 3.4(i).  It only becomes operative when there was no breach of the other conditions.

26.The defendant also mentioned, in his verbal reply submissions, an anticipatory breach which was repudiatory in nature.  It is noted, however, the defendant’s case is that the alleged breach only came to his attention in late-2011: para 9 and 28 to 29, defendant’s skeleton argument.

27.In relation to the matter set out in para 11(b) above (estoppel/variation of contract), as the plaintiffs argue:

(1)   clause 1.1, Jan 2011 agreements expressly precluded a variation of the conditions fulfillment date (15 June 2011) except by agreement in writing;

(2)   clause 12.2, Jan 2011 agreements expressly required variation to be recorded in a document signed by the parties;

(3)   what happened after 15 June 2011 was no more than a discussion between the parties but which led to no concluded agreement;

(4)   insofar as estoppel is relied on:

(a)   there was no clear and unequivocal representation on which estoppel can rest;

(b)   in any event, there is no evidence that the defendant had been in a position to fulfill the conditions not earlier fulfilled;

(c)   it is not the defendant’s case that the alleged estoppel amounted to the waiver of the unfulfilled conditions; it was at most an estoppel relating to the time extension to fulfill conditions.

I agree with the plaintiffs’ above arguments.

CONCLUSION

28.By reason of the above matters, this appeal is dismissed.

OTHER MATTERS

29.I also disagree with the defendant that its post-writ conduct was reasonable.

30.His (and his solicitors’) view that the service of the writ has not been validly effected is unreasonable.  It ignores the express language of clause 13.3(a), Jan 2011 agreements which states:

“The [defendant] irrevocably appoints [the name of his process agent] of [address of his process agent] as his process agent to receive … service of process in any proceedings in Hong Kong. Such service shall be deemed completed on delivery … (whether or not it is forwarded to and received by [the process agent])” (emphasis supplied).

There is no dispute the relevant court documents have been delivered to the address stated in clause 13.3(a) (the address of a law firm where the process agent worked).

31.What makes the matter worse for the defendant is that, about 2 weeks or so after such service, the defendant’s solicitors informed the plaintiffs’ solicitors the writ had been brought to the defendant’s attention.  It follows that the defendant’s subsequent conduct cannot be regarded as reasonable either.

32.It is unclear whether, and if so for what purpose, the defendant still relies on an alleged failure on the plaintiffs’ part to fully and frankly disclose his possible defence in the relevant court documents.  Insofar as he may do so, I agree with the plaintiffs that the point is misconceived (para 17 to 21, plaintiffs’ skeleton submissions will not be set out herein).

33.The parties’ closing submissions also mentioned various other points.  These have not been expressly set out or dealt with in the above headings and sub-headings.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER

34.The usual rule that costs should follow the event is accepted by the parties.  There will accordingly be a costs order that the costs of this appeal be paid by the defendant to the plaintiffs.

35.The parties do not dispute, and I agree, that the hearing of this appeal was suitable for attendance by two counsel.  It is thus so certified.

36.I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a)   the plaintiffs be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b)   the defendant be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

Mr Anderson Chow, SC leading Mr Jonathan Wong, instructed by Reed Smith Richards Butler, for the 1^st and 2^nd plaintiffs

Mr Ashley Burns, SC leading Ms Bianca Yu, instructed by Baker & McKenzie, for the defendant

Please refer to CACV4/2014 for the relevant appeal(s) to the Court of Appeal.