CHENG MEI LING v. LAM SIU CHOR SHAREN

HCA 3301/2016 and HCA 351/2018
(Heard Together)

[2020] HKCFI 2958

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3301 OF 2016

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 351 OF 2018

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_____________

(Heard Together)

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JUDGMENT

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1.  The dispute between the parties arose out of the assignment by the plaintiff to the defendant of the former’s half interest in the property in question. After the commencement of HCA 3301/2016, the plaintiff further filed her claim against the defendant in the Small Claims Tribunal (SCTC 50710/2017) for cause against the same background. This further claim has since been transferred to become HCA 351/2018, and directed by the court to be determined together with HCA 3301/2016. This is the trial of these actions.

The property

2.  The plaintiff (“Cheng”) and the defendant (“Lam”) used to be friends for two decades.  In April 2010, the parties acquired the property in question, namely, Flat 6A, 3/F, Honour Building, No 78C To Kwa Wan Road, Kowloon (“the Property”) as a joint investment (then subject to tenancy).  The purchase price was HK$1.36 million.  The understanding was that they would share the financial burden of the acquisition equally.  Each of them contributed a sum of HK$204,000 towards the purchase price.  The balance in the sum of HK$952,000 was financed by a mortgage of the Property, and the parties agreed to equally share the burden of the mortgage repayment and redemption.  A joint bank account in their names was opened for such purpose.  The Property was assigned to them as tenants in common in equal shares on 25 June 2010.

3.  By an assignment dated 31 December 2015, Cheng as the vendor transferred to Lam as the purchaser the former’s half interest in the Property at the consideration of HK$1 million (“the Assignment”).  The existing mortgage was also discharged upon that.

4.  The major dispute between the parties is how the Assignment came about and its nature.  According to their pleadings and evidence, they put forward the following cases respectively.

Cheng’s case

5.  According to Cheng, she invited Lam to consider purchasing her half interest in the Property in 2015.  Whilst Lam indicated interest, she claimed lack of funds to do so.  Later, Lam asked Cheng to consider transferring the latter’s half interest in the Property first so that she could arrange mortgage to finance the purchase.  This led to the agreement between the parties that Cheng would transfer her half interest in the Property to Lam at the consideration of HK$1 million, and Lam would be solely responsible for the mortgage redemption and related expenses.  On 26 January 2016, the parties executed the Assignment at the office of Messrs Chan Wong Yip, Solicitors (“CWY”), which acted for both of them.

6.  Despite repeated demands, Lam failed and refused to pay the consideration of HK$1 million afterwards.  In December 2016, Cheng commenced HCA 3301/2016 against Cheng for the sum of HK$1 million or alternatively a declaration that Lam holds 50% interest in the Property on trust for Cheng.

7.  In HCA 351/2018, Cheng complains that Lam has emptied their joint bank account balance of HK$21,730.17 at the end of December 2015.  She claims for the return of her share being half of this amount.

Lam’s case

8.  Lam denies the claim in HCA 3301/2016. Essentially, she claims that the assignment by Cheng of her interest in the Property was in settlement of the debts owed to Loan pursuant to the parties’ agreement.

9.  According to Lam, on about 27 April 2010, pursuant to the request of Cheng, Lam agreed to lend her a sum of HK$200,000, which was extended by way of cheque drawn by Lam in favour of Cheng for that sum.  On about 9 June 2014, again pursuant to the request of Cheng, Lam agreed to lend her another sum of HK$1 million, which was extended by way of deposits into the bank account of Cheng in two tranches of HK$500,000 each within the following 4 days.  In respect of both loans, Cheng agreed to pay interest of 1% per month, and did subsequently repay Lam interest, albeit not in full or on time.

10.  According to Lam, when the HK$1 million loan was extended, the parties agreed that in the event that Cheng failed to repay the loan, she would assign her half interest in the Property to Lam in settlement of the debt.  Cheng failed to repay, and the interest payment to Lam also stopped at the end of October 2015.

11.  The agreement was put into writing and signed by the parties.  The document was a single-page Chinese document under the title of  借款証明書, literally confirmation or acknowledgement of loan[1] (“the Acknowledgement”).  On its face, the Acknowledgment purports to have been signed on 9 June 2014.  However, it in fact came about and was signed much later (the date of which is in dispute).  The Acknowledgement contained the following terms:

“由於本人鄭美齡，近期急需用錢，在2010年4月27日借了貸款人林小楚港幣貳拾萬元正（支票號碼＃……），但一直並未歸還，心感抱歉，但因現在需要再度借錢應急，所以，現向朋友貸款人林小楚借錢應急。

本人鄭美齡，香港身份證號碼……，於2014年6月9日向貸款人林小楚，香港身份證號碼……，借款港幣為壹佰萬元正。

貸款人林小楚會分兩筆款項入數至本人的中國銀行的……帳戶裡，分別於2014年6月9日過戶港幣伍拾萬元正到本人的中國銀行的帳戶，另一筆會於2014年6月12日過戶港幣伍拾萬元正到本人的中國銀行帳戶，合共港幣壹佰萬元正。

本人鄭美齡承諾此欠款會於2015年7月31日前歸還，倘若未能在此日期前歸還此款合共港幣壹佰貳拾萬元正給貸款人林小楚，本人鄭美齡同意並願意將我們現時共同擁有的物業（地址：九龍土瓜灣道78C定安大廈A座3/F 6室），我所佔的全部百分之五十業權作為還款，不論當時樓價價值多少，本人都不得追討回樓價的任何差價，特此証明，此借款証明等同法律效用。

借款人簽署作實：[signed]	貸款人簽署作實： [signed]
鄭美齡	林小楚
簽署日期：2014/6/9	簽署日期：2014/6/9”

12.  Apart from acknowledging the loans of HK$200,000 and HK$1 million by Lam to her as mentioned above, Cheng agreed that in default of repayment by 31 July 2015, she would assign her half interest in the Property to Lam in settlement of her debt.

13.  According to Lam, Cheng subsequently proposed to transfer her half interest in the Property at HK$1 million in settlement of the HK$1 million loan.  Cheng also contacted Miss 黃端至 (“Wong”) of CWY regarding her proposal.  This resulted in the preparation of the Assignment, which the parties also executed (but the date of execution is in dispute).  Therefore, Lam contends that the Assignment served to settle the HK$1 million loan.

14.  By way of counterclaim, Lam claims against Cheng for the repayment of the remaining outstanding HK$200,000 loan.

15.  Further, according to Lam, part of the agreement between the parties was that the parties would still be responsible for the outstanding mortgage and the related expenses in redemption of the Property.  However, Lam had to repay the outstanding mortgage then in the sum of HK$558,396 all by herself.  She therefore counterclaims against Cheng for half of that sum as the latter’s liability to contribute (ie HK$279,198).

16.  Likewise, Lam holds Cheng responsible for the payment of the related costs and expenses, which the former has made in the sum of HK$21,600.  Hence Lam’s counterclaim against Cheng for half of that sum (ie HK$10,800).  However, in the closing submission on behalf of Lam, this part of the counterclaim was dropped on the basis that Lam in fact utilized the money in the joint bank account with Cheng to settle such expenses.

The issues in dispute

17.  Gathering from the pleadings and the evidence, one can observe the following major issues in dispute:

(1)  the borrower of the sums of HK$200,000 and HK$1 million;

(2)  nature of the agreement between the parties recorded in the Acknowledgement and its validity;

(3)  existence of the set-off agreement and its validity;

(4)  depending on the above, liability of Lam for the consideration of HK$1 million under the Assignment;

(5)  existence and terms of the agreement between the parties in respect of the mortgage redemption and thus the liability of Cheng;

(6)  liability of Cheng for the repayment of the HK$200,000 loan; and

(7)  liability of Lam in relation to the balance of the joint account.

The loans and the borrower

18.  The contemporaneous documents leave no doubt that the sums of HK$200,000 and HK$1 million were transferred by Lam to Cheng as mentioned above.  Cheng denies that those were loans to her.  By pleading, she alleges that she borrowed from Lam for her uncle, whose particulars were not provided.  Lam denies the allegation.  In his opening submission on behalf of Cheng, Mr Lee described the loans were extended to Cheng’s uncle or, to be specific, the company of the family.  Clearly the identity of the borrower cannot be so vague, particularly when the two referred to are different legal entities.

19.  Cheng called her father, 鄭敦含 (“the Father”) and the uncle that she referred to, namely, 鄭敦生 (“the Uncle”) as witnesses.  The contents of the witness statements of the Father and the Uncle were almost identical, though they were dated nearly half a year apart.

20.  In court, the evidence of Cheng and her witnesses was that the loans by Lam were not extended to any of them personally but their family’s business, namely Hong Kong Tun’s Paper Limited (“Tun’s”). Cheng was said to be the company’s secretary, who borrowed on behalf of Tun’s. According to Cheng, she occupied that position during the period between 2014 and the first half of 2016.  There were said to be loans like that to the company amounting to tens of millions and involving 10 to 20 individual lenders like Lam.

21.  According to the evidence of Cheng and her witnesses, the basis for them to describe the loans from Lam as those to Tun’s was that the loans received were put or invested into Tun’s.  The interest paid to Lam also came from Tun’s.  However, the deployment of the money received as loans and the source of the fund for the payment of interest, even assuming that they were true and known by the lender, were but some of the circumstances which per se did not determine the identity of the borrower.  The issue is which the lender looks to for the liability to repay as a matter of contract.

22.  In court, the Father and the Uncle admitted that they never had any contact with Lam regarding her loans or their terms.  As far as Lam is concerned, she only looked to Cheng for repayment.  This is corroborated by the Acknowledgement.  There is dispute concerning how and when the Acknowledgement came to be signed, which will be further discussed below.  However, by signing the Acknowledgement, Cheng confirmed that the loans were extended to her, and she was liable to repay Lam the same.

23.  Cheng refuses to accept the validity of the Acknowledgement.  This will be discussed below.  However, not only is the denial of the loans to Cheng contradicted by the Acknowledgement, but there is also not a single document in support of the treatment of the loans as debts owed by Tun’s.  One would have expected the company to have kept records and accounts of such loans, particularly in the light of the alleged number of creditors and the total amount of the debts mentioned above.  There was however no company record or financial statement regarding such alleged liabilities of Tun’s during all those years.  Whilst Cheng and the Uncle suggested in court that there should exist either a register or a list of such creditors and debts of Tun’s, none was disclosed either.

24.  Tun’s was wound up by the court by mid-December 2017 pursuant to the petition of a creditor bank.  However, the present action was commenced in 2016 and the defence was filed in early 2017.  In court, both the Father and the Uncle also confirmed that by even as late as when the Uncle made his witness statement in September 2017, the company documents should still be intact, and thus could have been traced and disclosed.  In other words, the winding up did not disable Cheng from disclosing documents of Tun’s in support of her case.

25.  The winding up of Tun’s gives rise to another query.  Not only did Cheng and her witnesses confirm in court that they had never supplied information about the alleged liabilities owed by the company to the individual lenders including Lam to the company’s auditor, no such information was disclosed to the liquidator in the winding up of the company. There is no dispute that neither anyone from Cheng’s family nor the liquidator has informed Lam, as a creditor, of the petition or the eventual winding up of Tun’s.  This is inexplicable.

26.  In court, the Father suggested that he did have some kind of record amongst the WhatsApp messages in his cell phone, but again none in the form of actual record of the company was disclosed.  Some WhatsApp messages between Cheng and Lam indeed produced.  However, the disclosure of those messages was selective and random, and was unexplained by way of witness statements.  The evidence in court in explanation of those disclosed hardly carries the necessary weight in support of this aspect of Cheng’s case either. As mentioned, the understanding on the part of Lam that the payment of interest by Cheng might be funded by her family or the business per se did not determine the identity of the contracting party to the loans.

27.  Finally, Cheng and her witnesses in their evidence also referred to investments made by Lam in an apparently associated company of Tun’s.  Lam did not deny having made investment by way of purchasing shares in such company, which was then a listed company.  However, any attempt to suggest that such purchase of shares of the listed company amounted to effective investment into Tun’s, and that such purchase of shares somehow cast light on the nature of the loans by Lam or the identity of the borrower must be rejected.  In any event, none of these suggestions survive in the light of the record in the Acknowledgement of the personal liability of Cheng to repay Lam.

28.  All evidence considered, including those discussed above, I am left with no doubt that the loans extended by Lam were between her and Cheng personally.  Irrespective of the purposes of such loans, Lam looked to Cheng as the person liable to repay, and Cheng shared the same understanding, at all material times.

The Acknowledgement

29.  As mentioned, there is dispute as to how and when the Acknowledgement came about.  According to Cheng, this came about only after the Assignment was executed which was 27 January 2016.  Lam agrees that whilst the Acknowledgement was dated 9 June 2014, ie the date when the second loan in the sum of HK$1 million was extended, it in fact came about after that loan.  However, she said it was prior to the execution of the Assignment. Further, the Assignment was executed on 31 December 2015.  27 January 2016 was the date when the Assignment was registered at the Lands Registry.

30.  I reject Cheng’s contentions in respect of the sequence of events.  The contemporaneous documents in connection with the Assignment are more in line with the Assignment being executed on 31 December 2015.  The receipt of CWY for the related account and expenses also aligned with the date of execution of the Assignment.  Further, Wong, who personally handled the conveyancing and witnessed the execution of the Assignment, also corroborated the evidence of Lam in this respect.

31.  Mr Chan for Lam also refers to the provisions of the legal charge to which the Property was subject, and submits that they too constituted logical reasons for simultaneous discharge of the charge and the Assignment.  Considering the definition of the borrowers under the charge (clause 1.6) and the other provisions including clauses 2, 5, 7, 9 and 18, I detect no express restriction against assignment between the owners/borrowers during the subsistence of the charge, except perhaps for the need for the consent of the bank.  Nevertheless, this does not affect the findings of fact mentioned in the preceding paragraph.

32.  As to how the Acknowledgement came about only after the loans have already been extended, Lam explained that she has managed to receive payment of interest on the loans from Cheng, albeit about once every 3 months and not on time.  Lam has been contented with that, while the parties were then still friends.  However, in about late October 2015, Cheng indicated to Lam that she was heavy in debt, which caused concern.  This caused the parties to document the loans and debt owed by Cheng.  Lam then prepared the Acknowledgment, and took it to Cheng’s home for signature.

33.  Cheng explained in court that she signed the Acknowledgement without caring much about its contents.  This hardly impeaches the validity or the binding effect of the document.  As mentioned, the document is one page in Chinese.  It shows that wherever her name and the relevant dates were filled in by hand, Cheng would initialize them.  The parties signed at the bottom of the document and, by agreement, backdated it to 9 June 2014 as, according to Lam, the agreed effective date of the parties’ agreement.  As mentioned, 9 June 2014 was the date when the second loan in the sum of HK$1 million loan was extended.

34.  In any event, there is no contention of mistake or other vitiating factors affecting the validity of the document.  Whether or not Cheng cared about or paid attention to the contents of the document, she will be held to the document which she had the ability to understand and chose to sign.  The law in this respect is trite: see Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at §84.

The set-off agreement and the Assignment

35.  Towards the end of 2015, Cheng indicated her financial difficulty and proposed to transfer her half interest in the Property in settlement of the debt owed to Lam.  Lam acceded to the request of Cheng and the parties agreed to fix the value of Cheng’s interest in the Property at HK$1 million for the transfer in settlement of the HK$1 million loan.  The effect of that will be discussed in the later section of this judgment.  Cheng also informed Wong of the same, and Wong also obtained confirmation from Lam.  That was how Wong came to handle the conveyancing.

36.  Wong testified as to her understanding that it was legitimate for CWY to act for both Cheng and Lam in the conveyancing then, as the consideration did not exceed HK$1 million.  As mentioned, Wong also witnessed the execution of the Assignment on 31 December 2015.  Because of the nature of the assignment being settlement of debt owed by Cheng to Lam, CWY or Wong were not required to handle the settlement of the consideration for the Assignment, but only the other incidental matters such as stamp duty.

37.  Cheng attacked Wong’s credibility.  Amongst others, it was suggested that Wong sided with Lam, after Cheng has refused to extend a loan to her.  Wong denied that.  According to Wong, it was about a week after she has filed her witness statement (on 27 February 2018) when Cheng called CWY and left a message to the same effect of such accusation against Wong.  This was followed by a WhatsApp message from Cheng repeating the accusation.  Wong reported the matter to her superior and filed a complaint with the police on the ground that Cheng attempted to interfere her as a witness in legal proceedings.

38.  According to both Wong and Lam, the former came to know the latter only through the latter’s elder sister.  In court, Wong added that she did not regard herself particularly familiar with either Lam or Cheng, apart from her involvement in the conveyances of the Property.  In the rather brief cross-examination of her, Wong was confronted with Cheng’s accusation mentioned above, but she was hardly shaken.  Such cross-examination achieved no effect at all that would cause me to doubt the credibility or reliability of Wong.

39.  The precise dates aside, the evidence adduced on behalf of Lam, as clarified in court, gives a reliable account of the sequence of events between the time when the loans were extended and the time of the Assignment.  I reject the version of Cheng that the Assignment was executed in January 2016.  I also reject her version that the Acknowledgement came about only after the Assignment.  I find the version of events according to Lam and her witness to be the fact.

40.  Coupled with the finding in respect of the loans from Lam to Cheng, the finding of the events mentioned above set the foundation for the consideration of the other disputes in the present case.

Validity of the set-off agreement

41.  Cheng raises the validity issue by way of amendment of her pleadings just one month prior to the trial.  This court then gave leave for such amendment, and consequential amendment of Lam’s pleadings, on the basis that the amendments raise a legal contention that did not entail fresh factual allegation or evidence.

42.  Cheng contends that in the event that the transfer of her half interest in the Property to Lam was made pursuant to the set-off agreement, the same was void for past consideration and thus total failure of consideration.  As such, Lam was unjustly enriched by Cheng’s interest in the Property, of which Cheng is entitled to restitution.  In court, Mr Lee for Cheng acknowledged in his closing submission that if the set-off agreement is not void as alleged, his client’s case will collapse.

43.  In defence, Lam contends that Cheng is estopped from claiming the return of her interest in the Property, as Lam has detrimentally relied on the representation of Cheng to agree to accept the transfer in settlement of the HK$1 million loan.  The transfer was not void for past consideration, as Cheng obtained the practical benefit of repayment of the HK$1 million loan by way of the transfer.

44.  The Assignment, being by way of deed, has no issue of consideration and must be valid.  The dispute lies with the enforcement of its payment terms.  Lam contends that consideration stated in the Assignment was never supposed to be paid as the transfer was agreed and executed to settle the HK$1 million loan owed by Cheng to her.  This was the so-called set-off agreement.

45.  The set-off agreement was made at the end of 2015 at the request of Cheng.  Cheng offered to transfer to Lam her half interest in the Property, and Lam agreed to accept that, at the agreed consideration of HK$1 million in settlement of the HK$1 million loan.  This agreement came about as proposed by Cheng at a different time and in not identical terms as that recorded in the Acknowledgement.  This explains why Mr Chan for Lam describes that as a variation from the agreement recorded in the Acknowledgement.

46.  The starting point of Cheng’s contention is the principle that an existing or antecedent debt is past, and therefore not good, consideration: Chitty on Contracts (33^rd ed) Vol 1 at §4-032.  If the set-off agreement is void for lack of consideration, the consequence, Mr Lee argues, will take either of two forms.  First, he submits that what remains will be the Assignment, and the terms of which should be enforced as they are as a standalone sale and purchase transaction.  Hence the liability of Lam to pay the stated consideration.  Second, and alternatively, he argues that the basis for the transfer of his client’s interest in the Property by way of the Assignment falls away.  Hence his client’s entitlement to restitution of her interest in the Property on the ground of unjust enrichment.

47.  The first form of consequence of the set-off agreement being void can be rejected outright.  The entire basis for Cheng’s claim to enforce the payment terms under the Assignment, as pleaded, is her version of a mere sale and purchase of her interest in the Property between the parties.  As mentioned, I reject the alleged sale and purchase of Cheng’s interest in the Property as a matter of fact, and find that the Assignment did come about because of the set-off agreement on the basis of the outstanding loans owed to Lam.  In the circumstances, the primary case of Cheng for claiming to enforce the Assignment as a sale and purchase transaction must fail.  Only the alternative form of consequence submitted by Mr Lee, which was introduced by way of the latest amendment of the pleadings, falls to be considered.

48.  Mr Chan argues that by the set-off agreement, Cheng obtained the practical benefit of discharge of liability to repay the HK$1 million loan owed to Lam, and therefore is not void.  The principle relied on by Mr Chan came from the English case of Williams v Roffey Bros & Nicholls (Contractors) Ltd [1990] 2 WLR 1153, which was applied in the Hong Kong case of UBC (Construction) Ltd v Sung Foo Kee Ltd [1993] 2 HKLR 207.  The court in UBC (Constructuion) Ltd cited (at p228) the following parts of Williams:

“Glidewell LJ the summarized the law as follows:

“(i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and

(ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and

(iii) B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and

(iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and

(v) B’s promise is not given as a result of economic duress or fraud on the part of A; then

(vi) the benefit to B is capable of being consideration for B’s promise so that the promise will be legally binding.”

Russell LJ … added this at p.1168;

“Consideration there must still be, but, in my judgment, the Courts nowadays should be more ready to find its existence so as to reflect the intention of the parties to the contract where the bargaining powers are not unequal and where the finding of consideration reflect the true intention of the parties.”

At p.1169, Purchas LJ said this;

“There were clearly incentives to both parties to make a further arrangement in order to relieve the plaintiff of his financial difficulties and also to ensure that the plaintiff was in a position, or alternatively was willing, to continue with the sub-contract works to a reasonable and timely completion.”

At p.1171, Purchas LJ examined what consideration could be said to have moved from the plaintiff to support the promise to pay an additional sum of money and he considered that:

“There was clearly a commercial advantage for both sides from a pragmatic point of view in reaching the agreement…The defendants were on risk that as a result of the bargain they had struck, the plaintiff would not or indeed possibly could not comply with his existing obligations without further finance. As a result of the agreement the defendant secured their position commercially.”

I agree with the several observations quoted.  The facts of this case are similar enough to make these observations pertinent to this issue before me.”

49.  Mr Chan also relies on the subsequent Hong Kong Court of Appeal case of Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2011] 1 HKLRD 10.  The Court of Appeal (namely, Andrew Cheung J, as he then was, with whom the Court agreed) had the following to say:

“49. It is trite law that past consideration is no consideration. In particular, a contracting party cannot use his promise to perform, or his actual performance of, a pre-existing contractual obligation as consideration for a new promise in his favour by his opposite contracting party. Some fresh consideration is required. Stilk v Myrick (1809) 2 Camp 317, 170 ER 1168…

50. However, the rigour of the general rule as to consideration has been ameliorated, but not without critics, in cases such as Williams v Roffey Bros & Nicholls (Contractors) Ltd [1991] 1 QB 1…In City Polytechnic of Hong Kong v Blue Cross (Asia-Pacific) Insurance Ltd [1995] 2 HKLRD 103, 109, cited by the Trial Judge at para.33 of his judgment, Rhind J pointed out “a trend towards a pragmatic appraisal of consideration in commercial relationships”. Rhind J attributed the observation of this trend to Lord Wilberforce in New Zealand Shipping Co Ltd v AM Satterthwaite & Co Ltd [1975] AC 154, 167C-E, where his Lordship remarked that:

‘English law, having committed itself to a rather technical and schematic doctrine of contract, in application takes a practical approach, often at the cost of forcing the facts to fit uneasily into the marked slots of offer, acceptance and consideration.’

51. The law must not depart from the reality of daily life for no good reason. Having concluded that the relevant provisions in the 1991 Handbook were indeed intended by the parties to have contractual force, and having observed that throughout both Cathay and its cabin attendants had honoured those provisions on that footing (save where genuine disagreement appeared regarding its scope of application, like what happened in the present case), it would take very compelling reasons for the Court to hold that what were regarded as contractual by the parties actually had no contractual force in law for want of consideration.

52. I take the view that the necessary consideration for the variation was supplied by the employee not leaving Cathay. It should be remembered that under the Conditions of Service, the plaintiff could have left Cathay at any time by giving one month’s notice (or one month’s pay in lieu of notice). She did not do so. Plainly, part of the reason was her overall remuneration package, which included the RTB, that she was enjoying from her employment with Cathay. Indeed, that precisely was the main reason for the introduction of RTB by Cathay, that is to say, to encourage loyalty of its employees and to retain the services of its cabin attendants, particularly in light of competition from other airlines which offered similar packages.

53. It should be borne in mind that the present type of consideration is entirely different from the one that has been found to be no more than past consideration in the cases. In a typical case of past consideration, a promisee merely performs, or promises to perform, its pre-existing contractual obligations to the promisor. That is no good consideration for the new promise from the promisor which the promisee seeks to enforce. However, in the present case, one is not relying on any such purported consideration to support the variation. Rather one is focusing on the plaintiff’s not exercising her contractual right to bring to an end the contract of employment as the necessary consideration for the variation. In the former case, the promisee is using his promise not to break, or his not breaking, a pre-existing contract as consideration for a new promise. In the present case, however, the plaintiff is using the non-exercise of her legal right to quit as consideration for the variation.

…

56. In my view, there has been sufficient consideration for the variation.”

50.  In Williams and the above Hong Kong cases that apparently endorsed a similar approach to the issue of consideration, the question was whether a promisor should be held to his promise for additional payment or benefits in return for the promisee’s performance of its obligation to supply work or service under the existing contract.  As submitted by Mr Lee, the approach adopted by the appellate court in Williams (above) has since been doubted.  Whilst not expressly overruled, Williams has not been followed in cases in the UK and Hong Kong in the context of performance of obligation to repay a debt.

51.  In In re Selectmove Ltd [1995] 1 WLR 474, Peter Gibson LJ had this to say (at pp480-1):

“Foakes v Beer has been followed and applied in numerous cases subsequently, of which I shall mention two. In Vanbergen v St Edmunds Properties Ltd [1933] 2 KB 223, 231, Lord Hanworth MR said:

‘It is established principle that a promise to pay a sum which the debtor is already bound by law to pay to the promisee does not afford any consideration to support the contract’.

More recently in D&C Builders Ltd v Rees [1966] 2 QB 617 this court also applied Foakes v Beer, Danckwerts LJ saying at p626 that the case

‘settled definitely the rule of law that payment of a lesser sum than the amount of a debt cannot be a satisfaction of the debt, unless there is some benefit to the creditor added so that there is accord and satisfaction’

…

Mr Nugee submitted that, although Glidewell LJ in terms confined hid remarks to a case where B is to do the work for or supply goods or services to A, the same principle must apply where B’s obligation is to pay A, and he referred to an article by Adams and Browsword, “Contract, Consideration and the Critical Path” (1990) 53 MLR 536, 539-540 which suggests that Foakes v Beer … might need reconsideration. I see the force of the argument, but the difficulty that I feel with it is that, if the principle of Williams v Roffey Bros & Nicholls (Contractors) Ltd … is to be extended to an obligation to make payment, it would in effect leave the principle in Foakes v Beer…without any application. When a creditor and a debtor who are at arms’ length reach agreement on the payment of the debt by instalments to accommodate the debtor, the creditor will no doubt always see a practical benefit to himself in so doing. In the absence of authority there would be much to be said for the enforceability of such a contract. But that was a matter expressly considered in Foakes v Beer yet held not to constitute good consideration in law. Foakes v Beer was not even referred to in Williams v Doffey Bros & Nicholls (Contractors) Ltd…and it is in my judgment impossible, consistently with the doctrine of precedent, for this court to extend the principle of Williams’s case to any circumstances governed by the principle of Foakes v Beer…If that extension if to be made, it must be by the House of Lords or, perhaps even more appropriately, by Parliament after consideration by the Law Commission.”

52.  In Bank of China (HK) Limited v Cosan Limited & Ors, CACV 331/2006, the Court of Appeal, in finding that the defence that the bank had agreed to withhold legal proceedings in return for the debtor’s payment after the sale of the charged property and the guarantors’ payment of the outstanding indebtedness by instalments was unsustainable in law for the lack of consideration, applied In re Selectmove Ltd (at §§25-29).

53.  In Re Tse Sheung Yan, HCB 62/2000 & 484/2000 (7 July 2000), the defence raised by the debtor was that the creditor bank had agreed to allow the debtor time to repay the debt with concessions in return for the debtor’s promise to deliver up vacant possession of the security property and to allow the creditor to sell it at a price.  The court refused to follow Williams, and decided obiter (at p13) that such agreement was unsupported by consideration because it amounted to a performance of the existing contractual obligation of the debtor.

54.  Williams was recently considered by the UK Supreme Court in MWB Business Exchange Ltd v Rock Advertising Ltd [2019] AC 119.  There the question was whether the oral variation of the payment terms under the written licence agreement was valid and binding.  Having found that the oral variation was not valid, Lord Sumption JSC continued to say obiter the follows (at §18):

“That makes it unnecessary to deal with consideration. It is also, I think, undesirable to do so. The issue is a difficult one. The only consideration which MWB can be said to have given for accepting a less advantageous schedule of payments was (i) the prospect that the payments were more likely to be made if they were loaded onto the back end of the contract term, and (ii) the fact that MWB would be less likely to have the premises left vacant on its hands while it sought a new licensee. These were both expectations of practical value, but neither was a contractual entitlement. In Williams v Roffey Bros & Nicholls (Contractors) Ltd … the Court of Appeal held that an expectation of commercial advantage was a good consideration. The problem about this was that practical expectation of benefit was the very thing which the House of Lords held not to be adequate consideration in Foakes v Beer … see, in particular, p622, per Lord Blackburn. There are arguable points of distinction, although the arguments are somewhat forced. A differently constituted Court of Appeal made these points in In re Selectmove Ltd … and declined to follows Williams v Roffey Bros & Nicholls (Contractors) Ltd … The reality is that any decision on this point is likely to involve a re-examination of the decision in Foakes v Beer. It is probably ripe for re-examination. But if it is to be overruled or its effect substantially modified, it should be before an enlarged panel of the court and in a case where the decision would be more than obiter dictum.”

55.  The above English authorities once again came to be considered before the English High Court in Dan Simantob v Yacob Shaleyan t/a Yacob’s Gallery [2018] EWHC 2005 (QB), another case involving variation of payment obligation by part payment of an existing debt.  The court adopted (§§126-128) the narrow reading of Williams in Peter Gibson LJ’s judgment in In re Selectmove Ltd.

56.  It could be seen that while Williams, albeit doubted, remains as an appellate precedent, the approach of the court in the UK and locally has been to read it in the context of the enforceability of a promise of extra payment or benefit in return for the promisee’s performance of the existing contractual obligation to supply work or service.  All have preferred to follow the principle in Foakes when the context is the enforceability of a promise in return for the promisee’s performance of the existing contractual obligation to make payment of a debt.

57.  It is necessary to set out the current state of the above law, because that was how counsel chose to argue the issue of consideration.  In a way, this helps the discussion of the issue in the context of the present case below.

58.  The Assignment was but the instrument whereby Cheng performed her agreement to transfer her half interest in the Property in settlement of her liability to Lam.  As I find, it was Cheng who offered to do so, which Lam agreed.  Viewed from the angle of Lam, she not only acceded to the request but also committed to accepting the value of the property as agreed at HK$1 million for the purpose of discharge of Cheng’s liability to repay the HK$1 million loan.  Viewed from the angle of Cheng, Lam agreed to discharge her liability by accepting her transfer at the agreed value and the Assignment, instead of her performance of the original contractual payment obligation.

59.  This precise situation of agreement to make and to accept effectively payment in kind in satisfaction of a monetary liability did not feature in any of the line of cases involving payment obligation discussed above.  This is not a case of Lam obtaining security from Lam after the extension of the loans.  Nor is it a case of agreement to pay less in satisfaction of a pre-existing debt.

60.  Further, it should be noted that the Property was purchased at HK$1.36 million.  The parties agreed the value of Cheng’s share at HK$1 million for the purpose and at the time of the transfer.  There is no contention or evidence in respect of the value of the Property, and thus Cheng’s share, at the time of the set-off agreement.  Both parties took their own risk, insofar as the value was concerned.  In these circumstances, the consideration moving from Lam to Cheng, in my judgment, was more than the kind of mere hope or expectation of practical value or commercial benefit, which the court in cases such as In re Selectmove Ltd and MWB Business Exchange Ltd found to be outside the context of contractual entitlement of the parties to suffice as valid consideration for the promise in question.

61.  I therefore disagree with Mr Lee that the set-off agreement between the parties is void for want of consideration.  As he acknowledged in court, his client’s case for recovery of her interest in the Property accordingly collapse.  I should also point out that whilst the contention of want of consideration of the set-off agreement and unjust enrichment is raised as her alternative case, Cheng never actually pleaded such alternative case on the basis that she in fact owed the debt to Lam.

62.  For the above reason, I find against Cheng on her claim for HK$1 million against Lam.

Redemption of the outstanding mortgage

63.  Cheng’s case in respect of the redemption of the outstanding mortgage is built solely on the premise of her alleged sale of her interest in the Property to Lam.  Following the rejection of such alleged sale as a matter of fact, she has pleaded no other case in this respect.

64.  According to Lam, part of the agreement between the parties in the set-off was that they would still be responsible for the redemption of the then outstanding mortgage in equal shares.  As mentioned, Lam acceded to the request of Cheng to accept the transfer of her interest in the Property at the agreed value of HK$1 million with a view to satisfying the HK$1 million loan.  It would be surprising, if Lam was prepared to shoulder up the redemption of the outstanding mortgage to which the Property was still subject after the set-off.  Otherwise, Lam would have ended up receiving substantially less than HK$1 million in effect.  Lam’s case in this respect is credible, and I find that to be the fact.  I therefore find that Cheng is liable to pay her share of the HK$558,396 redemption money, ie the sum of HK$279,198.

The expenses incidental to the Assignment

65.  For the same reason explained in the preceding section, it was the shared liability of Lam and Cheng to pay for the expenses incidental to the Assignment.  Lam settled those expenses by utilizing the money in the joint account of the parties.  As mentioned, Lam dropped her counterclaim for contribution by Cheng of half of the amount of such expenses.

The HK$200,000 loan

66.  In view of the above findings, I see no reason why Lam is not entitled to the repayment of the admittedly outstanding HK$200,000 loan.

The joint account

67.  There is no dispute that Lam has emptied the joint account, which had a credit balance of HK$21,730.17 as of the end of 2015.  For the above reason, Lam was not wrongful in deploying the money in the account towards the payment of the expenses incidental to the Assignment.  However, net of such expenses in the sum of HK$21,600, there should be a balance of HK$130.17.  In the circumstances, Cheng is entitled to the return of half of that sum, ie HK$65.10, in HCA 351/2018.

Conclusion

68.  In HCA 3301/2016, the claim of Cheng is dismissed. Judgment is entered on the counterclaim in favour of Lam in the sum of HK$279,198 and HK$200,000 with interest thereon at the judgment rate from the date of service of counterclaim until full payment.

69.  In HCA 351/2018, judgment is entered in favour of Cheng against Lam in the sum of HK$65.10 with interest thereon at the judgment rate from the date of the commencement of proceedings in SCTC 50710/2017 until full payment.

Costs

70.  Cheng shall pay Lam her costs of the action in HCA 3301/2016, including any costs reserved.

71.  By the order of the Small Claims Tribunal dated 25 January 2018, costs of the proceedings prior to their transfer to the High Court were reserved to be determined by the High Court.

72.  Cheng did not include or add her claim in respect of the money in the joint bank account, which was opened in connection with the Property, in the already commenced action of HCA 3301/2016.  She chose to commence separate legal proceedings against Lam in the Small Claims Tribunal.  Whether or not she was at the time legally represented or not is not the answer to that.  Whilst Lam is strictly liable to return to Cheng her share of the remaining balance, ie HK$65.10, in HCA 351/2018, it will not be reasonable to award Cheng her costs of the action simply because of such event.

73.  I make no order as to costs of the proceedings in SCTC 50710/2017 and HCA 351/2018.

74.  All costs shall taxed, if not agreed.

75.  The above costs order is nisi and, in the absence of application in 14 days to vary, shall become absolute without further order of the court.