SUPER KEEP INVESTMENT LTD AND ANOTHER v. WONG KWOK WA AND OTHERS

CACV 195/2010
CACV 205/2010 & CACV 206/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 195 AND 205 AND 206 OF 2010

(ON APPEAL FROM HCMP 1760 OF 2009 AND HCA 1902 OF 2009)

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BETWEEN

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JUDGMENT

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Hon Tang Ag CJHC:

Joint Venture Agreement (“JV Agreement”)

1.  The 1^st Plaintiff and the 1^st Defendant entered into a joint venture agreement dated 31 January 2005 (“JV agreement”) pursuant to which the 2^nd Plaintiff was acquired as a JV company to build 6 indigenous villagers’ houses (“the 1^st Houses”) on what was called the 1^st Land for 6 named indigenous villagers (“the 1^st Villagers”) and 11 houses (“the 2^nd Houses”) on the 2^nd Land for 11 named villagers (“the 2^nd Villagers”).  The houses were indigenous villagers’ houses, and they could not be alienated to non-indigenous villagers within 5 years of the issue of a certificate of compliance unless a premium assessed by a District Land Officer (“DLO”) (“the premium”) is paid. 

2.  The 1^st Villagers are the 2^nd to 7^th Defendants, and the 2^nd Villagers are the 8^th to 18^th Defendants in the action. 

3.  In the JV agreement, the 1^st Plaintiff (there called the Financier) agreed to provide interest free loan(s) to the 2^nd Plaintiff for the development.  Moreover, the 1^st Plaintiff also agreed to cause Million Link International Holdings Limited (“the Lender”) to lend HK$7,000,000 to the 1^st Defendant. 

4.  The background to the JV agreement could be gathered from the relevant recitals:

(i)   Recital 1 and 2 stated that the 1^st Villagers were “shown in the Land Register as owners of the [1^st Land]” and that the 2^nd Villagers are “shown in the Land Register as owners of the [2^nd Land]”.

(ii)   That the 1st Defendant had entered into agreements with the 1st Villagers and 2nd Villagers for considerations paid to develop at the 1st Defendant’s costs the 1^st and 2^nd Houses and pay the premium in respect of the 2^nd Houses (Recital 3).

(iii)   The 1^st Defendant had obtained from the 2^nd Villagers “all documents necessary for safeguarding the rights of [the 1^st Defendant] in the 1^st Land, and 2^nd Land and the 1^st Houses, and 2^nd Houses to be developed thereon that are binding upon the 2^nd Villagers”.  (Recital 4).

(iv)   The 1^st Defendant had obtained from the District Lands Department all necessary consents and certificates of exemptions for the construction of the 1st Houses and 2nd Houses (Recital 5).

5.  The JV agreement provided:

“1.03. The Financier shall cause the JV Company to :-

(a) commence within 3 months, and

(b) complete within 18 calendar months,

from the date of possession of the 1^st Land and 2^nd Land or such longer time as the Financier and [the 1^st Defendant] may agree :-

(a) constructing thereon the 1^st Houses and 2^nd Houses, and obtaining from the District Lands Department all necessary letters of compliance for permitting the occupation of the 1^st Houses and 2^nd Houses; and

(b) within 21 days after obtaining the letters of compliance :-

(i) applying to the District Lands Department for assessments of the premiums payable on the 2^nd Land for removing the restriction against alienation of the 2^nd Houses save to other indigenous villagers within 5 years from the date of completion of the 2^nd Houses, and

(ii) paying the assessed premiums within one month after issuance of the demand note by the District Lands Office.

……

2.06. The Financier shall cause the JV Company to deliver vacant possession of the 1^st Houses to [the 1^st Defendant] within 14 days after obtaining letters of compliance therefor from the District Lands Department or after completion of erection thereof as [the 1^st Defendant] may decide in his absolute discretion.

……

3. RIGHTS  AND  OBLIGATIONS  OF  [ THE  1^st DEFENDANT ]

3.01 [The 1^st Defendant] shall sign and cause the 2^nd Villagers to sign all documents that Messrs. Hau, Lau Li and Yeung require for perfecting : -

(a) the rights and interests of [the 1^st Defendant] in the 2^nd Land and

(b) the rights of the JV Company to sell the 2^nd Houses and receive the proceeds of such sale.

……

3.03 [The 1^st Defendant] shall cause the 1^st and 2^nd Villagers to deliver vacant possession of the 1^st Land and 2^nd Land to the Financier or its representative or contractor within 3 weeks from the signing hereof.

3.04 [The 1^st Defendant] shall within 7 days from the signing hereof deliver to Messrs. Hau Lau Li & Yeung :-

(a) all documents of title on the 1^st Land and 2^nd Land including but not limited to all Conditions of Exchange, Building Licences and title deeds to prove to their satisfaction the titles of:-

(i) the 1^st Villagers to the 1^st Land, and

(ii) the 2^nd Villagers to the 2^nd Land,

(b) all certificates of exemption for constructing the 1^st Houses and the 2^nd Houses,

(c) all documents that the 1^st Villagers and 2^nd Villagers have signed for the future sale of the 1^st Houses and 2^nd Houses, and

(d) all documents in the possession of [the 1^st Defendant] that [the 1^st Defendant] relies upon to protect his rights in the 1^st Land, 2^nd Land and the subsequent development thereon.

……

3.06 [The 1^st Defendant] shall bear all balance of consideration payable to the 1^st and 2^nd Villagers for the rights to the 1^st and 2^nd Land and 1^st and 2^nd Houses absolutely.”

6.  The JV agreement also provided that on completion of the 2^nd Houses, the 1^st Plaintiff and the 1^st Defendant should procure the 2^nd Plaintiff to sell the 2^nd Houses and net profits arising out of their sale should be paid by the 2^nd Plaintiff to the 1^st Plaintiff and the 1^st Defendant in equal shares.

7.  The 1^st and 2^nd Houses have been built.  However, a dispute has arisen between the 1^st Plaintiff and the 1^st Defendant over the right, if any, to build a car park and an access road outside the boundary of the 1^st and 2^nd Land.  The 1^st Plaintiff has pleaded an alleged oral representation by the 1^st Defendant (denied by the 1^st Defendant) that the 2^nd Plaintiff had:

“(c) … the right to build on land outside the boundaries of the 1^st Land and the 2^nd Land a car park connecting to the public road and an access road for pedestrian traffic connecting the 1^st Land and the 2^nd Land to the public roads (‘Access Road’).” See para. 3(c) of the proposed Amended Statement of Claim.

8.  On the other hand, the 1^st Defendant’s case is that because the 1^st Plaintiff has failed to pay the “premium for the removal of non-alienation restriction imposed upon the 2^nd Houses”, he was entitled to terminate and had terminated the JV agreement under Clause 2.08 of the JV agreement.

9.  In return, the 1^st Plaintiff relied on the purported termination of the JV Agreement by the 1^st Defendant, amongst other things, as

“… a wrongful repudiation of the JV Agreement, which has been accepted by the 1^st Plaintiff. The 1^st Plaintiff has accordingly suffered a loss of profits in the form of future dividends to be declared by the 2^nd Plaintiff from the proceeds of sale of the 2^nd Houses.”

HCMP 1760/2009

10.  HCMP 1760 of 2009 was commenced on 9 September 2009 by way of interpleader proceedings by Messrs Hau, Lau, Li & Yeung (“HLLY”) over the entitlement to possession and custody of the title deeds and documents (“the title documents”) which have been deposited with HLLY pursuant to Clause 3.04 of the JV agreement.  Initially, the claimants were the 1^st Defendant, the 1^st Plaintiff and the 2^nd Plaintiff, who were the 1^st, 2^nd and 3^rd claimants respectively.  To cut a long story short, eventually HLLY ceased to be a party, the 2^nd and 3^rd claimants were ordered to be the 1^st and 2^nd Plaintiffs and the 1^st claimant the 1^st Defendant in these proceedings.  It was also ordered that the 1^st and 2^nd Villagers became the 2^nd to 18^th Defendants herein.  By summons dated 29 July 2010, the 1^st and 2^nd Plaintiffs applied to add Lau Shau Wo Tso as the 19^th Defendant.

11.  The learned Deputy Judge has refused the proposed joinder of the Lau Shau Wo Tso.  He explained:

“The claim of Wong [sic] Shau Wo Tso

4. The 1st Land used to be owned by a Lau Shau Wo Tso whose manager is Mr Lau Muk Fat (‘the Tso’). The Tso claims that it had transferred certain lands to the 1st defendant on 31 August 1995 for the purpose of development pursuant to certain arrangement. The 6 lots which constitute the 1st Land that are registered in the names of the 2nd to 7th defendants were created out of some of the said lands of the Tso. The 2nd to 7th defendants are holding the 1st Land as agents and/or trustees and/or nominees of the Tso.

5. The Tso further claims that the development of the 1st Land has been completed and the 1st Land together with the 6 houses thereon (‘the 1st Houses’) should be transferred back to the Tso.

6. The 1st defendant and the 2nd to 18th defendants have no objection to the Tso’s claim. The 1st defendant and the 2nd to 7th defendants have also undertaken to the court to take all steps to vest the title and interests of and in the 1st Land and Houses to the Tso or to whom the Tso may direct. I understand that the 1st defendant will also be responsible for the costs for the vesting. These undertakings and their performance are without prejudice to the Tso’s rights vis-à-vis the defendants herein or other entities or to the 1st defendant’s rights vis-à-vis the Tso in respect of land owned or used to be owned by the Tso. However, the vesting cannot be done free of encumbrance as there are registered at the Land Registry a joint venture agreement, the writ of summons and the amended writ of summons in HCA 1902/2009 (‘Action 1902’) against the 1st Land and Houses and the 2nd Land and Houses.

……

86. Since the Tso’s claim for the 1^st Land and Houses have been disposed of by the undertakings of the 1st and 2nd to 7th defendants, the Tso need not be a party to these proceedings.  I also do not see any basis for the plaintiffs to join the Tso as a defendant herein.  I therefore dismiss the plaintiffs’ summons dated 29 July 2010 for joining the Tso.”

HCA 1902/2009

12.  On 7 September 2009, the 1^st Plaintiff issued proceedings HCA 1902/2009 (“Action 1902”) against the 1^st to 18^th Defendants.  This Action has been registered as a lis pendens against the 1^st and 2^nd Lands. 

13.  This is what the learned trial judge said about Action 1902:

“14. The 1st plaintiff further pleaded that the 1st defendant had represented to it that each of the 2nd to 18th defendants had given him a power of attorney and the 1st defendant entered into the JV Agreement either in his own capacity or as attorney of the 2nd to 18th defendants. The 1st plaintiff then pleaded that as a result of the 1st defendant’s representations, there was an implied term of the JV Agreement that each of the 2nd to 18th defendants was holding his respective lot and building thereon as a constructive trustee of the 1st plaintiff and 1st defendant as joint beneficiaries.

……

20. There was then an application by the 2nd plaintiff herein for consolidation of [HCMP 1760/2009] with Action 1902. HLLY also sought interpleader relief. The 2nd to 18th defendants also applied to intervene in these interpleader proceedings.

21. All these matters went before the Registrar on 7 October 2009.  The Registrar ordered HLLY to cease to be a party herein, but to continue to hold on to the title deeds and documents pending the decision of this court.  She also stayed Action 1902 pending the outcome of these proceedings and ordered that the parties to Action 1902 are to be bound by the outcome herein.  She then joined the 2nd to 18th defendants to these proceedings and ordered pleadings to be served.  The disputes between the 1st plaintiff and the defendants in Action 1902 were supposed to be ventilated and resolved in these proceedings.  The Registrar made a further order herein on 31 October 2009 to rearrange the parties to as they are now.”

14.  This is what the Deputy Judge L Chan said about the applications which has led to this appeal.

“30. The 1st defendant filed a defence and counterclaim. He seeks an order to vacate from the Land Registry the registration of the JV Agreement, the writ and the amended writ in Action 1902. He also seeks a declaration that he is entitled to the possession of the title deeds and documents of the 1st and 2nd Lands and Houses and a further declaration that he was entitled to forfeit the HK$7 million advanced to him under clause 2.01 of the JV Agreement.

31. The 2nd to 18th defendants also filed a defence and counterclaim. They seek declarations that they are entitled to the title deeds and documents of the 1st and 2nd Houses and that neither the 1st nor the 2nd plaintiff has any interest in these houses or their title deeds and documents.

The Applications

32. The 2nd to 18th defendants issued a summons on 3 March 2010 to strike out parts of the statement of claim and the reply to their defence. The attacks are made on the ground of no reasonable cause of action. The 2nd to 18th defendants further ask in this summons for summary judgment on their counterclaim as against both plaintiffs for want of a reasonable defence.

33. The 1st defendant issued a summons on 4 April 2010 also for striking out parts of the statement of claim. The ground is that these averments are frivolous, vexatious or otherwise an abuse of the legal process.  The 1st defendant further seeks to strike out the 1st plaintiff’s claim as based on the access road representation for want of reasonable cause of action and/or frivolous, vexatious or otherwise an abuse of the legal process.”

15.  The applications were heard by Deputy High Court Judge L Chan on 2 and 4 August 2010.  The learned Deputy Judge’s judgment is dated 13 August 2010.  Stated briefly, the learned Deputy Judge dismissed the Plaintiffs’ claim in respect of the 1^st Houses on the basis that the Plaintiffs had no claim to them.  Consequently, the Plaintiffs had no right to any of the title documents and the registration of the JV agreement or the proceedings against the 1^st Land was vacated.  The learned Deputy Judge refused to strike out the Plaintiffs’ claims in respect of the 2^nd Land or Houses. 

16.  The learned Deputy Judge has vacated the registration of the JV agreement against 1^st and/or the 2^nd Houses or Land, because on the parties’ respective cases specific performance was no longer possible.  The learned Deputy Judge explained:

“79. … Since it is the 1st plaintiff’s case that it has accepted the 1st defendant’s repudiation of the JV Agreement, the JV Agreement on its case has been discharged by the 1st defendant’s breach. It can no longer seek performance of the agreement. The 1st plaintiff’s claim against the 1st defendant is also for damages only. The 1st plaintiff is not relying on the JV Agreement to claim any interest in the 1st or 2nd Land or Houses. Even if the 1st plaintiff should succeed in its claims, it will not be awarded any interest in the 1st or 2nd Land or Houses. The JV Agreement therefore does not affect the 1st or 2nd Land or Houses in so far as the 1st plaintiff is concerned. It’s registration by the 1st plaintiff against the 1st and 2nd Lands and Houses should therefore be vacated from the Land Registry and I so order.”

17.  However, he permitted the lis pendens to remain in respect of the 2^nd Land and Houses.  He was of the view that since the 1^st Plaintiff could argue for some beneficial interest in the 2nd Land and Houses, he would not order the registration of the writ and the amended writ against the 2^nd Land and Houses to be vacated.  However, he ordered that the registration of the writ and the amended writ in Action 1902 against the 1^st Land and Houses at the Land Registry be vacated.  Also, because “there is no more purpose for the 2^nd to 7^th defendants to remain as parties in these proceedings or in Action 1902”, he ordered under O. 15 r. 6 “they do cease to be defendants herein or in Action 1902”. See para. 83.

18.  The Deputy Judge also ordered HLLY to deliver the title deeds of the 1^st Land and 1^st Houses to the solicitors for the 2^nd to 7^th Defendants strictly for the purpose of vesting the 1^st Land and 1^st Houses by the 2^nd to 7^th Defendants unto the Tso.

The Appeal

19.  This is the 1^st and 2^nd Plaintiffs’ appeal. 

20.  Essentially, the appeal concerns the 1^st owners and the 1^st Houses.  The Plaintiffs also seek to set aside the order relating to the vacating of the registration of the JV agreement against both the 1^st Land and 2^nd Land.  However, as Action 1902 has been registered as a lis pendens and not vacated by the learned Deputy Judge in respect of the 2^nd Land, the registration of the JV agreement serves no additional purpose.  So essentially the Plaintiffs’ appeal relates only to the 1^st Land and the 1^st Houses.

21.  If the learned Deputy Judge is right that the Plaintiffs have no claim against the 2^nd to the 7^th Defendants or in respect to the 1^st Land or 1^st Houses, then any incidental order which the Plaintiffs seek on appeal in relation to the 1^st Land or 1^st Houses or the 2^nd to the 7^th Defendants must necessarily fail.  Therefore, it is only necessary for me to concentrate on whether the Plaintiffs have a viable claim in respect of the 1^st Land and 1^st Houses.

22.  Mr Kenneth Kwok, SC (leading Mr Liu Man Kin), appearing for the Plaintiffs, submitted that the learned Deputy Judge erred in treating the 1^st Land and Houses on a stand-alone basis.  He submitted the learned Deputy Judge had ignored the commercial reality in the construction of the JV agreement.

23.  As noted above, under clause 2.06, the 1^st Plaintiff was obliged to cause the 2^nd Plaintiff to deliver vacant possession of the 1^st Houses to the 1^st Defendant within 14 days of the letters of compliance or the completion of erection of the 1^st Houses as the 1^st Defendant might decide in his absolute discretion.  The handing over of the vacant possession of the 1^st Houses would not depend upon the completion of the 2^nd Houses.  Mr Kwok pointed that Clause 2.06 is silent on the title documents relating to the 1^st Houses.  That is so, but I believe, it goes without saying that the title documents which had been deposited with HLLY to facilitate the development must be returned to the rightful owners of the 1^st Houses on completion in accordance with Clause 2.06.  Indeed, when asked whether the Plaintiffs would have any interest in the 1^st Land or 1^st Houses (Mr Kwok did not distinguish between them) if there had been no alleged breach of the JV agreement by any party, Mr Kwok was unable to dispute that in such circumstances, the 1^st Plaintiff could have no claim to the 1^st Land, the 1^st Houses, or the relevant title documents.

24.  Mr Kwok relied on the fact that in recital 4, it was stated that the 1^st Defendant had obtained from the 2^nd Villagers, all documents necessary for safeguarding the rights of the 1^st Defendant in the 1^st Land, and 2^nd Land and the 1^st Houses, and the 2^nd Houses to be developed thereon, and that in recital 3 it was stated that the 1^st Defendant had entered into agreement with the 1^st Villagers and 2^nd Villagers for consideration paid to develop the 1^st and 2^nd Houses, etc. in return for the 2^nd Houses.  Also under Clause 3.03, the 1^st Defendant was obliged to cause the 1^st and 2^nd Villagers, to deliver vacant possession within 3 weeks of the JV agreement, for the purpose of the development. 

25.  No doubt, these provisions were required to enable or facilitate development but they did not confer on the Plaintiffs any claim over the 1^st Houses or 1^st Land after the completion of the 1^st Houses.

26.  Mr Kwok then pointed to the fact that in the proposed amendment, the Plaintiffs had pleaded that the 1^st Defendant had entered into the JV agreement as agent for the 2^nd to 7^th Defendants.  The proposed amendment was in para. 23 of the proposed Amended Statement of Claim:

“23. As an alternative to the averment that the JV Agreement was entered into between the 1^st Plaintiff and the 1^st Defendant (as pleaded in paragraph 4 above), it is averred that the JV Agreement was made:

(a) between the 1^st Plaintiff of the one part, and the 1^st Defendant acting in his own right and also in the capacity as the lawful attorney or agent for and on behalf of the 2^nd to the 18^th Defendants of the other part; or alternatively

(b) between the 1^st Plaintiff of the one part, and the 1^st Defendant as the lawful attorney or agent for and on behalf of the 2^nd to the 18^th Defendants of the other part.”

27.  The learned Deputy Judge dealt with this argument in para. 63 of his judgment.  He said:

“63. The next part of the proposed amendment is to plead that the 2nd to 18th defendants had given powers of attorney to the 1st defendant and the 1st defendant entered into the JV Agreement on behalf of himself and also for the 2nd to 18th defendants. The only matter relied on by the plaintiffs to make this amendment is the powers of the attorney given to the 1st defendant. However, the recitals and the terms of the JV Agreement made it clear that the 1st defendant entered into the JV Agreement with the 1st plaintiff for the purpose of discharging the 1st defendant’s obligations to the 1st [sic] to 18th defendants. The 1st defendant’s obligations were to build the 1st and 2nd Houses at his own costs and to return the 1st Houses to the 2nd to 7th defendants and keep the proceeds of the 2nd Houses to himself.

64. The plaintiffs are not alleging that the 2nd to 18th defendants have entered into the JV Agreement through the 1st defendant for discharge of their obligations to the 1st plaintiff.  They owe no obligation to the 1st plaintiff.  I cannot see how or why the 2nd to 18th defendants could have entered into the JV Agreement with the 1st plaintiff for discharge of obligations owed to them by the 1st defendant.  This is illogical.  Furthermore, clause 6.13 of the JV Agreement also stipulated that the agreement is personal to the parties thereto.  I therefore would not allow this proposed amendment in the proposed paragraphs 22 to 26 and in the 2nd plaintiff’s proposed new prayer for damages pursuant to the proposed paragraph 26.”

28.  With respect, I am in complete agreement with the learned Deputy Judge.

29.  Mr Kwok submitted that the learned Deputy Judge has confused pleading with evidence.  He said there could be evidence to show that the 1^st Defendant was indeed the agent of these Defendants.  No indication of any such evidence was available.

30.  The Plaintiffs who were seeking leave to amend should plead their case with sufficient particularity.  It is clear that the Plaintiffs were not in a position to improve on the pleadings. 

31.  For the above reasons, I would dismiss the appeal and make an order nisi that Plaintiffs pay the costs of the appeal to be taxed unless agreed.

Hon Kwan JA:

32.  I agree.

Hon Chu J:

33.  I agree.