KEYMAIN INTERNATIONAL LTD v. CHAN YIN FONG AND OTHERS

HCA 2618/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2618 OF 2014

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REASONS FOR DECISION

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1.  This was an application by the defendants to strike out the plaintiff’s statement of claim pursuant to RHC Order 18, rule 19(1) and the inherent jurisdiction of the court and/or under Order 41A, rule 6 for not being verified by a statement of truth.  At the conclusion of the hearing, the application was dismissed with costs to the plaintiff for reasons to be handed down later.  My reasons are set out below. 

PRELIMINARY MATTERS

2.  There are a number of preliminary matters that should be mentioned.

3.  First, on the day preceding the hearing, the plaintiff caused a statement of truth to be filed.  Accordingly, the defendants no longer rely on Order 41A, rule 6 as a ground for striking out the statement of claim. 

4.  Second, in August 2015, after the defendants’ solicitors discovered that the plaintiff owned land in Hong Kong they notified the plaintiff on 11 August 2015 that they would not proceed with the security for costs application.  Accordingly, the defendants sought and obtained leave to withdraw their application for security for costs.

5.  Third, at the outset of the hearing, Mr Lam SC who appeared for the defendants applied for and obtained leave to admit the 2^nd affirmation of Hau Wing Shing Vincent to exhibit a letter that had come into existence after the filing of the supporting affirmations.

6.  Fourth, while the summons sought leave under all four grounds set out in Order 18, rule 19(1), in view of rule 19(2), Mr Lam confirmed that the defendants no longer relied on paragraph (a) of that provision for their application.

BACKGROUND FACTS

7.  The plaintiff is a BVI Company. 

8.  This action concerns properties at South Lane, Hong Kong referred to in the action as “the first property”, “the second property” and “the third property” (hereinafter collectively referred to as “the properties”). 

9.  The defendants are members of the same family.  D1 is the mother.  She had four children, namely D2, D3, D5 and a son who passed away in November 2014 (“the deceased”) leaving surviving him his widow D4.

10.  D1 and her four children are the registered owners of the first property.  D1 is the registered owner of the second and third properties.

11.  In December 2014, the plaintiff was interested in acquiring the properties for redevelopment and instructed Ms Celine Yu (“Ms Yu”) an agent of CH Properties Investment & Development Limited (“CH Properties”) for that purpose.  Ms Yu therefore approached D3 regarding a sale of the first property by the defendants and of the second and third properties by D1 to the plaintiff. 

THE STATEMENT OF CLAIM

12.  The plaintiff’s pleaded case is that D3 made representations to Ms Yu to the following effect (as pleaded in §8 of the statement of claim):

(1) The defendants were desirous of selling the properties to the plaintiff if the price was agreeable to them.

(2) D1, D2, D4 and D5 had authorised D3 to deal with the sale of the properties and she had authority to act on their behalves.

(3) In the event of sale, the properties were to be sold together and the sale and purchase was to be completed simultaneously.

13.  In reliance on the representations, the plaintiff instructed Ms Yu to negotiate with D3 for the purchase of the properties.

14.  Various offers were put forward to the defendants including one for the plaintiff to purchase each of the properties for $7.38 million whereupon D3 told Ms Yu to prepare draft provisional agreements for her solicitors to approve.  Ms Yu was informed on that occasion of the deceased's death and that completion of his share in the first property would take about six months to allow D4 sufficient time to apply for letters of administration.  That was acceptable to the plaintiff.

15.  On 19 December 2014, a draft provisional agreement was e‑mailed to D3 for approval.  On 22 December 2014 the plaintiff signed the provisional agreements incorporating all the amendments to the draft that had been proposed by Alfred Lau (“Mr Lau”), the legal executive of the solicitors’ firm (“TCW”) representing the defendants.  Later that evening by agreement the price was revised to $8 million for each of the properties.

16.  On 23 December 2014 a meeting took place at the office of TCW attended by Ms Yu, Mr Lau, D2, D3, and D4 at which Mr Lau confirmed TCW’s authority to act for the defendants.  In reliance on D3’s representations, there was an oral agreement that:

(1) D1, D2, D3 and D5 would sell their respective interests in the first property (4/5 shares) to the plaintiff for $6.4 million.

(2) D4 would sell the deceased’s interest in the first property (1/5 share) to the plaintiff for $1.6 million.

(3) D1 would sell the second property and the third property to the plaintiff for $8 million each.

(4) Initial deposit in respect of the sale of the properties would be paid upon the signing of the provisional agreements and a further deposit on 6 January 2015.

(5) Completion of the sale and purchase of the properties (save and except the deceased’s interest in the first property) would take place simultaneously on 9 February 2015.

17.  There were four provisional agreements in writing (collectively “the PSPAs”) evidencing the oral agreement:

(1) No 1380 in respect of D1, D2, D3 & D5’s 4/5 shares in the first property signed by the plaintiff, D2 and D3 (“PSPA 1380”). 

(2) No 1380a in respect of the deceased’s 1/5 share in the first property, signed by the plaintiff and D4 (“PSPA 1380a”). 

(3) No 1379 in respect of the second property, signed by the plaintiff (“PSPA 1379”).

(4) No 1378 in respect of the third property, signed by the plaintiff (“PSPA 1378”).

18.  Each of the provisional agreements contained the term: “This is a ‘must buy and must sell’ agreement.”  Each of the provisional agreements also contained an appendix I which provided that:

“Neither party is entitled to enforce any one of the agreements as if it is a separate agreement. If either party is in breach, the other party can specifically enforce this Agreement and the other 2 agreements and to claim for all losses.” (original emphasis)

19.  At that meeting two cheques each for $42,000 were paid to the defendants or their solicitors and accepted.

20.  It transpired that on 23 December 2014, (i) D1 had entered into provisional agreements in respect of the second and third properties with First Trend Creation Ltd (“First Trend”) for $8.1 million each; (ii) D1, D2, D3 and D5 had entered into a provisional agreement also with First Trend for the sale of their shares in the first property for the sum of $6.7 million; and (iii) D4 had entered into a provisional agreement in respect of the deceased’s 1/5 share in the first property also with First Trend for $1.4 million.

21.  On the following day D3 instructed TCW to return the cheques to Ms Yu’s company which they duly did.  On 25 December 2014 Ms Yu met D1 but D1 refused to talk to her and told her to contact D3 direct as she had given full authority to D3 to deal with the transaction.

22.  On 30 December 2014, the plaintiff’s then solicitors re‑tendered the returned cheques to TCW together with two other cheques for the sums of $42,000 and $6,000 respectively.

23.  In summary, the plaintiff’s case is that the defendants were in breach of the oral agreement and by selling the properties to First Trend instead had deprived the plaintiff of the properties.  It sought a declaration that the oral agreement exists and specific performance of the same.

THE DEFENDANTS’ CASE

24.  The defendants seek to strike out the plaintiff’s claim on the following grounds:

(i) there was never any oral agreement between the parties; and

(ii) in any event, the plaintiff had repudiated the oral agreement and is not entitled to the relief sought or to any relief.

(1)     No oral agreement

25.  Mr Lam submitted that there was never any oral agreement between the parties as alleged because no consensus was ever reached.  He relied heavily on the evidence of D3 and in particular on the following extracts from WhatsApp messages passing between Ms Yu and D3 on 23 and 24 December 2014 which it was said were uncontroverted and completely undermine the plaintiff’s case based on an oral agreement made on 23 December:

(1) Messages from D3 to Ms Yu on 23 December 2014:

“D3 (9.11 pm): Btw, my brother has consideration on signing the contract. I have kept persuading him

D3 (9.11 pm): My mum is on his side

D3 (9.11 pm): Hope u don’t mind if I call u later say after 11

Ms Yu (9.12 pm): No problem, enjoy your dinner first, will be waiting your call”

(emphasis added)

(2) Message from Ms Yu to D3 on 24 December:

“Ms Yu (4.10 pm): Please could you ask your younger brother again after the holiday, what price he wants and the reason, thanks”

(3) Message from Ms Yu to D3 on 26 December:

“Ms Yu (7.42 pm): Dear Christine, any update from your little brother?”

26.  Mr Lam submitted that those messages go against any representation that D3 had authority to act for the defendants and goes against an agreement having been reached on 23 December.

27.  Ms Wu who appeared for the plaintiff submitted that it is necessary to examine the evidence as to what did occur on 23 December.  The WhatsApp messages the defendants rely on need to be read against the backdrop of D3’s account of events on 23 December (at §§25‑49 of D3’s affirmation).

28.  It is clear from §§40‑41 of D3’s affirmation that it was only after D3 had left TCW’s office that D3 received a higher offer from another agent which the defendants then decided to accept.  At around 7 pm the same evening the defendants signed provisional agreements with First Trend for the sale and purchase of the properties.

29.  It is further clear from D3’s affirmation that Ms Yu was not told about the sale of the properties to First Trend when they met in the afternoon of 24 December.  Rather Ms Yu was only told that D3’s brother, ie D5, did not agree to sell to the plaintiff.  It was on that day that the defendants’ solicitors returned the two cheques to Ms Yu’s company as instructed.

30.  In those circumstances, read in the context of the events of 23 December, the messages the defendants rely on do not establish a clear and unanswerable case that there was no oral agreement.  Ms Yu’s messages on 24 and 26 December are not inconsistent with and do not negate the existence of an oral agreement. Plainly the matter is disputed and for the purposes of a strike out, it is an issue of fact to be resolved at trial.

(2) Repudiation

31.  The other ground the defendants rely on is that the plaintiff had repudiated the agreement by failing to make payment of the initial deposit.  While it is acknowledged that on 23 December 2014 the plaintiff gave two cheques each in the sum of $42,000 to D2 and D3 and a further $48,000 was tendered on 30 December 2014, it was said that as the provisional agreements made clear, the initial deposit payable was $510,000, but only $132,000 had been paid, resulting in a shortfall of $378,000.

32.  The terms of the oral agreement are pleaded in §19 of the statement of claim (see §16 above).  The subject matter of the oral agreement is set out in subparagraphs (1) to (3) of §19 of the pleading.

33.  One of the terms of the oral agreement is for payment of the initial deposit “upon signing of the provisional agreements”.  That provision is evidenced by clause 2(a) of each of the PSPAs.  On the plaintiff's primary case that the properties are to be sold altogether and not one without the other, it is certainly arguable that the initial deposit was not due and payable until all the defendants had duly signed the PSPAs. As it is common ground that D1 and D5 had not signed the relevant PSPAs, it is arguable that the plaintiff’s obligation to make payment had not crystallized.  On that basis, it could not be said that the plaintiff had repudiated the oral agreement by not having made payment of the initial deposit for the purposes of a strike out.

34.  The proposal to split the sale of the first property into two parts so that the interest of the deceased could be dealt with separately emanated from Mr Lau at the meeting at TCW during the morning of 23 December attended by D2, D3, D4 and Ms Yu.  From the WhatsApp messages in evidence, it would appear that Ms Yu arrived at TCW’s office for the meeting shortly after 11 am.

35.  PSPA 1380 on which the plaintiff relies as evidencing D1, D2, D3 and D5’s agreement to sell the 4/5 shares in the first property envisaged each of D1, D2, D3 and D5 putting his/her signature to it in respect of his/her 1/5 share.  That is apparent from the signature page of PSPA 1380: D2 and D3 put their signatures to it against their respective names leaving blank the spaces for the signatures of D1 and D5.

36.  It is common ground that each of D2 and D3 was given a cheque for their respective shares of the initial deposit.  Insofar as it was implicit in the oral agreement for pro rata payment, the plaintiff could not be said to have been, and was not, in breach.

37.  As regards D4’s share of the initial deposit, it is clear from her affirmation that although she put her signature to PSPA 1380a, it was only “in escrow” as she was uncertain whether or when she would have the capacity to sell the deceased’s 1/5 share in the first property.  The obligation to make a pro rata payment (assuming such obligation existed) would not arise until the condition (presumably the grant of letters of administration) was satisfied which had not occurred at the time of repudiation.

38.  The plaintiff’s understanding gained at the meeting was that the absent parties namely D1 and D5 would be signing the relevant PSPAs later.  That understanding appears to be consistent with the several WhatsApp messages from Ms Yu sent to D3 between 3.18 pm and 6.20 pm that afternoon and early evening following up on the signing of the PSPAs.

39.  If the plaintiff were to succeed in establishing the oral agreement as pleaded in its statement of claim, it had not repudiated the oral agreement at the time when the defendants entered into provisional agreements with First Trend at around 7 pm on 23 December.  Rather, it would be the defendants who would have been in breach.

(3) Miscellaneous

40.  In passing, I will briefly mention a number of miscellaneous points raised at the hearing.

41.  Mr Lam was critical of the absence of evidence from the plaintiff.  I cannot see how, of itself, that fact can be determinative or dispositive of the question whether or not the plaintiff’s claim should be struck out pursuant to Order 18, rule 19(b) to (d).  Its case is spelt out in the statement of claim.  While it may be unusual for the plaintiff not to file evidence in opposition, I am not aware of any rule that requires a plaintiff to do so.

42.  The plaintiff seeks a declaration as to the existence of the oral agreement and specific performance of that oral agreement and relies on part performance under section 3(2) of the Conveyancing and Property Ordinance based on the following facts:

(i) the plaintiff putting its signature to all the PSPAs;

(ii) D2 and D3 signing PSPA 1380; and

(iii) the plaintiff tendering to D2 and D3 their respective shares of the initial deposit.

It was said that all those acts were unequivocally referable to the oral agreement.

43.  For the purposes of a strike out, I do not consider that it could seriously be argued that those acts could not possibly constitute sufficient part performance of the oral agreement such that the plaintiff could not be entitled to a declaration that as to the existence of the oral agreement.  In other words, I consider the point arguable.

44.  Specific performance of that agreement would entail requiring D1 and D5 to sign the relevant PSPAs.  That in turn would enable the plaintiff to seek specific performance of the PSPAs which currently it is not in a position to do.

45.  For the reasons stated above, I dismissed the defendants’ summons to strike out the plaintiff’s claim with costs to the plaintiff.  An order was also made that the costs for the security for costs application be to the plaintiff.