UNISON FAITH LTD v. WU TAK LEUNG

HCA 2284/2014

[2022] HKCFI 2904

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2284 OF 2014

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JUDGMENT

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1.  The dispute between the plaintiff and the defendant arose out of their agreement for the development and sale of a village house to be constructed on the latter’s plot of land in the New Territories. The plaintiff seeks to enforce its interest while the defendant contends that the agreement has been terminated upon the plaintiff’s breach. Whichever side one stands to view it, this case and its conduct are problematic.

BACKGROUND

2.  Save indicated otherwise, the following background, I find, cannot be disputed.

3.  The parties entered into the transaction in 2011.  Yeung Chuk Yin (“Yeung”) and his wife, Madam Hung Kin Chih(“Hung”), carried on the business of property investment through the plaintiff (“UFL”), a company incorporated in Hong Kong.  Hung and Yeung were then in their 70s and 60s respectively.  Hung was then the sole shareholder and director of UFL.  The shareholdings changed in March 2015, but Hung remained a shareholder.

4.  The defendant (“Tak Leung”) is a New Territories indigenous villager, a ting as one is commonly known.  Tak Leung has since 1995 been the registered owner of the land known as the Remaining Portion of Lot No 2053 in Demarcation District No 119, in Yuen Long, New Territories (“the Land”).  Adjoining the Land, Section A of the lot (“2053A”)is owned by a relative of his.

5.  In respect of the Land, Tak Leung had been granted a building licence dated 21 August 2007, free of land premium, which authorized him to build a typical 3-storey small house (commonly referred to as a ting house) on the Land.  However, there had been no construction pursuant to the licence in the subsequent years until UFL entered the picture.

6.  In around May or June 2011, UFL and Tak Leung came to an agreement to develop the Land.  For Tak Leung, it was always his elder brother, Wu Shing Tak (“Shing Tak”), who was responsible for negotiating and subsequently liaising with Yeung and Hung of UFL.

7.  On about 10 June 2011, the parties entered into a written co-operation agreement in Chinese (“the Agreement”) in the following terms:

「	合作協議書
立約人：	甲方： WU TAK LEUNG (胡德良) 身份証號碼：CXXXXXX(3) 地址： XXXXX Shap Pat Heung, Yuen Long, New Territories, Hong Kong 乙方： UNISON FAITH LIMITED (禾信有限公司) 地址： 2/F., 14-15 Sheung Wun Yiu, Tai Po, New Territories, Hong Kong
日期：	2011 年6 月 10 日
一、	甲方保証及聲明其為新界原居民及有權申請丁屋並已由地政處發出Building Licence，茲同意以合作發展方式於甲方名下之農地即 The Remaining Portion of Lot No. 2053 in Demarcation District No. 119興建小型新界屋宇 (簡稱丁屋) 一座。
二、	甲方聲明其本人及其繼承人等於該地段及該丁屋均無享有任何權益。乙方負責興建丁屋事宜，而甲方則協助向政府辦理一切手續，及一切轉名買賣手續，甲方可得保證利潤為港幣叁佰貳拾伍萬元(HK$3,250,000.00)。乙方分兩期支付，而乙方因出售丁屋及土地所得之盈利或虧損如有的話均與甲方無關。
三(a)、	甲方須到乙方指定律師行簽署有關文件及將該地段的Building Licence, Certificates of Exemption, approval of opening of side windows等及所有有關契据交予乙方的指定律師。乙方即付第一期款項 HK$1,000,000.00予甲方。
(b)、	第二期港幣 HK$2,250,000.00 於本合約起計三個月內支付 (即9 月 10 日或之前)，如乙方上述三個月後未能支付第二期款項于甲方，甲方同意乙方可延期三個月 (即12 月 10 日或之前) 支付第二期款項。以較後者為準。
四、	乙方負責本港一切律師費用、厘印費及補地價費用及利得稅，如有的話。
五、	甲方簽署本合約時，為首次申請丁屋和首次使用丁權，甲方不得再以其個人名義或與其他發展商合作方式向香港政府申請興建丁屋或取消上述興建丁屋或售賣其丁權或上述丁屋利益，如有違約，甲方即構成欺騙之刑事罪，並須承擔一切民事及刑事之法律責任。
六、	甲方由簽收首期款項日起，不得以任何方式廢除、撤回、取消或撤消此協議書。
七、	如因甲方阻延、不出席、不簽妥文件等不合作行為，或進行任何活動，導致申請丁屋牌照失敗，或令致乙方無法興建及出售丁屋及其土地。甲方須立即將已收之款項退回乙方，並須賠償乙方一切損失，包括利息、建築費、行政費、律師費及買方出售丁屋可得之溢利等，並須承擔所有法律上責任及訴訟費用。
八、	甲方承認只以信托人身份代乙方擁有該丁屋及土地，甲方不得在完成轉名手續予乙方前將該土地及丁屋轉讓、按揭、送贈、遺留或租賃給別人。
九、	甲乙雙方並不因此合約構成任何股東關係。
十、	乙方可以自由轉讓此合約與他人或公司，甲方須協助乙方重新簽署合約及一切文件。
十一、	甲方若更改聯絡地址及電話，必須即時通知乙方。
十二、	此合約一經雙方簽署立即生效。」

8.  Essentially, the development entailed the construction of a typical village house on the Land (where appropriate, the house on the Land will be referred to as “the Property”).  UFL would be responsible for the construction as well as its cost and expenses while Tak Leung would provide the Land and be responsible for effecting all government formalities and the transfer of the Property when the house was completed.  In return, Tak Leung would enjoy no right in the Property except for a sum of HK$3,250,000 (“the Agreed Sum”) representing his guaranteed profit from the development.  Any other profit or loss from the development would have nothing to do with him (clause 2).

9.  The Agreement also contained the following terms:

(1)  The Agreed Sum was payable by two instalments. The first instalment of HK$1,000,000 would be paid by UFL to Tak Leung upon the latter’s signing of the Agreement and delivery of certain documents to UFL.  The second instalment of HK$2,250,000 would be payable on or before 10 September 2011 or, if UFL was unable to do so, then on or before 10 December 2011, whichever was later (clause 3).

(2)  UFL would be responsible for all the legal expenses, stamp duties, land premium and profits tax (clause 4).

(3)  Upon the signing of the Agreement, Tak Leung agreed not to apply his ting right, either in his own name or in collaboration with any other developer, in seeking to build on the Land, and not to cancel the present development or otherwise dispose of his ting right or the Property.  Any breach would entail civil and criminal liabilities (clause 5).

(4)  Upon receipt of the first instalment of Agreed Sum, Tak Leung might not annul, rescind, cancel or terminate the Agreement in any manner (clause 6).

(5)  If Tak Leung delayed or defaulted in attending to the signing of documents, or so conducted himself that caused the failure of obtaining of the ting house licence, or caused UFL to become unable to construct and to sell the Property, the former should forthwith return to UFL the payment received and compensate UFL’s loss including interest, construction cost, administration expenses, legal expenses and profits realizable from the sale of the Property as well as legal costs. (clause 7)

(6)  Tak Leung acknowledged that he would hold the Property as trustee for UFL, and might not assign, charge, give, bequeath or let the Property to any person at any time prior to completing the formalities to transfer the Property to UFL (clause 8).

(7)  The Agreement would not constitute any partnership/shareholder relationship between the parties (clause 9).

(8)  UFL would be entitled to assign this agreement to another person or company, in which case Tak Leung should assist UFL in executing any new agreement and documents (clause 10).

10.  The Agreement was signed by the parties at the office of Choi & Liu, Solicitors.  Yeung signed on behalf of UFL. The Agreement took effect upon such signing (clause 12).  Immediately above where the parties appended their signatures in the Agreement, there was the following provision:

「茲聲明本人WU TAK LEUNG (胡德良) 完全明白及同意上述之合約內容及付款方法，並收到上述第一期款項港幣壹佰萬元正。本人承諾遵守上述一切內容，若有違反，本人必須承擔所有法律責任及賠償乙方一切損失。」

11.  Essentially, Tak Leung confirmed that he fully understood and agreed to the terms of the Agreement.  He also acknowledged receipt of UFL’s payment of the first instalment in the sum of HK$1,000,000.

12.  The exact documents, apart from the Agreement, and how the documents were executed on 11 June 2011 are matters in dispute, which will be discussed below.

13.  UFL then engaged a building contractor, Wan Yick Ping (“Wan”) (trading as Tin Bo Fixture & Water Electricity Engineering Company (“Tin Bo”)) to build the house on the Land in July 2011. Tin Bo also commenced construction on the Land.

14.  The second instalment under the Agreement was due on 10 September 2011 but was not paid.  It remained unpaid after the contractually agreed extended deadline of 10 December 2011.  How that came to have happened is in dispute.

15.  The construction on the Land came to a halt in about late December 2011.  Which side was responsible for that is a matter in dispute.  At one point, Tak Leung also assumed possession of the Land and the structure being constructed on it.  Precisely when and how he came to do so is also in dispute.

16.  Because of discovery of occupation of the Property by third parties in June 2014, Yeung filed a complaint to the police.  There is dispute as to UFL’s communication with Tak Leung and Shing Tak subsequently.  However, without dispute, UFL issued a letter before action through its then solicitors, Choi & Liu, dated 21 October 2014, demanding Tak Leung to remedy his alleged breach or alternatively to compensate its loss by refunding the HK$1,000,000 paid and compensating the construction cost that it has incurred.

17.  In November 2014, UFL commenced the present action.

UFL’s CASE

18.  According to its pleadings, UFL says that after the signing of the Agreement and the commencement of the construction work on the Land, the following events took place.

19.  Tak Leung (and Shing Tak) failed and/or refused to collect the second instalment from UFL, despite requests of UFL including that conveyed through Wan in about November 2011.

20.  In about December 2011, the construction of the structure of the House was near completion but the connection of the main electricity and water supply to the House could not proceed pending consent of the adjoining land owners for such connection works. Shing Tak is said to have failed or refused to assist UFL and Tin Bo on that. Nor did Tak Leung produce to UFL any document showing the grant of rights of way in relation to the Land.  The construction work therefore came to a halt.

21.  Shing Tak has proposed to buy back the Property for HK$6,500,000, which Yeung refused. Meanwhile, Tak Leung himself caused works to be done for the connection of the main electricity and water supply to the House (albeit without the consent of the adjoining land owners) in about mid-2012.  After that, Tin Bo resumed the construction work on the House, and UFL continued to pay Tin Bo for such work until 2013.

22.  Construction was completed in late 2013.  In about October 2013, Tin Bo handed over the keys to the House to UFL.  The House remained vacant until UFL discovered in June 2014 that the House was occupied by unknown persons.  Report was thus made to the police as mentioned.

23.  Shortly after the incident mentioned above, Shing Tak met with Hung and Yeung, and proposed that UFL purchased the new house constructed on 2053A instead but at the price of HK$12,000,000, and to treat the sums previously paid by UFL under the Agreement and the construction cost incurred in building on the Land as part payment for the price.  Yeung rejected the proposal.  Shortly after that, Shing Tak arranged to meet with Hung again, but he left without discussion.

24.  UFL contends that it is entitled to the beneficial interest in the Property by virtue of its performance of the Agreement.  Induced by and relying on the Agreement, UFL made the payment of the first instalment, and engaged Tin Bo to construct the House on the Land, which was eventually completed subject to the obtaining of the drainage approval and the letter of compliance from the District Lands Office.  A total construction cost of HK$1,365,000 has been incurred.  UFL has thus suffered detriment and altered its position, which was known by Shing Tak and Tak Leung. Tak Leung was and is holding the Property on trust for UFL by way of promissory/proprietary estoppel, constructive or resulting trusts.

25.  UFL claims, amongst other things, for:

(1)  an injunction restraining Tak Leung from occupying the Property;

(2)  a declaration that Tak Leung holds the Property on trust for UFL;

(3)  an order that Tak Leung do transfer the legal title of the Property to UFL subject to the payment of premium and other fees to the Government by UFL and the consent of the District Lands Officer;

(4)  further or in the alternative, equitable compensation.

26.  During the trial, this court questioned the utility of the injunction sought, as Tak Leung’s own case, which is not disputed, is that he has indeed been occupying the same.  UFL therefore amended its claim, with leave of this court, to include the claim for the delivery of vacant possession of the Property in addition to the transfer of the legal title to the Property.

THE DEFENCE

27.  According to the pleading prepared by his then counsel, Tak Leung contends that it was UFL which was in breach of the Agreement by failing to pay the second instalment of the Agreed Sum despite repeated demands.  He says that the parties from the outset expressly agreed that if UFL failed to pay the second instalment within the time as agreed, he would be entitled to forfeit the first instalment of payment, re-enter the Property and sue UFL for loss.  The same is said to be a term of the Agreement and/or the common understanding implied by necessary implication, inference and business efficacy.

28.  Tak Leung also says that the construction of the house on the Land was halted since about December 2011. Only beams and columns had been erected on the Land.  Yeung is said to have admitted to Shing Tak that UFL could not find a purchaser, and was unable to make the payment of the second instalment.  In about late December 2011, Tak Leung allegedly accepted UFL’s repudiation.  Shing Tak informed Yeung that the first instalment of HK$1,000,000 received would be forfeited, and Tak Leung would construct the house on the Land on his own.

29.  Tak Leung says that UFL handed over or surrendered the construction site on the Land to him.  In April 2012, Shing Tak found out that UFL had failed to pay its contractor, Tin Bo.  In September 2012, Tak Leung engaged Tin Bo to demolish the structure construced on the Land and to construct a small house afresh at his own cost.  UFL is said to have full knowledge about the construction work on the Land caused by Tak Leung.

30.  According to Tak Leung, Yeung and/or Hung of UFL has in January, February and late 2012 as well as September 2014 made various proposals to Shing Tak, including asking for the return of the first instalment paid under the Agreement, which were all rejected by Shing Tak.

31.  The new construction on the Land caused by Tak Leung commenced in December 2012 and was completed in September 2014.  Tak Leung moved into the house newly built on the Land in or about November 2014. The complaint by UFL to the police was therefore wrongful.

32.  Tak Leung contends that UFL is estopped from denying that it was in repudiatory breach of the Agreement and/or their common understanding, and that by surrendering the Land, it has no interest in the Land.

33.  Tak Leung also contends that UFL is not entitled to enforce what would amount to a de facto disguised plan for sale and purchase of the Land which is in breach of the government’s small house policy and is illegal.  Nor is UFL entitled to any beneficial interest in the Land by way of estoppel or trust as alleged.  The counterclaim pleaded at one point was dropped.

THE ISSUES

34.  Some preliminary observation about the parties’ cases.

35.  First, both parties try to premise their cases not solely on the written terms of the Agreement.

36.  In UFL’s case, it is pleaded that the parties orally reached an “agreement, arrangement or understanding” in certain terms. It is also pleaded that Tak Leung, through Shing Tak, represented to, promised and assured UFL in the same terms.

37.  Whilst the Agreement is said to “reflect” the terms of the parties’ agreement, arrangement and understanding and/or the representation, promise and assurance by Tak Leung (through Shing Tak), some of those terms asserted were not set out in the Agreement signed by the parties.  They consist of the alleged representation, promise and assurance by Tak Leung that (i) the Land had all necessary rights of way for passing and repassing of persons and utilities including but not limited to water, electricity, gas and drainage; and (ii) Tak Leung had documents showing the grant of such rights of way, which would be produced to UFL.

38.  Where terms were allegedly agreed between the parties, but some of them were not set out in the Agreement, one may understand that to be an agreement partly oral and partly in writing.  That however was not how it was pleaded.  Counsel for UFL defined at the trial the issues in dispute and advanced submission on the basis that the alleged obligation of Tak Leung to produce document showing the rights of way mentioned above was part of the “agreement, arrangement or understanding”.  This court will therefore assess UFL’s case as so premised.

39.  As to the defence, Tak Leung refers to the parties’ common understanding (specifically defined and somehow consisting of their alleged verbal agreement).  It is alleged that on or about the same day when the Agreement was entered into (10 June 2011), the parties orally agreed that Tak Leung would have the right to forfeit the first instalment of payment and to re-enter the Land if UFL failed to pay the second instalment within 3 months.  Tak Leung also pleaded implied term of their agreement and/or the common understanding to the same effect.  Semantics aside, such pleaded case can only reasonably be taken to mean an express term orally agreed side by side with the Agreement or alternatively an implied term, even if not expressly agreed.

40.  Second, Tak Leung, as mentioned, pleaded the alleged illegality of the scheme of development and sale of the Property.  That cuts both ways.  If the parties’ agreement was tainted by the alleged illegality, it should be void for both parties’ purposes.  UFL may not enforce the parties’ agreement as much as Tak Leung may not benefit from it.  However, the major contention of Tak Leung in defence is his contractual right to forfeit the first instalment of the contract price paid by UFL.  He may not enforce such alleged contractual entitlement whilst seeking to nullify the parties’ deal at the same time.

41.  Submissions on the relevant law on the illegality issue in the context of the present case were advanced by counsel for UFL.  Not surprisingly, Tak Leung did not pursue the contention during the trial.  In any event, he fails to begin to discharge his burden of substantiating the alleged illegality in defence in the circumstances.

42.  The above sorted out, the issues in dispute really come down to the follows:

(1)  Apart from the terms of the Agreement:

(a)  whether it was agreed between the parties or represented that Tak Leung would produce to UFL documents showing the grants of rights of way for passing and repassing of persons and utilities to the Land as UFL alleges;

(b)  whether it was agreed between the parties that Tak Leung would be entitled to forfeit the first instalment of payment if UFL failed to pay the second instalment within the agreed time as he alleges;

(2)  whether Tak Leung was in breach by:

(a)  failing or refusing to collect the second installment of payment from UFL;

(b)  failing or refusing to produce to UFL any document showing the grant of the rights of way as mentioned above; and

(c)  causing the demolition of the building structure on the Land and the construction of the house now on the Land as well as occupying it to the exclusion of UFL;

(3)  whether UFL was in breach by:

(a)  failing or refusing to make the second instalment of payment despite repeated requests and demands by Tak Leung; and

(b)  abandoning the construction of the house on the Land, and surrendering the site to Tak Leung;

(4)  depending on the above:

(a)  whether UFL is entitled to the remedies sought;

(b)  whether Tak Leung is entitled to forfeit the first instalment of payment and to re-enter the Land.

THE WITNESSES – AN OVERVIEW

43.  For UFL, Yeung, Hung and Wan gave evidence. Apart from himself, Shing Tak and their elder sister, Madam Wu Hun Yin (“the Sister”), as well as Tak Leung’s neighbor, Wu King Ki (“the Neighbour”), also testified.

44.  Yeung and Hung have known Wan for years before the parties’ transaction in question.  Wan has been a building contractor, including accepting contracts for building typical small houses in the New Territories, for decades.  Wan came to know Shing Tak before he introduced Shing Tak to Yeung and Hung in April or May 2011. All these were not contradicted in the evidence.

45.  That Shing Tak was at all material times the person having the steer of the entire dealing with Tak Leung’s right in the Land is readily apparent from the evidence.  Shing Tak liaised with Yeung and Hung as Tak Leung’s agent in respect of the development of the Land.  There is in any event no contention or evidence to suggest anything contrary to the authority of Shing Tak to bind Tak Leung.  Tak Leung and Yeung indisputably met face to face for the first time when they signed the Agreement at the office of Messrs Choi and Liu on 10 June 2011.

46.  Tak Leung’s personal involvement in dealing with UFL both prior to and after the signing of the Agreement was very limited. Even the cheque for the first instalment paid pursuant to the Agreement was drawn in favour of Shing Tak.  Tak Leung’s ability to testify on the relevant matters in this case from his own personal knowledge is doubtful.  That was quite apparent from his evidence in court.  He claimed no personal, or sometimes even hearsay, knowledge about a lot of matters handled by Shing Tak.

47.  Tak Leung, I find, did not actually have contemporaneous knowledge about how Shing Tak handled the deal with UFL and their subsequent liaison.  Insofar as what he said about the events are concerned, I find that they were mostly based on his brother’s assertions.  Therefore, Shing Tak’s evidence in respect of the disputed issues and his credibility become the key in Tak Leung’s defence.

48.  The evidence of the Neighbour was not challenged in court, and therefore what he stated are taken to be undisputed facts.  In cross examination, the Sister was faced with only one question.  Their brief evidence will be referred to below.

49.  Last, he who alleges must prove the allegation with evidence.  That Tak Leung was not legally represented at the trial makes no exception.  This court explained each stage of the trial process during the trial for the benefit of Tak Leung.  That included the purpose and manner of conducting cross examination of witnesses as well as the significance of putting his case to UFL’s witnesses.  Notwithstanding that, the cross examination by Tak Leung of UFL’s witnesses was minimal.  In the premises, the numerous points that Tak Leung sought to make in his submission that were neither raised prior to the trial nor during the evidence cannot fairly be entertained.

TERMS OF THE PARTIES’ DEAL

50.  It was through Wan that Yeung came to learn that Shing Tak had under his wing pieces of land in the New Territories available for development with existing building licences and approvals for commencement of building works.  The Land, which is registered in the name of his brother, Tak Leung, was one of those.  Through Wan, Yeung came to meet Shing Tak, and the parties started their discussion in respect of cooperation in developing the Land.  Wan also attended some of those meetings.

51.  The parties eventually reached consensus.  To the extent that they were set out in the Agreement as mentioned above, the terms of their consensus speak for themselves.  However, as mentioned, both parties allege terms that were not set out in the Agreement in writing.

Rights of way

52.  The alleged agreement by Tak Leung to produce documentary proof of the right of way of utilities and persons to and from the Land, unlike some other documents, was not mentioned in the Agreement.  Nor is it pleaded or argued that the document in respect of such right of way was understood to be covered by the catchall reference to all the relevant deeds in clause 3(a) of the Agreement.  The issue is therefore whether or not this was orally agreed between the parties as a matter of fact.

53.  The Agreement was prepared at the instruction of UFL by the solicitors introduced by it.  Attention was paid to providing for the obligation of Tak Leung to produce various specific documents upon the signing of the Agreement.  The probability of the reference to the document in respect of the rights of way, particularly when it is said to be of significance, somehow being left out of mention is on balance low.

54.  Further, had it been the agreement that such document had to be produced together with the other documents mentioned in clause 3(a) of the Agreement, and that it was considered to be crucial, UFL would not have agreed to make the payment of the first instalment pursuant to that sub-clause in the absence of mention of the obligation to produce such document.  Yet UFL agreed to pay, and did pay.

55.  That said, the evidence suggests that UFL did request Shing Tak (on behalf of Tak Leung) to ensure the rights of way for the utilities and persons to and from the Land. This is evidenced by the 立據書 (“the Acknowledgement”) issued by Shing Tak to UFL about a fortnight after the Agreement.  By the Acknowledgment, Shing Tak undertook that in order to ensure the completion of construction of the house on the Land and their sale, he would during the construction period and prior to the sale assist UFL with full force in: (i) ensuring the right of way to the house under construction on the Land; and (ii) attending to matters concerning the village.

56.  As to the Acknowledgement, Shing Tak stressed in his evidence that he only agreed to provide assistance.  Insofar as he is suggesting that there was no commitment on his part (on behalf of Tak Leung) to ensure the necessary right of way, I find it to be hardly in line with the common goal of the parties being the successful completion of construction of the house on the Land and their sale.  The available land lot plans show that the Land is locked from all sides, so that connection of the main utilities as well as human access and egress would be a must for the development to be feasible.  On balance, I am more convinced that there was such understanding on the part of the parties that Shing Tak on behalf of Tak Leung would have to ensure such right of ways to the Land to enable the completion of the construction of the house on the Land and their sale.  Hence the Acknowledgement soon after the signing of the Agreement.

57.  In other words, the obligation was not so much the production of documents in respect of such rights of way, but the undertaking by Shing Tak (on behalf of Tak Leung) to ensure such rights of way for the construction of the House.  That, I find, was the understanding of the parties when the parties entered into the Agreement.

58.  Be the undertaking by Tak Leung/Shing Tak (on his behalf) one to produce documents or to ensure such rights of way for the construction work, the failure on the part of Tak Leung/Shing Tak in this respect is not what UFL alleges to be the contractual breach.  Such failure, according to UFL, only contributed to the halt in the construction on the Land in December 2011.  As mentioned, UFL accepts that the major utilities connections were carried out in 2012, which Wan (Tin Bo) to resume and to complete the construction works.

Forfeiture of the 1^st payment

59.  According to Tak Leung, he is entitled to forfeit the first instalment of the Agreed Sum paid by UFL in the event of default of UFL in paying the second instalment by the contractual deadline.

60.  According to Shing Tak, it was because of Yeung’s indication of financial difficulty that the Agreed Sum became payable by two instalments as provided in the Agreement.  Shing Tak therefore demanded that in the event of default of payment of the second instalment as agreed, Tak Leung would be entitled to terminate the deal and to forfeit the first instalment paid.  The parties allegedly agreed.  That was the common understanding of the parties.  Then they came to sign the Agreement.

61.  The Agreement did not say that the first instalment of payment served the purpose of deposit.  Further, in view of the nature of the co-operation as well as the manner and amount of the instalments, it was unlikely that the first instalment was deposit to secure the performance of the deal by UFL.  It was more likely just part payment of the agreed consideration for the deal.  Any right to forfeit such payment must be expressly provided for and, in view of its amount, be justified as other than a penalty: see Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd [1993] AC 573 at 578-582, per Lord Browne Wilkinson (cited in Chan Koon Wah v Young Tak Lor [2001] 3 HKLRD 361 by counsel for UFL).  The Agreement was silent on such contractual right to forfeit.  The case of Tak Leung is that this was agreed orally.

62.  If what Tak Leung contends were true, so that it was only before the signing of the Agreement on 11 June 2011 that Yeung requested to pay the Agreed Sum by two instalments, which caused Shing Tak to demand and the parties to agree on the right of forfeiture, one would have expected the same to be incorporated as a term of the Agreement.  The fact was that the split of the payment of the Agreed Sum into two instalments was spelt out, but the alleged agreed right of Tak Leung to forfeit was not.  The alleged new agreed terms would have been too important to be left out of the mention in the Agreement.

63.  That the solicitors were introduced by UFL could not explain why the alleged newly agreed contractual right of forfeiture was not added to the Agreement.  The Agreement was written in Chinese in less than two pages.  Any suggestion that Shing Tak or Tak Leung was unable to read its terms before signing is rejected.  The terms were simple.  As represented by his business cards handed out to his counterpart, Shing Tak was, amongst his other occupations, the chief executive officer of a company carrying on various types of corporate consultancy businesses, including property development.  Any suggestion that the Wu brothers were unable to understand the written terms is also rejected.  Their case in respect of the alleged agreed right of forfeiture is actually premised on knowing such payment terms.

64.  In any event, the law is trite that a party who had reasonable opportunity to read and the capacity to understand the terms of a contractual document is bound, in the absence of vitiating grounds recognized by the law: see Chitty on Contracts (33^rd ed) at §3-049.

65.  Notably, the Agreement was actually amended on the occasion right before it was signed.  Clause 4, which stipulated the responsibility of UFL for the legal costs, stamp duty and land premium, was specifically amended to include profits tax (if any).  That was amendment for the benefit of Tak Leung, and must be introduced either at the initiative or knowledge of his side.  Tak Leung and Yeung (on behalf of UFL) also appended their initials next to such amendment.  In other words, amendment, including that for the benefit of Tak Leung, could have been made, if so agreed at the time.  It was most unlikely that the contractual right of forfeiture of the first instalment of the Agreed Sum, if indeed specifically raised and agreed, would have been left out of the Agreement at the time.

66.  It should also be noted that Tak Leung did not respond to UFL’s letter before action mentioned above.  In his defence prepared by the same counsel filed in March 2015, no mention of his alleged contractual right of forfeiture of the first instalment of the Agreed Sum was made at all.  The allegation was first made only by way of amendment of his pleading introduced in November 2016.

67.  All matters considered, I reject the case of Tak Leung that there was express agreement at the time of the Agreement whereby he was entitled to forfeit the first instalment of the Agreed Sum in the event that UFL failed to pay the balance of the Agreed Sum by the contractual deadline.

68.  Insofar as the alleged right of Tak Leung to forfeit the first instalment is said to be a term implied to the Agreement, he did not actually prove as a matter of fact the circumstances in which it could be said that such a term would readily be implied on the ground of business efficacy, trade usage or any other basis.

69.  All evidence considered, including those discussed above, I find that the purported forfeiture by Tak Leung of the first instalment of the Agreed Sum paid by UFL was unilateral without valid contractual basis.  The so-called forfeiture, I find, was no more than what Tak Leung subjectively believed to be what he would be entitled to.

70.  It follows that if it is established that UFL was in breach, Tak Leung would be entitled to claim, by way of counterclaim, against UFL for his consequential loss.  However, by his latest amendment of pleading filed in May 2019, Tak Leung has already removed his entire counterclaim, including that for his consequential loss.  This court could only take that to be a conscious decision after legal advice.

The other documents executed

71.  According to UFL, Tak Leung also executed at the same time of signing the Agreement a power of attorney and a will.  The power of attorney in its recital made clear that it came to be executed to appoint the attorney to act for Tak Leung in all matters relating to the development and building of a house on the Land in accordance with the building licence mentioned above.  Yeung and UFL were appointed as such attorney and given various powers to, amongst other things, make applications and liaise with the District Lands Office in relation to the development.  As to the will, it contained the bequest of Tak Leung of interest in the Land to UFL, and appointed Yeung as the executor.

72.  By way of pleading, Tak Leung merely denied and put UFL to proof of the power of attorney and the will.  In proof of them, UFL has disclosed these documents, which on their face bear the signatures of Tak Leung similar to those found on other undisputed documents.  In his evidence, Tak Leung (and Shing Tak as well) sought to go further by positively alleging that he did not sign these documents and has no knowledge about them. The contention effectively is that these are fabricated documents.

73.  Fabrication or forgery of documents was never put in issue at all.  It follows that this has not been an issue in the entire case management of the present case.  Leave for handwriting expert evidence has never been sought.  In the circumstances, there is simply no basis for entertaining the positive contention of fabrication or forgery by Tak Leung.

74.  In any event, the dispute in respect of these documents is red herring.  Apart from referring to these documents as what were signed by Tak Leung at the same time as the Agreement, UFL is not enforcing these documents in the present action.  These documents were most probably prepared in connection with the development of the Land.  The power of attorney by its terms tells that.  However, the agreed development of the Land itself is common ground.  UFL does not need to rely on these documents in substantiation of its claim.

75.  Insofar as the issues in dispute between the parties summarized above are concerned, the dispute in respect of these documents is not material, perhaps except for general credibility.  However, as I find these documents in fact exist, contrary to the contention of Tak Leung and Shing Tak, they lose on their general credibility to such extent.

BREACH

76.  It is necessary to sort out precisely the relevant conduct in breach.

The relevant breach

77.  Much is said about what happened surrounding the cashing of UFL’s cheque for the first instalment of the Agreed Sum.  Notwithstanding that, there is no dispute that the cheque was cashed and the payment received.  The dispute in this respect has no material bearing on the real dispute between the parties.

78.  I accept the evidence of Yeung that it was because of his repeated urge for proof of the right of way to the Land after the Agreement that Shing Tak came up with the Acknowledgement on 28 June 2011.  Upon that, UFL entered into building contract with Wan (Tin Bo).  By the handwritten building contract dated 4 July 2011 between UFL and Wan, the former contracted the latter to build the concrete structure of the house on the Land at the agreed cost of HK$400,000.  Work indisputably commenced.  Shing Tak also provided Wan with the proposed drainage plan for the Land.  The building contract between UFL and Tin Bo was varied subsequently to include interior fittings as well.  The contract price was varied to HK$1,380,000 on 26 July 2011 and later HK$1,500,000 on 28 July 2011.  The variations were set out in the variation written contracts on the respective dates.

79.  It is common ground that the construction of the House on the Land came to a halt some time in December 2011. Whilst, as mentioned, there is dispute as to why that happened, and which side was responsible, that was not the relevant breach.

80.  Insofar as Tak Leung is concerned, the agreement between the parties was not for UFL to build the House on the Land for him. Failure on the part of UFL to build or to build within a certain time was not the relevant breach.  The alleged failure to pay the second instalment of the Agreed Sum was, which never hinged upon the progress of the construction.

81.  Insofar as UFL is concerned, the contractual obligation was to pay the second instalment of the Agreed Sum pursuant to the Agreement.  Its complaint about the responsibility on the part of Tak Leung for the halt of construction on site is irrelevant unless clause 7 of the Agreement (above) was invoked.  Pursuant to clause 7, in the event of failure in the application for the ting house licence or inability to construct or to sell the Property as a result of any conduct on the part of Tak Leung, UFL would be entitled to the return of its payment made and compensation for loss including interest, construction cost, administration cost, legal expenses and loss of profits, as well as legal costs.  However, UFL never seeks to invoke clause 7.  Quite on the contrary, UFL affirmed and now seeks to enforce the Agreement.  Through counsel, UFL reiterates such stance as of today.  As such, UFL acknowledges that it remains liable to pay the second instalment of the Agreed Sum as its part of the deal.

82.  The only relevant breach in the circumstances was the alleged failure of UFL to pay the second instalment of the Agreed Sum.

The obligation to pay the second instalment of the Agreed Sum

83.  There is no dispute that the second instalment of the Agreed Sum was not paid after the contractually agreed extended deadline of 10 December 2011.

84.  There is dispute as to whether or not time for payment of the Agreed Sum was of the essence under the Agreement.  If it was, failure to do so amounted to repudiatory breach of a condition, which prima facie entitled Tak Leung to accept the repudiation and to terminate the Agreement.  Tak Leung says it was so.

85.  The law is never that time for payment could only be made essential by express agreement.  This could be implied, and circumstances including the nature and other terms of the transaction are always relevant.  The circumstances and other terms of the transaction in the present case, in my judgment, support the implication of such a term.

86.  Apart from its nature being a sale and purchase of interest in land, the Agreed Sum was the only contractual benefit expected by Tak Leung from the deal.  The Agreement provided that once he has signed the Agreement and received the payment of the first instalment of the Agreed Sum, he became locked in the deal.  Clause 3(b) already gave UFL the contractual right to extend the deadline for paying the second instalment for 3 months to 10 December 2011.  According to clauses 5 and 8, Tak Leung became the trustee of the beneficial interest in the Land, and would have no right to deal with the Land. Clause 6 provided that he would not be entitled to avoid, rescind, cancel or terminate the Agreement in any manner.  So long as the Agreement was not terminated upon any breach on his part, his entitlement to payment was not subject to any condition precedent.  In these circumstances and on these terms, I find the parties would reasonably expect that the time for UFL to pay the Agreed Sum would be of the essence.

Tak Leung’s right to terminate

87.  As mentioned, clause 6 of the Agreement provided that Tak Leung would not be entitled to avoid, rescind, cancel or terminate the Agreement in any manner. It defies common sense that Tak Leung would be prevented from terminating the Agreement even in the event of default on the part of UFL to make payment in accordance with the Agreement, which was fundamentally the bargain that Tak Leung contracted for.  To that extent, clause 6, in my judgment, could not be an absolute contracting out of such right of Tak Leung.

Which party was in breach

88.  The question is whether it was UFL which failed or refused to pay the second instalment of the Agreed Sum (as Tak Leung contends) or it was Tak Leung, represented by Shing Tak, who failed or refused to collect the payment (as UFL contends).

89.  According to Yeung and Hung, Shing Tak had since the Agreement approached them with a view to buying back the Property with the House then under construction.  Their attempt, including that communicated through Wan, to make payment of the balance of the Agreed Sum in December 2011 was also not paid heed to.

90.  Shing Tak and Tak Leung deny that.  According to Shing Tak, he and Tak Leung accepted UFL’s repudiation on the ground of non-payment of the second instalment of the Agreed Sum in late December 2011, and informed Yeung of the forfeiture.  It was subsequent to that that Yeung and Hung came up with proposals one after the other with a view to settling the matter.

91.  It is trite that acceptance of repudiation for the purpose of termination of agreement must be communicated to the party allegedly in breach.  There is no contemporaneous documentary evidence of such communication by Shing Tak to UFL in late December 2011.  Nor is the alleged communication corroborated by circumstantial evidence. Shing Tak said that he did so orally.

92.  According to Shing Tak, the acceptance of repudiation and termination of the Agreement happened after Yeung’s confession to him that UFL did not have the money to pay for the balance of the Agreed Sum in late December 2011.  Counsel for UFL submitted that the bank statements of UFL and Hung disclosed that they had around HK$3,000,000 in cash available when the second payment became due by mid-December 2011, and that completely negates Tak Leung’s allegation.

93.  As pointed out during the trial, this court has difficulty in understanding how counsel put together the information from those bank statements to support that.  One bank account of UFL shows a credit balance of about HK$201,000 as of the end of November 2021, which went down to 1/10^th of that sum by the first week of January 2012.  Another bank account of UFL shows a credit balance of HK$1,988,000 but that was May 2011, and the statement of the account for December 2011 is not available. Insofar as Hung is concerned, her bank account shows a credit balance of about HK$890,000 as of the end of December 2011.  Counsel’s attempt to explain that was not impressive.

94.  That said, no challenge was laid by Tak Leung during the trial against the evidence of UFL about its general financial ability.  Rhetorically, if the alleged confession were made and true as a matter of fact, it defies understanding for Yeung or UFL, as Shing Tak also alleges, to repeatedly approach Shing Tak thereafter for further co-operation not only in respect of the Land but also 2053A.

95.  In connection with its case that it was Shing Tak who intended to back out of the deal, UFL produced what are said to be two handwritten duplicates of a draft Chinese provisional agreement for the sale and purchase of the Property under construction between UFL as the vendor and Shing Tak as the purchaser pursuant to such proposal of Shing Tak to Yeung on the telephone.  According to Yeung and Hung, they were prepared to do so and therefore Hung came up with such drafts.  However, Shing Tak never actually seriously followed up in negotiating on this new proposal, and therefore the draft agreement was never tendered to Shing Tak.

96.  As documents prepared by Hung, the draft provisional agreements may be said to be self-serving evidence.  However, that is not to say that they should be brushed aside, particularly if one considers its content.  It provided for the sale back of the Property at HK$6,500,000 to Shing Tak.  Payment of the contract price would be by instalments marked by different stages of the construction of the House at the expense of UFL.  The timing of the first two instalments suggested that the draft was prepared at a time when the construction of the concrete structure of the House on the Land was not even completed.  The payment terms also suggested that UFL would have to complete the construction and to deliver the House after the issuance of the occupation permit.  According to Yeung, Shing Tak had on a couple of occasions repeated his proposal but, as mentioned, never really got to negotiate for a concluded deal.  As an alleged episode, which admittedly did not affect the existence and eventually performance of the Agreement, I do not believe that Yeung and Hung would, or managed to, fabricate that or the terms of UFL’s draft agreement in that connection entirely out of nothing.

97.  According to Yeung, for reasons unknown, Shing Tak and Tak Leung somehow avoided his telephone calls for the purpose of arranging the payment of the balance of the Agreed Sum in December 2011.  Therefore, Yeung also had Wan to relay his message to Shing Tak or Tak Leung when he saw either of them. According to Wan, he did just that.

98.  In his evidence regarding the halt of the construction work in December 2011, Shing Tak made it a point that his family was embarrassed because the people in the village teased his family for lacking money to build their house.  This is not easy to follow, as the plan of his and Tak Leung was never the construction of a house on the Land for Tak Leung or his family.  It was sale of the Land with the House to be built on it by UFL and at its expense.

99.  Further, the case of Tak Leung is that upon the termination of the Agreement, UFL handed over the Land with the concrete structure of the House, which he took over for building his own house.  He engaged Wan (Tin Bo) in September 2012 to demolish the existing structure and to construct his house afresh.  The demolition work started in October 2012 and the construction began in December 2012.  Construction was completed in September 2014.  Tak Leung moved into the house now on the Land in November 2014.  As a result, he allegedly incurred HK$350,000 for demolition before building his house at his own cost.

100.  UFL’s witnesses testified as to a different version of events.  According to them, the house now on the Land is in fact the House built by Wan for UFL.  As mentioned, the construction came to a halt in late December 2011.  By mid-2012, Shing Tak had somehow caused the installation of the main power and water connection to the House but not by Wan.  Wan therefore managed to resume the construction and fitting out work of the House, which was completed in October 2013.  Keys to the House was handed by Wan to UFL.  However, the House remained vacant thereafter.

101.  In his evidence, Wan explained that when he resumed the construction of the House on the Land by mid-2012, he was also engaged by Shing Tak to construct a house on the adjacent land, 2053A.  This was evidenced by a written building contract dated 16 April 2012 between Shing Tak’s company, Year Well International Corporate Consultants Limited (“Year Well) and Tin Bo.  The contract sum was HK$600,000.  In July or August 2012, Wan understood from Shing Tak that Tak Leung had bought back the Land and the House thereon from UFL at HK$6,500,000, and Shing Tak also instructed Wan to alter the interior of the House by demolishing the internal staircase between the Ground Floor and the 1^st Floor, and thus transforming the house into two separate units.  A new contract dated 6 September 2012 was therefore entered into between Year Well and Tin Bo for the fitting out works of the two houses on the Land and 2053A at the total sum of HK$800,000.  Of that, about HK$200,000 related to the conversion work to the House.  Wan realized only after he had completed the conversion works that the so-called buy-back of the House in fact never materialized.

102.  According to Wan, through the T2 and registered structural engineer arranged by Tin Bo, certificates of completion in respect of the House on the Land were submitted by late April 2013. The fee for such submission, pursuant to the Agreement, was indeed included in the contractual sum payable by UFL to Tin Bo.  In July 2013, UFL further engaged Tin Bo to carry out additional water and electricity works for the House already completed.  The invoices and receipts evidence that UFL was indeed still paying Tin Bo for the works to the House on divers dates in 2012 and 2013.  The House was substantially completed in October 2013, pending the issuance of the certificate of compliance.

103.  According to Wan, he had received from Year Well a total sum of about HK$1,300,000 for the construction of the house on 2053A.  However, he complained that Year Well (Shing Tak) somehow refused to settle the balance of the construction cost of that house in the sum of about HK$300,000 ever since April 2013.  He therefore retained the original keys to that house, which was at least the state of affairs as of the date of his witness statement in March 2018.

104.  Wan also mentioned that Shing Tak had at one point requested for the original keys to the House, which he refused and instead handed the keys to the House to Yeung on about 17 October 2013 instead.  That was when UFL also made the last payment of HK$300,000 to Tin Bo for the completion of the House, leaving a balance of HK$80,000.  He confirmed the total payment made by UFL to him until then for the construction of the House on the Land was HK$1,365,000.

105.  Wan testified that during the above events, he himself never gathered that Shing Tak (or Tak Leung) complained about wrongful refusal or failure to make payment to him.

106.  The evidence of Wan, including the above, is inherently plausible.  Like Yeung and Hung, cross examination of him by Tak Leung with a view to questioning his evidence cannot be said to be effective. The attempt of Shing Tak in the course of his evidence to question the integrity and accuracy of the documentary evidence produced by Wan was speculative and unfounded by relevant contrary evidence.  Nor was that put to Wan.  The oral and documentary evidence of Wan mentioned above shows that Wan resumed construction of the House on the Land sometime in 2012, and for which UFL kept paying Wan in 2012 and 2013.  That would have been unexpected, if not inexplicable, had it been clear that the Agreement was terminated in December 2011 as Tak Leung and Shing Tak alleged.

107.  The evidence of the other witnesses for Tak Leung does not really improve his case.

108.  The Neighbour’s evidence concerns his consent to connections to his property for temporary power and water supplies to the working site on the Land.  Such evidence is not controversial.  Wan indeed confirmed such connections for temporary supply of power and water for the construction, and he also paid for the charges.

109.  The Sister’s evidence concerns two matters: first, the state of the construction of the House when the same came to a halt in December 2011; and second, her recommendation to Shing Tak to remove the internal staircase of the House so as to split the two floors into two separate units, upon Shing Tak’s representation to her about Yeung’s alleged abandonment of the construction.  The evidence in respect of the state of construction in December 2011 is not controversial.  Indeed the witnesses for UFL confirmed that the construction by December 2011 had reached the stage of completion of the concrete structure.  The evidence in respect of the alleged abandonment by UFL was hearsay, the truth of which was not within the Sister’s personal knowledge.  It falls when Shing Tak’s allegation in this respect falls, as this court finds above.

110.  All things considered, the circumstances in and since December 2011, I find, were not that UFL refused to, or even confirmed to Shing Tak that it would not, pay the balance of the Agreed Sum.  For reasons that had to do with some other calculation and change of mind on the part of Shing Tak, for which Tak Leung was bound, the situation was effectively allowed to be dragged on.  I reject the allegation by Shing Tak and Tak Leung about their communication to Yeung or Hung of UFL of their acceptance of UFL’s repudiation of the Agreement and hence termination of the Agreement in December 2011.  UFL was allowed to continue, and indeed continued, the construction of the House on the Land until its completion. When UFL threatened and eventually initiated legal proceedings, the Agreement remained alive for the benefit of both parties.  By contending that the Agreement has been terminated and the first instalment of the Agreed Sum has been forfeited, Tak Leung evinces his intention not to abide by the Agreement.

ENTITLEMENTS OF THE PARTIES

111.  As for the relief, UFL prays for the conveyance of the interest in the Property pursuant to the Agreement or alternatively equitable compensation.  Insofar as the latter is concerned, UFL should be entitled to recover at least the first instalment of the Agreed Sum and the construction cost.  However, counsel for UFL reiterates that his client opts for the conveyance of the interest in the Property instead of equitable compensation.

112.  So opted, UFL remains liable to perform its part of the deal, namely to pay the balance of the Agreed Sum, which, pursuant to the Agreement, is not conditional upon the conveyance of the Property by Tak Leung.  For the conveyance of the Property, UFL remains liable to pay the additional premium and other relevant fees to the Government.  UFL claims that it is ready and willing to make such payments.  Its counsel reiterates that.

113.  Surprisingly, counsel for UFL in his closing somehow came up with the suggestion that sale of the Property has always been contemplated.  Even more difficult to comprehend is his submission that an order for sale of the Property may be incorporated in the relief to his client.  What is proposed is an order for the sale of the Property, the proceeds of which, after deducting the balance of the Agreed Sum to Tak Leung but subject to UFL’s right to set off against its costs of the present action, shall be paid to UFL.  Not only is such relief never sought or even mentioned prior to closing submission, there is no indication that the District Lands Office has been notified of the same.  Most significant, the proposal lacks legal basis utterly.  The only effect of this proposed order is that UFL would not have to actually make payment of the balance of the Agreed Sum before obtaining the benefit of the transfer of interest in the Property.  This would have been contrary to the Agreement.  If a dim view about this is called for, the bona fide of this last minute proposal would be questionable.

ORDER

114.  Judgment is entered in favour of UFL.  An order in the following terms is granted:

(1)  Declaration that Tak Leung holds the Property on trust for UFL;

(2)  Injunction restraining Tak Leung from continuing to occupy the Property or procuring or allowing other persons to continue to occupy the same;

(3)  Order that upon the payment of any additional premium and other relevant fees to the Government by UFL and the consent of the District Lands Officer, Tak Leung do execute all relevant and necessary documents for the conveyance and transfer of the legal title of the Property together with its vacant possession to UFL;

(4)  (2) and (3) above may be enforced only with leave of the court after UFL has made the payment of the sum of HK$2,250,000 (subject to the agreed or taxed costs of this action ordered below) to Tak Leung or, in the event of failure to do so despite attempt, into court pending disposal.

115.  On the basis that costs follow the event, I make a nisi order that Tak Leung shall pay UFL’s costs of this action, including any costs reserved, to be taxed if not agreed.  In the absence of application in 14 days to vary, the nisi order will become absolute without further order of the court.

116.  The trial was conducted in punti for the benefit of Tak Leung.  Interpreter’ assistance, if requested, will be provided when this judgment is handed down.