CHAU YUET CHING BRENDA v. CHAN BO MAN WILLIAM AND OTHERS

HCA 652/2017

[2021] HKCFI 640

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 652 OF 2017

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DECISION

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INTRODUCTION

Introduction

1.  This is the application of the Plaintiff by Original Action who is also the 1^st Defendant by Counterclaim, and of the 2^nd Defendant by Counterclaim, Pink Diamond Holdings Limited (“Pink Diamond”), to strike out parts of the Amended Defence and Counterclaim (“AD&C”) filed by the 1^st to 4^th Defendants by Original Action and the 1^st to 6^th Plaintiffs by Counterclaim.

2.  The Plaintiff by Original Action and Pink Diamond seek to strike out paragraphs 80, 82(d), 82(e) and 83 of the AD&C and the related relief under prayers (6), (7) and (9) on the grounds that they:

(1)   disclose no reasonable defence and/or cause of action;

(2)   are frivolous or vexatious;

(3)   may prejudice, embarrass or delay the fair trial; and/or

(4)   constitute an abuse of the process of the court.

3.  They also seek two consequential orders, if their striking out application is successful, namely, that:

(1)   The counterclaim against Pink Diamond be dismissed with costs; and

(2)   The sum of $24 million paid into court by the Plaintiff pursuant to an order by consent dated 16 January 2019 be paid out to the Plaintiff.

Dramatis Personae

4.  To avoid confusion, hereafter I shall refer to the Plaintiff by Original Action and the 1^st Defendant by Counterclaim as “the Plaintiff” and all the other parties by Original Action or by Counterclaim by their individual names.  I shall also refer to the plaintiffs by Counterclaim collectively as the counterclaim plaintiffs (“CCP”).

5.  The Plaintiff is an elderly widow over 80 years of age.  She has a son, Chau Brandon Clairborne Kwok Fung (“Brandon”).  The Plaintiff is a well-known socialite and for a short time prior to her marriage, practised as a barrister.

6.  She was the owner of shares in Manyrich Investment Limited (“Manyrich”), More Harvest Investment Limited (“More Harvest”) and Lucky Top Enterprises Limited (“Lucky Top”) (collectively, “the Plaintiff’s companies”) which were investment companies holding residential properties of substantial market value until the events that led to the injunction order obtained by the Plaintiff.   Those sharesform the subject matter of the injunction order.  The Plaintiff and Brandonwere the directors of Manyrich and Brandon was the sole director of More Harvest and Lucky Top.

7.  The Plaintiff is also the owner of four other companies, namely, Noble Crest, Million Globe, Full Honest and East Victory (collectively, the “Four Other Companies”).  Brandon is the sole director of these four companies.

8.  Pink Diamond is a company incorporated in the British Virgin Islands. 

9.  The 1^st Defendant (“William”) is a decoration consultant who had been known to the Plaintiff since 1966.  He performed renovation work for the Plaintiff’s properties.

10.  The 2^nd, 3^rd, 4^th and 6^th Defendants by Original Action (respectively, “BMC Decoration”, “BMC Holdings”, “BMC Construction” and “Double Huge”) are associated companies under William’s control.

11.  The 5^th, 7^th and 8^th Defendants by Original Action are Hong Kong residents.

12.  Talent Express Consultants Limited (“Talent Express”) is and was at all material times a company incorporated in Hong Kong which manages properties as its main business.

Background

13.  In mid-2016 the Plaintiff told William that the mortgage repayments for her many properties were high and she wanted to sell them to obtain cash flow.  William offered to help her with finding potential purchasers and estate agents to handle the sale as well as obtainingmortgages from Bank of China (Hong Kong) Limited (“BOC”) which offered more favourable terms.

14.  Sometime in November 2016, William visited the Plaintiff, accompanied by a lawyer and an accountant, with a bundle of documents for the purpose of instructing agents to sell the Plaintiff’s properties and for transferring mortgages to BOC (the “November 2016 documents”).  Believing in William, the Plaintiff signed the documents without reading them.  She was not given a copy.

15.  In January 2017, the Plaintiff and Brandon were alerted by the auditorof her companies that certain records had been registered at the Companies Registry removing Brandon as director and replacing the incumbent company secretaries with other entities.  The Plaintiff did not know why that was the case and instructed the auditor to rectify the records.

16.  On 21 January 2017, the Plaintiff’s solicitors wrote to Three A Advisory Limited (“Advisory”), which had been appointed company secretary as a result of the November 2016 documents, to the effect that those documents (appointing Advisory as company secretary, changing the auditor and the registered office of the Plaintiff’s companies) were procured by “wrongful representation, pressure and influence” exerted by Advisory’s representative on the Plaintiff.  The solicitors demanded Advisory to immediately cease representing to third parties that it is the company secretary, failing which the Plaintiff would apply for an injunction.

17.  William made several visits to the Plaintiff in the early part of February 2017.  On 15 February 2017, William arranged for the Plaintiff to sign a bundle of documents at the office of a firm of accountants, DC Associates, which the Plaintiff believed had to do with appointing estate agents and transferring mortgages to BOC.  They turnedout to include instruments of transfer, bought and sold notes indicating thatthe Plaintiff transferred at nominal consideration the shares of her companies;company records of the Plaintiff’s companies removing Brandon as director, replacing the incumbent company secretaries and changing the registered office address of the companies.

18.  On 17 February 2017, one of the Plaintiff’s staff queried whether she had borrowed money from financial institutions.  That eventually led to the Plaintiff making a report to the police.

19.  On about 17 March 2017, the Plaintiff learned that that there was a purported transfer of shares in Manyrich in favour of William and/or BMC Decoration.  On 24 March 2017 Hong Kong Hoi Shun Limited acting on behalf of William asserted that William was the shareholder of Lucky Top.  That led to the commencement of the current proceedings.  The Plaintiff obtained an injunction order prohibiting William and BMC Decoration, and BMC Holding (by undertaking), from dealing with the Plaintiff’s 9,999 shares in Manyrich; prohibiting William and BMC Decoration from dealing with the sole share in More Harvest and the sole share in Lucky Top pending trial of the Plaintiff’s claim or further order. The Manyrich matter was temporarily settled by a consent order dated 16 January 2019 upon the Plaintiff’s paying $24 million into court.

The counterclaim

20.  The CCP’s case appears to be as follow.  The Plaintiff owed BMC Decoration, BMC Construction and Talent Express a total of $20,567,241 (the “Outstanding Debts”). 

21.  In July 2016, the Plaintiff sought to engage William to develop some residential properties on her two pieces of lands in Mang Kung Uk and Sheung Yeung Village (the “New Projects”), but without finalizing details of steps and work involved.

22.  In August 2016, the Plaintiff orally agreed with William to pay the Outstanding Debts and to provide securities for developing the New Projects by charging her shares in her companies or proceeds of the shares to the CCP (the “August Agreement”).  Under that agreement, William has the right to sell the Plaintiff’s companies and apply the proceeds of the shares to repay the Outstanding Debts and to complete the New Projects.  The work involved, the costs and all necessary payment for completion of the New Projects were still unknown.

23.  Shortly after the conclusion and in breach of the August Agreement, the Plaintiff transferred the shares in the Four Other Companies to Pink Diamond in September 2016 (the “Pink Diamond Transfers”).

24.  On 23 November 2016, the Plaintiff entered into a written agreement with BMC Construction to survey two lots of land in Sheung Yeung Village, and to install a fence with a door thereat for the price of HK$869,000.

25.  On 29 November 2016, the Plaintiff entered into a written agreement with William on behalf of BMC Strategic to develop her land in Mang Kung Uk for $27.4 million and charged her shares in Noble Crest to secure her liability thereunder (the “MKU Agreement).  Under that agreement, BMC Strategic would finance the development and building costs and land premium.

26.  On 1 December 2016, the Plaintiff entered into a similar written agreement with William on behalf of BMC Holdings to develop her two lots of land in Sheung Yeung Village for $137.05 million and charged her shares in Manyrich to secure her liability thereunder (the “SY Agreement).

27.  Both BMC Strategic and BMC Holdings had commenced works on the lands (paragraph 18(d) of AD&C).

28.  In February 2017, the Plaintiff transferred:

(1)  her shares in Noble Crest to BMC Strategic as security pursuant to the MKU Agreement;

(2)  her shares in Manyrich to BMC Holdings as security pursuant to the SY Agreement;

(3)  her shares in More Harvest to BMC Construction as security for the sum of $560,000 payable under her agreement with BMC Construction dated 23 November 2016 for building a fence on the land in Sheung Yeung Village;

(4)  her shares in Lucky Top to BMC Decoration as security for a sum of $13,357,241 owed to BMC Decoration;

(5)  her shares in Full Honest, Million Globe and East Victory to BMC Investment (HK) Limited, BMC Planning (Int’l) Limited and BMC Intech (Int’l) Limited respectively for unspecified purpose; these transferees are not parties to these proceedings.

29.  As the Plaintiff failed to pay the Outstanding Debts and costs and payments arising from the New Projects, BMC Strategic and BMC Holdings suffered loss and damage comprising of loss of profits and disbursements (paragraph 83 of AD&C).

30.  The CCP sought to sell Lucky Top and More Harvest to third parties, namely Yeung Chau Oi and Double Huge, ie the 5^th and 6^th Defendants by Original Action.  The sale was halted because of the injunction obtained by the Plaintiff against William and BMC Decoration.

31.  BMC Holding’s claim for a charge over the shares in Manyrich in the counterclaim was released and discharged by a consent order through the Plaintiff’s payment into court the sum of $24 million.  As a result and since the date of the consent order, the Plaintiff took back the shares in Manyrich free from BMC Holding’s alleged charge.   The sum of $24 million remains in court pending final determination of the actual amount, if any, owed by the Plaintiff to BMC Holdings or further order.

An overview of the Plaintiff’s striking out application

32.  The Plaintiff seeks to strike out paragraphs 80, 82(d), 82(e) and 83 of the AD&C and the related relief.  She attacks the counterclaim as unarguable on four fronts: 

(1)  the alleged August Agreement is so uncertain in its terms that it could not be a concluded or binding agreement; and as a result, there is no breach of any alleged August Agreement;

(2)  BMC Holdings’ and BMC Strategic’s respective claims for loss and damage on the basis of the Plaintiff’s breach of the MKU Agreement and SY Agreement are so inherently inconsistent and contradictory that they are bound to fail;

(3)  BMC Construction’s claim was in respect of works which were substantially un-performed; and

(4)  there is no evidence that the Pink Diamond Transfers were made with intent to deceive creditors and the CCP are not prejudiced.

CLAIM UNDER THE AUGUST AGREEMENT

No binding or enforceable August Agreement by reason of uncertainty

33.  At paragraph 83 of AD&C, the CCP plead:

“Further, [the Plaintiff] has wrongfully refused to perform the August Agreement and has not repaid any part of the Outstanding Debts or any of the costs and payments arising out of and/or in connection with the New Projects. As a result, the [CCP] have suffered loss and damage.”

By this plea, the CCP pleaded (1) a concluded binding and enforceable August Agreement; (2) the Plaintiff’s failure to pay the Outstanding Debts; (3) the Plaintiff’s failure to make payments in connection with the New Projects, ie under the MKU Agreement and SY Agreement; and (4) they suffered loss and damages as a result.  A finding that the August Agreement is not a concluded binding agreement does not necessarily mean that this paragraph may be struck out in its entirety because there are other elements pleaded which are linked to other paragraphs.  However, such a finding may have a bearing on paragraph 81 under which the CCP seek specific performance of the August Agreement and, in the alternative, loss and damages suffered as a result. 

34.  Mr Chang SC, counsel for the Plaintiff, submits that the August Agreement did not constitute a binding or enforceable agreement including for the New Projects and/or the mortgage/charge of the Plaintiff’s seven companies on account of its ambiguity and lack of certainty.  The starting point for this submission is that if an agreement is to be enforced as a contract, the parties to the agreement must have reached agreement on all its essential terms which must be expressed with sufficient clarity to permit enforcement.  Putting it the other way, if the terms of an agreement are incomplete, unclear, ambiguous or uncertain, it will often be assumed that the parties did not intend their agreement to be legally binding, or that they have not yet reached a final agreement: see Michael Furmston, The Law of Contract[1].

35.  It is the CCP’s pleaded case that the Plaintiff wanted to engage William or his companies to develop the New Projects (paragraph 12 of AD&C) and William told her that he and his companies could only do so if she would pay off part of the Outstanding Debts and/or provide security for costs in respect of the New Projects and the Outstanding Debts (paragraph 13 of AD&C).   

36.  Then, the Plaintiff said she could (1) obtain the necessary funds to finance the costs of the New Projects and/or to repay the Outstanding Debts and/or (2) provide security for the same by selling and/or utilizing the properties that she held through her various companies and/or by taking control of and selling and/or utilizing the shares of the companies holding such properties (paragraph 14(a) of AD&C).  She wanted William to help her identify all the companies which were holding her properties (paragraph 14(b) of AD&C).  She wanted to take control of those companies and make arrangement to sell them because she was experiencing serious cash flow problems (paragraph 14(e) of AD&C).  Then, William helped her and identified the seven companies.    In short, the Plaintiff was alleged to have said she could obtain funds by selling her companies holding properties or by selling the properties or provide security using those companies; and she asked William to identify the companies for her, which William did. 

37.  That was the situation before the parties entered into the August Agreement.  Mr Chang SC submits that at that stage, the options were open and the essential terms of the agreement were undecided in that the Plaintiff had not decided whether to sell the properties held by her companies or the shares in those companies to pay the Outstanding Debts and costs of the New Projects or to use those properties or shares as security to enable her to do so.  In that regard, the Plaintiff did want to sell some of her properties or companies so as to ease her cash flow problems.

38.  That also remained to be the situation at the time of the making of the August Agreement in August 2016, according to the CCP’s Answers to the Supplemental Request for Further and Better Particulars of the AD&C of the 1^st to 4^th Defendants by Original Action and the 1^st to 6^th Plaintiffs by Counterclaim.  In answer to the request made of paragraph 16 of the AD&C, the CCP replied that at the time of the August Agreement, the full details of the New Projects had yet to be finalized and the costs were unknown.  A number of matters were still left open, such as the contract price, how many residential properties were to be created in the New Projects and whether the Plaintiff’s seven companies were to be set aside for providing funding.  William was still in the course of helping the Plaintiff to ascertain the market value of the properties owned by the seven companies.  The market value was not ascertained until mid-September 2016.  Hence, Mr Chang SC submits that at the time of the making of the August Agreement, it was not decided as to the shares of which of the seven companies would be mortgaged and/or charged, or whether they were to be sold straightaway. 

39.  On the other hand, Ms Chan, counsel for the CCP, submits that a striking out should only be attempted in the plainest and most obvious case, and that the present case is nowhere near the requisite threshold for striking out.  She submits, quoting Yu Man Fung Alice v Chiau Sing Chi Stephen[2], that the court will only hold that a contract or some part of it is void for uncertainty if it is legally or practically impossible to give the agreement or that part of it any sensible content.  Whether the parties had intention to create legal relations is a question of fact that must be determined by considering the full circumstances, such as the relationship of the parties, the subject matter of the agreement, the language used in the agreement and the manner in which the agreement has been made.  Each case is fact sensitive.  I have no quarrel with those propositions.

40.  Ms Chan argues that William has been acquainted with the Plaintiff since 1985 and their relationship is personal in nature. Consequently, the agreement may be concluded in informal settings without full details, due to the parties’ past relationship and previous commercial dealings.  She submits that whilst it is the CCP’s case that the material facts of the August Agreement have been pleaded, the court will also be invited to consider the full circumstances and witness evidence in court to consider whether the August Agreement is uncertain or enforceable.

41.  The August Agreement is a substantial building contract involving well over HK$150 million plus a contract for security in the total amount of over HK$170 million.  Though the parties have a long personal relationship, that could not convert a pre-contract negotiation into a concluded contract.  It is true that it is not necessary for the parties to reach agreement on all the terms before there could be a concluded contract. But, there are certain essential terms which must be agreed before the court will find the parties had the intention to enter into a legally binding contractual relationship.  In this regard, an agreement is not ineffective for uncertainty merely because the facts on which its operation is to depend are unknown when it is made.  The requirement of certainty will be satisfied if those facts become ascertainable and are ascertained, without the need for further negotiation, after the making of the agreement: see Chitty on Contract[3].

42.  Here, the parties had in mind the various options.  It is the CCP’s case that the Plaintiff was given a few options.  She could (i) repay the Outstanding Debts and pay for the New Projects with her own existing funds subject to agreements made between her and the William’s companies; or (ii) give security for the Outstanding Debts and costs of the New Projects subject to the determination of values of the shares in her companies to be used as security; or (iii) sell the shares in her companies or the properties owned by them with William’s help and to use the proceeds to repay the Outstanding Debts and to pay for the New Projects.  Indeed, even William said in his 3^rd Affirmation that “… with the uncertainty of the amount of properties held by [the Plaintiff] and the potential development costs of the lands in question, it is imperative for the parties to retain certain degree of flexibility on how the August Agreement may be executed.”

43.  It is the CCP’s case that the main purpose of the August Agreement was to develop the New Projects and ease the Plaintiff’s cash-flow problems, and William had the right or obligation to sell the shares in the Plaintiff’s companies for such purpose.  However, it is unclear the extent of William’s right to sell, whether he is to sell on the Plaintiff’s behalf or in his own name.

44.  Depending on the valuation of the shares and properties, the Plaintiff had the further option to sell some of the companies and treat the rest as security.  There was no restriction on her disposal of her shares or properties.  If the Plaintiff were to elect to sell her shares or properties and was to be able to raise sufficient funds through such sale, then there would be no need to give security to William’s companies.

45.  Indeed, in William’s 1^st Affirmation, he said in August 2016, after they entered into the August Agreement, a few estate agency agreements were signed between the Plaintiff and his company to sell the properties held by the Plaintiff’s companies.  The Plaintiff would be free to use the proceeds of sale to repay the Outstanding Debts and pay for the New Projects without the need to transfer any shares to the CCP as securities.

46.  It is uncertain in the first place as to what was the Plaintiff’s election.  With the valuation of the properties and the companies still being unknown at the time of the making of the August Agreement, the Plaintiff was far from being able or having made her election.   In the second place, it is unclear as to the nature of the security, for example, which of the companies and which properties were to be used as security and the extent of William’s right to sell the shares or the property and whether he is to sell on the Plaintiff’s behalf or in his own name.  These are the minimum essential terms relating to the security aspect if the August Agreement were a concluded and binding agreement.  But everything was fluid and uncertain. 

47.  It is also uncertain as to what was William’s obligation in relation to the construction aspect of the agreement.  It was not known how many houses were to be built and what were the development and building costs.  There was no agreement as to the method for calculating those costs.  There was also no agreement as to the time for completion etc. 

48.  Despite the Plaintiff and William had a long personal relationship, there is no evidence of previous dealing of a similar nature between them.  Even in August 2016, when the August Agreement was allegedly made, not only had the Plaintiff not made her election as to the options, she did not even know which companies and what properties to sell, mortgage or charge.  William had not even ascertained the market value of the properties or companies. There were no criteria or machinery laid down in the August Agreement to determine those matters.  The parties have not reached agreement on the development and construction costs or a mechanism for determining the same.  These unsettled essential terms are not “minor details regarding mode of execution of the August Agreement” as suggested by William but have to be fixed by further agreements.  The alleged August Agreement is not a concluded or binding agreement.  At the highest, it is an agreement to agree.  The extent of the agreement reached suggests that in August the parties were still at the stage of negotiation or at best had only reached an agreement to agree.  There were still much to negotiate and agree.

The August Agreement was superseded by subsequent agreements

49.  Even if the August Agreement were a binding agreement, it was superseded by subsequent agreements.  As the events unfold, the Plaintiff entered into the written MKU Agreement with BMC Strategic and the SY Agreement with BMC Holdings to develop her two pieces of land three to four months later.  These agreements provide specific terms as to financing the New Projects and the provision of Noble Crest and Manyrich as security.  Insofar as the New Projects are concerned, the August Agreement, if it were a concluded agreement, was superseded by the MKU Agreement and the SY Agreement.  

50.  The essential terms and mechanics of the August Agreement on the one hand and the MKU Agreement and SY Agreement on the other are completely different.  First, the parties are different.  William was replaced by his companies as the contracting parties with the Plaintiff.

51.  Second, the mode of funding the New Projects is different.  Under the August Agreement, William had the right to sell the Plaintiff’s shares and to use the proceeds of sale of her companies to pay the Outstanding Debts and the costs and payments arising out of the New Projects. However, under the MKU Agreement and SY Agreement, it was BMC Strategic’s and BMC Holdings’ obligation to finance the New Projects and to earn interest in return.

52.  Third, the terms of the security are different. The August Agreement did not specify which of the Plaintiff’s companies were to be mortgaged and for what purpose.  But the MKU Agreement and SY Agreement specifically provide that Noble Crest and Manyrich are to be used as securities for the Plaintiff’s liabilities under the respective agreements.

53.  These significant differences reflect that the August Agreement was not a concluded agreement.  It was just an understanding of some possible ways forward towards an agreement or agreements.  Everything was fluid.  At the highest, it was an agreement to agree.  It was not meant to be enforced.  In any event, it ceased to have effect upon the execution of the MKU Agreement and the SY Agreement.

54.  At about the same time, the Plaintiff also entered into a third written agreement with BMC Construction for surveying her land in Sheung Yeung Village and building a fence enclosing it.  That written agreement contained no provision for security for the cost of work.  However, according to William, the Plaintiff offered More Harvest as security.  Probably, like the other two agreements, this agreement was also made pursuant to the August Agreement as an agreement to agree.  The making of these agreements also reflect the lack of certainty in the August Agreement.

Specific performance is not available to the August Agreement

55.  Assuming the August Agreement constitutes an enforceable agreement to mortgage or charge the Plaintiff’s companies to William’s companies, Mr Chang SC argues that it cannot be specifically enforced because the agreement remains executory.  On the CCP’s case, the August Agreement was dependent for its execution upon the performance of the subsequent agreement made pursuant to it, ie the MKU Agreement and the SY Agreement.  In that regard, BMC Strategic and BMC Holdings had not performed their obligations under these respective agreements, including advancing any money to the Plaintiff.  As such, no debt or obligation had arisen on the part of the Plaintiff to render these two agreements or the August Agreement specifically enforceable.  As submitted by Fisher and Lightwood’s Law of Mortgage[4], “specific performance of an enforceable contract to give security will be ordered where the loan has actually been made or the debt or other obligation incurred”.  In any event, it is trite that specific performance will not be available if damages are adequate remedy.

Conclusion

56.  On the basis of the CCP’s evidence, I find that the alleged August Agreement is not a binding and enforceable agreement by reason of uncertainty.  The parties have not reached agreement on the basic terms necessary to make an enforceable agreement.  At the highest, it was an agreement to agree.  Without a binding and enforceable agreement, the CCP’s claim for breach of the August Agreement has no factual base.  As such, paragraph 83 of the AD&C, to the extent it refers to the August Agreement, including the Plaintiff’s breach and the loss and damage suffered by the CCP must be struck out as disclosing no reasonable cause of action.

THE CLAIMS OF BMC STRATEGIC, BMC HOLDINGS, AND BMC CONSTRUCTION - §§ 82(D) AND 82(E) OF THE AD&C

BMC Strategic’s, and BMC Holdings’ claims for loss and damages

57.  In paragraphs 82(d) and 82(e) of the AD&C, the CCP claimed:

“Further, the following sums are still due and owing by [the Plaintiff] to William and/or the Relevant Companies on the security of the mortgage and/or charge over the shares in Manyrich, More Harvest and Lucky Top.

…

(d) The sum of HK$27.4 million for the development of the land in Mang Kung Uk.

(e) The sum of HK$869,000 and HK$137.05 million for the constructions works and the development of the land in Sheung Yeung Village.”

58.  The CCP’s pleadings are confusing.  The amounts claimed by BMC Strategic and BMC Holdings are the contract sums under the MKU Agreement and the SY Agreement respectively.  But the CCP have not pleaded that the Plaintiff had acted in breach of those agreements on the basis of which BMC Strategic and BMC Holdings had an enforceable charge against the companies provided as security, namely Manyrich and Noble Crest.  In this context, it should be noted that the shares charged as pleaded are those of Manyrich, More Harvest and Lucky Top and not Manyrich and Noble Crest as stated in the two agreements.  Putting aside all these confusions, which could be remedied by amendment, and assuming a case of breach of the two agreements and shares charged had been properly pleaded, in light of the pleaded case and the evidence presented thus far, such claims are also bound to fail for the following reasons.

59.  First, the alleged breach is contrary to the CCP’s own case and/or is not supported by any facts or alleged facts.   The only breach in relation to the development of the New Projects pleaded is the Plaintiff’s failure to pay for “any of the costs and payments arising out of and/or in connection with the New Projects.”  However, under the MKU Agreement and the SY Agreement, it was BMC Strategic and BMC Holdings which were responsible for funding the New Projects; and they were to earn interest in return.  How they were to fund the development and from what source was not the Plaintiff’s concern.  The Plaintiff was not obliged to pay for the “costs and payments arising out of and/or in connection with the New Projects”.

60.  Second, there is no pleading or evidence to the effect that BMC Strategic and BMC Holdings had performed their obligations under the respective agreement giving rise to the obligation of the Plaintiff to pay “costs and payments”, nor had any demand been made to her for such payments which she had failed to settle. 

61.  William sought to clarify in his 3^rd Affirmation that the details of the performance in relation to the New Projects were set out in Answer 1 of the Answer to Request for Further and Better Particulars and were further supplemented in paragraphs 12 to 27 of his 2^nd Affirmation.  However, the former only concerns minor works done on the two lands, namely, clearing damaged fences and wastes from the previous projects; the latter concerns past work done by William’s companies for the Plaintiff’s various properties prior to the August Agreement.  At the hearing before Deputy High Court Judge Le Pichon in October 2019, the CCP were given leave to amend the answers to the further and better particulars “as soon as possible”.   Over a year has lapsed, no amended answer has been made.  Not even a draft of some sort was produced at this hearing.  The situation remains that there is no pleaded or evidence to the effect that BMC Strategic and BMC Holdings had performed their obligations under the respective agreement giving rise to a liability on the part of the Plaintiff to pay “costs and payments”.

62.  Third, under the MKU Agreement and the SY Agreement, no time was fixed for payment of the costs of the New Projects.  The general rule is that a party must pay as soon as the other party has completed the works and has given the party a reasonable opportunity of checking that the works have been properly executed: Huges v Lenny[5].  In the case of divisible obligations, where no time for payment has been fixed, the person performing the work may be entitled to claim payment for parts of the work already completed: Roberts v Havelock[6]. It is not BMC Strategic’s and BMC Holdings’ case that they have completed any piece of work and demanded payment.  Hence, the Plaintiff’s liability to pay has not yet arisen.  In any event, as BMC Strategic and BMC Holdings would be entitled to a lump sum “interest” and “operational remuneration” which are not divisible, the inference is that the Plaintiff is only obliged to pay when the whole project is completed. 

63.  Fourth, the alleged loss and damage claimed are internally inconsistent and contradictory.  In respect of the MKU Agreement, the contract sum as well as the amount sought to be secured was HK$27.4 million as pleaded in paragraph 82(d) of the AD&C, suggesting the works have been completed and the contract price was due.  However, in answer to the Plaintiff’s request for further and particulars in respect of the works allegedly done pleaded in paragraph 18(d) of the AD&C, the CCP answered that the value of the works done from 30 November to 2 December 2017 was about HK$37,680 and the works were suspended thereafter.  This may be taken as an unequivocal admission that only minor works had been executed and there was a unilateral suspension of work by BMC Strategic.

64.  In paragraph 83 of the AD&C, the CCP pleaded that “[the Plaintiff] … has not repaid … any of the costs and payments arising out of and/or in connection with the New Projects”.  In answer to the Plaintiff’s request for particulars as to the amount of costs and payments which the Plaintiff had allegedly not paid, the CCP replied that it was HK$19,200,000.

65.  However, in answer to the Plaintiff’s request for the loss and damage suffered as a result of the Plaintiff’s breach as pleaded in paragraph 83 of the AD&C, the CCP replied that the loss was HK$48,860,000 comprising of loss of profits of HK$19,600,000 and disbursements made on behalf of the Plaintiff in the amount of HK$29,260,000. 

66.  These answers are internally inconsistent and contradictory.  The contract price was HK$27,400,000.  Only works to the value of about HK$37,680 had been executed.  The works were unilaterally suspended by BMC Strategic.  In the circumstances, how the amount of costs and payment due of HK$19,200,000 and disbursements of HK$29,260,000 suggesting substantial works have been completed could have arisen?   How could the amount due be less than the disbursements not paid? 

67.  Ms Chan argues that BMC Strategic had given some particulars of an amount due to be paid.  She was referring to the sum of HK$3,850,000 for administration fees and expenses under the MKU Agreement.  It is not known how this amount fits into the amounts stated above.  But even if BMC Strategic is entitled to claim that amount as loss of profit, it is neither payment due nor disbursements.

68.  Ms Chan also tried to justify the amount claimed by referring to an outstanding sum in the amount of HK$4,104,641 from a contract dated 28 July 2018 as mentioned in William’s 2^nd Affirmation.  That must be a mistake.  The parties were in hostile litigation since 2017.  They could not have entered into a works contract in relation to Mang Kung Uk in July 2018.  If there was indeed a contract, the date must be wrong.  When referring to that contract, William was claiming that he and his companies had performed works for the Plaintiff before the August Agreement.  If so, that amount must be part of the Outstanding Debts and not sums due under the MKU Agreement.

69.  In respect of the SY Agreement, the contract price was HK$137,050,000; the works executed between 30 November 2016 and 2 December 2017 was about HK$37,680 and then there was a unilateral suspension of works.  The amount of costs and payment allegedly due and not paid by the Plaintiff was HK$117,450,000.  Loss and damage suffered was HK$8,700,000 comprising of loss of profit of HK$8,100,000 and disbursements paid on behalf of the Plaintiff in the amount of HK$600,000.  Though less ridiculous than in the case of the MKU Agreement, these figures are inconsistent and contradictory as to whether substantial works have been completed.

70.  Again, Ms Chan argues that BMC Holdings is entitled to claim HK$9,800,000 as administration fees and expenses.  That argument must be dismissed for the same reason. 

71.  Fifth, despite the inconsistencies and the conflicting nature of the claims have been drawn to the CCP’s attention, they had neither by letter in reply nor in their affirmation in opposition sought to explain their case in this respect.  Ms Chan argues that if the Plaintiff’s case is that the CCP have failed to give particulars, the Plaintiff should seek further and better particulars under Order 18 rule 12 of the Rules of the High Court instead of making an application for a striking out order.

72.  Usually, even a serious want of particularity in a pleading may not justify striking out if the defect can be remedied and the defect is not the result of a blatant disregard of court orders: British Airways Pension Trustees Ltd v Sir Robert McAlpine[7].  As mentioned above, at the hearing on 9 October 2019, the CCP sought leave to amend the answers to further and better particulars.  Leave was granted on their counsel’s undertaking to provide particulars as to the alleged loss and damages as soon as possible.  In their solicitors’ letter dated 17 December 2019, the CCP assured that they were finalising the subject particulars and that the particulars would be filed and served by 31 December 2019.  Over a year has lapsed, no particulars have been provided thus far.  At this hearing, Ms Chan attempted to give some particulars, but they have all been rejected by me.  She was not in the position to give draft particulars or an assurance when they will be given.  The CCP have not renewed their application for leave to amend the particulars.  They must be taken to have abandoned their right to amend.  Such prolonged and unexplained delay reflects that the CCP are unable to substantiate their claim and such claim is not bona fide and must fail. I am not suggesting for a moment that the CCP’s pleading be struck out for want of particularity.  I am just demonstrating that such inconsistent and contradictory pleadings could not help them to resist the Plaintiff’s argument that their claims are unsustainable and bound to be struck out for that reason.

73.  All in all, though BMC Strategic’s and BMC Holdings’ pleadings are inconsistent and conflicting, it is clear that it is not their case that they have completed the respective projects and therefore entitled to the whole contract sum.  It is clear from their own pleadings that only minor works of the value of HK$37,680 in respect of each project had been executed.  It is their case that the projects were not finished and works were suspended since 2 December 2016.  Plainly, the claims for the entire contract price is unsustainable and bound to fail.  The confused pleadings and the CCP’s inability to remedy the defects for over a year without explanation suggest that they brought or maintained these claim knowing that there is no substance in it.  They must know this claim is bound to fail.  This is a case of making a frivolous claim and abuse of the process of the court.  Accordingly, paragraph 82(d) and 82(e) as regards the sum of $27.4 million and $137.05 million and paragraph 83 to the extent it refers to the alleged loss and damages shall be struck out.

BMC Construction’s claim for loss and damage

74.  BMC Construction’s claim for loss and damage does not arise out of the SY Agreement, though it is related to works on the Plaintiff’s land in Sheung Yeung Village nor does it arise out of the Outstanding Debts.  According to William’s 2^nd Affirmation, the works arose independently of the SY Agreement.  William said that he had been engaged by the Plaintiff to develop her land in Sheung Yeung Village a long time ago, ie before the August Agreement, but the development did not take place because it took time to obtain concessionary rights or government approval for converting the Green Belt zone in Sheung Yeung Village to village land and the Plaintiff lacked the finance to proceed.  Then the Plaintiff gave him HK$250,000 to carry out boundary survey and fencing work on the land which was the costs of works now claimed by BMC Construction.  However, one of the cheques in the sum of HK$100,000 she gave him was dishonoured.  So William decided to use the remaining HK$150,000 to clear away the existing damaged fence which had fallen into disrepair.  Hence, on William’s own evidence, BMC Construction has not performed the works and is not entitled to the costs of works claimed. 

75.  It is plain and obvious that when the CCP brought this claim, they knew that there was no substance in it and that their claim is bound to fail.  This is a clear case of making a frivolous claim and abuse of the process of the court.  Accordingly, paragraph 82(e) as regards the sum of HK$869,000 for the surveying and fencing works and paragraph 83 to the extent it refers to the alleged loss and damage shall be struck out.

Conclusion – paragraphs 82(d), 82(e) and 83

76.  For the above reasons, paragraphs 82(d), 82(e) and 83 and prayers (6) and (7) of the AD&C shall be struck out.

SETTING ASIDE PINK DIAMOND TRANSFERS – § 80 OF AD&C

The CCP’s pleaded case

77.  The Plaintiff seeks to strike out the CCP’s pleading seeking to set aside the Pink Diamond Transfers.  The CCP’s pleaded case is that in breach of the August Agreement, the Plaintiff transferred her shares in Noble Crest, Million Globe, East Victory and Full Honest to Pink Diamond in September 2016 shortly after the making of the August Agreement with intent to defraud her creditors and therefore those transfers are voidable under section 60 of the Conveyancing and Property Ordinance (Cap 219) (“CPO”) and should be set aside.  Ms Chan submits that the particulars of the Plaintiff’s intention to defraud has been extensively pleaded in paragraphs 19 and 20 of the AD&C.  Hence, the pleading should not be struck out and the disputes should be resolved at trial.

The legal principles

78.  Counsel have no dispute as to the legal principles applicable setting aside fraudulent transfers under section 60 of the CPO.  Section 60(1) provides:

“(1) Subject to subsection (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.”

79.  Hence, for the CCP to apply successfully set aside the Pink Diamond Transfers under section 60, they have to plead and establish two matters:

(1)  that the Pink Diamond Transfers were made “with intent to defraud the Plaintiff’s creditors”; and

(2)  that the application is being made by “a person thereby prejudiced” by the transfers.

80.  The words “intent to defraud creditors” is a shorthand expression for “intent to delay, hinder or defraud creditors and others”: Skink Ltd v Comtowell Ltd[8]. The requisite intent should be understood in a broader sense, ie broader than ordinary fraud.  In Lloyds Bank Ltd v Marcan[9], Russell LJ gave an example how such intent could be inferred:

“If he disposes of an asset which would be available to his creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. And in cases of voluntary disposition that intention may be inferred.”

81.  In Tradepower (Holdings) Ltd v Tradepower (HK) Ltd[10], Ribeiro PJ held that the rule in Freeman v Pope[11] is applicable to the operation of section 60 of CPO as follows:

(1)  If it was objectively shown that a disposition of property unsupported by consideration was made by a disponor when or so as to become insolvent, resulting in current or future creditors being clearly subjected at least to a significant risk of being unable to recover their debts in full, there would, subject to wholly exceptional circumstances not presently anticipated by the courts, inevitably be grounds to infer an intent to defraud the creditors.

(2)  And where the rule applied, it would not be necessary to consider whether the disponor actually had his creditors in mind when taking the disposition or any assertions that the disponor had other motives other than the relevant intention.  For the purpose of the foregoing, where the insolvency of the disponor became clear in a relatively short time – a matter of months – after the disponor disposed of the property, the onus fell upon him or her to show the absence of insolvency when or upon making the disposition.

(3)  Where the rule did not operate, whether due to the presence of valuable consideration or the absence of insolvency or relevant detriment to creditors, an actual intent to defraud creditors had to be shown as an inference properly to be drawn on the available evidence before section 60 is engaged.

82.  Cadogan v Cadogan[12] identified two classes of “persons thereby prejudiced” who have the right to under section 172 of the Law of Property Act, which is equivalent to section 60 of CPO, to impeach a conveyance with the requisite intent, namely:

(1)  persons who were creditors of the disponer at the date of the conveyance and whose debts remain wholly or partially undischarged at the date of the court hearing; and

(2)  persons who became creditors of the disponer after the date of the conveyance and whose debts remain wholly or partially undischarged at the date of the hearing. 

In that case, Buckley LJ went further and explained that “the use of the word ‘person’ in section 172 was intended to make the protection of the section available to persons who were prejudiced, although they were not properly to be described as creditors and were not prejudiced in the capacity of creditors”.

Intent to defraud

83.  Mr Chang SC submits that there is no factual substratum to establish the Plaintiff’s intent to defraud creditors.  The CCP have advanced no pleading or evidence to suggest that the Plaintiff was insolvent at the time of the Pink Diamond Transfer or immediately after that.  By now, four years have lapsed, there is not a scintilla of evidence of the Plaintiff’s insolvency. 

84.  Indeed, Mr Chang SC is able to take a step further to show that William well knew that the Four Other Companies transferred were not the only significant assets that the Plaintiff owned at the material time.  In his 1^st Affirmation, William exhibited a table he prepared according to the Plaintiff’s instructions for the purpose of finding out the exact companies holding the Plaintiff’s properties and to obtain their valuation.  The table shows that the Plaintiff also owned, either personally or through her companies, other valuable assets with substantial market value of more than HK$700 million, while the total market value of the shares of the Four Other Companies under the Pink Diamond Transfers was only HK$101.2 million and the properties held by those companies were all subject to mortgage.  The table also shows the properties held by Lucky Top and More Harvest were not subject to any mortgage and the market value was sufficient to cover the Outstanding Debts.

85.  In view of the long lapse of time of four years since the transfer, the evidence of the Plaintiff’s solvency and the absence of any suggestion of insolvency, this is a case to which the rule in Freeman v Pope does not apply.  The CCP have to discharge the burden proving the Plaintiff’s actual intention to defraud her creditors.  No such intention was pleaded or alleged in the affirmations.  The only particulars pleaded by the CCP in support of the intention to defraud is premised on the basis that the August Agreement is binding and enforceable.  Even if the August Agreement were binding and enforceable, the long lapse of time since the transfer and the evidence of the Plaintiff’s solvency is more than sufficient to prevent any inference of insolvency to be raised from the fact of the transfers being made within one month after the making of the August Agreement.

86.  Mr Chang SC further relied on the CCP’s own case that the Plaintiff sought to perform the August Agreement by transferring her shares in More Harvest, Lucky Top and Manyrich to William’s companies in February 2017 as evidence to rebut the allegation of intention to defraud. With respect, that evidence does not have the effect suggested by Mr Chang SC as the legality of those transfers are disputed by the Plaintiff and she has brought these proceedings against William and his companies to set aside those transfers.  But the finding in the preceding paragraphs is sufficient to show that the CCP are unable to prove intention to defraud.

Whether the CCP are persons prejudiced by the Pink Diamond Transfers

87.  On the CCP’s case, the persons prejudiced are those who were owed the Outstanding Debts and those who had suffered loss and damage on account of the Plaintiff’s breach of the August Agreement.

88.  The Outstanding Debts are allegedly due to:

(1)  BMC Decoration in the sum of HK$13,357,241;

(2)  BMC Construction in the sum of HK$560,000; and

(3)  Talent Express in the sum of HK$6,650,000.

However, these companies had obtained the shares in More Harvest and Lucky Top or the sale proceeds therefrom in the total amount of HK$20,857,000 as securities which is slightly more than their total claim.   Their debts are reasonably secured.  They could not have been prejudiced by the Pink Diamond Transfers.

89.  The loss and damage according to the un-amended particulars as they now stand, are allegedly due to:

(1)  BMC Strategic in the sum of HK$48,860,000; and

(2)  BMC Holdings in the sum of HK$8,700,000.

90.  For reasons as explained above, these claims for breach of the MKU Agreement and SY Agreement are struck out.  Even without having regard to that, their claims are doubtful.  On their own pleaded case and evidence, BMC Strategic and BMC Holdings have not advanced any funds to the Plaintiff for developing the New Projects.  They could not have suffered any loss and damage and could not have any claim against the Plaintiff.  They have no standing to set aside the transfers.

Conclusion

91.  As analysed above, the CCP have failed to show that the Pink Diamond Transfers were made with intent to defraud creditors and that they are persons thereby prejudiced.  Paragraph 80 and prayer (9) of the AD&C seeking to set aside the transfers must be struck out.

PAYMENT OUT

92.  Having struck out paragraphs 80, 82(d), 82(e) and 83 of the AD&C, it must necessarily follow that the CCP have no valid claim against the Plaintiff which the Plaintiff’s payment into court is to secure.   It must necessarily follow that it must be released and paid out to the Plaintiff.

CONCLUSION

93.  Accordingly, I make the following orders:

(1)  paragraphs 80, 82(d), 82(e) and 83 and prayers (6), (7), and (9) of the AD&C are struck out;

(2)  the counterclaim of 1^st to 4^th Defendants by Original Action and the 1^st to 6^th Plaintiffs by Counterclaim against the 2^nd Defendant by Counterclaim be dismissed with costs to the 2^nd Defendant by Counterclaim, to be taxed if not agreed;

(3)  the sum of HK$24 million paid into court pursuant to the Order of Ng J dated 16 January 2019 be paid out of court to the Plaintiff by Original Action and the 1^st Defendant by Counterclaim; and

(4)  costs of and occasioned by the Summons be paid by the 1^st to 4^th Defendants by Original Action and the 1^st to 6^th Plaintiffs by Counterclaim to the Plaintiff by Original Action and the 1^st Defendant by Counterclaim; and

(5)  there be directions for the filing of consequential amendments to the pleadings consistent with this decision.