IAN HAYDN REED v. CHAN SUK FUN the administratrix of the estate of WAN LAI HA, the administratrix of the estate of CHAN SHUK CHING PINKY (Deceased)

DCCJ 4560/2007

[2019] HKDC 888

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4560 OF 2007

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DECISION

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1.  This is the defendant’s application for leave to appeal and an interim stay of execution of a Judgment made by this court dated 21 March 2019 (“the Judgment”).

2.  There is no need to repeat all the details of the background which are already stated in the Judgment and the abbreviations used in the Judgment will be adopted, unless specified otherwise. Briefly, this case concerns a written agreement for sale of 3 properties between Madam Chan Shuk Ching Pinky (“the Deceased”) as the vendor and the plaintiff as the purchaser dated 18 May 2006 (“the Agreement”).

3.  The defendant advanced 3 grounds for appeal, in summary, that:-

i)   the Agreement was “partly” illegal (with regard to the sale of the 2^nd and 3^rd properties) and the “legal” part (the sale of the 1^st property) was non-severable;

ii)   that the implied term was not pleaded and the court erred in law in holding that the implied term could be applicable to the “legal” part (the sale of the 1^st property) only; and

iii)   alternatively, if the implied term could be applicable, then the defendant was entitled to seek mesne profit and vacant possession of the 2^nd property.

The legal principle

4.  The legal principle is trite (District Court Ordinance (Cap.336) Section 63A(2)) and needs not be repeated here.

The first ground of appeal

5.  Much time has been spent in court by either parties arguing whether certain contractual rights could be enforced on contracts concerning licensed properties. This is, in my view, a red herring: there was never a dispute that the 2^nd and 3^rd properties were at most licensed properties / temporary houses the interests of which could not be transferred by the Deceased.

6.  The plaintiff had made it clear from the Amended Statement of Claim that he was only referring to the 1^st property (which the Deceased legally owned) and seeking for specific performance of the Agreement with regard to the 1^st property. Substantive part of the evidence adduced in the trial, including the experts’ evidence on valuation, only ever dealt with the 1^st property. The court was never asked to enforce any contractual rights concerning the interests of the 2^nd and 3^rd properties so any argument on illegality or public policy is irrelevant.

7.  Mr. Ken Cheng, Counsel for the defendant, is now advancing the argument that the Agreement could not be severed this way because the Agreement was “made for the sale of…1^st, 2^nd and 3^rd properties altogether with one lump sum consideration…There is no provision contemplating the sale of some (but not all) of the three properties, and there is no provision apportioning the value of each individual property in respect of the total consideration.”

8.  As such, Mr. Cheng argued that the Agreement should be voided ab initio.

9.  Firstly, I would say that it was clear right from the commencement of the action that the plaintiff was seeking a severance and partial specific performance of the Agreement. The defendant has never pleaded any objection to this and no such argument was ever canvased at trial.

10.  It is only now, at the stage of seeking leave for appeal, that the defendant is advancing an objection to severance.

11.  The legal principle of severance in a “illegal” contract is the “blue pencil-test” (Midland Business Management Ltd and Lo Man Kui [2011] 1 HKLRD 470 (CFI) and Sadler v Imperial Life Assurance Co of Canada Ltd [1988] IRLR 388):

i)   The unenforceable provision is capable of being removed without the necessity of adding to or modifying the wording of what remains.

ii)   The remaining terms continue to be supported by adequate consideration.

iii)   The removal of the unenforceable provision does not so change the character of the contract that it becomes “not the sort of contract that the parties entered into at all.

12.  As demonstrated by Mr. Dicky Cheung, Counsel for the plaintiff, one just needed to apply the “blue pencil” to cross out the reference to the 2^nd and 3^rd properties in paragraph 3 of the Agreement to satisfied the first limb of the above test.

13.  Such crossing-out does not disturb the consideration part of the agreement so it must be said that the remaining terms “are supported by adequate consideration”.

14.  And the third limb is of course satisfied because the nature and character of the contract remains a sale and purchase agreement.

15.  Mr. Cheng’s only argument is that the consideration was meant to be for all three properties and therefore making the contract not severable.

16.  Mr. Cheung argued that for partial enforcement of contracts, “when a vendor agrees to sell land, but is unable to establish title as to part, the purchaser may obtain specific performance with an abatement as to price”. (see page 110, The Principles of Equitable Remedies, Spry, 8^th Ed.).

17.  I agree.

18.  It must be noted that the plaintiff had not sought any abatement of price so the issue of apportionment of each property did not arise during the trial. If it had arisen, the experts on valuation could be instructed accordingly. In this case, they were only instructed to give valuation on the 1^st property.

19.  Mr. Cheng also confirmed in court that he was not disputing the court’s finding of an implied term regarding the amount of consideration (that is, HK$500,000) under the circumstances of the deceased’s unexpected early death.

20.  Of course, after considering the valuation by the parties’ experts, the court has also found that HK$500,000 for ONLY the 1^st property was very much “in the ball park” and “not outrageously undervalued”.

21.  Under the circumstance, I see no reason why the Agreement cannot be severed accordingly. Further, it cannot be just that the defendant should seek benefit from a defect in the Agreement under the circumstances.

The second ground of appeal

22.  I do not agree that the court is not entitled to find an implied term in a contract if it is not pleaded. Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552, at paragraph 105:

“Unless the judge moves outside the evidence and makes findings unwarranted by the oral dealings between the parties or the contemporaneous documents this normally is not unfair on either party but an attempt to do justice between them according to law.”

23.  As argued by Mr. Cheung, the court has clearly not moved outside the evidence: paragraphs 91 to 98 of the Judgment stated the evidence and the basis of finding the implied term.

24.  In any case, the implied term only touched on ascertaining the amount consideration in the circumstances of the Deceased’s early death. Mr. Cheng, as stated above, was not disputing this finding of the amount of consideration in the Agreement, but only that the implied term has assigned this value to the 1^st property only, and not to all 3 properties in accordance with the expressed term.

25.  This argument is a repetition of the first ground regarding severance. Indeed, it can be argued again that the implied term did not address the issue of severance because it was never pleaded. In any case, the court already found that the Agreement could be severed as stated above.

The third ground of appeal

26.  Mr. Cheng argued that if the Agreement could be severed and the implied term upheld, then the defendant should be entitled to mesne profit and vacant possession of the 2^nd property on the basis that the Deceased was in possession of the 2^nd property prior to the plaintiff, and thus has a better title in common law.

27.  It is clear from the facts of the case that the Deceased could not be said to be in possession of the 2^nd property at the time the plaintiff took possession.

28.  The Deceased had clearly intended to give up possession to the plaintiff as evidenced by the Agreement. Further, the evidence before the court at trial showed that the Deceased passed away on 26 June 2006 in China, a local young man came to the 2^nd Property and threw everything out and started to make modifications in mid-January 2007, the young man then left (after some complaints made by the plaintiff etc.) and the plaintiff did not begin to occupy the 2^nd property until after that time.

29.  No evidence was advanced in trial as to why the plaintiff should be considered to be trespassing on the Deceased’s property, and indeed, what the Deceased’s entitlement was to claim mesne profit.

30.  As such, I see no basis for the claim that the Deceased had a better title in common law.

Conclusion

31.  I see no reasonable prospect of success of an appeal and I also see no reason in the interest of justice for an appeal to be heard.

32.  I would order that the defendant’s application for leave to appeal and for stay of execution be dismissed with costs to the plaintiff to be taxed if not agreed, with certificate for counsel.