LIU MAN CHUEN EDDY v. LO MING SAN

DCCJ 3970/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3970 OF 2015

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DECISION

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1. By a summons dated 16 November 2016 (hereinafter “the Summons”), the plaintiff applied for summary judgment under Order 14 rule 1 and interim payment under Order 29 rule 10 of the Rules of the District Court (“RDC”) against the defendant.

BACKGROUND

2. According to the plaintiff, in or about July 2011, the plaintiff and the defendant entered into an oral agreement for the procurement of a Hong Kong-PRC cross border vehicle licence (“the Licence”) whereby the plaintiff agreed to purchase and the defendant agreed to procure the Licence on behalf of the plaintiff (“the July 2011 Contract”).

3. The consideration of the July 2011 Contract was at RMB400,000 to be paid by the plaintiff to the defendant by instalments.  The originally estimated time of obtaining the Licence was in February 2012. 

4. The mechanism of obtaining the Licence was agreed by the parties as follows:-

(1)  a local unincorporated company by the name of Sun Tak Hing Trading Company（新德興貿易公司）(“Sun Tak Hing”) would be used for the purpose of receiving the Licence; 

(2)  Sun Tak Hing was originally held in the name of the defendant; and

(3)  on or about 15 August 2011, Sun Tak Hing was transferred to the plaintiff when the defendant withdrew from the company as a partner. 

5. The Licence was not obtained in February 2012 and the parties agreed to postpone the transaction until late 2012.

6. However, on or about 15 November 2012, the plaintiff discovered that one Mr Lee Wai Lun (“Mr Lee”), who was unknown to the plaintiff, was added as a partner of Sun Tak Hing without his knowledge or consent.  At about the same time, the plaintiff was removed as a partner of Sun Tak Hing without his knowledge or consent.

7. The plaintiff claims that the above act of the defendant was in breach of the July 2011 Contract.

8. Thereafter, it was discovered that the Licence was granted to one De Xing Software (“De Xing”), which was a Mainland company wholly owned by Sun Tak Hing, whose sole proprietor by this time was Mr Lee.

9. On 4 March 2014, the plaintiff made a report to the Hong Kong Police that his signature on the transfer form of Sun Tak Hing had been forged and that he was allegedly a victim of a commercial fraud.

10. The plaintiff has never obtained the Licence from the defendant.

11. On 4 April 2014, the plaintiff caused a solicitors’ letter to be sent to the defendant claiming the breach of the July 2011 Contract and seeking damages against the defendant.

12. A settlement agreement was allegedly reached between the plaintiff and the defendant on 16 July 2014 (“the Settlement Agreement”).  Pursuant to the Settlement Agreement, the defendant paid the plaintiff a sum of HK$375,000 through one Mr Cheung Sing Kwok (“Mr Cheung”) on the same day.  The defendant was to pay another sum of HK$375,000 to the plaintiff as compensation/damages on 24 July 2014.  Further, the defendant was to set up a new company for the purpose of obtaining a second licence to be transferred to the plaintiff free of charge by 30 September 2014.

13. However, save for the sum of HK$375,000 paid to Mr Cheung on 16 July 2014, no further sum was paid to the plaintiff and no licence was ever obtained by the defendant on behalf of the plaintiff pursuant to the Settlement Agreement.

14. The above are the material facts relied on by the plaintiff in the statement of claim and in the affirmations filed in support of his summary judgment application.

15. The following are the facts raised and/or disputed by the defendant:-

(1)  The defendant claims that Sun Tak Hing was set up for the procurement of another Hong Kong-PRC cross border licence for Mr Lee but not the plaintiff, while a Mainland company by the name of Guangzhou Xingyuwang (廣州星御灣酒店管理有限公司) (“GX”) which was wholly owned by a local company Rich Investment Trading Limited (“Rich Investment”), was set up pursuant to the July 2011 Contract.

(2)  The defendant did not guarantee that the Licence could be obtained in February 2012.

(3)  The plaintiff had given one Ms Mok Sau Ying (“Ms Mok”), a staff in the defendant’s company, full authority and consent to process the application, including signing all relevant documents on behalf of the plaintiff for the procurement of the Licence.

(4)  The defendant claims that the Settlement Agreement was entered as a result of illegitimate pressure, duress and undue influence exerted by the plaintiff. 

(5)  But for the illegitimate pressure, duress and undue influence, the defendant says that he would not have paid HK$375,000 to the plaintiff.

DISCUSSION

The Order 14 application

16. The plaintiff claims that his application has been properly constituted and therefore he is prima facie entitled to judgment unless the defendant can show cause to the contrary: §14/4/1 of Hong Kong Civil Procedure 2017.

17. The defendant on the other hand opposes the application on the grounds that (1) he has a good defence to the claim on the merits; and (2) there are disputes as to the facts which ought to be tried.

The defendant’s defence and counterclaim

18. The defendant admits the parties had reached the Settlement Agreement, but alleges that the Settlement Agreement was “voidable and not enforcement because it was made as a result of illegitimate pressure, duress and direct undue influence of the plaintiff.”  In particular, the defendant claims that since or about July 2014, the plaintiff started to “threaten and intimidate to ruin the reputation and life” of the defendant and Ms Mok.  Further, the defendant alleges that the plaintiff had expressly threatened to proceed with a false accusation to the police and the company registry against the defendant and Ms Mok for an alleged forgery of signature in the share transfer documents unless the defendant gives him some money and 2 Hong Kong PRC cross-border licences: [See D&CC §11(a) to (e)].

19. Accordingly, the defendant claims to have rescinded the Settlement Agreement and seeks restitution of HK$375,000 paid to the plaintiff: [See D&CC §17].

Issues to be determined

20. Mr Devin Sio, the plaintiff’s counsel, submits that a number of facts which are stated in the defendant’s affirmations have not been pleaded by the defendant in the defence. Therefore, according to the plaintiff, the defendant is not entitled to rely on them: (see §4 (1) to (8) of P’s skeleton submission).

21. I do not regard it as necessary for a defendant to plead all the facts he is relying on in the defence.  In my view, only “material facts” which are necessary for the purpose of formulating the defence is required: see Scott LJ in Bruce v Odhams Press Ltd [1936] 1 All ER 287 at 294 and §18/7/7 of HKCP.

22. In my judgment, the defendant has pleaded sufficient material facts in his defence to make it clear that, according to him, the Settlement Agreement had only been entered into as a result of the “threats and intimidations” made by the plaintiff: See §11 (c) to (e) of D&CC. 

23. Thus, I do not accept the plaintiff’s claim that the defendant is barred from relying on the facts contained in the defendant’s affirmations just because they have not been pleaded in the defence.  In my view, all the “material facts” which are required to support the defence can be found in the defence and counter-claim. 

24. Hence, the issues which the court has to decide in the Order 14 application are:-  

(1)   Was there any breach of the July 2011 Contract, in particular whether there was any clerical omissions made by Ms Mok; and

(2)   Whether the Settlement Agreement was entered under illegitimate pressure, duress and undue influence and therefore voidable;

(i)  Was there any clerical omissions made by Ms Mok which led to the breach of the July 2011 Contract

25. In his defence, the defendant claims that for the purpose of the plaintiff’s application, a company had to be incorporated in the Mainland which shall be wholly owned by a company in Hong Kong.  According to the defendant, GX was set up for that purpose which was to be wholly owned by Rich Investment: (See §4(b) of D&CC).  The defendant claims that Rich Investment was supposed to be registered under the name of the plaintiff.  In line with such an arrangement, the defendant produced a business licence of GX which shows that: (i) the legal representative of GX was the plaintiff; and (ii) the shareholder (promoter) of GX was Rich Investment.  The defendant claims that the business licence of GX was sent to the plaintiff after it was issued. 

26. The defendant further claims that at about the same time, the defendant was engaged by Mr Lee to apply for a Hong Kong-PRC cross border licence.  He claims that a Mainland company by the name of De Xing Software (興德軟件開發(廣州)有限公司) (“De Xing”) was incorporated for Mr Lee on or about 26 August 2011 for the purpose.  The Hong Kong company which was supposed to hold the licence was Sun Tak Hing. 

27. The defendant claims that by “clerical omissions”, Sun Tak Hing was “mistakenly registered under the name of the plaintiff”.  He further claims that at all material time the defendant and/or Ms Mok were authorised to sign all necessary documents for and on behalf of the plaintiff in relation to his application.  The defendant also claims that upon discovering the “clerical omissions” in or about December 2012, Ms Mok informed the plaintiff forthwith, and with the consent and authorization of the plaintiff, Ms Mok rectified the clerical mistakes by executing the share transfer documents for and on behalf of the plaintiff so that he could be removed from Sun Tak Hing and registered as the shareholder of Rich Investment to give the effect that the paring of the Mainland company and the Hong Kong company shall be consistent with each other as indicated in the business licence of GX dated 5 August 2011.

28. In my judgment, the defendant’s claim of “clerical omissions”, in light of the history and commercial context in this case, not only goes against common sense but appears to be “frivolous and practically moonshine” to me: Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225, per Godfrey JA at pp 227I-228I.   

29. First, the plaintiff had entered into the agreement to procure the Licence in July 2011.  The 1^st payment of RMB50,000 was made on 14 July 2011.  On 5 August 2011, GX was incorporated in the Mainland, which was wholly owned by Rich Investment and the plaintiff was registered as the legal representative.  

30. Sun Tak Hing was originally registered in the name of the defendant.  After the plaintiff had entered into the July 2011 Contract and paid the 1^st payment on 14 July, Sun Tak Hing was transferred to the plaintiff by having him added as a “partner” on 15 August.  On the following day, ie 16 August, the defendant withdrew as a “partner”.  On the same day, the plaintiff made another payment instalment to the defendant in the sum of RMB100,000. 

31. However, in contrast, Mr Lee was only made the legal representative of De Xing on 1 August and the company was only incorporated in the Mainland on 26 August.  It was on the same day that Sun Tak Hing was transferred to Mr Lee allegedly owed to a “clerical omission”.  Thus, in terms of timing, defendant’s account does not make sense.

32. Second, I note that such transfer of a business required the “incoming” partner and “outgoing” partner both to fill in and sign a IRBR 64 Form with the business registration office.  Such cannot be done by a nominee.  A conscious act of filling in the form to have Lee added and the plaintiff removed as a partner would have to be done by them.  Yet both the plaintiff and Mr Lee said that they had not signed such form.

33. Third, given the fact that by this time the plaintiff had already paid 2 instalments in the total sum of RMB150,000 for the Licence, it is in my view extremely unlikely that the defendant or Ms Mok would somehow manage to make the mistake by “omitting” to transfer Sun Tak Hing to the right party. 

34. More importantly, the filling in the form of making Mr Lee to become a partner requires a conscious act on the part of Ms Mok and cannot be done by an “omission” as claimed by the defendant.

35. Fourth, what the defendant has not mentioned is the fact that Mr Lee was prepared to pay RMB520,000 (as contrast to the RMB400,000 agreed by the plaintiff under the July 2011 Contact) for his cross-border licence.  This in itself in my view has provided a good incentive for the defendant to allow Mr Lee to take precedent over the plaintiff’s application. 

36. Last but not the least, I note that the defendant has not explained in the defence and in any of his 3 affirmations of how he or Ms Mok could have transferred Sun Tak Hing to Mr Lee without forging the signature of the plaintiff.  In my view, giving authority to process the application does not include the authority to forge the plaintiff’s name on an official document.  It is obvious that this was what the defendant or Ms Mok had done without the consent or authority of the plaintiff.

37. Hence, I am of the view that there was no clerical omission at all made by the defendant.  He was clearly in breach of the July 2011 Contract.

(ii)   Was the Settlement Agreement entered through illegitimate pressure, duress and undue influence?

38. In the defendant’s 1^st affirmation (D’ 1^st Aff), he particularized the illegitimate pressure, duress and undue influence as follows:-

“In particular, the Plaintiff had threatened my former staff Ms Mok and I by saying that he would report the matter to the Police in order to ruin our reputation and life. The Plaintiff also attended my home address with other persons unknown to me which created a lot of fear for my family. It was under these circumstances that I paid the Plaintiff HK$375,000 through an associate Mr. Cheung. At the time, I considered the HK$375,000 to be the equivalent of a refund of the RMB300,000 paid by the Plaintiff. However, if I was not under illegitimate pressure, duress and undue influence at the time, I would not have paid the HK$375,000 as I have incurred expenses and rendered my services to the full for the application for the licence.” . [See D’s 1^st Aff §9]

39. On 26 January 2017, the defendant filed another affirmation (“D’s 2^nd Aff”) in opposition. In this affirmation, he gave further details to the alleged illegitimate pressure, duress and under influence as follows:-

“I reiterate that the Plaintiff had on occasions over telephone made threats to both my former staff, Ms Mok, and me, by asking us to “be careful” and saying that he we going to ruin us by instituting falsely accused criminal charges, namely the alleged forgery of signature, against us at relevant Hong Kong and Mainland Government authorities …….

And on 7^th January 2017, the Plaintiff, accompanied by persons unknown to me, had visited my home and handed me a demand letter.  The showing up of the Plaintiff and his unknown companions at my home together with the delivery of the formal demand were not and could not be for the collection of an unpaid cheque as alleged by the Plaintiff, but to further exert duress and/or pressure on me ……

As a result of the pressure of an unfounded criminal litigation and my concern for Ms Mok, I entered into the Settlement Agreement with the Plaintiff.”[See D’s 2^nd Aff §§15 -- 17]

Legal Principles Involved

Illegitimate pressure

40. It is trite that for an act or an act to amount to economic duress, the defendant must show that the pressure applied was illegitimate.  In Barton v Armstrong [1976] AC 104, 121, the Privy Council noted that:-

“…… many acts are done under pressure, sometimes overwhelming pressure, so that one can say that the actor had no choice but to act.  Absence of choice in this sense does not negate consent in law: for this the pressure must be one of a kind which the law does not regard as legitimate.  Thus, out of the various means by which consent may be obtained - advice, persuasion, influence, inducement, representation, commercial pressure - the law has come to select some which it will not accept aa reason for voluntary action: fraud, abuse of relation of confidence, undue influence, duress or coercion.  In this the law, under the influence of equity, has developed from the old common law conception of duress - threat to life and limb - and it has arrived at the modern generalisation expressed by Holmes J – “subjected to an improper motive for action”: Fairbanks v Snow, 13 NE Reporter 596, 598.”

41. Further, in R v Attorney-General for England and Wales [2003] EMLR 24, Lord Hoffmann in the Privy Council case opined that there is a need for both “the pressure amounting to compulsion of the will of the victim” and “illegitimacy of the pressure”.

42. Thus, the test for illegitimate pressure established in the light of the authorities should now be distinguished from the test of “coercion of will, which vitiates consent” as provided in Pao On v Lau Yiu Long [1979] I-HKLR 225 at 240.

43. In determining whether the test for illegitimate pressure is satisfied, Dyson J in DSND Subsea Ltd v Petroleum Geo Services ASA [2000] BLR 530 suggests that the court takes into account a range of factors including, insofar as is relevant, whether the victim had any realistic practical alternative but to submit to the pressure, whether the victim protested at the time and whether the victim affirmed and sought to rely on the contract.  The judge reinforced the distinction between illegitimate pressure and the every-day legitimate pressures.

44. The burden of proof is on the defendant to show that there is sufficient causal link between the alleged duress and entering the Settlement Agreement.  Hence the test for causation in economic duress is a “but for” test: Dimskal Shipping Co SA v ITWF [1992] 2 AC 152, 165.

Duress

45. The law of contract currently recognizes three types of duress: duress to the person, duress to goods and economic duress.

46. Chitty on Contracts 32^nd Ed §8-003 provides that:-

“A contract which has been entered as the result of duress may be avoided by the party who was threatened. It has long been recognised that a threat to the victim’s person may amount to duress …... the wrongful or illegitimate threat must have had some causal effect on his decision to enter the contract, but the causal requirements may differ between the various kinds of duress.”

47. As a general rule, the law recognises no duress to person where there are no threats of actual, threatened physical violence or unlawful constraint of a person or his family: Chitty on Contracts 32^nd Ed para 8-012.  Where there are alleged physical violence or unlawful constraint, it is for the plaintiff to disprove on a balance of probabilities that there is no causal link between the alleged violence or unlawful constraint and entering the contract: Chitty on Contracts 32^nd Ed §8-026.

48. The test for causation in duress to the person is whether the alleged physical violence or unlawful constraint did not induce the defendant to enter into the Settlement Agreement in any way.  The burden of proof is on the plaintiff: Barton v Armstrong [1976] AC 104, 120-121.

Undue influence

49. For actual undue influence, Lord Nicholls in Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 found that actual undue influence involves “overt acts of improper pressure or coercion such as unlawful means”.  The burden of proof is for the defendant to prove that the plaintiff actually exerted improper pressure or coercion for the defendant to enter into the Settlement Agreement.

50. In order to find undue influence on the part of the plaintiff, the defendant must show, firstly, that the plaintiff had the capacity to influence the defendant, secondly, that the plaintiff did influence the defendant, thirdly, that the exercise of this influence was undue, and finally, that the Settlement Agreement was entered into because of the undue influence.  In a situation of actual undue influence, it is not necessary to show that the Settlement Agreement was manifestly disadvantageous to the defendant.

51. As for presumed undue influence, the defendant may rely on the defined types of relationships recognized by the law which imposes a rebuttal presumption of undue influence: see Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773.  Alternatively, if the defendant satisfies the court that trust and confidence is reposed to the plaintiff and that the Settlement Agreement is not readily explicable other than as resulting from undue influence, the evidential burden of proof of undue influence shifts to the plaintiff to rebut such a presumption.

Applying the law to our present case

52. I agree with Mr Sio’s submission that, even putting the defendant’s case to its highest, the defendant is only alleging that the following acts would amount to illegitimate pressure, duress and undue influence in this case:-

(1) The plaintiff threatened the defendant and Ms Mok that he would report the forgery to the police and company registry in Hong Kong and the authorities in the Mainland; and

(2) the plaintiff attended the defendant’s home, with several other persons, to serve a formal demand letter on him.

53.  I am of the view that the above alleged acts on the part of the plaintiff would not constitute to illegitimate pressure, duress and undue influence.  I also find that the defendant did not enter the Settlement Agreement due to those alleged illegitimate pressure, duress and undue influence. 

Ground 1: Illegitimate pressure

54. Mr Gilbert Chong, the defendant’s counsel, in his submission claims that the plaintiff had threatened and intimidated to “ruin the reputation and life” of the defendant and Ms Mok.  He also claims that the plaintiff had also expressly threatened to proceed with a “false accusation” to the police and the company registry against the defendant and Ms Mok for an alleged forgery of signature.  It was as a result of those threats that the defendant “was forced” to enter the Settlement Agreement. 

55. With respect, I do not agree. 

56. First, I do not find there was any “illegitimate pressure” exercised on the part of the plaintiff which resulted in the “compulsion of the will” of the defendant: R v Attorney-General for England and Wales [2003] EMLR 24.  From the evidence, it is apparent that that the plaintiff had not signed any official documents to enable a “transfer” of Sun Tak Hing to Mr Lee.  Mr Lee in his defence in DCCJ 157 of 2017 (brought by the plaintiff against him) also claims that “at no time (he) been made aware of the existence of the form, perused, filled his particulars and/or signed on the form as alleged.” 

57. The defendant claims that the plaintiff had given full consent and/or authority to the defendant to do all things necessary for the procurement of the Licence, including but not limited to the signing of all necessary documents on behalf of the plaintiff.  However, neither the defendant (in his 3 affirmations) nor Ms Mok (who has not filed any evidence) has denied that the signature of the plaintiff on the form filed with the business registration office was “forged”.  They only said that the mistake was due to a “clerical omission”.  I find that signing an official document without consent by the person who is required to sign it could prima facie amounting to forgery. As such, the plaintiff’s threat to report the matter to the authorities in my view is totally legitimate and proper.  Obviously, if the defendant and Ms Mok were charged and convicted of the offence, the natural consequence is that their “reputation and life” would be ruined. 

58. I further note there was no allegation of violence or threats to their personal safety had been uttered by the plaintiff or the “group of persons” when they visited the defendant’s home.  I therefore do not find there was anything illegitimate about what the plaintiff might have said to the defendant. 

59. More importantly, in my view, the defendant and Ms Mok had other alternatives opened to them.  For example, they could have reported the matter to the police if they thought what the plaintiff and his companions had done was illegal, ie they were falsely accused of forgery.  They could have produced copies of the documents filed with the business registration office to prove their innocence.  They could have consulted their lawyers, obtained proper legal advice and took whatever appropriate actions deem necessary to protect their own interest.  Instead, the defendant affirmed the Settlement Agreement by paying HK$375,000 to Mr Cheung on 16 July 2014 as the first part of the settlement sum.

60. In the circumstances, I find that the defendant has failed to show that he was under illegitimate pressure when he entered into the Settlement Agreement.

Ground 2: Duress

61. There is no allegation as to duress to goods and economic duress made by the defendant in the present case.  In relation to duress to person, I accept the plaintiff’s submission that attending the place of residence with other persons unknown to the defendant with no actual or threatened physical violence did not amount to any duress to person.  There was also no suggestion of any unlawful constraint of the defendant.

62. Looking at the matter from the plaintiff’s point of view, after the breach of the July 2011 Contract by the defendant and in view of the repeated refusal to answer his telephone calls, the plaintiff had little alternative but to physically present himself at the place of defendant’s residence and by handing over a demand letter to him.  I do not consider the contents of the demand letter say anything beyond what legitimate channels were then opened to the plaintiff to bring the matters to the attention to the authorities both in the Mainland and in Hong Kong.  I do not consider that would amount to duress.    

Ground 3: Undue influence

63. In relation to undue influence, the parties were not in a defined type of relationship provided for by law where actual undue influence will apply.  As for presumed undue influence, I find there was no evidence of any undue influence made by the plaintiff.  In my view, the defendant was well aware of the legal consequences if he refused to enter into the Settlement Agreement.

Conclusion on the summary judgment application

64. In the above stated premises, I would allow the plaintiff’s application for summary judgment in the sum of HK$375,000.

65. I am however not satisfied that the plaintiff has made out a claim for renting the replacement licence for 42 months at RMB8,000 per month which totalled at RMB336,000 for the simple reason that the evidence shows that RMB8,000 per month was for the renting of a luxury limousine (a Bentley) which came with a cross-border licence.  I do not consider that equals to “renting” a replacement license.

The Order 29, rule 1 application

66. As the interim payment application is made alternative to the summary judgment application, given the fact that I have found in favour of the plaintiff in the Order 14 application, I do not need to deal with this summons.  Suffice it to say that even if I were not to grant judgment in favour of the plaintiff, given that rather shadowy nature of the defence, I consider that there are strong grounds either to order the defendant to pay the full amount of HK$375,000 into court as a condition to defend the matter or by way of interim payment to the plaintiff. 

CONCLUSION

67. For the aforesaid reasons, putting the defendant’s case to the highest, I do not find the defendant has established any credible defence in this case on the grounds of the allegation of illegitimate pressure, duress and undue influence in the defence.

68. Hence, I find that the defendant has failed to show that he has a good arguable defence to the claim. 

69. I therefore will order:-

(1) judgment be entered in favour of the plaintiff in the sum of HK$375,000 with interest calculated from the date of the breach of the Settlement Agreement on 24 July 2014 at 1% above prime rate until date of judgment and thereafter at judgment rate; and

(2) the defendant to pay the costs of the plaintiff of the action, including the costs of filing the 3^rd affirmation and the adjournment of the hearing before Deputy Judge Johnny Ma on 2 March 2017, with certificate for counsel.