HCA 2203/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2203 OF 2006
____________
BETWEEN
全景投資有限公司
1st Plaintiff
林徵嫦
2nd Plaintiff
鄭建征
3rd Plaintiff
and
程練傳
1st Defendant
譚瑞 (已故) 譚瑞遺產管理人
2nd Defendant
偉恆昌有限公司
3rd Defendant
____________
Before: Mr Recorder A Ho, SC in Court
Date of Hearing: 5-8, 13, 15 & 30 March 2012 and 10 April 2012
Date of Judgment: 26 April 2013
______________
J U D G M E N T
______________
Background and the Parties
1. Madam Lam Ching Sheng (林徵嫦) (the 2nd plaintiff) and her husband Mr Cheng Kin Ching (鄭建征) (the 3rd plaintiff) were shareholders and directors of Pegasus View Investment Limited (“Pegasus” ) (全景投資有限公司 formerly known as 好景投資有限公司 ) (the 1st plaintiff).
2. Mr Ching Lin Chuen (程練傳) (the 1st defendant) and Madam Tam Shui (譚瑞) (the 2nd defendant, now deceased) held shares in a company called Wai Hang Cheong Co Ltd (“WHC” ) (the 3rd defendant). At the time relevant to the dispute, the 1st defendant and Madam Tam held 66% of the shares in WHC. The other 34% was held by a Chinese investor. WHC’s business involved the development of village houses in the New Territories.
3. Madam Tam passed away on 26 June 2000. Madam Tam and her husband, Mr Chan Yat Man (陳逸民) have 2 sons, Mr Chan Yung Hang Henry (陳用恆) (“Henry” ) and Mr Chan Yung Yu Jacky (陳用宇) (“Jacky” ). By order of the Court, these proceedings are carried on by Henry in place of the late Madam Tam as the 2nd defendant.
4. Another entity featuring in these proceedings is Polyline Development Ltd (“Polyline” ). Polyline used to carry on an estate agency business and was under the control of the 1st defendant and the late Madam Tam. Polyline was wound up on 25 June 2003. At the time, the 1st defendant and Jacky were its shareholders and directors.
5. This dispute concerned the plaintiffs’ investment in a project for the development of a number of village houses on a piece of land known as Lot Nos. 382, 383, and 390 in Demarcation District No. 26, in Sha Lan Village (沙欄村) in Tai Po. The area of the land was approximately 50,000 square feet, and it was intended that a total of 33 houses would be constructed on the land. It was also intended that an access road would be built for the development, and for that purpose Government approval and various parties’ consent would need to be obtained. (I would refer to the development project as “the Sha Lan Project” ).
6. In 1994, the following 3 documents were signed between the 1st defendant and Madam Tam of the one part and Pegasus of the other :
(i) an agreement in Chinese entitled合作發展大埔汀角沙欄村之丁屋協議書 dated 5 July 1994 (hereinafter referred to as “the Small House Agreement” );
(ii) an agreement in English for the sale and purchase of shares in WCH dated 12 July 1994 (“the Share Transfer Agreement” );
(iii) an agreement in English entitled the Shareholders’ Agreement dated 12 July 1994 (“the Shareholders Agreement” ).
Where appropriate, I would refer to the 3 documents collectively as “the 1994 Agreements” .
7. The plaintiffs’ case, broadly described, was that by entering into the 1994 Agreements, Pegasus had acquired some interest in the Sha Lan Project. Meanwhile, in July 1997, Pegasus and WHC further agreed that the following 6 houses would, on completion, be regarded as belonging to Pegasus, namely, Lot 382X (block 12), Lot 382N (block 3), Lot 382G (block 27), Lot 382H (block 28), Lot 383D (block 32) and Lot 383E (block 33).
8. Pegasus paid $8.4 million plus its share of the construction costs[1] . However, despite the lapse of time, the construction work did not commence as contemplated and the village houses were never built. There was also problem with the access road because Government approval and the consent from other parties were not obtained.
9. The plaintiffs therefore issued court proceedings in June 1999 against the 1st defendant and Madam Tam (HCA 9502 of 1999). The plaintiffs claimed, among other things, that there was a breach of the Shareholders Agreement and sought a refund of the moneys paid with interest.
10. Shortly after the commencement of the proceedings, on 8 July 1999, Pegasus, the 2nd and 3rd plaintiffs of the one part and the 1st defendant, Madam Tam and Polyline of the other part entered into an agreement entitled和解協議書 (“the Settlement Agreement” ). The Settlement Agreement was written in Chinese and according to its terms, the 1st defendant, Madam Tam and Polyline would “re-purchase” half of the plaintiffs’ interest in the Sha Lan Project, more particularly in relation to the interest in blocks 28, 32 and 33 as well as the right to the use of 9 carparking spaces. But subject to the said “re-purchased interest”, the 1994 Agreements would continue to be applicable to the remaining half of the plaintiffs’ interest in the Project. (I would adopt the abbreviation in the Settlement Agreement and refer to the said remaining interest as “the Remaining Half Interest” ).
11. The plaintiffs alleged that during a conversation on 29 September 2006, the 1st defendant informed them that it would no longer be possible to perform the agreements between them. The reason allegedly given by the 1st defendant was that the interest in the remaining 3 blocks or the 9 carparking spaces had already been used to meet some private liabilities of the 1st defendant and the late Madam Tam. Considering that to be a breach of the relevant agreements, the plaintiffs commenced the present Action on 3 October 2006.
12. The defendants had invoked the Limitation Ordinance as a defence insofar as the plaintiffs’ causes of action were based on the Small House Agreement and the Settlement Agreement[2] .
13. Before I turn to the evidence, it is necessary to note an amendment to the plaintiffs’ case at the beginning of the trial.
The Re-Re-Re-Amended Statement of Claim
14. At the commencement of the trial, the Statement of Claim had already undergone several amendments to become the Re-Re-Re-Amended Statement of Claim (“the RRRASoC” ) (drafted in Chinese). One of the earlier amendments was the result of an order by the Master to strike out all the contractual claims against WHC because WHC was not in fact a party to any of the 1994 Agreements or the Settlement Agreement.
15. In the RRRASoC there remained a claim that the Remaining Half Interest was held by the 1st defendant, the late Madam Tam and WHC on trust for the plaintiffs[3] . It was necessary therefore to understand the exact nature of the Remaining Half Interest and how the trust was said to have arisen or was created. As the Remaining Half Interest was defined by reference to the half interest retained under the Small House Agreement[4] , it in turn became necessary for the plaintiffs to identify precisely the subject matter allegedly acquired by Pegasus under the Small House Agreement in the first place.
16. The RRRASoC was, unfortunately, rather uninformative. In respect of the Small House Agreement, it was pleaded that:
“4A. 丁屋協議書內的有關條文包括以下:-
(1) 第一被告人及死者持有第三被告人所佔有大埔陳村D.D. No. 26 LOT No. 382, 383 及390 該地盤面積約五萬呎的業權百份之六十六(66%)，該地盤現已向政府申請丁屋三十三間;
(2) 第一被告人及死者同意讓出佔有第三被告之百分之六十六(66%)的百份之二十七點五四(27.54%)股份予第一原告人(即代表六幢完整的丁權，業權及十八個業主車輛使用權於公司停車場內);
(3) 該六幢完整的丁權，業權及十八個業主車輛的使用權以作價港幣13,200,000.00出售予第一原告人;
(4) 如果政府批出的丁屋不足三十三座時，第一原告人仍擁有六座的丁屋，另十八個單位業主車輛有權泊車於公司停車場內。”
It was further pleaded that
“4B. 于1994年7月12日，第一被告人及死者與第一原告人簽訂了有關轉讓第三被告股權的英文協議 (下稱「股權轉讓協議」)。
4C. 同于1994年7月12日，第一被告人及死者與第一原告人簽訂了有關第三被告人的英文股東協議 (下稱「股東協議」)。
4D. 股東協議的內容確認第一原告人上述六幢完整的丁權，業權及十八個業主車輛使用權於公司停車場內的權益。”
17. One cannot tell from paragraph 4A whether it was the plaintiffs’ case that the subject matter of the sale and purchase under the Small House Agreement was the shares in WHC, or some form of proprietary interest in the land and/or the 6 village houses together with the use of the carparking spaces, or some other form of contractual rights or choses-in-action in the Sha Lan Project. And further, if it were the plaintiffs’ case that some form of proprietary interest or choses-in-action had been acquired, the basis of such contention was not properly formulated in the RRRASoC, whether by reference to the terms of the various agreements or otherwise.
18. Because of the failure to identify properly the subject matter of the transaction under the Small House Agreement, the exact nature of the “Remaining Half Interest” would likewise become obscure. It was almost impossible to know from reading the RRRASoC how a trust over such interest was allegedly created or had come into being[5] .
19. Precision of the plaintiffs’ pleaded case is particularly important, given the implication of the limitation defences. As has been emphasised, the nature of one’s case should be clearly set out in the pleading so as to enable the other side to be informed of the case he has to meet. It is perhaps worth repeating that under Order 18, rule 7(2) of the Rules of the High Court, it is a requirement that the effect of any material documents relied upon should be pleaded. It would not be proper merely to repeat the words contained in the documents. See also §18/7/13, Hong Kong Civil Practice 2013.
20. In this instance, the defendants had justifiably complained that the pleading of the trust was as embarrassing as it was defective. There was no attempt in the RRRASoC to identify the nature of the interest over which the trust was alleged to have arisen, or the manner in which the trust was created, or the nature of the alleged trust itself. In the event, I have ordered that the plaintiffs’ allegations and any reliefs concerning the trust be struck out.
21. Consequently, what remains of the plaintiffs’ case is solely a contractual claim against only the 1st and 2nd defendants. No relief is now sought against the 3rd defendant.
The Current Statement of Claim
22. The plaintiffs’ case was further amended and is now set out in the Re-Re-Re-Re Amended Statement of Claim (“the Current SoC” ). The essence of the plaintiffs’ case is that by entering into the Small House Agreement and the Shareholders Agreement, the 1st defendant and the late Madam Tam had undertaken, impliedly, to procure the conveyance of 6 village houses plus the granting of the right to use 18 carparking spaces to Pegasus. Later, by entering into the Settlement Agreement, the 1st defendant and Madam Tam had agreed to remain bound by the 1994 Agreements, although only in respect of 3 (instead of 6) village houses (in particular, blocks 12, 3 and 27) and 9 (instead of 18) carparking spaces.
23. The first issue requiring determination is whether the agreements had indeed given rise to the implied obligations on the part of the 1st defendant and Madam Tam to procure the conveyance of the village houses and the granting of the alleged rights to use the carparking spaces as alleged (“the Implied Obligations” ).
24. First, the Small House Agreement is in the following terms:
“合作發展大 埔 汀角沙欄村之丁屋協議書
甲方: 程練傳和譚瑞現持有偉恒昌發展有限公司佔有大埔陳屋村D.D. No.26 LOT No.382, 383, 390, 該地盤面積約五萬呎的業權百份之六十六，該地盤現已向政府申請丁屋三十三間，甲方業權人保証偉恒昌發展公司沒有向外舉債，而且是一間新組成公司，除了擁有以上的地段業權之外，還未有其他的運作。
乙方: 好景投資有限公司，由鄭建征及林征嫦各佔一半股份比例組成。
雙方經過友好協商，甲方願意讓出 偉恒昌發展有限公司之百分之六十六的百分之二十七點五四股份出讓給乙方 ( 擁有六幢完整的丁權，業權及十八個業主車輛使用權於公司停車場內 )
1. 共同發展
2. ……
5. 甲方應負責向政府申請的一切費用及村民的交際費及福利費用及雜費。乙方應負責公司護土牆及做路及建屋的工程費的百分之十八點一八款項。
6. 如果政府批出的丁屋不足三十三座時，乙方仍擁有六座的丁屋，另十八個單位業主車輛有權泊車於公司停車場內
(emphases added)
25. When one turns to the Shareholders Agreement, one finds the following statements in the Recitals:
“(3) The Company [i.e. WHC] now owns the landed property particularly set out in the Second Schedule [i.e. Lots 382, 383, and 390 in D.D. 26, Tai Po] (hereinafter called ‘the Property’). ……
(4) By an agreement in Chinese made on the 5th day of July 1994, between Party A [i.e. Madam Tam and the 1st Defendant] and Party B [i.e. Pegasus] and by an agreement made on the 12th day of July 1994 between Party A and Party B ……, Party A transferred 1,818 shares representing 18.18 percent (18.18%) of the issued shares of and in the Company to Party B (hereinafter called ‘the Transferred Shares’). The Transferred Shares represent 18.18% of the Property of the Company which the said percentage shall in turn represent six (6) blocks of small village houses to be erected on the Lots referred to in the Second Schedule hereto and the right of the owners of the said six blocks (i.e. eighteen units) to use the eighteen car parking spaces thereon for the said six blocks of small village houses.
(emphasis added)
26. Immediately, one sees that the terms of the Small House Agreement are quite different from a typical sale and purchase agreement of landed property. The Small House Agreement did not expressly provide that it was a sale and purchase of the property concerned. Instead, it contemplated the sale of the shares in WHC. The plaintiffs apparently proceeded on the basis that the sale of the shares somehow also carried with it some interest relating to 6 village houses (to be built) and the use of 18 carparking spaces. But the interest was rather ill-defined in the document.
27. The drafting of the Shareholders Agreement is also problematic. First, Recital (3) was not consistent with the records produced in evidence at the trial. According to the Land Register, for a short period in 1992 the registered owner of 6 sections of the land (namely, Sections X, N, G and H of Lot 382; and Sections D and E of Lot 383) was Polyline (not WHC). But even Polyline itself held the title only for a short time before it was transferred to various individuals. There was nothing to support the statement in the Recital that as of the time of the agreement WHC was the owner of Lots 382, 383 and 390. The highlighted part of Recital (4) is also confusing. It is difficult to understand, in legal terms, what exactly was meant by the phrase “The Transferred Shares represent 18.18% of the Property of the Company which the said percentage shall in turn represent six blocks of small village houses … etc.”
28. The evidence revealed that this was a project involving the development of indigenous village houses. An important feature of the project was to secure the participation of the indigenous villagers so that applications could be made in their names to the government authority for the building of village houses. The exploitation of the indigenous rights was not entirely risk-free. It would require negotiations and arrangements with the villagers to secure their co-operation. In cross-examination, the 1st defendant asserted that the development rights belonged to WHC but there was nothing in the evidence to shed light on what those rights were or how they were vested in WHC. As far as the plaintiffs were concerned, they had little control over the actual arrangement between WHC and the villagers. They could only rely on the Small House Agreement or the Shareholders Agreement for protection of their investment. However, as noted above, the drafting of the agreements had posed considerable difficulties and consequently the position of the plaintiffs became rather precarious when dispute arose, as it did in the present case.
29. Returning to the Implied Obligations, I would first agree with Mr Yip (counsel for the 1st and 3rd defendants) that the plaintiffs were wrong to regard the Small House Agreement as having an express term that the entire indigenous and proprietary rights of 6 village houses and 18 carparking spaces had been sold to Pegasus[6] . The Small House Agreement clearly did not contain such a term.
30. Secondly, what was agreed to be sold or transferred under the Small House Agreement was stated to be “偉恒昌發展有限公司之百分之六十六的百分之二十七點五四股份 ” (“27.54% of the 66% shareholding in WHC ”). Although it also suggested that such shareholding in WHC would translate into some interest in 6 village houses and the right to use 18 carparking spaces, that latter interest (only loosely connected to the shareholding) was not stated to be the subject of the sale and purchase.
31. Thirdly, clause 1 of the Small House Agreement provided that the parties were jointly to develop (“共同發展” ) the Sha Lan Project. This was also reflected in Recital (5) of the Shareholders Agreement:
“(5) The parties hereto have agreed to co-operate in the establishment and management of the business …… through the medium of the Company [WHC]……”
The stated intention was for both parties jointly to develop the Project. This, in essence, was an investment by the plaintiffs (more precisely, by Pegasus) in the Sha Lan Project by way of taking shares in WHC. The success or otherwise of the plaintiffs’ investment would, of course, be tied up with that of the Project and whether the eventual sale of the houses would yield a profit. But being an investor in a project rather than a purchaser of properties, I could see nothing (whether on the face of the documents or otherwise) in support of the plaintiffs’ case that the 1st defendant and/or Madam Tam had undertaken to procure the conveyance of the properties or the granting of the rights as alleged.
32. Fourthly, and significantly, clause (4) of the Shareholders Agreement was in the following terms:
“4. Payment
In consideration of the said premises and the Transferred Shares by Party A to Party B, Party B agrees to pay to the Party A …… etc.”
The consideration of the payment was stated to be for the Transferred Shares and “the said premises”. For the reasons already discussed, I am unable to agree with the contention that (apart from the Transferred Shares) the payment was made in return for some undertaking that there would be a conveyance of the properties and granting of the rights as alleged.
33. Fifthly, the Small House Agreement and the Shareholders Agreement were both silent as to the term allegedly implied. I have not, in this connection, overlooked clause 6 of the Small House Agreement and clause 8 of the Shareholders Agreement, the latter being as follows:
“8. Non-occurrence
In the event if the number of small village houses permitted to be constructed in the Property is less than thirty three blocks, Party A undertakes that they shall grant and procure to grant to Party B six (6) blocks of small village houses and the right of the owners of the said six blocks to park in the car parking spaces of the Company.”
What was contemplated in the above provision, in my view, was that if and when the number of houses eventually developed turned out to be fewer than 33 because the number approved by the relevant authority was reduced, among those eventually completed Pegasus would still be entitled to a transfer of 6 of them together with the corresponding rights to the use of the carparking spaces. It was not, however, an implied assurance by the 1st defendant and/or Madam Tam that they would in effect guarantee the success of the plaintiffs’ investment by promising to procure a conveyance and granting of the properties and the rights as alleged.
34. For the reasons aforesaid, I would reject the case of the plaintiffs that there was an implied undertaking from the 1st defendant and/or Madam Tam to procure the conveyance of 6 village houses plus the granting of the right to use 18 carparking spaces to Pegasus under or pursuant to the Small House Agreement and/or the Shareholders Agreement.
35. As for the Settlement Agreement, it would be remembered that it was preceded by an agreement in July 1997 whereby the parties had identified the 6 houses to be conveyed to Pegasus when completed. The Settlement Agreement, made in July 1999, contained the following material terms:
“ 有關合作發展大埔汀角沙欄村之丁屋計劃
和解協議書
此和解協議書之簽定日期為一九九九年七月八日
甲方: 好景投資有限公司(以下簡稱“好景”)；和 林徵嫦(以下簡稱“林”) 及鄭建征(以下簡稱“鄭”)
乙方: 程練傳(以下簡稱“程”)，譚瑞(以下簡稱“譚”)；和寶富來發展有限公司(以下簡稱“寶富來”)
1. 根據“合作發展大埔汀角沙欄之丁屋中文協議書”(以下簡稱“中文協議書”，該中文協議書之日期為一九九四年七月五日)，“股東協議書” (以下簡稱“股東協議書”)和“同意書” (以下簡稱“同意書”)(該股東協議書和同意書的簽定日期為一九九四年七月十二日)，好景為一方，程和譚為另一方 ，同意(中文協議書、股東協議書和同意書三份文件簡稱“三文件”)依照三文件內之條件及條款合作發展三文件中提及的物業
…
現雙方同意細列如下:
1. 程、譚和寶富來以港幣肆佰貳拾萬元(HK$4,200,000.00)及利息港幣貳拾伍萬元(HK$250,000.00)，即合共港幣肆佰肆拾伍萬元正(HK$4,450,000.00)買回 該項發展之利益和權利之一半
2. 當整筆款項全數港幣叁佰叁拾捌萬壹仟捌佰伍拾伍元正(HK$3,381,855.00)支付後，好景、林和鄭需轉讓或轉名他們在該項發展之利益和權利之一半予程、譚和寶富來或其委託人之名下，而好景、林和鄭餘下一半利益、權利和責任仍不受任何影響(以下簡稱“剩餘一半利益”)。在三文件中之條件和條款，除由於上述所指利益和權利轉讓或轉名而需要作出因應之修改外，仍繼續適用於剩餘一半利益及仍然有其效力和約束力。
(emphasis added)
36. The Settlement Agreement merely provided that the rights and obligations under the 1994 Agreements would continue to apply subject to a reduction in the number of houses and carparking spaces concerned. The Settlement Agreement did not independently create any rights or interest in relation to the “Remaining Half Interest”. Therefore, in view of my earlier rejection of the alleged implied undertaking, it must follow that no such undertaking could arise or be maintained under the Settlement Agreement.
37. In summary, the plaintiffs had failed to establish the implied terms and undertakings allegedly under the Small House Agreement, the Shareholders Agreement, and the Settlement Agreement as pleaded in paragraphs 4AA, 4DDD and 6AAA of the Current SoC.
The Alleged Repudiation
38. Although it is now strictly unnecessary to do so, for completeness I would set out my findings on the issue of repudiation by reason of the alleged conversation between the 2nd plaintiff and the 1st defendant on 29 September 2006.
39. It is not disputed that after the Settlement Agreement in 1999, $4.45 million was returned to the plaintiffs. However, the Sha Lan Project had still not made much progress. It would be recalled that Polyline was wound up in June 2003.
40. In the meantime, Madam Tam passed away in 2000. The 2nd plaintiff herself was declared bankrupt in May 2001. Her bankruptcy was discharged in 2005. She was in need of money and approached Mr Chan Yat Man. She enquired with him about another debt due to her from the late Madam Tam and the progress of the Project.
41. In about April 2006, the 2nd plaintiff made inquiry with Mr Chan about the progress of the Sha Lan Project. In response to her enquiry, a document entitled 合作發展大埔汀角沙欄村丁屋協議書 (二零零六年四月份補充文件) (“the Supplementary Document” ) was sent to her, confirming that Pegasus was holding 9.09% of the shares in WHC and the shares were said to be worth $4.62 million. The document assured her that blocks 3, 12 and 27 were allocated to Pegasus. It also confirmed that two-thirds of the emergency vehicle access had been completed, and the problem concerning the access road should be resolved within one to two years and thereafter construction of the houses would commence. The Supplementary Document was signed by Henry on behalf of WHC. I believe that the 1st defendant and the Chans had full knowledge of the Supplementary Document. It was their attempt to address the 2nd plaintiff’s concern over the lack of progress in the Sha Lan Project.
42. In September 2006, the 2nd plaintiff chased the Chans again for the outstanding sums owing by the late Madam Tam. The 2nd plaintiff threatened to sever her friendship with the Chans if no satisfactory response was received. The evidence of the 2nd plaintiff, which I accept, was that Mr Chan Yat Man told her that the 1st defendant had been successful in his business and was financially much better off than the Chans. He then gave her a draft letter to be sent to the 1st defendant (and also to the Chans) stating that in view of the long delay of the Project, she would ask that either a loan be made to her or there should be a return of her investment to relieve her financial difficulty. She faxed the letter to the 1st defendant on 28 September 2006.
43. This prompted a phone call from the 1st defendant in the morning on 29 September 2006. The 2nd plaintiff and the 1st defendant gave difference versions of the conversation. It is the 2nd plaintiff’s evidence that during this conversation, the 1st defendant had intimated that WHC no longer had any assets and that Pegasus’ interest in the 3 village houses was already lost. The 1st defendant further explained that because the WHC shares were held by Polyline and because of Polyline’s winding-up, its creditors had taken possession of all the 33 houses in the Project for a very low price. Since Polyline was a limited company, its liability had nothing to do with him. The 1st defendant asked her not to contact him again.
44. In contrast, the 1st defendant said in his witness statement that he and the 2nd plaintiff had a short meeting at his office in Tai Po. He told her that Polyline had been wound up for failing to pay off its debts. She was angry. He ignored her and left the office. In cross-examination, he added that there was also a telephone conversation, during which he assured the 2nd plaintiff that Pegasus held shares of WHC and not Polyline. Pegasus’ interest was still intact. The 2nd plaintiff said she needed money and he responded by saying that he had to discuss it with his partners. The 1st defendant denied having informed the 2nd plaintiff that the Remaining Half Interest or the 3 village houses had been disposed.
45. I bear in mind that the event took place some years ago in 2006. I am not convinced that either party would remember the exact words used in the conversation. What is more, being parties to these proceedings both the 2nd plaintiff and the 1st defendant had an interest to serve and might be selective in recounting what was remembered of the conversation between them.
46. Further, as a general observation concerning the 1st defendant as a witness I have to say that I do not form a very favourable view of him. His omission in mentioning the telephone conversation in his witness statement is puzzling and his explanation of the omission was wholly unsatisfactory. I pause here also to refer to another matter concerning the transfer of Section X of Lot 382 (that is, allotted for block 12) to one Sunfair Corporation Limited, a company apparently related to Madam Tam. The transfer took place on 18 January 2006. I believe the 1st defendant was fully aware of the transaction but tried to distant himself from it in cross-examination. He had not disclosed the transfer to the plaintiffs. I do not accept his explanation that the transfer was occasioned by the need to substitute another indigenous villager for the one initially approached. On this and other occasions I find him evasive. The 1st defendant did not give the impression of being an entirely truthful witness.
47. Returning to the issue of the communication on 29 September 2006, I have not overlooked the case pleaded by the plaintiffs in the RRRASoC. The version then was that 1st defendant had informed them that the Remaining Half Interest had been disposed of for the purpose of discharging the private liabilities of the 1st defendant and Madam Tam[7] and that version was different from her evidence now given. Despite that inconsistency, on balance I would still prefer the 2nd plaintiff’s version of the conversation as set out in paragraph 43 above to that of the 1st defendant.
48. My view is that what the 1st defendant had said during the telephone conversation was effectively an intimation that it would no longer be possible to convey or grant the houses to Pegasus. Regardless of whether Polyline’s winding-up was a proper ground for non-performance, I have little doubt that the 1st defendant had deployed the creditors’ possession of the 33 houses as an excuse not to proceed with the contract. This, coupled with his telling the 2nd plaintiff not to contact him again, was clearly indicative of his intention to break off any contractual relationship with the plaintiffs. Therefore, had I been able to find for the plaintiffs’ on the issue of the implied terms (of procuring the conveyance of the houses and the use of the carparking spaces), I would have held that the conversation did amount to a repudiation of the contract.
49. But even so, there was no suggestion that the plaintiffs had accepted the repudiation of the relevant agreements. After the conversation, the plaintiffs promptly commenced the present proceedings but there was no plea to the effect that the Small House Agreement, the Shareholders Agreement and the Settlement Agreement were regarded as terminated on account of the repudiation. Further, when the 2nd plaintiff served the Writ on the 1st defendant on 3 October 2006, the 1st defendant told her to sort the matter out with Jacky. In the subsequent correspondence, there was nothing to indicate that the plaintiffs had regarded the relevant agreements as having been brought to an end.
50. Furthermore, there is the question as to whether the 1st defendant’s renunciation of the agreements was binding on the late Madam Tam or the Chans. My view is that it was not, but it is perhaps unnecessary to dwell further on this question. In the end, I do not think that the question of 1st defendant’s repudiatory conduct would have assisted the plaintiffs.
Money Had and Received
51. It is the plaintiffs’ case that pursuant to the Small House Agreement and the Shareholders Agreement, a total sum of $8.4 million plus a contribution towards the construction costs in the amount of $368,145 had been paid. The plaintiffs claimed that because the defendants “were no longer capable or willing to procure the conveyance and granting of the three blocks of small houses …. and the nine car parking spaces to the 1st plaintiff, the 2nd plaintiff and the 3rd plaintiff ”, the consideration for the $4.2 million (being the value of the Remaining Half Interest) and the construction costs had totally failed. The plaintiffs sought repayment of the money from the defendants on the basis of money had and received[8] .
52. First, in order to succeed on a restitutionary claim based on “total failure of consideration”, what constitutes the “consideration” must be carefully identified. In Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, Ribeiro PJ said:
“79. ‘Consideration’ in the context of a restitutionary claim based on total failure of consideration is the anticipated performance for which the money was paid, or the ‘basis or purpose’ of the payment: …… Thus, in Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32 at p.48, Viscount Simon LC stated:
‘In English law, an enforceable contract may be formed by an exchange of a promise for a promise, or by the exchange of a promise for an act ….. and thus, in the law relating to the formation of contract, the promise to do a thing may often be the consideration, but when one is considering the law of failure of consideration and of the quasi-contractual right to recover money on that ground, it is, generally speaking, not the promise which is referred to as the consideration, but the performance of the promise
80. It is accordingly crucial correctly to identify and characterise the transaction . Only then can one identify the relevant anticipated performance and ascertain whether it has totally failed.
(emphasis added)
53. Characterisation of the transaction had always plagued the plaintiffs in the present case. Insofar as the plaintiffs were putting forward a case that the performance required of the defendants under the Small House Agreement, the Shareholders Agreement and/or the Settlement Agreement was to procure the conveyance and granting of the village houses and the use of the carparking spaces, I have already expressed my view why such a term could not be regarded as having been implied into the various agreements. Since that was the only basis upon which the total failure of consideration argument rested, the plaintiffs’ contention must also be rejected.
Failure to Transfer and Register Shares of WHC
54. The plaintiffs further alleged that the 1st defendant and Madam Tam had failed to carry out the Shareholders Agreement to transfer and register the shares of WHC in favour of Pegasus. Such failure caused them loss and entitled them to damages[9] .
55. Exactly which provision(s) in the Shareholders Agreement was relied upon has not been identified. In any event, clause 5.1 of the agreement made no reference to an obligation to transfer shares. Instead, the Recitals contained the following statements :
“(2) As at the date hereof, the respective shareholdings of the parties hereto in the Company [WHC] is set out as follows :-
Shareholders No. of Shares
Tam Shui 2,391
Ching Lin Chuen 2,391
Century Main Investments Ltd 3,400
Pegasus View Investment Limited 1,818
(3) …
(4) By an agreement in Chinese made on the 5th day of July 1994, between Party A [i.e. Madam Tam and the 1st defendant] and Party B [i.e. Pegasus] and by an agreement made on the 12th day of July 1994 between Party A and Party B …, Party A transferred 1,818 shares representing 18.18 percent (18.18%) of the issued shares of and in the Company to Party B (hereinafter called ‘the Transferred Shares’) …”
56. The Recitals suggested that the 1,818 shares in the WHC had been transferred to Pegasus. But in any event, the Recitals were statements of facts and background circumstances, they were not generally meant to impose obligations on the parties. It is obvious that the plaintiffs could not simply rely on the Recitals to mount a case of breach of the Shareholders Agreement.
57. But even if one were to look into the evidence, one sees that WHC’s Annual Return filed in 2006 disclosed two categories of shares, the ordinary and non-voting shares. The Return showed that Pegasus did not hold any ordinary shares but there was no information who held the 10,000 non-voting shares. All in all, the evidence was not clear how the allotment of the shares had been dealt with. But quite apart from the problem of identifying the contractual basis of the alleged breach, the evidence on the issue was in my view quite insufficient to substantiate a complaint that the shares had not been transferred or registered.
58. It therefore becomes unnecessary to admit into evidence the instruments of transfer and other evidence sought to be produced by the 1st and 3rd defendant at the commencement of trial. In any case, I would not have been inclined to do so given the lateness of the evidence. At the end, in view of the unsatisfactory state of the pleadings and the evidence, the plaintiffs’ allegations concerning the failure to transfer shares must be rejected.
Damages
59. In the light of my discussion above, the question of damages is now academic. However, I will briefly set out my view on damages in case I am wrong on the above.
60. The plaintiffs claimed damages on the basis that Pegasus’ loss on account of the 1st and 2nd defendants’ failure to procure the conveyance of the 3 village houses and the granting of the use of the carparking spaces amounted to $4.2 million plus construction costs of $368,145[10] .
61. On the plaintiffs’ case, the breach occurred at the time of the 1st defendant’s repudiation of the relevant agreements, that is, on 29 September 2006. It must however be borne in mind that the plaintiffs had not accepted the repudiation. In other words, the relevant agreements had not in fact been terminated. It, therefore, would not be appropriate to value the loss by assuming that the entire investment had been lost. Besides, there was no evidence that such was indeed the case.
62. It is incumbent upon the plaintiffs to prove loss consequent upon the breach. The plaintiffs had not proved what loss was occasioned consequent upon the communication with the 1st defendant on 29 September 2006, while the relevant agreements were still afoot. [11]
63. Before I leave the subject, I should mention that the question relating to the deduction of $1.9 million, representing the amount of deposits received by Pegasus pursuant to an aborted sale of block 12 sometime in 1997, had been canvassed extensively by both sides in cross-examination. The 1st and 3rd defendants contended that the 1.9 million should be deducted from any damages recoverable by the plaintiffs to avoid double recovery. The 2nd plaintiff, on the other hand, maintained that the sum had already been deducted from the amount of interest set out in clause 1 of the Settlement Agreement and hence there was no question of any double recovery in the plaintiffs’ claim.
64. I do not accept the evidence of the 2nd plaintiff on this point. The question of the need to deduct the deposits received by Pegasus on a sale of block 12 was raised by the 1st and 3rd defendants in their Amended Defence (filed on 20 November 2010) (although the sum then claimed to be deductible was $950,000 instead of $1.9 million). The 2nd plaintiff’s witness statement filed on 29 May 2011, however, said nothing about sum having already been set off from the interest under the Settlement Agreement. The alleged set-off was also inconsistent with the plaintiffs’ own case that the interest in block 12 belonged solely to Pegasus. There was no reason for the plaintiffs to have accepted a set-off against the interest due to them because that would be tantamount to accepting that Polyline had a rightful claim to the deposits ($1.9 million) over block 12. Also, had there indeed been a set-off of the $1.9 million, I find it surprising that there was no express reference to it in the Settlement Agreement.
65. For completeness, I should mention that the plaintiffs had not given any particulars for damages on account of the alleged failure to transfer and register the WHC shares in favour of Pegasus. No assessment could therefore be made on that basis.
Defences
66. The plaintiffs have failed to prove their case. It is unnecessary to deal with the defences of limitation or lack of stamping of the relevant agreements.
Conclusion
67. The plaintiffs’ claim is dismissed.
68. I would make an order nisi that the defendants’ costs of the Action should be borne by the plaintiffs.
(Ambrose Ho, SC)
High Court
Mr Wong Chao Wai, Brian, instructed by Edward Lau, Wong & Lou, for the 1st plaintiff, and assigned by Director of Legal Aid, for the 2nd and 3rd plaintiffs
Mr Francis Yip and Mr James Wong, instructed by Ko & Chow, for the 1st and 3rd defendants
Mr Bok Tin Yuen, instructed by Fung, Wong, Ng & Lam, for the 2nd defendant
[1] On the evidence, Pegasus was to receive a discount and $8.4 million was the discounted sum actually paid, although the receipts showed that the several sums paid in 1994 and 1995 totalled $9.24 million.
[2] D1 and D3 had expressly pleaded the Limitation Ordinance as a defence, see Re-Re-Amended Defence §§9A(1) and 9B. D2, however, had only implicitly raised a limitation defence in §8 in the Re-Amended Defence.
[3] RRRASoC §6B and Prayer §(1A)
[4] RRRASoC §6A(2)
[5] RRRASoC, §6B
[6] Current SoC, §4A(3)
[7] RRRASoC, §8
[8] Current SoC, §§8A, 8B, 8BB & 8BBB.
[9] Current SoC, §§9A & 10
[10] Current SoC, §§6AAA & 9