CHEER SKY LTD v. CHAN YUET SHEUNG

HCA 939/2014

[2019] HKCFI 606

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 939 OF 2014

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(By Original Action)

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(By Counterclaim)

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JUDGMENT

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Index	Paragraph
Introduction	1
Introduction	1
The issues	4
The background	11
Credibility of witnesses	32
The tape recordings	48
The facts	55
The relationship between Luk Yu Wa, Grace Luk and Luk Ngan Ngor	55
Chan’s presence during the negotiation of the Provisional Agreement	57
Luk Ngan Ngor’s presence during the negotiation of the Provisional Agreement	62
The conversation during the negotiation	68
Representation as to the purchaser’s identity	76
The replacement of Luk Yu Wa’s cheque	78
Luk Yu Wa’s knowledge of the Structures	87
Luk Yu Wa’s ulterior motive	91
The plaintiff’s case	99
The facts	99
The subject matter of the Provisional Agreement	102
Waiver	113
Estoppel	117
The Defendant’s obligation to show and give good title	119
Specific performance	121
The Defendant’s counterclaim	123
Vivian’s ulterior motive	126
Luk Ngan Ngor’s conspiracy with Luk Yu Wa	128
Luk Ngan Ngor’s breach of fiduciary duty; and Cheer Sky’s knowing/dishonestly assisting in her breach of fiduciary duty	134
Conclusion	143
Conclusion	148

INTRODUCTION

Introduction

1.  This is an action for specific performance of a provisional sale and purchase agreement dated 27 February 2013 (the “Provisional Agreement”) in respect of a property known as Shop 25 on the ground floor of Ho Shun Lee Building, 9 Fung Yau Street South, Yuen Long (the “Property”), together with an abatement in purchase price and/or damages.  The basis of the claim of the plaintiff in the original action and the 1^stdefendant by counterclaim (“Cheer Sky”) is that the vendor defendant in the original action and plaintiff by counterclaim (the “Defendant”) failed to show and give good title to the Property by reason of extant unauthorised building works in the Property, namely the cockloft, the staircase leading to the cockloft and the toilet beneath it (collectively, the “Structures”).

2.  The Defendant does not dispute that the Structures are unauthorised building works.  Her defence is four fold.  First, Cheer Skyhad knowledge of the Structures and has waived or is not entitled to object or is estopped from objecting to defect in title caused by the Structures.  Second, Cheer Sky conspired with Luk Ngan Ngor, the 2^nd defendant by counterclaim and the proprietor of Wayson Properties Co (“Wayson”), the estate agency which introduced the Property to Cheer Sky, to procure the purchase of the Property below market value by taking advantage of the existence of the Structures. Third, Luk Ngan Ngor was in breach of her fiduciary duty qua fiduciary and Cheer Sky dishonestly assisted in the breach.  Fourth, Cheer Sky is not entitled to any equitable relief or specific performance by reason of lack of good faith.

3.  As against Cheer Sky and Luk Ngan Ngor, the Defendant counterclaims a declaration that: (1) the Provisional Agreement was validly terminated and that she is entitled to forfeit the deposits paid by Cheer Sky; and (2) she is not liable to pay any commission to Luk Ngan Ngor.  Further or in the alternative, she claims equitable compensation against Luk Ngan Ngor for her breaches of fiduciary duties and against Cheer Sky for its knowing/dishonest assistance in Luk Ngan Ngor’s breaches of fiduciary duty.

The issues

4.  The Defendant’s pleadings were excessive.  Many factual issues with no legal consequence were raised.  The situation was further complicated by the fact that Defendant was not legally represented. The issues raised by the parties in the pleadings are all factual.  I have no disagreement with the legal principles cited by Mr Chan, counsel for Cheer Sky and Luk Ngan Ngor, though I have to refer to a few trite legal principles of conveyancing and property law.

5.  Cheer Sky’s and Luk Ngan Ngor’s case is a very simple and straight forward case of specific performance.  It depicts a simple, honest old man contracting with an experienced property investor for the sale andpurchase of a property which unknown to the purchaser or both parties had some unauthorised building works which resulted in a defect in title.  But that experienced property investor unwittingly failed to make provisions in the Provisional Agreement to restrict or limit her obligation to give and show good title or to preclude Cheer Sky not to object to any defects in title caused by the existence of the Structures or to shift the risk of the defect in title to Cheer Sky.

6.  According to the Defendant, Luk Yu Wa is not a simple, honestold man, but a far more experienced and enormously rich property investor with a huge portfolio of property investments worth billions of dollars.  The theme of her case is that this is not a simple or straightforward case of specific performance with an abatement in purchase price, but was fromthe outset a conspiracy between Mr Luk Yu Wa, the natural person through whom Cheer Sky acts, and his niece Luk Ngan Ngor to procure the sale and purchase of the Property below market value with an abatement of the purchase price by taking advantage of the existence of the Structures.  They knew about the existence of the Structures in the Property and laid a trap for her to walk into by signing the open Provisional Agreement and then forced on her a substantial abatement in the purchase price on completion under the pretext of her failure to show and give good title to the Property by reason of the Structures.

7.  The first major factual dispute is whether Luk Ngan Ngor and the Defendant’s husband (“Chan”) were present at the meeting when the Provisional Agreement was signed.  This dispute goes to the heart of the question of the credibility of the parties’ principal witnesses, the Defendant and Luk Ngan Ngor. 

8.  The second major dispute is about the conversation which took place during the preparation of the Provisional Agreement, specifically whether the issue of the Structures was discussed.

9.  The third major dispute is whether Luk Yu Wa and Luk Ngan Ngor had conspired to procure the sale and purchase of the Property with the intention of forcing an abatement of the purchase price based on the existence of the Structures.

10.  There are other less important disputes which are either part and parcel of the above major disputes which I shall resolve in my analysis of the parties’ evidence or are irrelevant.  The Defendant raised some irrelevant and trivial disputes which arose out of her suspicion caused by Luk Yu Wa in countermanding payment of the cheque for the initial deposit and replacing it with another one and then preventing its immediate clearance and extending the completion date.  Such conducts made the Defendant hysterical.  I do not find it necessary to refer to all of those disputes.  In any event, they have nothing to add to the Defendant’s case.

The background

11.  The Property is situated on the ground floor of Ho Shun Lee Building in Yuen Long, which is an 18-storey composite building with two residential blocks.  The Property is fronting on a pedestrian path facing an open public metered car park.  Its saleable area is about 147.36 square feet (13.69 square metres) with a frontage of 9.05 feet (2.76 metres).  Theheadroom of the Property is about 15.32 feet (4.67 metres).  There is a shop area on the ground floor with a cockloft built above it for storage purpose. The cockloft was accessible by an internal staircase erected at the rear of the shop.  Underneath the staircase is a small toilet.  The existence of the cockloft is manifestly obvious from a contrast of the external view of the shopfront and the internal headroom of the shop floor.  There is no dispute that the Structures, comprising of the cockloft, the staircase and toilet are unauthorised building works.

12.  The Defendant acquired the Property from its previous owneron 16 April 2007 with the Structures.  In or around February 2013, she put it on the market for sale through several estate agencies, but not Wayson which was not then known to the Defendant.  On 26 February 2013, an estate agent of Wayson, Lau Yin Ling Vivian (“Vivian”), telephoned her andoffered her services for the sale of the Property.  The Defendant quoted an asking price of $10 million.  Luk Ngan Ngor was the sole proprietor of Wayson.

13.  On 27 February 2013, at the invitation of Vivian, the Defendantattended the office of Wayson to meet with Vivian and a potential purchaser,Luk Yu Wa.  After some negotiation, including some private discussions between Vivian and Luk Yu Wa, the price for the sale and purchase of the Property was agreed at $8.5 million.  The parties signed the Provisional Agreement.  Luk Yu Wa issued a personal cheque in the sum of $425,000 to the Defendant as initial deposit.  Under the terms of the Provisional Agreement, the parties were to sign the formal agreement on or before 15 March 2013 and to complete the sale and purchase on or before 31 August 2013.

14.  On the following morning, Luk Ngan Ngor (on my finding) telephoned the Defendant and informed her that the cheque issued by Luk Yu Wa had been reported lost or cancelled and asked her to attend the office of Wayson to exchange for another cheque the following day.  By that time, the Defendant had dropped the cheque in the cheque deposit box of Hong Kong and Shanghai Banking Corporation (“HSBC”).

15.  On the following afternoon, the Defendant attended the office of Wayson.  Luk Ngan Ngor told her that Cheer Sky had to delay the completion date by three months in order to arrange financing otherwise it could not complete the purchase.  The Defendant reluctantly agreed.  Then Luk Ngan Ngor made amendments on the Provisional Agreement and the Defendant signed.  Luk Ngan Ngor gave the Defendant a replacement cheque for the one issued on 27 February 2013.  However, as the Defendant later discovered, the amendment was to postpone completion for four months until 31 December 2013.

16.  Cheer Sky paid the further deposit of $425,000 on 15 March 2013, but no formal agreement was signed.

17.  On 17 September 2013, Cheer Sky’s solicitors, Messrs Vincent TK Cheung Yap & Co (“CY&Co”), made a requisition to the Defendant’s then solicitors, Messrs WL Lai & Co (“L&Co”), about the Structures and requested evidence of authorisation from the Buildings Department for the erection of the Structures.  On 12 December 2013, CY&Co sent to L&Co a certificate prepared by a registered architect to the effect that the Structureswere unauthorised building works and that in view of the building plan andthe plot ratio, there was no prospect that any alteration to the building plan tolegalize the Structures could be approved.  In the ensuing correspondence, CY&Co insisted the Defendant to show and give title to the Property with the Structures.  Completion did not take place on 31 December 2013.

18.  On 2 January 2014, the Defendant telephoned Luk Ngan Ngor and offered to demolish the cockloft and asked about Cheer Sky’s stance in the sale and purchase.  Luk Ngan Ngor told her that Cheer Sky thought the cockloft was authorised and to have it demolished would result in a 50% reduction in area of the Property.  She said that Cheer Sky would not wish to cancel the Provisional Agreement.

19.  On 20 January 2014, Luk Ngan Ngor informed the Defendant that she had contacted CY&Co and was told that Luk Yu Wa rejected the Defendant’s offer to demolish the cockloft because the Property would be entirely different without it.

20.  Later that evening, Luk Ngan Ngor telephoned the Defendant and suggested to her that as the cockloft was not an authorised structure it would be futile to seek assistance from any architect.  She told the Defendant that Luk Yu Wa had obtained a bank valuation of the Property for only $4 million.

21.  In a number of telephone conversations between Vivian and the Defendant, Vivian suggested that Luk Yu Wa and Luk Ngan Ngor had teamed up in a conspiracy to procure the purchase of the Property at undervalue using the Structures as a pretext.  Vivian also coached the Defendant on the evidence to be given at trial.

22.  On 18 April 2014, CY&Co wrote to L&Co alleging that the Defendant had failed to prove legality of the Structure.  It demanded completion with the Structures removed and compensation for loss of usable area or completion without removing the Structures but with an abatement in price to reflect the reduction in the value of the Property by reason of the defect in title.  Though no specific amount of damages or abatement was mentioned, CY&Co was implying a compensation or abatement equivalent to reduction in price of 50%.

23.  On 21 May 2014, L&Co informed CY&Co that the Defendant had answered all requisitions satisfactorily and accused Cheer Sky of repudiatory breach of the Provisional Agreement.  It asserted that the Defendant accepted such repudiation and forfeited the deposits.

24.  On 22 May 2014, CY&Co responded by repeating its earlier demand for completion with compensation or abatement in price and threatened to commence legal action if the Defendant refused to do so within seven days.

25.  On 28 May 2014, Cheer Sky commenced the present action.  Since then, the Defendant had two changes of solicitors.

26.  On the same day, the Defendant informed Luk Ngan Ngor her offer to reduce the purchase price by $200,000.  Luk Ngan Ngor told her that it would be a waste of time and money to litigate and that the losing party would have to pay the legal costs of the successful party.

27.  On the following day, the Defendant had a meeting with Luk Ngan Ngor in a café to discuss about the action.  During the meeting, LukNgan Ngor only pressed for her settlement proposal but mentioned nothing about any counter-proposal from Cheer Sky.

28.  On the following afternoon, Luk Ngan Ngor informed the Defendant that Luk Yu Wa had no authority to represent Cheer Sky and the person in charge was Mrs Mak.  The Defendant replied that to her knowledge the person in charge of Cheer Sky was Luk Pui Yue.  Luk Ngan Ngor responded that she was still making company searches about that. Obviously, Luk Ngan Ngor was concealing her family relationship with Luk Yu Wa and Luk Pui Yue, ie Grace Luk.

29.  On 27 November 2014, the Defendant’s then solicitors, Messrs Wong Hui & Co offered to Cheer Sky to complete the sale and purchase with exchange of valuation reports with a view to agree on the compensation payable to Cheer Sky.  Failing agreement, the parties shall proceed to assessment of damages with costs payable to Cheer Sky on party and party basis.  Seemingly, the Defendant accepted her liability and her failure to show and give good title to the Property.

30.  There was no progress.  The Defendant had another change of solicitors.  On 12 March 2015, Messrs Mayer Brown JSM (“MBJSM”)wrote to CY&Co demanding security for costs in the sum of $2.2 million.  In the letter, MBJSM revealed the rudiments of the Defendant’s defence, namely, Luk Yu Wa’s knowledge of the Structures and his or Cheer Sky’s intention to procure the sale and purchase of the Property with an abatement of the purchase price based on the existence of the Structures.

31.  On 2 December 2015, the Defendant filed her Amended Defence and Counterclaim joining Luk Ngan Ngor as the 2^nd defendant by counterclaim, followed by filing of Amended Reply and Defence to the Counterclaim by Cheer Sky and Luk Ngan Ngor.

Credibility of witnesses

32.  Cheer Sky tendered the witness statements of Luk Yu Wa and Vivian.  Luk Yu Wa was unable to testify because of his medical condition.  Vivian was unwilling to testify and Cheer Sky did not wish to compel her attendance.  Having been explained about the admissibility of their witness statements, the Defendant reasonably agreed to admit their witness statements as hearsay evidence under the Evidence Ordinance.

33.  Luk Yu Wa was 86 years of age in December 2016 when he gave his witness statement.  He is a very successful businessman.  His business is primarily focussed on hotel, catering and property investments in Hong Kong.

34.  He has a huge portfolio of property investments held by companies under his control.  The Defendant produced search results from Tolfin search showing the portfolio of properties acquired and sold at different times by some of those companies.  Most of the properties were held as long term investments and then sold for enormous profits.  I have not calculated the value of his current portfolio.  It is not necessary. For the purpose of the present proceedings, I am satisfied that he is enormously rich and is a very experienced property investor.  That is not disputed by counsel.  Two of Luk Yu Wa’s companies are worth mentioning.  These are Wealth Gear Limited which purchased 20 shops and a cinema onthe ground floor, three entertainment units and three office units on the first floor of Ho Shun Lee Building three years before the present transaction and Big Lucky Limited which purchased Shop 59 in the same building three months before the present transaction.

35.  He said in his witness statement that since 2008, most of the daily operation of his business had been gradually passed to his nephews, Luk Siu Lung and Kelvin Luk, and to a lesser extent his only daughter, Luk Pui Yue, also known as Grace Luk.  Since then, he has hardly taken part in the daily operation or management of his companies or business, including property investment business. 

36.  The rest of his evidence tallied with Cheer Sky’s pleading and with Vivian’s evidence.  He gave an explanation about having to replace his personal cheque and about extending the completion date.  There is an air of doubtfulness in his explanation.  A man of his financial resources would have no difficulties in arranging funds to be transferred to his personal account to meet the cheque without having to countermand payment and to issue a replacement cheque.  Nothing significant turned on that issue, except that it provided an occasion for Luk Ngan Ngor to discredit herself.

37.  He said he needed time to arrange financing and was surprised to find Vivian had put down a completion date of 30 August 2013 but did not there and then ask for it to be amended.  What was so difficult to ask for an amendment of what was then a draft agreement by deleting the date,inserting a new one and initialling against it.  Six-month completion date was already a long one.  Ten-month completion date was unusual.  It was consistent with a speculative purchase for immediate resale and would unlikely be acceptable to most vendors.  Most probably, he adopted the tactic of first securing the deal which he thought was a good one and then test the will of the vendor by seeking an extension.  There is no need for me to speculate the reason for what he did.  His explanations are irrelevant to the real issue in dispute.  They are mentioned to put everything in context and because the Defendant thought they were important.

38.  For reasons as explained in my analysis of the major issues indispute, I do not consider Luk Yu Wa a credible witness.  I give no weight to the evidence in his witness statement.

39.  By way of background, Luk Ngan Ngor set up Wayson in Kwai Chung in 2008.  In 2010, she transferred her interest in Wayson to her cousin as her Indonesian domestic helper did not renew her employment contract with her.  In August 2012, she opened another estate agency in Yuen Long as a branch office of Wayson.  In September 2012, she met Vivian who proposed to team up with her.  She welcomed the proposal as Vivian could relieve her from the office in the afternoon so that she could pick up her son from school.  At the time her son was being bullied by his classmates because of his hearing and speech impairment. However, the collaboration lasted only until May 2013 when Vivian decided to break up partly because she was suffering from depression and wanted to have a break and partly because of her dispute with Luk Ngan Ngor about commission sharing.  Then Luk Ngan Ngor decided to close down Wayson in November 2013 as she could not operate it by herself.

40.  The essence of her evidence was that she was not present during the negotiation of the Provisional Agreement.  She only first saw the Defendant in April 2013 when the Defendant turned up at the office of Wayson and gave her an invitation card for the opening ceremony of her husband’s optical shop.  It was only until December 2013 that she began to have contact with the Defendant for the purpose of following up with the Provisional Agreement.  Her account was discredited by herself in one of her recorded telephone conversations with the Defendant.

41.  She said that despite Luk Yu Wa is a very successful businessman, she deliberately kept a distance from him in the business context and not to bother him with property offers, lest it should give him or others any undesirable impression that she was taking unfair advantage of her uncle out of their family relationship.  She was confronted with a copy of memorial registered with the Land Registry evidencing the purchase of Shop 59 in Ho Shun Lee Building by Big Lucky Limited.  At first, she denied to have knowledge that Big Lucky Limited was Luk Yu Wa’s and Grace Luk’s company.  But eventually, she had to admit that she handled that transaction.  That was a significant transaction at the price $20 million.  It was transacted on 20 May 2013, just three months before the present case.  On her admission, that was the only transaction in Ho Shun Lee Building she handled for Luk Yu Wa.  How could she have forgotten?  There is no truth in her assertion that she kept a distance from Luk Yu Wa.

42.  She said she only met with Luk Yu Wa and his family includingGrace Luk once a year.  But the Companies Registry records show that she and Grace Luk were directors of Tin Fung Properties Consultants Limited incorporated in 1995 of which she was the company secretary.  The registered office of the company was in Kwai Chung.  It was dissolved in 2012.  She was closely involved in Luk Yu Wa’s business empire and with his daughter Grace Luk.  Her finger prints could be found all over the public documents of many of Luk Yu Wa’s companies.  She was deliberately hiding her relationship with Luk Yu Wa and Grace Luk in her dealing with the Defendant.  She was concealing her involvement in Luk Yu Wa’s business empire.

43.  Her demeanour was unsatisfactory.  She was uneasy, soft spoken, evasive and unsure, which even reflected an element of shamefulness and regret.  However, my assessment of her credibility is not based on demeanour alone.  Most of her evidence was shown by credible evidence to be untrue.  I do not find her a credible witness.

44.  Vivian gave two witness statements which corroborated the evidence of Luk Yu Wa.  In the events leading up to the litigation, she hadvarious telephone conversations with the Defendant in which she suggested a conspiracy between Luk Yu Wa and Luk Ngan Ngor.  Unknown to her, the conversations were recorded by the Defendant.  In her supplemental witness statement, she retracted her accusations in the conversations.  She explained that she was suffering from depression and withdrew from her cooperative agreement with Luk Ngan Ngor in Wayson.  She explained that her accusations were her own speculations which arose from her commission dispute with Luk Ngan Ngor.  She said those accusations were untrue.  Without her providing the information, the Defendant and her solicitors would not have been alerted and could not have unveiled the relationship between Luk Yu Wa, Luk Ngan Ngor and Grace Luk and their business empire.  Having given two witness statements, she now refused to testify.  She has a lot to hide.  She is a soldier of fortune.  I do not consider her evidence credible.

45.  Lok Ping Kwan was called by Cheer Sky as its valuation expert.  His evidence was not seriously disputed.  I accept his evidence.

46.  The Defendant testified.  She is a primary school teacher.  She impressed me as an intelligent and very determined person.  She was not shaken under cross-examination.  Her answers were spontaneous.  Her defence was prepared by counsel and a reputable firm of solicitors.  She conducted this trial in person.  Her cross-examination was thorough.  Her case was well presented by layman’s standard.  Her evidence was straight forward.  She recorded her telephone conversations with Luk Ngan Ngor and Vivian.  I am particularly mindful of the risk of concoction bysuch a smart witness.  She raised some trivial disputes, which suggested shewas hysterical.  However, having considered her demeanour, the surrounding circumstances, and the totality of the evidence, I find her credible.

47.  Chan Chi Keung gave two witness statements.  He is the husband of the Defendant.  His evidence is confined within a very narrow compass, i.e. his presence during the signing of the Provisional Agreement.  Despite some imprecision, I am satisfied that he was telling the truth.  I accept his evidence.

The tape recordings

48.  The Defendant produced the recordings and transcripts of a number of telephone conversations she had with Vivian and Luk Ngan Ngor.  I am always sceptical about the probative value of such evidence. Such recording is certainly reliable evidence of what was said during the conversations, but not necessarily of its truth.  The party taping the conversation must have certain purposes to achieve, including to induce the other party to say things which are advantageous to him or prejudicial to the other side.  The other party who does not know that the conversation was being taped, may have unwarily adopted what was to put to him without much thought.  In assessing the reliability of the conversation, I would adopt the following approach.  Anything said by the party taping the conversation which is against his interest would be given more weight.  Anything that he said which is to his interest is self-serving and will be given no weight.  Anything prejudicial said by the party being recorded would have to be tested against the totality of the evidence before weight is given to that piece of evidence.

49.  In assessing weight to be given to a piece of conversation, it is always desirable to listen to the recording than to read the transcript.  The intonation and tone of the speaker may give an impression which is very much different from that given by reading a transcript.

50.  What was recorded must be understood in the proper context in which the words were said.

51.  Lastly, when assessing weight, it must be borne in mind whether the party whose recorded conversation was sought to be relied on had an opportunity to explain whether during the course of the conversation or is available to testify.

52.  Having heard the recordings and read the transcripts, I am unable to give them much weight.  It is clear from the recordings and transcripts that Vivian was coaching the Defendant on the evidence.  She taught the Defendant to make up a case that Luk Yu Wa had inspected the Property many times, that during the negotiation Luk Yu Wa went back to the Property and that Chan saw him going inside the Property a number of time to have a look.  The case which she coached the Defendant is incredible.  There was nothing much to see in a property of 147.36 square feet.  A property of $8.5 million was not worth the effort of this property tycoon to re-inspect so many times.

53.  She taught the Defendant to advance a case of having told Luk Yu Wa that the cockloft was a self-constructed cockloft (自建閣) which she acquired from the previous owner and not an illegal structure. She taught the Defendant to argue about the distinction between self-constructed cockloft and an architect certified cockloft (入則閣).  She taught the Defendant to put (質[1]) to Luk Ngan Ngor that she was present during the negotiation of the sale and purchase.

54.  The Defendant raised a lot of inferences from Vivian’s and Luk Ngan Ngor’s conversations.  These inferences have some bearing against Luk Ngan Ngor and Vivian.  These conversations damaged Vivian’s and the Defendant’s credibility but had no bearing as against Luk Yu Wa.  They were hearsays and mostly without factual basis.  The recordings have nothing to add to the Defendant’s case, other than damage to her credibility. It was only fortunate that the Defendant did not follow Vivian’s coaching.  I have considered the recordings and transcripts fully.  Having warned myself of the need for caution, I am satisfied that insofar as her evidence dovetail with Vivian’s coaching, it was original and was what indeed happened. 

THE FACTS

The relationship between Luk Yu Wa, Grace Luk and Luk Ngan Ngor

55.  Luk Ngan Ngor was at the material time heavily involved in the Luk Yu Wa’s business empire.  Luk Yu Wa, Grace Luk and Luk Ngan Ngor were co-directors of Luk’s Development Limited which is the corporate director of Cheer Mega (HK) Limited, Megafull Limited and Twin Fortress Holdings Limited.  The three of them were also co-directors of Charteryard Industrial Limited and Frankfurt Limited.  These companies are Luk Yu Wa’s major property holding companies.  Luk Yu Wa also has other property holding companies such as Cheer Sky and Big Lucky.  Luk Ngan Ngor’s residential address was used as the residential addresses of Luk Yu Wa and Grace Luk and the registered officeaddress of Charteryard Industrial Limited and Frankfurt Limited.  According to Luk Ngan Ngor and Luk Yu Wa, it was a statutory requirement at time that a company must have at least two directors.  Luk Ngan Ngor was appointed by Luk Yu Wa as a nominee director with no operative functions. Other than a bald assertion, there was no supporting evidence and Luk Yu Wa was unable to be cross-examined.  But the objective evidence is that Luk Ngan Ngor was the only member among Luk Yu Wa’s nieces and nephews to be favoured by Luk Yu Wa with so many appointments.  Kelvin Luk who was employed in Luk Yu Wa’s group of companies, for example, was not appointed as director in any of Luk Yu Wa’s companies.  Luk Ngan Ngor was given the same status as Grace Luk.  There was no reason given why Luk Yu Wa could not have appointed others as nominee directors.  But there is no evidence that Luk Ngan Ngor was beneficially interested in any of these companies.

56.  Luk Ngan Ngor and Grace Luk were the only directors of Tin Fung Properties Consultants Limited which was incorporated in 1995 and dissolved in 2012.  Luk Ngan Ngor was its company secretary.  The registered office of the company was in Hutchison Estate in Kwai Chung. 

Chan’s presence during the negotiation of the Provisional Agreement

57.  According to Luk Yu Wa and Vivian, Luk Yu Wa turned up at Wayson’s office at about 3:30 pm on 27 February 2013 and went to look at the Property.  Then they returned to the office of Wayson.  After waiting for a while, the Defendant arrived.  They negotiated about the sale and purchase of the Property and signed the Provisional Agreement.  Chan and Luk Ngan Ngor were not there.

58.  According to the Defendant, she arrived at the office of Wayson with her husband, Chan, sometime after 3 pm.  They met Luk Ngan Ngor who introduced herself as Vivian’s colleague.  After a while, Luk Yu Wa and Vivian arrived.  The Defendant introduced Chan to Luk Yu Wa as her husband saying that Chan also had an interest in the Property. Such an introduction may sound somewhat artificial and made for the purpose of giving an explanation for Chan’s presence, but Chan’s interest in the property was not an entirely unlikely subject matter for introduction in the circumstances.  They negotiated about the sale and purchase of the Property, but Chan did not participate in the negotiation.

59.  Chan was an unimportant witness and had nothing to add to the Defendant’s case.  He was called just for the sake of supporting the Defendant’s evidence of Luk Ngan Ngor’s presence during the negotiation. The Defendant’s case stands or falls on the credibility of the Defendant.  The main attack on Chan’s credibility is that Chan could not have attendedthe office of Wayson at 3 pm as he had to pick up his children from school.  The Defendant lived in Shui Lau Tin Village which was only 15 minutes’ drive to the school via the highway.  School finished at 3:15 pm.  Usually, the Defendant would pick the children up by car.  If she was busy, Chan would pick them up by public transport which would take 40 minutes either way.  On that day, according to the Defendant, it was the Defendant who picked up the children.

60.  Though the Defendant said that the meeting took place at around 3 pm, one cannot be too precise about the timing of an event which occurred five years ago in terms of minutes and hours.  What is more reliable is how the events relate to one another. According to Luk Yu Wa,he arrived at the office of Wayson at 3:30 pm.  According to Vivian, it was between 3:00 pm to 3:30 pm.  Allowing for a brief stay at the office of Wayson, the trip to and from the Property and a brief stay at the Property, it would be at the earliest 4:15 pm by the time they returned to the office of Wayson.  The Defendant could have comfortably picked up the children, dropped them at home and reached the office of Wayson in good time before Luk Yu Wa and Vivian returned after inspecting the Property.

61.  Another attack on Chan’s credibility is that he had no reason to be present during the negotiation.  The reason given by the Defendant was that Chan also contributed to the purchase of the Property.  As I observed earlier, the Defendant’s introduction of Chan as her husband and had an interest in the Property was somewhat artificial and appeared to have been made to pave the way for explaining his presence there.  But remarkably, for this couple, they kept accounts of the family income and expenditure, including even minor household expenses.  The account corroborated the Defendant’s evidence of the husband’s contribution to the purchase of the Property.  More importantly, in the light of their means, selling a property of that value was an important matter for the couple.  There was every reason for the husband to accompany the wife and to standby for giving advice. That was particularly so as the purpose for the sale was to finance the husband’s opening of his optical shop.  I am satisfied that the Defendant and Chan were telling the truth.  Not only does this conclusion prove Chan’s presence during that meeting, it also supports the Defendant’s evidence of Luk Ngan Ngor’s presence as well.

Luk Ngan Ngor’s presence during the negotiation of the Provisional Agreement 

62.  Luk Ngan Ngor is the only and very important factual witness for Cheer Sky and herself.  Her evidence is that she had not participated in the negotiation of the Provisional Agreement on 27 February 2013 and was not responsible for giving the replacement cheque to the Defendant on 1 March 2013.  This part of her evidence is corroborated by the evidence of Luk Yu Wa and Vivian.  She said that she could not have been present during the negotiation of the Provisional Agreement as she had to pick up her son from school.  At the time her son was being bullied by his classmates because of his hearing and speech impairment.  She provided medical reports and school reports from 2010/11 to 2012/13 as corroborating evidence. However, these documents did not support her case.  According to the audiological assessment report dated 17 August 2010, her son’s hearing impairment was very mild.  His bilateral mild sensorineural hearing impairment mainly occurred at higher frequencies.  His tympanometric findings are within normal limits bilaterally.  His speech reception is generally not affected though he may have difficulties hearing soft or distant speech particularly in a noisy environment.  His expressive speech was intelligible.  The test result did not really support her evidence of her son being bullied because of his hearing and speech impairment.  I would not rule out the possibility of harassment in school simply on that basis.  The school reports provided three options for picking up arrangement after school, namely to be picked up by family members, to be picked up domestic helpers or to return home by himself. But Luk Ngan Ngor consistently picked the last option.  This is inconsistent with her evidence that she had to pick up her son every day from school.  Even if she did choose to pick up her son, it was a flexible and not an inflexible choice.  I do not find her evidence credible.

63.  Mr Chan referred to the transcript of the telephone conversationat 8:16 pm on 2 January 2014 when Vivian called back the Defendant as if she had forgotten to mention something in her earlier call and suggested to the Defendant to put (質) one more fact to that person (佢) (meaning Luk Ngan Ngor) that that person (佢) was present during the negotiation.  The relevant part of that conversation is as follows:

「 Vivian: 你仲可以質多佢一句添呀！你當日你都喺度㗎！你都有講話，我哋有個自建閣㗎！係唔入契㗎！你都有幫…幫口講㗎！

Defendant: 邊個佢呀？佢自己？

Vivian:   娥姐呀！」

Translation:

“ Vivian: You can put one more sentence to him! You were present there on that day! You also said that we had a self-constructed cockloft! Not a cockloft included in the assignment! You also assisted‌… assisted in saying that!

Defendant: Who? Herself?

Vivian:   Luk Ngan Ngor!”

64.  Mr Chan submitted that the Defendant’s response was confused as to who Vivian was referring to and that if Luk Ngan Ngor were indeed present at the meeting, the Defendant would not have been so confused.  Having heard the recording and putting myself in the situation,I would not interpret the Defendant’s reaction that way.  Words of the mouth, particularly with colloquial Cantonese, could be ambiguous.  The words ‘that person (佢)’ without any previous context could mean anyone.  When the new proposition was first brought up, it was not surprising that the Defendant behaved that way.  But actually, the Defendant understood ‘that person’ meant Luk Ngan Ngor.  She just sought confirmation.  Having regard to the totality of the evidence, I am satisfied that Vivian was only reminding the Defendant of Luk Ngan Ngor’s presence during the negotiation and what she had said.  She was not coaching the Defendant to frame up Luk Ngan Ngor.

65.  Luk Ngan Ngor attempted to distance herself from the Provisional Agreement saying that the very first contact she had with the Defendant was in April 2013 when the Defendant telephoned her office looking for Vivian saying that she wanted to give Vivian an invitation card for the opening ceremony of her husband’s optical shop.  But she betrayed herself in one of the recorded telephone conversations when she argued with the Defendant about the reason she gave to the Defendant for having to replace Luk Yu Wa’s cheque for the initial deposit.  Thus, by implication, she was the one who handed the replacement cheque to the Defendant in the office of Wayson on 1 March 2013.

66.  Luk Ngan Ngor concealed her familial relationship with Luk Yu Wa and Grace Luk and her directorship in Luk Yu Wa’s companies during the many telephone conversations she had with the Defendant afterwards.  Though there are many reasons to lie, she has demonstrated a propensity to lie.  She is not a reliable witness.

67.  Having formed an adverse view of her credibility and tested her evidence against the totality of the evidence especially the Defendant’s,I accept the Defendant’s evidence that Luk Ngan Ngor was the one who received her on the afternoon of 27 February 2013 and was present throughout during the negotiation of the Provisional Agreement.  In coming to this conclusion, I have warned myself of the need for caution because of the Defendant’s character and that she had been coached by Vivian in her defence.  This finding opens the way to the Defendant’s case of Luk Ngan Ngor’s role in the sale and purchase.

The conversation during the negotiation

68.  I now turn to the more crucial evidence of what happened during the negotiation in the office of Wayson.  Luk Yu Wa negotiated with the Defendant about the price, but the Defendant insisted $8.5 million. Luk Yu Wa wanted to leave, but Vivian stopped him.  At the behest of Vivian, he continued to negotiate with the Defendant and eventually agreed to purchase at the price of $8.5 million.  He told Vivian that he would purchase the Property through a limited company and asked Vivian to contact Luk Siu Lung for the name of that company.

69.  According to the Defendant, while Vivian was preparing the Provisional Agreement, Luk Yu Wa asked her whether there was a cockloft. She replied in the affirmative.  Spontaneously, Luk Ngan Ngor reminded Luk Yu Wa that he had seen it.  The Defendant went on and said that it wasa self-constructed cockloft which existed when she purchased the Property. She added that the existing tenant in the Property had also rented the adjacent shop which had a similar self-constructed cockloft.  That adjacent shop was Shop 10 which Wealth Gear Limited purchased three years ago. Luk Yu Wa ought to be aware of that cockloft because he and Grace Luk were the sole directors of Wealth Gear Limited.

70.  According to the Defendant, she then asked if it was necessary to mention the cockloft in the Provisional Agreement.  To that Luk Ngan Ngor and Vivian simultaneously responded saying there was no need as the cockloft was not included in the assignment.  Vivian also said that the sale and purchase was on “as is” condition and that included the cockloft. The Defendant was satisfied with those answers.  All the while, Luk Ngan Ngor was standing by Vivian and watching her drafting the Provisional Agreement.

71.  Luk Yu Wa, Luk Ngan Ngor and Vivian disputed the Defendant’s evidence.  They denied that the above conversation had ever taken place.  This is just one person’s word against another.  The starting point of my analysis is that according to his own witness statement Luk YuWa saw there were the cockloft, staircase and toilet underneath the staircase. He was aware of the Structures.  There was no reason why he would raise such a question.  Maybe, he did so for want of a better topic to initiate a conversation.  But once that question was raised, the alleged response from Luk Ngan Ngor and Vivian would flow naturally.  The evidence would be of little impact as against Luk Yu Wa because he knew there were the Structures and he saw them.  On my finding below[2], he even knew they were unauthorised building works. 

72.  As against Luk Ngan Ngor, the evidence is very prejudicial.  The Defendant’s evidence seemed too perfect to be true.  It covered the gist of her pleaded case.  Her conduct of this trial showed that she is a very smart woman.  I am mindful of the risk of concoction.  Luk Ngan Ngor’s evidence is that she was not present during the negotiation.  But, as I am satisfied that she was at the meeting, she is in no position to dispute the Defendant’s evidence.

73.  Vivian was present during the negotiation.  But she is a witness of doubtful credibility.  She had been proved to be a soldier of fortune.  Her witness statements were inconsistent with the transcripts of her telephone conversations with the Defendant.  She refused to testify.  I give no weight to her evidence in her witness statements.  Luk Ngan Ngor testified.  I have found her incredible on many other issues.  She lied about her presence during the meeting on 27 February 2013.  As I shall later demonstrate, she lied about her involvement in the handling Luk Yu Wa’s replacement cheque.  She tried hard to distance herself from the transaction.  She was evasive and her demeanour suggested an element of regret or remorsefulness, an indication that she was not telling the truth. She had something to hide.  Luk Yu Wa was unable to testify.  On balance, having regard to the totality of the evidence and having warned myself of the risk of concoction, I accept the Defendant’s evidence about the above conversation, i.e. that Luk Yu Wa asked about the cockloft and the Defendanttold him it was a self-constructed cockloft built by the previous owner and that Luk Ngan Ngor participated in the conversation.

74.  Returning to the negotiating table, it is common ground that Vivian prepared the Provisional Agreement from a standard provisional agreement and she had inserted the completion date of 30 August 2013 and deleted clauses 7 and 8 without consulting either the Defendant or Luk Yu Wa.

75.  According to the Defendant, while Vivian was explaining the Provisional Agreement to the parties, she noticed that Vivian had deleted clauses 7 and 8 from the standard provisional agreement (the “exit clauses”). These are the usual exit clauses which provided for forfeiture of deposit in the event of the purchaser failing to purchase or compensation to the purchaser in the same sum in the event of the vendor’s failure to sell.  Sheasked Vivian why these clauses were deleted.  Vivian replied that that was the usual practice to indicate the parties’ commitment to complete the sale and purchase.  Vivian added that according to her experience working in major estate agencies, this was the practice even for transactions of several tens of million dollars.  Luk Ngan Ngor echoed in agreement.  Relying on their representation, the Defendant agreed to the deletion.  Then the parties signed the Provisional Agreement.  This evidence was not seriously disputed by Luk Yu Wa and Vivian.  Luk Ngan Ngor had no positive case to assert because on her own evidence which I rejected, she was not present during the negotiation.  For the same reasons as I mentioned above, I have no difficulties in accepting the Defendant’s evidence about fixing the completion date and deletion of the exit clauses.

Representation as to the purchaser’s identity

76.  According to the Defendant, Vivian had all along represented to her that the buyer was Luk Yu Wa.  She thought she was dealing with a personal buyer.  After she signed the Provisional Agreement, Luk Yu Wa also signed.  Then Vivian inserted the name of Cheer Sky in the ProvisionalAgreement.  The Defendant felt there was something wrong and enquiredof Vivian.  Vivian replied that there was no problem.  It is unusual that anestate agent would not have made clear to the parties the capacity in which the respective parties were acting.  But it is not an impossible mistake.  The Defendant’s evidence was not challenged by Luk Yu Wa and Luk Ngan Ngor was not in the position to dispute her evidence. Vivian’s evidence was ambiguous.  Her evidence, which corroborated Luk Yu Wa’s, was that Luk Yu Wa had told her that he would purchase through a company and asked her to contact Luk Siu Lung for the identity of that company.  Then after the price and completion date was agreed, Vivian contacted Luk Siu Lung.  She was later informed of the name of Cheer Sky and she filled it inthe Provisional Agreement.  Vivian had former dealing with the Defendant.  She also had a long business relationship with Luk Yu Wa.  She might have inadvertently overlooked the need to make clear to the Defendant that Luk Yu Wa was purchasing on behalf of a company.  She did not respond to the Defendant’s allegation.  In view of the equivocal nature of Vivian’s evidence, I accept the Defendant’s evidence.  In some cases, it might make a difference whether the other contracting party is a company or a natural person.  In the present case, had the Defendant known about the identity of Luk Yu Wa as a property tycoon, she would have been more comfortable dealing with him personally than with a $1 company or company of unknown resource.  While accepting the Defendant’s evidence, nothing actually turned on that issue.  As a layman, the Defendant was trying to load every little suspicion she could find to make up her case.

77.  Then, Luk Yu Wa issued a personal cheque to the Defendant as payment of the initial deposit.

The replacement of Luk Yu Wa’s cheque

78.  On the next morning, the Defendant deposited the cheque she received from Luk Yu Wa in the cheque deposit box of Hong Kong and Shanghai Banking Corporation (“HSBC”).  Then, she received a telephone call from Luk Ngan Ngor saying that Luk Yu Wa had reported loss of that cheque and asked her to attend the office of Wayson to exchange for another cheque.

79.  On the following morning, i.e. 1 March 2013, the Defendant went to the office of Wayson.  There she saw Luk Ngan Ngor.  She told Luk Ngan Ngor that she had reservation about the purchaser and wished to forfeit the deposit and cancel the Provisional Agreement.  Luk Ngan Ngor replied that she could not do so because the exit clauses had been deleted.  Then Luk Ngan Ngor told her that Cheer Sky wanted to postpone the completion date by three months in order to arrange mortgage financing otherwise it could not complete the purchase.  Again, Luk Ngan Ngor told her that she could not cancel the Provisional Agreement because of the deletion of the exit clauses.  The Defendant was frustrated and felt helpless.  So she accepted the replacement cheque and the postponement. She initialled against the amendment in the Provisional Agreement made byLuk Ngan Ngor.  On the amended Provisional Agreement, the completion date was actually postponed by four months to 31 December 2013.

80.  Luk Yu Wa’s evidence is that when he returned to his office in Tsimshatsui, he was reminded by Kelvin Luk to request for a longer completion period due to the banks’ tightened mortgage policy.  He telephoned Vivian reminding her that he needed more time to apply for mortgage finance and asked her to inquire with the Defendant whether she was willing to postpone the completion date to 31 December 2013.  On the following morning, Luk Yu Wa was informed by his accounting clerk that there were insufficient funds in his bank account to cover the amount stated on the cheque he issued.  He told his clerk to sort things out with Luk Siu Lung and Kelvin Luk.  Later, his clerk informed him that Luk Siu Lung happened to have enough money in his bank account to issue another cheque to replace his.  He rang up Vivian and informed her that the cheque had to be replaced and took the occasion to ask her to have the completion date in the Provisional Agreement amended as well.

81.  Luk Yu Wa’s account was full of questions.  Why would his clerk know there was not enough funds in his personal account to meet the cheque?  Why did Luk Siu Lung use his own funds to meet the payment? Why, as the evidence turned out, did he countermand the cheque instead of asking Luk Siu Lung to transfer funds to his account to meet the cheque?  Nothing turned on these questions because there is no dispute that Luk Yu Wa wanted to exchange the cheque and to postpone the completion date to31 December 2013.  What is notable is that Luk Yu Wa telephoned Viviantwice, once on 27 February 2013 about postponing the completion date, and once on 28 February 2013 about exchange of cheque and postponement of the completion date.  Remarkably, the reason for having to replace the cheque as given by Luk Yu Wa was different from that given by Luk NganNgor to the Defendant.  That gave rise to more speculation by the Defendant of a conspiracy.

82.  According to Vivian, on 28 February 2013, she received a telephone call from Luk Yu Wa about having to exchange the cheque and postponement of the completion date.  She mentioned nothing about Luk Yu Wa’s request about the postponement the night before.  That might be an oversight on her part.  But what is significant is that it is her assertion that it was she who telephoned the Defendant about replacing the cheque and postponing the completion date and that the Defendant responded that it was not a big deal and told Vivian to contact her to arrange for meeting at the office of Wayson to exchange the cheques after she had obtained the replacement cheque.

83.  The undisputed evidence was that by that time the Defendant had been informed of the need to replace the cheque, whether by Luk Ngan Ngor or Vivian.  She had already deposited the cheque in the deposit box of HSBC.  She could not have a cheque to exchange.  Had Vivian really spoken with the Defendant, the Defendant would have told her that the cheque had been deposited.  Vivian would not have used the word “exchange”.  This suggests that no such conversation had taken place and that it was Luk Ngan Ngor who contacted the Defendant about having to replace the cheque.  Furthermore, it is the unchallenged evidence that the Defendant was very serious about securing the payment of the deposit.  Onthe following day, ie 1 March 2013, she spent an hour in Hang Seng Bank to open an account solely for the purpose of depositing Cheer Sky’s cheque to be issued from its account with Hang Seng Bank.  She specifically enquired from the staff of Hang Seng Bank whether a crossed cheque issued from another account of that bank could be immediately cleared anddeposited into her newly opened account with Hang Seng Bank.  She wastold in the affirmative.  Then in the afternoon, she collected the replacement cheque from Luk Ngan Ngor.  However, to her disappointment and annoyance, when she deposited that cheque and sought immediate clearance into her account, the teller telephoned Cheer Sky and then told her that the cheque could not be cleared immediately.  She was hysterical as to why Cheer Sky would not allow the cheque to be cleared immediately and suggested that as evidence of conspiracy.  Obviously, the Defendant was very serious and anxious in receiving payment for the initial deposit.  It is incredible that her response would be as easy going as Vivian put it.  Vivian was not available for cross-examination.  Given the unfavourable view I formed of her credibility, I do not accept her evidence.

84.  Luk Ngan Ngor’s evidence is that she was a total stranger to the negotiation of the Provisional Agreement and the replacement of the cheque.  She said that she first learned about the Provisional Agreement on 1 March 2013 when Vivian showed it to her.  She first had contact with the Defendant in April 2013 when the Defendant telephoned her office looking for Vivian.  She only first saw the Defendant a few days later when the Defendant turned up at the office of Wayson to give her the invitation card for the opening ceremony of Chan’s optical shop.  She said it was Vivian who handled the exchange of cheque and postponement of the completion date.  She never followed up on the Provisional Agreement until after Vivian left Wayson.

85.  The most telling piece of evidence against Luk Ngan Ngor’s case is her recorded telephone conversation with the Defendant on 28 July 2014.  The Defendant put to her that she had informed the Defendant that the cheque had been [reported] lost.  Then Luk Ngan Ngor immediately responded saying that what she said was that Luk Yu Wa issued the wrong cheque.  And when the Defendant insisted that what Luk Ngan Ngor said was that the cheque had been cancelled, Luk Ngan Ngor, not only agreed, but confirmed that was what she had said.  These words from her own mouth is unequivocal evidence that she was the one who informed the Defendant about the replacement of cheque on 28 February 2013 and actually handed the replacement cheque to the Defendant on 1 March 2013.  

86.  A negative averment is easy to make but difficult to disprove. However, Vivian’s credibility is in serious doubt and for reasons as explained above her evidence is incredible.  Luk Ngan Ngor’s credibility is also doubtful.  Her evidence was flatly contradicted by her admission in the recorded telephone conversation.  Who handled the replacement of cheque might not appear to be an important issue.  However, if the Defendant succeeds in proving Luk Ngan Ngor handled the exchange, it is some evidence of her conspiracy with Luk Yu Wa.  If it was Vivian who handled the exchange, the Defendant is one step further away from proving conspiracy.  Again, I remind myself of the risk of concoction by the Defendant.  However, from the totality of the evidence and the recorded telephone conversation, I am satisfied that she was telling the truth that Luk Ngan Ngor was the person who telephoned her about the need to replace the cheque on 28 February 2013 and handled the exchange of cheque on 1 March 2013.

Luk Yu Wa’s knowledge of the Structures

87.  Luk Yu Wa’s knowledge of the existence of the Structures and that they amounted to unauthorised building works is the single most important issue in this trial.  In their witness statements, Luk Yu Wa and Vivian said that Luk Yu Wa could only look at the Property from outside on 27 February 2013 as Vivian had told him that the Defendant did not wish the tenant to know she was intending to sell the Property.  Luk Yu Wa said that he noticed that the ceiling was quite low and there was a staircase leading to the cockloft and a toilet underneath the staircase.  He had viewed the Property only once and had no knowledge that the Structures may constitute unauthorised building works.

88.  According to the Defendant, Vivian told her that the prospective purchaser had viewed the Property a number of times.  That was not what Vivian said in her witness statement.  The Defendant had no personal knowledge of those matters.  If that was indeed what Vivian had told her, Vivian might have exaggerated the situation for the purpose of impressing the Defendant of the seriousness of the buyer.  Given the insignificant value of the Property to Luk Yu Wa, I do not think he would have taken the trouble to go to Yuen Long a number of times to look at this 147.36 square feet shop.  A brief view was all that was required.  It is significant that on his evidence Luk Yu Wa had a thorough view of the Property.  He observed the low ceiling, the staircase and even the toilet underneath.  He knew there were the Structures.  That was a remarkable observation from outside.  He was a very observant and cautious man.

89.  What is important is whether he knew the Structures constituted unauthorised building works.  In his witness statement, Luk Yu Wa said he had no knowledge that the Structures were unauthorised building works. Knowledge is subjective.  Usually, a statement maker’s professed state of knowledge is conclusive, particularly when it comes from the mouth of a respectable, successful, wealthy businessman who on the face appeared credible.  The burden of proof is on the party who asserts the contrary.

90.  Viewed objectively, Luk Yu Wa’s professed lack of knowledge is utterly disingenuous and incredible.  Luk Yu Wa is a property tycoon with a huge portfolio of property investment worth billions of dollars.  On 20 September 2010, three years prior to this sale and purchase, one of his companies, Wealth Gear Limited of which he and Grace Luk were the only directors, bought 20 shops (including Shop No 10) and a cinema on the ground floor, three entertainment units and three office units on the first floor of Ho Shun Lee Building at the price of $77 million.  That was not a small transaction in 2010.  He had great appetite for investment.  He bought from the developer.  Given the value of the investment, he must have viewed the shops and probably building plans as well.  He must have knowledge of the headroom of the shops and that there were no cocklofts in the shops under the building plans or when the shops were delivered to Wealth Gear Limited’s possession on completion.  Three months ago, another of his companies, Big Lucky Limited bought Shop 59 at a price of$20 million.  He was very interested in the shops in Ho Shun Lee Building.  He, or through his companies, is probably the biggest single shop owner in Ho Shun Lee Building in terms of number of units or area.  He must have a good knowledge about the shops and their approved design.  Thus, whenhe saw the low ceiling in the Property, it must have rung a bell in his mind whether the cockloft was unauthorised building works.  He is a seasoned property investor.  He must know that land in Hong Kong is a premium.  Any developer in those days would have built to the maximum limit whichthe plot ratio permitted.  Erecting an unauthorised cockloft would have the effect of exceeding the plot ratio and would stand no chance of obtaining approval from the Building Authority.  With his ownership of 21 shops in the same building and his management of the tenancy matters relating to those shops, it lies ill in his mouth to say he thought the Structures were authorised.  I am satisfied that, not only did he see the cockloft in the Property as he asserted, he knew the Structures were unauthorised building works.  It is naïve for him to pretend that he did not know the Structures are unauthorised building works.

Luk Yu Wa’s ulterior motive

91.  According to Vivian, she learned that the Property was put on the market on 26 February 2013.  That afternoon, she informed Luk Yu Wa about the Property.  Luk Yu Wa was apparently not interested.  But Vivian continued and contacted him many times and impressed on him that it was a good buy and that she had persuaded the vendor to reduce her asking price from $10 million to $8.5 million.  According to his witness statement, Luk Yu Wa said he decided to have a look at the Property as he had purchased a number of shops in the same building three years ago. 

92.  There is no evidence what Vivian had told Luk Yu Wa about the Property.  There is no mention of that in her or Luk Yu Wa’s witness statement.  Neither of them were available for cross-examination.  But, in the normal course of things, an estate agent wanting to market a property must have given the prospective purchaser as much information about the property as he could and must have amplified any selling points, such as the extra space created by the cockloft and the convenience of a private inside toilet.  Vivian must have provided Luk Yu Wa with this information in one or some of her many telephone calls that afternoon which aroused his interest to have a look at the Property.

93.  Given his enormous wealth, Luk Yu Wa’s investment appetite must be in the region of tens of million dollars.  Three years ago through Wealth Gear Limited, he bought about half of the shops, a cinema and other spaces in Ho Shun Lee Building for $77 million.  Just three months ago, through Big Lucky Limited he purchased Shop 59 at the price of $20 million.  This $8.5 million investment was not one which would be worth his time.  The present transaction was just the usual run of the mill investment decision which he would have delegated to his nephews.  Even according to Vivian, she ought to have contacted Luk Siu Lung or Kelvin Luk for this type of property.

94.  There must be an air of curiosity or suspicion why four years after his stepping down from the driving seat of his business empire that this tycoon responded to Vivian’s call to look at this small Property in Yuen Long of insignificant value.  If there was nothing very special about this Property, Vivian would not have bypassed Luk Siu Lung or Kelvin Luk and Luk Yu Wa would not have taken the trouble to go all the way from hisoffice in Tsimshatsui to Yuen Long.  This small Property of 147.36 square feet would not have attracted the attention of this big investor were he not looking for some bigger gains.  A lion would not move out of its den for a small prey.  What was very special was most probably the Structures which constituted authorised building works.  

95.  Then, on my finding, Luk Yu Wa entered into the sale and purchase agreement with full knowledge that the Structures were unauthorized building works.  Immediately, he sought to postpone the completion date.  At the time of signing the Provisional Agreement, he noticed that Vivian had put down a completion date of six months.  He said he was surprised that Vivian did so without consulting him.  He nevertheless signed the Provisional Agreement. He then explained that he was advised by Kelvin Luk that he would need more time to obtain financing.  Hence, he asked for postponement to 31 December 2013.  That was a 10 months’ completion time.  The time required to arrange financing did not appear to be realistic.  Even with the banks’ policy of tightening credit, his reasons for the postponement does not appear genuine.  l do not wish to speculate the real reason for the postponement.  But it does not appear to me that he was genuinely intending to complete the purchase at the agreed price.  He arranged payment of the further deposit but did not proceed with making the formal agreement.  

96.  Then nothing happened until CY&Co raised the issue of the title and unauthorized building works in the Property on 17 September 2013.  In the ensuing correspondence between the parties’ solicitors, CY&Co repeated its demand for the Defendant to show a good title to the Property with the Structures, which CY&Co, and therefore Luk Yu Wa, knows was an impossibility.  Eventually, on 18 April 2014, CY&Co asked for compensation or abatement on the basis of loss of usable area, implying a 50% reduction in price as the cockloft is of the same area as the shop floor.

97.  Luk Yu Wa is by no means a simple, honest old man looking tobuy a small property for investment and not getting what he contracted for. The evidence exposed him as a very experienced property investor with a huge portfolio of properties.  He must have entered into hundreds of sales and purchases of properties.  He must have a good knowledge of basic property and conveyancing law.  He must have known about the deficiencies of an open contract, such as a provisional sale and purchase agreement in which limitation of liability arising from defect in title is seldom provided for.  He must have known about how unauthorized building works would affect title to a property and availability of specific performance with abatement in price to compensate for defect in title.  At least one of his companies, Charteryard Industrial Limited, has been shownto have commenced action in the High Court seeking specific performance[3]. 

98.  When what CY&Co did was viewed against the fact that the big boss of this business empire with his knowledge and experience I mentioned above went all out of the ordinary to personally inspect this Property of insignificant value in relative terms and bought it knowing full well that the Structures therein were unauthorized building works which stand absolutely no prospect of being legalized, the irresistible inference is that he bought with a view to compel a substantial reduction in price on completion by reason of the Structures or unauthorised building works.

THE PLAINTIFF’S CASE

The facts

99.  Luk Yu Wa entered into the Provisional Agreement with the Defendant with knowledge of the existence of the Structures and that they were unauthorised building works.  When signing the Provisional Agreement, he raised the question about cockloft and was informed that it was a self-constructed cockloft.  This piece of evidence, which the parties disputed hotly, in fact has no bearing in view of my finding that Luk Yu Wa knew it was unauthorised building works.

100.  The Provisional Agreement contains the following germane terms:

  Clause 1:  The subject matter of the sale and purchase is “all that Shop 25 on G/F, Ho Shun Lee Building No. 9 Fung Yau Street South, Yuen Long”.

  Clause 2(a):  Cheer Sky shall pay the Defendant initial deposit of $425,000 upon signing of the Provisional Agreement;

  Clause 2(b):  Cheer Sky shall pay the Defendant a further deposit of $425,000 upon signing of the formal sale and purchase agreement on or before 15 March 2013;

  Clause 2(d):  Cheer Sky shall pay the Defendant the balance of purchase price upon completion on or before 31 December 2013 (as amended on 1 March 2013);

  Clause 3:  The Property is to be sold to Cheer Sky “free from encumbrances”;

  Clause 9(a):  The vendor and Cheer Sky shall pay Wayson $77,000 and $85,000 respectively as commission for its services;

  Clause 10(a):   If either party fails to complete the defaulting party shall compensate Wayson $170,000 as agreed damages;

  Clause 11:  The Property is sold to Cheer Sky on an “as is” basis;

  Clause 14:  The Provisional Agreement supersedes all prior negotiations,representations, undertaking and agreements of the parties;and

  Clause 19(2): The Property is sold subject to a tenancy agreement in favour of Chan Tsz Mei at a monthly rent of $13,000 with rental deposit of $26,000 to be passed to Cheer Sky via its solicitors.

It is an open contract with no provision limiting the vendor’s liability for defect in title.  The standard exit clauses, i.e. in the event that the purchaserfails to complete, the vendor may forfeit the deposit; and if the vendor failsto complete, he shall return the deposit paid and compensate the purchaserwith the same amount, were deleted.  The deposit was paid by Luk Yu Wa’s personal cheque which was then replaced by another cheque on 1 March 2013. The replacement cheque was duly cleared. 

101.  Completion did not take place.  CY&Co alleged that the Defendant had failed to show and give good title to the Property by reasonof the existence of the Structures.  It demanded the Defendant to show thatthe Structures were approved by the Building Authority or to complete the sale and purchase with the Defendant carrying out reinstatement works to remove the Structures and compensating Cheer Sky for the loss of usable area as a result.

The subject matter of the Provisional Agreement

102.  Cheer Sky’s position is that the Defendant is under an implied obligation to show and give good title to the Property.  This implied obligation arose from the Defendant’s express obligation under clause 3 of the Provisional Agreement to sell the Property free from encumbrances.  Mr Chan referred to the proposition by the learned authors of Sihombing & Wilkinson, Hong Kong Conveyancing: Law and Practice [4]that where the agreement is silent as to title, to make the contract work there is an implied term that the vendor must give good title.  The rationale for that proposition as particularly applicable to provisional sale and purchase agreements was explained by Litton NPJ in De Monsa Investments Ltd v Whole Win Management Fund Ltd [5] as follows:

“ 101.   But here we have only a preliminary agreement which by cl.2 envisaged that the parties would, on or before 18 February 2008, enter into a formal agreement.  This never took place.  Butit is a binding legal agreement nevertheless.  It is then the court’s function to give effect to the parties’ bargain, according to law.

102.   In cl.3 the vendor ‘undertook’ to ‘sell the premises to the purchaser … free from encumbrances’.  It says nothing about giving good title to the buyer at completion.  But, to make the contract work, that is an obligation which is necessarily implied.”

Clause 3 of the Provisional Agreement is no different from that in De Monsa Investments Ltd.  When there is a contract for sale which includes animplied obligation or an express obligation in general terms to convey free from encumbrances or to show and make a good title, it must necessarily follow that there is an implied term that the vendor must show and prove good title to everything which forms the subject matter of the sale.  CheerSky happily jumped to the conclusion that that obligation to give good title was an implied term under the Provisional Agreement. 

103.  On the other hand, the Defendant argued that there was no such obligation because Cheer Sky through Luk Yu Wa had knowledge of the existence of the Structures and that they constituted unauthorised building works.  This simple layman’s argument had been advanced by very senior counsel in Flywin Co Ltd v Strong & Associates Ltd [6].  Unfortunately, that argument was not considered by the Court of Final Appeal as not having been raised in the Court of First Instance. That argument raises a complicated issue of construction of the Provisional Agreement. There is no rule of law that a vendor must show and give a good title in all cases.  It is all a matter of agreement.  As was held byLord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd & Ors [7], contracts for the sale and land are not exceptions to the principle that partieshave freedom of contract and may agree to whatever terms they like.  The question is what the parties have agreed.  It is not uncommon for parties to agree to sell and purchase expressly subject to defect in title. 

104.  The thrust of Cheer Sky’s case is that it was buying the Property with a shop floor and the Structures including a cockloft of similar area and that the Defendant failed to show and give good title to such a property. Implied in that argument is that the Structures were legal structures under the building plan.  Thus, the primary dispute is about the subject matter of the sale and purchase.  Here, the issue of Cheer Sky has knowledge of the Structures, not only of its existence but also of its illegality, has been pleaded and, on my finding, proved.  Cheer Sky cannot happily assume, as it does, that the Defendant is obliged to deliver the Property with good title in respect of the shop floor and the Structures, without proving that the Structures with good title form part of the subject matter of the sale and purchase.  This issue must be resolved before the issue of implied terms as to title.

105.  Interpretation of a contract is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  It is not the same as interpretation of the meaning of the words used in the contract or the meaning of a particular provision.  The document must be read and construed as a whole.  The guiding principles of construction was summarized by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [8] as follows:

“ (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact,’ but this phrase is, if anything,an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] A.C. 749.

(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand,if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

‘ If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”

106.  These principles have been affirmed by Lord Hoffmann sittingas Non Permanent Judge of the Hong Kong Court of Final Appeal in Jumbo King Ltd v Faithful Properties Ltd & Ors [9]. His Lordship contrasted the very realistic situation, where despite the inadequacy of the language used there is no doubt as to what the parties meant, and where the clear language used left no doubt as to what the parties meant though the consequence would be very hard for one of the parties.  In the former case, the court would give effect to the presumed intention of the parties despite the language used; but in the latter case, it would give effect to the clear intention of the parties as expressed by the language despite the hardship to one of the parties.  In a situation such as this, the proper approach to construction was to consider objectively what the parties as reasonable people intended to be the subject-matter of the sale.  The subject matter of the sale and purchase as stated in clause 1 of the Provisional Agreement is “all that Shop 25 on G/F, Ho Shun Lee Building No. 9 Fung Yau Street South, Yuen Long”. 

107.  On my finding both parties, particularly Cheer Sky, knew that the Structures were unauthorised building works.  That is a defect in title. That defect could not be made good unless the Structures were removed orunless the Structures could be “legalized”.  To legalize the Structures would require cooperation from the Building Authority.  To my understanding learned from other cases, the Building Authority would not “legalize” an illegal structure as such.  It would require the illegal structure to be first removed, building plan for the structure proposed to be erected to be submittedand approved before execution of the building works and the works to be executed under the supervision of an authorised person.  Furthermore, if the plot ratio of the building has been exhausted, the structure proposed to be erected would stand no chance of approval.  Even if the plot ration has not been exhausted, consent for the alteration may be required from all the co-owners of the building under the deed of mutual covenant or for using the plot ratio which belongs to all the co-owners jointly.  The Provisional Agreement must be construed against the above factual matrix.  Against that factual matrix, there could only be three possible constructions:

   (1)  that the Property was being sold without the Structures (in other words, subject to an obligation on the vendor to reinstate the Property before completion to the state shown in the approved building plans);

   (2)  that the Property was being sold with the Structures but on the basis that the vendor would arrange for them to be “legalized”before completion; and

   (3)  that the Property was being sold with the Structures but with the purchaser waiving his right to object to any defect in title arising from the Structures.

108.  There is no dispute that Luk Yu Wa knew of the existence of the Structures.  On my finding, he even knew that the Structures were unauthorised building works and specifically asked the Defendant about them.  The Defendant confirmed that the cockloft was a self-constructed cockloft which was already in situ when she bought the Property from theprevious owner.  There was some confusion in the evidence as to whether the Defendant knew the Structures were unauthorised building works.  The confusion arose partly out of her evidence under cross-examination and partly out of what Vivian had told her about the distinction between self-constructed cockloft (自建閣), cockloft not included in the assignment(唔入契閣) and architect certified cockloft (入則閣).  Under cross-‌examination, she tried hard to avoid the terms “unauthorised structure” or “illegal structure”.  That only confirmed my view that she knew the Structures were unauthorised building works.  I find there is no doubt in her mind, too, that the cockloft was unauthorised building works and so were the staircase and toilet underneath.  Against the above factual matrix, it must have been the intention of the parties that the Structures form part of the sale and purchase.  This construction is further supported by clause 11 of the Provisional Agreement which provided that the sale was on an “as is” basis.  This rules out the construction that the Property was being sold in sense (1), i.e. with the Structures removed and the Property reinstated to the design in accordance with the building plan.

109.  Under the factual matrix, it is a practical impossibility for the vendor to “legalize” the Structures.  As explained above, the Structures could not be legalized as such.  They have to be removed and re-constructed with approval from the Building Authority.  The procedure of obtaining approval from the Building Authority must be part of the factual matrix.  The parties are deemed to have knowledge of such facts.  Luk Yu Wa as a very experienced property investor must have knowledge of these facts.  Indeed, according to the architect instructed by Cheer Sky, the plot ratio of Ho Shun Lee Building has been exhausted.  It is a practical impossibility to have the Structures “legalized”.  Even if these facts were not known to the parties at the time of contract, they must be aware of the risk that the Structures could not be “legalized”.  The defect in title cannot be removedwithout the cooperation from a third party which the vendor has no control.  Consider objectively, the parties as reasonable people would not have intended the vendor to assume an obligation the performance of which wasbeyond his control.  Put in another way, a reasonable reader with knowledge of such risk would find it most unlikely that the parties’ intention was to sell and purchase the Property in sense (2), i.e. with the vendor assuming the obligation to have the Structures “legalized”.

110.  Thus, by a process of elimination and deduction, what is left is a construction in sense (3).  Sense (1) was obviously not what the parties intended.  Sense (2) was a practical impossibility.  Sense (3) is the only construction which would make the contract workable.  A reasonable reader in a situation like the present one would come to the conclusion thatthe parties as reasonable people intended that the subject matter of the sale and purchase was the Property including the Structures with the purchaser assuming the risk of law enforcement by the Building Authority against the Structures.  In technical language, Cheer Sky bought the Property with a waiver of his right to object to any defect in title arising from the unauthorized building works. 

111.  Subject to the above, I have no disagreement with Mr Chan’s submission that an implied obligation on the part of the vendor to give good title arose from clause 3 of the Provisional Agreement.  Accordingly, I find that on the true construction of the Provisional Agreement, the subject-matter of the sale and purchase was the Property including the Structures and that the Defendant was obliged to show and give good title to the Property subject to such encumbrance or defect in title arising out of the Structures as unauthorized building works.

112.  As I have said, the issue of construction of a sale and purchaseagreement of property must be resolved before the issue of implied term as to title.  Having reached the above construction as to the subject matter of the Provisional Agreement, Cheer Sky’s reliance on authorities such as De Monsa Investments Ltd in which there was no issue about the subject matter of the sale and purchase is misconceived.  I would have agreed with the approach in De Monsa Investments Ltd had there been no finding that the parties knew the Structures were unauthorised building works.  However, my finding of Cheer Sky’s knowledge of the Structures as unauthorised building work distinguishes the authorities on defects in title quoted by Cheer Sky, including Flywin Co Ltd, in which the issue of knowledge of the illegality of the unauthorised building works had not been raised. 

Waiver

113.  The Defendant pleaded a further or alternative defence of waiver.  She averred that by signing the Provisional Agreement with knowledge of the existence of the Structures and that they constituted unauthorised building works but without mentioning them in the Provisional Agreement,Cheer Sky has waived its right to object.  The legal principle in this area of the law was succinctly summarised inMegarry & Wade: The Law of Real Property [10]as follows:

“ A purchaser under an open contract is held to have waived his right to object to an incumbrance if (i) he knew that it was irremovable, and (ii) despite this, he contracted to purchase the property or took some other step inconsistent with his right to terminate the contract, such as entering into possession or exercising some other right under the contract.”

This proposition is supported by well-established authorities such as In re Gloag and Miller’s Contract[11], Ellis v Rogers[12] and McGrory v Alderdale Estate Co[13].

114.  On my finding by inference, Luk Yu Wa knew that the cockloftconstituted unauthorised building works which is a blot in title.  This defect in title cannot be removed by the parties to the Provisional Agreement.  It can only be removed by removing the Structures which was part of what the parties had contracted to buy and sell or by seeking approval from the Building Authority to have the Structure “legalized”.  I have explained above that these Structures stand no chance of being “legalized” by the Building Authority.  By inference, with his experience Luk Yu Wa must have known that this defect is irremovable.  It was with this knowledge that he entered into the Provisional Agreement.  Cheer Sky must be taken to have waived the implied obligation on the part of the vendor to give a good title arising out of the Structures.

115.  Mr Chan dealt with this issue of waiver in the context of delay in making requisitions.  For that purpose, I agree with his submission on the law and his conclusion that Cheer Sky has not waived its right to make requisitions. His submission was based on waiver by election where the purchaser failed to exercise his rights under an existing contract to make requisitions.  Here, the waiver is a pre-contractual one.  It was a waiver inferred by Cheer Sky’s conduct of entering into the Provisional Agreement with knowledge of the irremovable defect in title.  The situation is like someone making a conscious decision to buy goods with knowledge of its defect.  He must be taken to have waived all his rights under the implied terms as to fitness for purpose and merchantability.

116.  I am conscious of the Court of Appeal decision in Large Land Investments Ltd v Cheung Siu Kwai [14] in which the court held, inter alia,  that a waiver must be unequivocal and communicated to the other party and that knowledge of illegal structures is not sufficient. This case is distinguishable from Large Land Investments Ltd in that it is not a case of waiver by election.  The waiver was given before or at the time of makingof the Provisional Agreement.  The act of entering into the agreement is, inmy view, sufficient unequivocal communication by conduct.  As for the second holding, it was made in the context of that case, i.e. that the vendor was under an express obligation under the sale and purchase agreement to give good title.  As the vendor had contracted to give a good title, he was under an obligation to remove the defect and make good the title.  Knowledge of the illegal structure was therefore irrelevant.  The conclusion reached in this case is not inconsistent with Large Land Investments Ltd.

Estoppel

117.  The Defendant pleaded estoppel without defining which species of estoppel she is relying on, what was the representation in question, how she had acted in reliance of the representation and what detriment she has suffered as a result.  Doing his best, Mr Chan suggests that the Defendant probably meant estoppel by convention.

118.  In First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd [15], the Court of Final Appeal adopted the principle of estoppel by convention as re-stated by Ribeiro PJ in Unruh v Seeberger[16].  The essential elements of an estoppel by convention are:

   (1)  the parties entered into some transaction or legal relationship on the basis of an assumption that was shared by or common to them both, and it was the element of commonality of the assumption that marked out by convention as a distinct form of estoppel;

   (2)  it must be shown that assumption was communicated between the parties and acted upon, and there must be some mutually manifest conduct by the parties;

   (3)  there was no necessity for the parties to believe that the assumed state of affairs was true, nor was there any necessity for the parties to have been mistaken;

   (4)  what is important is for them to act in the belief, manifested by words or conduct, that they are both proceeding with the transaction on the basis of the same shared assumption;

   (5)  the contents of the common assumption must be sufficiently certain to enable the court to give effect to it;

   (6)  estoppel by convention is concerned with a common assumption relied upon as a basis upon which the persons sharing such assumptions enter into a transaction or legal relationship; and

   (7)  there must be an attempt by one party to depart from the common assumption which departure would be unjust because of the part taken by him in occasioning its adoption by the other party, and the other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption if the opposite party were afterwards allowed to set up rights inconsistent with the assumption. 

As the Defendant has not pleaded or proffered any evidence as to what thecommon assumption in the present case is, it is impossible to ascertain what was the common assumption grounding an estoppel that would prevent Cheer Sky from raising objections on title in respect of the Structures.  Her plea of estoppel must fail.

The Defendant’s obligation to show and give good title

119.  I have found that on a proper construction of the Provisional Agreement, the subject matter of the sale and purchase was the Property with the Structures and defect in title as a result of the Structures.  Subject to that defect, the Defendant was under an implied obligation to show and give good title. 

120.  It is well settled law that a vendor’s obligation to show and give good title is to prove a good title to the very high standard of proof beyond reasonable doubt that the purchaser will not be at risk of a successful assertion against him of an encumbrance: Chi Kit Co Ltd v Lucky Health International Enterprise Ltd [17].  There is now no dispute that the Structures are unauthorised building works which stands absolutely no chance of being approved by the Building Authority for the simple reason that Ho Shun Lee Building was built to the maximum floor area permissible under the plot ratio.  Though the Building Authority has apparently shown a lack of will at present to enforce such breaches of the Buildings Ordinance,the risk nevertheless exists.  It would only be a matter of time when such blatant breaches would fall within the Authority’s law enforcement priority. It is not open to the Defendant to argue that the purchaser will not be at risk of a successful assertion against it of an encumbrance.  The Defendant would be unable to give good title to the Property as result of the Structures. But that is a defect in title which was waived or accepted by Cheer Sky.  Other than that defect, Cheer Sky has not identified any other defect.  Accordingly, I find that the Defendant has discharged the burden of showing and proving such title she has contracted to sell and Cheer Sky has contracted to buy.

Specific performance

121.  Cheer Sky seeks specific performance with abatement of price to reflect the defect in title or compensation for loss of usable area.  It says it was and is ready, willing and able to fulfil its own obligations under the agreement.  However, on the true construction of the Provisional Agreement, the subject matter of the purchase was the Property with the Structures and subject to such defect in title as a result of the Structures.  Cheer Sky has proved no other defect.  On the other hand, the Defendant was ready, willing and able to fulfil her obligation in delivering the Propertysubject to such defect in title as the parties had agreed.  In my view, it was Cheer Sky which refused to complete the sale and purchase in accordance with its bargain under the Provisional Agreement.  It was seeking to enforce a contract which the parties had not agreed by forcing the Defendant to sell the Property at a substantial discount.  The Defendant was entitled to accept such conduct as repudiation of the Provisional Agreement.  The Provisional Agreement having been properly repudiated, Cheer Sky is not entitled to specific performance with or without abatement in price.  Likewise, as the party in breach, Cheer Sky suffered no injury and is not entitled to damages.

122.  Accordingly, Cheer Sky’s claim for specific performance is dismissed.

THE DEFENDANT’S COUNTERCLAIM

123.  The Defendant counterclaims against Cheer Sky and Luk Ngan Ngor jointly for inter alia:

   (1)  a declaration that the Provisional Agreement was validly terminated and the Defendant is entitled to forfeit the deposits paid by Cheer Sky under the Provisional Agreement;

   (2)  a declaration that the Defendant is not liable to pay any commission to Luk Ngan Ngor under the Provisional Agreement; and

   (3)  damages for conspiracy.

124.  In addition, she counterclaims equitable compensation against Luk Ngan Ngor for breach of fiduciary duty and against Cheer Sky for knowing/dishonest assistance in Luk Ngan Ngor’s breaches of duty.

125.  The issues raised by the counterclaim are:

   (1)  whether Luk Ngan Ngor was a party to Luk Yu Wa’s design in procuring the purchase of the Property below market by taking advantage of the existence of the Structures:

   (2)  whether Luk Ngan Ngor was in breach of her fiduciary duty owed to the Defendant; and

   (3)  whether Cheer Sky, through Luk Yu Wa, knowingly/dishonestly assisted in Luk Ngan Ngor’s breaches of fiduciary duty.

Vivian’s ulterior motive

126.  I have found that Luk Yu Wa entered into the Provisional Agreement with a view to compel a substantial reduction in price on completion by reason of the Structures.  For the purpose of proving the conspiracy claim, the Defendant has to prove whether Luk Ngan Ngor knew of Luk Yu Wa’s ulterior motive, was a party to Luk Yu Wa’s design and acted in concert to further that design.  As Vivian was a partner or employee of Luk Ngan Ngnor or Wayson, I begin with investigating her motive.  The thrust of the Defendant’s case against Vivian was her deletionof the exit clauses from the standard provisional agreement, her failing to disclose to her that Luk Yu Wa was acting on behalf of a company, and failing to mention in the Provisional Agreement that the Structures were unauthorized building works.  The Defendant referred to her sale of a shop in Man Fung Building to another purchaser in which Vivian acted as her agent and not Wayson.  In that transaction, the exit clauses were not deleted by Vivian.  She attempted to draw from that evidence inference of Vivian’s conspiracy with Luk Yu Wa and Luk Ngan Ngor.

127.  According to Vivian and Luk Yu Wa, they had a business relationship of about four years.  Apart from the conversation about Structures exchanged during the meeting and the deletion of the exit clauses, there is no evidence on which an inference of adverse ulterior motive couldbe drawn against Vivian.  For similar, albeit less compelling, reasons as those applicable to Luk Yu Wa, given her experience as an estate agent in the area, Vivian must have known that the Structures are unauthorized building works or was reckless in not making enquiries.  She should have alerted the parties of the risk that the Structures are unauthorized building works which may create a defect in title or should have included a provisionin the Provisional Agreement to the effect that no objection to title may be raised by the purchaser by reason of the Structures.  These were not just matters for the conveyancing solicitors but were pitfalls which were within the competency of an estate agent to guard against in the first place.  She also failed to provide a fuller explanation of the effect of the deletion of the exit clauses.  Their deletion may be detrimental to the Defendant in that she may not get out of the Provisional Agreement by returning the deposit and paying compensation of the same amount.  It may be advantageous toher if the opportunity arose for her to sell to another purchaser who offered a higher price in a rocketing market.  Likewise, it may be detrimental to Cheer Sky in a rapidly falling market.  Such deletion is not unusual where the parties are committed to the sale and purchase.  I am unable to draw any inference of a conspiracy by reason of Vivian’s keeping the exit clausesin the provisional sale and purchase agreement in respect of the Defendant’s shop in Man Fung Building.  Whether to keep or delete the exit clauses is a matter of agreement for the parties depending on their own consideration, particularly how committed they were to the sale and purchase.  There is no doubt that both Cheer Sky and the Defendant were committed, though for different motives.  I am unable to draw any inference that Vivian share the same ulterior motive with Luk Yu Wa or was part of his scheme.  I am unable to impute Luk Yu Wa’s ulterior motive through Vivian to Luk Ngan Ngor as her employer or business partner.  Put at the highest, Vivian was an aggressive estate agent and was negligent in handling the transaction.  In any event, there is no counterclaim against Vivian or Luk Ngan Ngor based on negligence.

Luk Ngan Ngor’s conspiracy with Luk Yu Wa

128.  The Defendant’s claim of conspiracy is based on three strands of evidence: her own feeling and experience from the transaction, the relationship between Luk Yu Wa and Luk Ngan Ngor and what Vivian told her during the recorded telephone conversations.  What Vivian told the Defendant was hearsay and was negated by her witness statements.  She did not testify and was not available for cross-examination.  I give that evidence no weight.  The other two strands of evidence were just the Defendant’s conjectures.

129.  On my finding, Luk Ngan Ngor was present during the negotiation of the Provisional Agreement and she echoed in support of the way Vivian drafted the Provisional Agreement.  Except in four respects, her position is similar to Vivian’s. 

130.  First, she is closely related to Luk Yu Wa and Grace Luk, who are directors of Cheer Sky.  She was a director in many of Luk Yu Wa’s companies. Luk Ngan Ngor and Luk Yu Wa explained that she was only appointed as a nominee director with no real function.  Luk Ngan Ngor said she had resigned from those directorships since the present action.  However, as was mentioned in paragraphs 56 and 57, Luk Yu Wa’s relationship with Luk Ngan Ngor is very special vis-à-vis his other nephews and nieces.  She was given the most number of appointments.  She was a co-director with Grace Luk in a number of companies.  She was a co-director with Luk Yu Wa and Grace Luk in Luk’s Development Limited which is the corporate director of the major companies in Luk Yu Wa’s business empire.  However, there is no evidence of her beneficial interest or active involvement in those companies.  She appeared to be more of a working housewife who conveniently lent her name as a director for the use of her uncle.  Her position is different from Luk Siu Lung’s and Kelvin Luk’s who are actively involved in Luk Yu Wa’s companies.  Despite her appointment as director in many of Luk Yu Wa’s companies, it is probablytrue that she was a nominee director and had no beneficial interest in thosecompanies.  There was also no evidence of personal interest in the present transaction apart from her share commission.  Such familial and business relationship, without more, are insufficient to raise any inference that Luk Ngan Ngor share the same ulterior motive with Luk Yu Wa and acted in concert in furthering his design.

131.  Second, she lied about her presence during the negotiation of the Provisional Agreement.  Third, she did not disclose her relations with Luk Yu Wa when negotiating the sale and purchase of the Property.  Fourth, she continued concealing her relationship with Luk Yu Wa and Grace Luk during her telephone conversations with the Defendant.  To do so and to conceal Luk Yu Wa’s identity, she told the Defendant that she had introduced a number of banks to Luk Yu Wa.  It was laughable that a man of his resources would need this estate agent’s help to look for bank mortgage of such an insignificant property.  Even while under cross- examination, she pretended she had no personal knowledge of or relations with Mrs Mak who was in charge of Cheer Sky who was in fact Grace Luk.  She said that she did not even know the surname of Grace Luk’s husband.  I find that incredible.  She had a lot to hide.  Her conduct was suspicious. However, there may be many reasons why she lied, including lack of alertnessto possible conflict at the time of making the Provisional Agreement and afeeling of embarrassment later on.  She may be negligent along with Vivian in handling the transaction, but there was no claim based on negligence.  Obviously, she was eager to close the deal to earn the commission. Her demeanour reflected a sense of uneasiness or regret for being made instrumental to her uncle’s shameful design in trying to prey on a small investor in a transaction brokered by her estate agency.  But to infer from her conduct, lies, negligence and demeanour that she had the same ulterior motive as Luk Yu Wa is somewhat speculative.

132.  Her most inculpating act was her echoing with Vivian’s suggestion that it was not necessary to mention about the cockloft in the Provisional Agreement.  For reasons as stated in the preceding subsection, that is more consistent with negligence than with participation in Luk Yu Wa’s design.

133.  While I entertain not the slightest doubt that Luk Yu Wa engineered a scheme to buy the Property with a view to compel a substantial reduction in price on completion because of the Structures, I do not think he had gone that far as to enlist the assistance of Vivian or his niece Luk Ngan Ngor and let them know of his spiteful design.  It would be too shameful for this tycoon to tell his niece openly that he was trying to prey on an unwitting vendor selling property with unauthorized building works.  He might boast his luck later on because his solicitors discovered a defect in title and saved him millions of dollars.  He might have instructed Vivian or Luk Ngan Ngor to look for good purchases with cocklofts in Ho Shun Lee Building.  But to act on that instruction fell far short of being a party to his design.  Nor can I infer that Luk Ngan Ngor realized the design before or during the negotiation in the office of Waysonand joined in by persuading the Defendant to sign the Provisional Agreement.  She was probably eager to close the deal to earn her commission and actednegligently as did Vivian in failing to advise the parties to make provisions for the blatantly obvious unauthorized building works.  In conclusion, I am not satisfied that the Defendant has proved that Luk Ngan Ngor had conspired with Luk Yu Wa in procuring the purchase of the Property with a view to compel a substantial reduction in price on completion because of the Structures.  Her claim for damages for conspiracy is dismissed.

Luk Ngan Ngor’s breach of fiduciary duty; and

Cheer Sky’s knowing/dishonestly assisting in her breach of fiduciary duty

134.  In paragraph 25 of her Amended Defence and Counterclaim, the Defendant pleaded that Luk Ngan Ngor (trading as Wayson) as an agent and fiduciary of the Defendant acting under reward under the Provisional Agreement owed the following duties to her in tort and/or as implied under contract:

   (1)  a duty of care and skill;

   (2)  a duty to disclose material information to her principal and avoid any conflicts of interest; and

   (3)  a duty not to enter into or procure a transaction in which she has a personal interest in the absence of full disclosure of such interest to the principal.

135.  Mr Chan referred me to the Court of Appeal decision in Allied Success Creation Ltd v Cheung Hon Kuen & Ors [18] in which Cheung JA adopted the proposition that whether the relationship between the client and the estate agent was one of a fiduciary nature depends on the facts of each case and the ‘fair dealing rule’ discussed in Commercial Aspects of Trusts and Fiduciary Obligations by Ewan McKendrick[19].  The rule was formulated in the following terms:

“ Put simply (and slightly inaccurately) a person becomes a fiduciary, not because of his status, but because of what he assumes or is taken as having assumed to do in a particular relationship. To the extent, and only to the extent, that in that role the beneficiary is entitled to expect he will act in the beneficiary’s fiduciary. …

The ‘fair-dealing’ rule commonly expressed in terms which prohibit a purchase or sale by an agent even where the price is set by the principal.  As a generalisation this may be a fair representation of how the rule ordinary applies. …”

He then referred me to Bowstead & Reynolds on Agency [20]in which the learned authors wrote that the powers of real estate agents to alter their principal’s legal relationship is extremely limited and that they are not agents in the full sense of the word.  The learned authors suggested that the estate agent may do no more than bring two parties together and in many situations do little involving fiduciary responsibilities at all. The above proposition is about an agent’s power to bind his principal.

136.  I agree with the above propositions.  The first duty of care and skill pleaded probably referred to an estate agent’s duty in tort and contract.  The second and third duties, in my view, fall within the fiduciary’s duty under the ‘fair-dealing’ rule.  Such duties are very strict. InAllied Success Creation Ltd, the Court of Appeal upheld the lower court’s finding that an estate agent may not take secret profit from the transaction of which he was an agent and owed the duty of disclosure of his personal interest in the transaction.

137.  On the facts of the present case, I have no difficulties in finding that Wayson as the estate agent owed such duties to the Defendant.  It was argued that the transaction was handled by Vivian and the duty was owed by Wayson and not by Luk Ngan Ngor.  Such argument was frivolous and misconceived.  On my finding, Luk Ngan Ngor was present at the meeting and participated in the discussion.  She responded about the cockloft and echoed Vivian’s opinion about deletion of the exit clauses. She was the proprietor of Wayson.  She owed the Defendant the same fiduciary duty which Wayson as the Defendant’s estate agent owed.  There was also some argument that Vivian was not an employee of Wayson and that she only ‘teamed up’ with Luk Ngan Ngor or Wayson.  That was also a spurious argument which is only to be dismissed.  It was not in dispute that there was a commission sharing arrangement between Vivian and Wayson.  If Vivian was an employee of Wayson, Luk Ngan Ngor as the proprietor of Wayson would be vicariously liable for Vivian’s acts.  If Vivian only teamed up with Wayson, she was a partner in Wayson.  Luk Ngan Ngor would also be liable for negligence committed by the partnership. 

138.  In respect of the first category of duty, the Defendant gave no particulars of the duty of care and skill of which Wayson was in breach.  Her complaints revolve around the making of the Provisional Agreement, the concealment of the identity of Cheer Sky as the purchaser until signing the Provisional Agreement, the deletion of the exit clauses, the failure to mention the Structures in the Provisional Agreement and the failure to make provision to limit liability for defects in title.  All of these issues have been discussed above.  Wayson was probably negligent except for the deletion of the exit clauses.  However, even assuming these alleged acts or omissions involved breaches of duty, there was no evidence that the Defendant suffered damage as a result.  Cheer Sky’s claim for specific performance with abatement in price was dismissed on my finding on the subject matter of the sale.  It would make no difference whether the Defendant contracted with Luk Yu Wa or with Cheer Sky; whether the Structures were mentioned in the Provisional Agreement and whether provisions had been made to limit the Defendant’s liability for defect in title.  There was no evidence of causation.  This action was the result of the act of a third party to that fiduciary relationship.

139.  As for the deletion of the exit clauses, it was more of the result of the Defendant’s personal choice than that of Luk Ngan Ngor’s or Vivian’s breach of duty.  The Defendant was an experienced investor.  She had entered into provisional sale and purchase agreements containing exit clauses.  These are simple clauses written in ordinary language.  She has no difficulties understanding them, their legal effect and the effect of their deletion.  Usually, when people entered into an agreement, their intention and desire was to perform the agreement.  I have already explained that whether these clauses were beneficial or detrimental to a party depends onwhether the market was a rising seller’s market or a falling buyer’s market; and whether the other contracting party intended to take advantage of the exit clauses or intended to complete the sale and purchase.  It was all a matter of choice of the contracting parties and their agreement.  The Defendant offered no evidence why she would prefer to have them includedin the Provisional Agreement at the time of entering into the agreement but for Vivian’s or Luk Ngan Ngor’s breach of duty.  She only complained that but for their deletion, she could not have forfeited the deposits.  There was no evidence of causation.

140.  I now turn to the second and third categories of duty.  By ‘material information’ and ‘conflicts of interest’, I assume the Defendant to mean Luk Ngan Ngor’s relationship with Luk Yu Wa and her directorship in his chain of companies, including Luk’s Development Limited, Cheer Mega (HK) Limited, Megafull Limited, Twin Fortress Holdings Limited, Charteryard Industrial Limited and Frankfurt Limited.  It is a well-know and often used method to use companies to hold real property.  There is nothing objectionable for Luk Yu Wa to do so and for him to appoint Luk Ngan Ngor as director in those companies.  None of those companies were involved in the present transaction.  Luk Ngan Ngor was not a director of Cheer Sky. There is no evidence of Luk Ngan Ngor’s beneficial interest in those companies or Cheer Sky. The Defendant has failed to prove Luk Ngan Ngor was involved in any conspiracy with Cheer Sky in purchasing the Property at below market value.  No potential conflict in the present transaction arose out of Luk Ngan Ngor’s relationship with Luk Yu Wa or her directorship in his companies.  None of the above information was therefore material to the present transaction which need to be disclosed to the Defendant.

141.  Apart from failing to prove any conspiracy with Luk Yu Wa orCheer Sky, there was no evidence of Luk Ngan Ngor obtaining any personal interest, besides the commission which was clearly known and consented to by the Defendant.  It is not known what information which Luk Ngan Ngor ought to have disclosed.

142.  Accordingly, the Defendant’s claim against Luk Ngan Ngor’s breach of fiduciary duty must fail.  So must her claim against Cheer Sky for knowingly/dishonestly assisted in that breach of duty.

Conclusion

143.  For the above reasons, the Defendant’s counterclaim for damages for conspiracy, and equitable compensation for breaches of fiduciary duty and in assistance in such breach are dismissed.

144.  On my finding, Cheer Sky repudiated the Provisional Agreement by attempting to force a reduction in price on the Defendant to sell the Property at a substantial discount.  The Defendant was entitled to accept the repudiation and treat the Provisional Agreement as at an end. The Defendant is entitled to a declaration to that effect.

145.  The Defendant seeks a declaration that she is not liable to pay commission to Wayson.  Under clause 9(a)of the Provisional Agreement, the Defendant as vendor and Cheer Sky as purchaser shall pay Wayson commission for its services in the sum of $77,000 and $85,000 respectively. Clause 10(a) provides that if the parties fail to complete the sale and purchase, the defaulting party shall pay the agent compensation of $170,000.  These clauses provide as follows:

“ 9(a) In consideration of the services rendered by the Agent, the Agent shall be entitled to receive HK$77,000 from the Vendor and HK$85,000 for the Purchaser as commission (respectively, the ‘Vendor Commission’ and the ‘Purchaser Commission’).

“ 10(a)  If in any case either the Vendor or the Purchaser fails to completethe sale or purchase in the manner herein contained, the defaulting party shall compensate at once the Agent HK$170,000 as agreed damages.”

There was no mention whether the parties were still liable to pay commission if the sale and purchase fell through or if the Provisional Agreement was repudiated. However, there was no reason why if such an event occurs, the agent should receive both commission and compensation. Reading the two clauses together, the only reasonable construction is that if the sale and purchase could not be completed in accordance with the Provisional Agreement, the party in default shall pay compensation to the agent for itsloss of commission receivable from both the vendor and the purchaser and the party not in default shall be relieved of the liability to pay commission under clause 9(a). As the default event was caused by Cheer Sky’s repudiatory breach of the Provisional Agreement, it shall pay compensation to Wayson and the Defendant shall be relieved of the obligation to pay commission. Accordingly, I make the declaration sought against Wayson.

146.  In addition, the Defendant seeks to forfeit the deposits.  Had the exit clauses not been deleted, she would have been entitled to forfeit the deposits.  With the deletion of the exit clauses, she is not entitled to forfeit the deposits but entitled to claim damages.  According to Cheer Sky’s valuation expert, whose evidence is not in dispute, the value of the Property as at three specified dates were as follows:

Date	Valuation	Remarks
31 December 2013	$ 9,430,000	Date of completion
31 October 2016	$ 9,860,000	–
11 October 2018	$ 8,530,000	Date of trial

147.  The valuation as at the scheduled completion date through to the date of trial are higher than the price of sale under the Provisional Agreement.  Hence, the Defendant could have suffered no injury and is not entitled to damages for repudiation of the Provisional Agreement.  She is not entitled to withhold any part of the deposits as damages.  The deposits should therefore be returned to Cheer Sky as money had and received, without interest in view of its conduct. 

CONCLUSION

148.  The major dispute in this action is specific performance of theProvisional Agreement and the counterclaim for declarations and forfeiture of deposits.  Cheer Sky’s claim for specific performance failed and the Defendant’s counterclaim for declarations succeeded against both Cheer Sky and Luk Ngan Ngor.  Though her counterclaims for conspiracy, forfeiture of deposits and breach of fiduciary duty claims are unsuccessful,she could be regarded as substantially successive.  As between Cheer Sky and the Defendant, having regard to the unsuccessful counterclaims, I make a costs order nisi that Cheer Sky shall pay 85% of the Defendant’s costs of this action and 100% of all costs reserved, if any.  As between Luk Ngan Ngor and the Defendant, having regard to the Defendant’s successful and unsuccessful parts in the counterclaims, I consider it appropriate to make a costs order nisi that there be no order as to costs.

149.  Accordingly, I make the following orders:

   (1)  Cheer Sky’s claim for specific performance against the Defendant be dismissed;

   (2)  the Defendant’s counterclaim for damages for conspiracy against Cheer Sky and Luk Ngan Ngor be dismissed;

   (3)  the Defendant’s counterclaim for equitable compensation forbreach of fiduciary duty against Luk Ngan Ngor be dismissed;

   (4)  the Defendant’s counterclaim for equitable compensation forassisting in Luk Ngan Ngor’s breach of fiduciary duty against Cheer Sky be dismissed;

   (5)  a declaration that the Provisional Agreement was rescinded and subject to sub-paragraph (10) below all deposits paid be returned to Cheer Sky without interest;

   (6)  a declaration that the Defendant is not liable to pay commission to Wayson Properties Co under the Provisional Agreement;

   (7)  a costs order nisi that Cheer Sky shall pay 85% of the Defendant’s costs of this action and 100% of all costs reserved,if any;

   (8)  a costs order nisi that there be no order as to costs as between Luk Ngan Ngor and the Defendant;

   (9)  all costs are to be taxed on party and party basis if not agreed;and

   (10)  the deposits be held by the Defendant and be set off against all taxed or agreed costs against Cheer Sky and the balance after setting off, if any, be returned to Cheer Sky within 14 days after the said costs have been taxed or agreed.

150.  Lastly, I wish to thank Mr Anthony Chan, counsel for Cheer Skyand Luk Ngan Ngor, for his assistance on the law and the very professionalway he handled this litigation.  I wish to thank him particularly for the very accommodating stance he adopted towards the unrepresented Defendant, without which this trial could not have proceeded as smoothly.  I must addthat that was done without in any way compromising his duty to his clients. I appreciate his assistance.