CHEUNG CHUNG YEE v. 王慶培 AND OTHERS

DCCJ4225/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4225 OF 2015

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DECISION

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Introduction

1. By a summons dated 27 April 2016, the plaintiff applied:-

(a)   to strike out the defence and counterclaim of the 1^st defendant (“D1”), the 1^st named 3^rd defendant (“1^st D3”), the 1^st named 5^th defendant (“1^st D5”) and the 7^th defendant (“D7”) (“collectively as “the defendants”) under O 18 r 19(1)(a) of the Rules of the District Court (“RDC”); and

(b)  for summary judgment under O 14A of RDC.

The claim

2. By 4 separate licences between one Regent Power Industrial Ltd (“Regent”) as the plaintiff’s agent and D1, the 3^rd defendants, the 5^th defendants and D7 dated 24 December 1991, 8 November 1991, 5 November 1991 and 30 November 1991 respectively, upon payment of a licence deposit and a licence fee by the respective defendants, the plaintiff agreed to license and did license the use and enjoyment of the following premises to the respective defendants for a fixed term of 20 years:-

	Premises	Licence deposit
Licencee	(on Lot 1408RP in DD 106)	& licence fee paid
D1	Unit A, Ground Floor	$174,000
	(“D1's premises”)
3rd defendants	Unit A, 1st Floor	$164,000
	(“1st D3’s premises”)
5th defendants	Unit C, 1st Floor	$143,960
	(“1st D5’s premises”)
D7	Unit C, 2nd Floor	$174,992
	(“D7’s premises”)

3.   The licences of D1, the 3^rd defendants and D7 expired on 31 December 2011 and the licence of the 5^th defendants expired on 14 November 2011 by effluxion of time.

4.   Upon the expiry of the licences, the plaintiff on 11 and 13 April 2012 by notices demanded the defendants to deliver up vacant possession of their respective premises to the plaintiff by 5 July 2012.

5.   The plaintiff claims for an order for possession of the licensed premises and payment of liquidated damage.

The defence and counterclaim

6. By their defence and counterclaim, the defendants said during the negotiations for the licence agreements, Regent represented to them that the premises were intended to be sold to them and the plaintiff and/or Regent would obtain all necessary approval and permit from the government to enable the sale of the premises to the defendants.

7. It was orally agreed that in consideration of the defendant entering into the licence agreements, the plaintiff would transfer the entire beneficial interest in the respective premises to the respective defendants upon obtaining all necessary approval and permit from the government.  The plaintiff would also grant a licence of the respective premises to the respective defendants permanently upon the expiry of the licence agreements.

8. It was the common intention of the parties that the defendants would own the entire beneficial interest in their respective premises upon entering into the licence agreements.

9. D1 had sold his property at Fuk Tsun Street, Tai Kok Tsui at a loss of $70,000 prior to acquiring D1’s premises and had spent about $25,000 on renovation and improvement of D1’s premises.

10. 1^st D3 had spent about $50,000 on relocation, renovation and improvement works of 1^st D3’s premises.

11. 1^st D5 had spent about $70,000 on relocation, renovation and improvement of 1^st D5’s premises.

12. D7 had spent about $70,000 on relocation, renovation and improvement of D7’s premises.

13. The defendants said that by reason of the oral agreement, they are entitled to remain in possession of their respective premises.

14. The defendants said by reason of resulting trust or constructive trust or by way of proprietary estoppel, they are entitled to the entire beneficial interests in their respective premises and to remain in possession thereof.

Legal principles on striking out of pleadings

15. It is only in plain and obvious cases that the court should exercise its summary powers to strike out any pleading under O 18 r 19 of RDC.  The pleadings must be unarguably bad and it must be impossible, not just improbable, for the pleadings to succeed: see 18/19/4 of Hong Kong Civil Procedure 2016 Vol 1.

16. It is a drastic remedy and no court should give effect to it unless it is satisfied that the legal basis of the claim is unarguable or almost incontestably bad.  Where the legal viability of the cause of action is sensitive to the facts, an order to strike out should not be made: see the speech of Litton, VP (as he then was) in Yue Xiu Finance Co Ltd v Dermot Agnew [1996] 1 HKLR 137 at p 141D.

17. No evidence is admissible on an application under O 18 r  19(1)(a).  The court is required to look at the statement of claim and determines whether, on the assumption that the facts pleaded in it are true, the plaintiff has a cause of action in law: see O 18 r 19(2) of RDC and Hong Kong Polytechnic University v Next Magazine Publishing Ltd [1996] 2 HKLR 260 at p 263H.

Legal principles on order 14A application

18. Recorder Geoffrey Ma SC (as the Chief Justice then was) in Rockwin Enterprises Ltd v Shui Yee Ltd [2003] 3 HKC 174 at 183 laid down the following approach in dealing with an application under Order 14A:-

“18. Once seized of an application under O 14A, the court’s approach is essentially a three-step approach:-

(1) Is the relevant question one of law or of the construction of a document?

(2) If so, is that question one that should be determined under the O 14A procedure?

(3)  If the answer to (2) is ‘yes'’ what is the determination of that question and what orders should the court make as a consequence of determining that question?

......

20.  Step (2) requires the court to be satisfied of the following:-

(a)   That the question of law or construction is one that is suitable for determination without a trial.  In other words, the court has all the necessary facts and matters before it in order to determine the question of law or construction.

(b)  That if so suitable and should it be determined by the court, that it will finally determine (subject to a possible appeal) the entire cause or matter or any issue or claim therein.

(c)   Even if the above two conditions are fulfilled, that the court in its discretion is satisfied that the question is one that ought to be determined under O 14A.

21.  It is clear that the court has a residual discretion whether or not to embark on a determination of a question under O 14A even where the first two requirements (set out in paras 20(a) and (b) above) are fulfilled.  This is clear from the word ‘may’ in O  14A r 1(1) and from the authorities.”

19. In relation to the exercise of the court's residual discretion, His Lordship has this to say at p185 of the judgment:-

“26. It is of course not possible to set out all the circumstances which may be relevant in any given case to the exercise of the court’s discretion. Much will depend on the perception and instinct of the judge seized of the matter.

27.  ……  Here, it is important to emphasise that the question of law or construction is one that is suitable for determination without a trial.  In other words, the court must have all the necessary facts and matters before it in order to determine the question of law or construction.  Where the court is not seized of all relevant facts, it would be an extremely rare case (if ever) in which the procedure under O 14A would be adopted …...”

20.  Though the present application was said to be made under O  18 r 19(1)(a) and O 14A of RDC, such application should be taken as an alternative application: see 18/19/3 of Hong Kong Civil Procedure 2016 Vol 1.

Discussion

The striking out application

21. In the defence, it is not disputed that the defendants had entered into licence agreements with the plaintiff and notices to quit were issued to them by the plaintiff.  However, it is the defence case that there was an oral agreement between them that the beneficial interest of the respective premises would be transferred to the respective defendants upon obtaining all necessary approval and permit from the government.

22. Whether there existed such an oral agreement is a matter for the trial.  For the purpose of the present application, I have to assume that there was such an oral agreement as pleaded by the defendants. 

23. By their pleaded case, the defendants are saying that once the approval and/or permit of the government are obtained, the plaintiff would transfer the beneficial interest in the premises to the respective defendants but those approval and/or permit have yet to be obtained.  What was exactly meant by the approval or permit of the government was not specifically pleaded.  It is of course up to the defendants to prove their case at the trial.  In any event, pleadings can be amended at any stage of the proceedings: see O 20 r 5 of RDC.

24. In the course of his submission, Mr KM Chong who appeared for the plaintiff with Mr Alvin Chong, made reference to the terms of the licence agreements and the memorandum of understanding (the actual title of the document is in Chinese: “正式購租權意向書”, hereinafter referred to as “the memorandum”) entered into between the plaintiff and the defendants, which came from the evidence adduced by the plaintiff in a supporting affirmation.

25. With due respect, that is not the correct approach. In my view, when considering a striking out application under O 18 r 19(1)(a), the court’s attention should, and so is the applicant's submission, be confined to the facts pleaded in the pleadings (be it statement of claim or defence) to see if it discloses a reasonable cause of action or defence, assuming them to be true.

26. Mr Chong also submitted that the alleged common intention that the defendants would own the entire beneficial interest in their respective premises upon entering into the licence agreements could not be gathered from the terms of their agreements. 

27. Again, Mr Chong is asking this court to examine the documentary evidence which were produced by the plaintiff in support of the application.  This has fallen outside the scope of the pleaded case of the defendants.  Furthermore, it is not the pleaded case of the defendants that the licence agreements and the memorandum contained all the agreements between the parties.  It is also not their pleaded case that the terms of the licence agreements and the memorandum were ambiguous and unclear so much so that they did not express accurately the true intention of the parties.  Neither is it their pleaded case that the licence agreements or the memorandum were the agreements or assignments in respect of the transfer of the beneficial interest in the premises to them.  The defendants are not pleading that the alleged oral agreement had conferred upon them the beneficial interest in the premises.

28. Finally, Mr Chong commented on the alleged reliance on proprietary estoppel by the defendants.  Mr Chong submitted that proprietary estoppel is based on the existence of mutual understanding between the parties that, by investing money and money’s worth in another’s land, the former would acquire an interest in the land, citing Best Star Holdings Ltd v Lam Chun Hing, HCA 409/2008, 22/2/2012, unreported, in support of the proposition.  Mr Chong submitted that given the existence of the licence agreements and the memoranda, it is difficult to see how there could be a mutual understanding between the plaintiff or his agent and the defendants that the latter would acquire an interest in the land by investing money and money’s worth in it.

29. I think whether the defendants are able to establish proprietary estoppel depends on what facts are relied on and the sufficiency of those facts if they are proved at the end of the day.  In the defence, the defendants did plead the facts that they are relying on.  Whether they can be proved and whether they are sufficient to establish proprietary estoppel is a matter for trial.  In any event, it is not the function of this court to prejudge the merits of the defence case short of a trial.  At the risk of being repetitious, in dealing with the present application which is under O 18 r 19(1)(a), this court is bound by the four corners of the defence and should refrain from considering the licence agreements and the memorandum as suggested by Mr Chong.

30. For the foregoing reasons, I take the view that the defence and counterclaim is in not in such a state that it should be struck out.  The plaintiff’s striking out application is therefore dismissed.

The order 14A application

31. The plaintiff poses the following questions for determination:-

(1)  Whether the Licence Agreements have the effect of conferring a contractual licence or creating an interest in land instead (“Question 1”);

(2)  Whether, on the basis of the oral agreement pleaded in paragraph 6 of the Defence and Counterclaim of the said defendants existed as a fact and in the absence of a written instrument signed by the plaintiff in terms as alleged by the said defendants, the oral agreement has the effect of conferring interest in land to the said defendants (to form the subject matter of a counterclaim)(“Question 2”); and

(3)  Whether the oral agreement is admissible to vary, add to or contradict the express terms of the Licence Agreements relating to the said defendants (“Question 3”).

32. In relation to Question 1, Mr Chong submitted that the licence agreement did not confer an interest in land upon the defendants.  On this issue, I think there is no quarrel between the parties.  However, for reasons that follow, that is not the end of the matter.

33. Question 2 and Question 3 concern the alleged oral agreement.  It is not the defence case that the oral agreement had conferred upon the defendants an interest in land.  They are saying that it was orally agreed, inter alia, that the plaintiff would transfer the beneficial interest in the premises to the respective defendants once all the necessary approval and permit are obtained from the government.  Obviously, the precise scope of the oral agreement and whether those approval and/or permit are at hand is highly relevant.  This would require the determination of the court after trial.  At this stage, this court is not seized of all the necessary facts.  The assumption of fact proposed by the plaintiff at Question 2 is simply far from enough for the purpose of determining the matter.

34. That being the case, I am of the view that this case is not suitable for determination under O 14A.

Conclusion and order

35. By reasons of the foregoing, the plaintiff’s application must be dismissed on both limbs and I so order.

Costs

36. Costs should follow the event.  I order that the plaintiff shall pay the defendants the costs of this application with certificate for counsel, to be taxed if not agreed.