LAWIN (H.K.) LTD v. NG YAU FONG YVONNE

HCMP 381/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 381 OF 2012

(ON AN INTENDED APPEAL FROM HCA 640 OF 2011)

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REASONS FOR JUDGMENT

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Hon Tang Ag CJHC (giving the reasons for judgment of the Court):

1. A small village type house has been erected on section B of Lot No 154 in Demarcation District No 19 in the New Territories ("the House"). The House is part of a development of 5 houses known as 世紀村. The Defendant is the occupier of the ground and first floors of the House ("the Property"). She claimed that she had purchased the Property on 7 January 2009 from a Mr Hung Heung Keng ("Hung"). The Defendant has produced a provisional sale and purchase agreement in Chinese ("the Provisional Agreement") entered between her and Hung for the purchase of the Premises in HK$3,000,000, and which showed that she had paid $2,000,000 on the signing of the Provisional Agreement. She was given the key to the Premises and that her husband moved into the Premises on 22 March 2009.

2. According to the Defendant, before she agreed to purchase the Premises, Hung had shown her a copy of a development agreement in Chinese, made between Best Star Holdings Ltd ("Best Star") as Party A, Mr Hung as Party B and a Mr Chan Cheuk Wa ("Chan") as Party C, for the development and sale of small village houses.  Under the development agreement, profits should be shared as to 60% to Best Star, 30% to Hung and 10% to Chan.  She was also shown a price list in respect of the Property which borne what appeared to be the signature of Best Star.  According to her the Property had earlier been the subject of a Provisional Agreement dated 2 August 2007 made with Mellor Tymon which had been cancelled.

3. The Plaintiff's case is that it is the registered owner of the Property by virtue of an assignment dated 30 August 2007 made between Chan and the Plaintiff.  As will be seen this assignment postdated the agreement with Mellor Tymon.

4. This action was commenced on 11 April 2011[1]. The Defence and Counterclaim was filed on 9 June 2011, which pleaded, inter alia,

"……

3(2)  In pursuance to the Development Agreement, the Developers:

(a)  acquired the beneficial interest of Lot No. 154 in Demarcation District 19, Tai Po, New Territories ('Lot 154');

(b)  caused Lot 154 to be divided into various sections including section B on which the Property situates;

(c)  caused the legal owners of various sections of Lot 154 to execute powers of attorney in favour of Guo as the representative of the Developers ('the POAs');

(d)  caused 5 blocks of small village type houses ('the Houses') to be constructed on Lot 154, one of which is the Property.

(e)  obtained certificates of compliance relating to the Houses on 3 March 2007, 9 March 2007 and 13 March 2007 respectively.

……

4.  The Defendant further avers that the Plaintiff is not the lawful owner of the Property.

PARTICULARS

(1)  Best Star is a company incorporated under the Hong Kong law. Between 26 August 2005 and 16 April 2007, Guo is the sole shareholder and director of Best Star. On 12 April 2007, two additional directors Xian Jueyu and Guo Lian were appointed. Shortly afterwards on 16 April 2007, Guo transferred 25% of the shareholding of Best Star to Xian Jueyu and another 25% of the shareholding of Best Star to Guo Lian.

(2)  The Plaintiff was incorporated on 15 May 2007. Guo Lian holds 850 out of 1000 issued shares of the Plaintiff and Xian Jueyu holds the remaining 150 shares of the Plaintiff. They are also the only directors of the Plaintiff.  Guo is the general manager of the Plaintiff.

(3)  Both the Plaintiff and Best Star share the same address Shop Unit 9 Expo Galleria, Hong Kong Convention and Exhibition Centre, 1 Expo Drive, Wanchai, Hong Kong as their registered offices.

(4)  On 30 August 2007 and 5 September 2007, Guo, using the POAs, purportedly executed agreements and assignments to assign the Houses to the Plaintiff ('the Purported Transactions').

PARTICULARS

Lot No.	Registered Owner	Date of S&P Agreement	Date of Assignment	Price (HK$)
154A	Cheung Alexander King Loong	2007-8-30	2007-8-30	5,000,000
154B	Chan Cheuk Wa	2007-8-30	2007-8-30	4,000,000
154C	Chan Yuk Wing	2007-9-5	2007-9-5	4,000,000
154D	Chan Kwai Leung	2007-8-30	2007-8-30	4,000,000
154E	Chan Yu Ming	2007-8-30	2007-8-30	5,000,000

(5)  Subject to further discovery, none of the purchase prices stipulated in the assignments has ever been paid. None of the Purported Transactions was supported with sufficient consideration.

(6)  The Purported Transactions are therefore sham transactions conspired and devised by Guo and the Plaintiff to defeat the beneficial interest of the Developers including Hung under the Development Agreement and the beneficial interests of the various bona fide purchasers of the Houses including Mellor Tymon, the predecessor of the Defendant and the Defendant.

(7)  The Purported Transactions are therefore illegal transactions that are contrary to public policy and should not be recognized by the Court.

(8)  Therefore, the assignment pleaded in paragraph 2 of the Statement of Claim is void and the Plaintiff is not the lawful registered owner of the Property.

5.  Further or alternatively, as pleaded above, Guo is holding the POAs as trustee of the Developers. Guo exercised the powers under the POAs without knowledge or consent of the Developers for his own benefit in breach of his fiduciary duty owed to the Developers including Hung. By reason of the matters pleaded in paragraph 4 hereinabove, the Plaintiff had knowledge of such breach and/or had acted dishonestly in assisting Guo's breach of his fiduciary duty owed to the Developers therefore stands in the position of a constructive trustee of the Houses including the Property subject to the beneficial interest of the Developers.

6.  Further or alternatively, if, which is denied, the Plaintiff is the legal owner of the Property, by reason of the matters pleaded above, the Plaintiff is not a bona fide purchaser for valuable consideration and takes the legal title of the Property subject to the beneficial interest of the Defendant as pleaded above.

7.  Hung instituted action HCA 45/2010 on 12 January 2010 against the Plaintiff and Best Star alleging that the Purported Transactions were a sham calculated to defeat the beneficial interest of Hung under the Development Agreement and sought a declaration that the Plaintiff hold 30% of the Houses as trustee for the benefit of Hung and injunction that the Plaintiff shall not deal with the interest of Lot 154 in anyway."

5. On 22 July 2011, the Plaintiff applied for summary judgment for vacant possession of the Premises, as well as the determination of the following issues of law pursuant to Order 14A rule 1:

"(1)  Whether on a true and proper construction of the Joint Development Agreement dated 29^th October 2004 made between Best Star Holdings Limited ('Best Star'), Hung Heung Keng ('Hung') and C.G.T. International Limited (collectively the 'Developers') empowered Hung to enter into the Provisional Agreement for sale and purchase dated 7^th January 2009 ('the Provisional Agreement') with the Defendant for selling the Property to the Defendant at $3 million and to collect the sum of $2 million from the Defendant as part payment thereof on behalf of Best Star and or the Developers.

(2)  Whether the Provisional Agreement which came into existence after the acquisition of Section B of Lot No.154 in Demarcation District No.19 ('the Lot') together with the building erected thereon (inclusive of the Property) by the Plaintiff and which has remained unregistered is null and void as against the Plaintiff.

(3)  Whether the Plaintiff is the beneficial owner of the Lot together with the building erected thereon (inclusive of the Property)."

6. Indeed, Mr Chan Wai Shing, solicitors from Messrs Adrian Yeung & Cheng (solicitors for the Defendant) in his affirmation of 3 August 2011 expanded on the matters pleaded in the Defence and Counterclaim quoted in para 4 above as follows:

"7.  As is clear from the affirmations filed by the parties respectively in support and/ or in opposition of the O. 14 application, the pleadings of the Actions and the pleadings of Hung's Action, it is the case of the Purchasers and Hung that:

(1)  On or about 29 October 2004, three parties including one Hung Heung Keng ('Hung'), one Guo Qigui ('Guo') for and on behalf of Best Star Holdings Ltd ('Best Star') and C.G.T. International Ltd. ('the Developers') entered into a Joint Development Agreement ('the Development Agreement') to jointly develop small village type houses in Hong Kong.  This agreement provides that:

(a)  The parties would use Best Star, then owned by Guo, as the vehicle to acquire Ting house(s) in Hong Kong. Parties enjoy rights and undertake responsibilities according to their respective shares of profit and loss. (clause 1)

(b)  The profit after deducting costs, interests and tax shall be divided in the following manner: Best Star - 60%; Hung - 30%; C.G.T. International Ltd. - 10%. (clause 4)

(2)  In pursuance to the Development Agreement, the Developers:

(a)  acquired the beneficial interest of Lot 154;

(b)  caused Lot 154 to be divided into various sections on which the properties situate;

(c)  caused the legal owners of various sections of Lot 154 to execute powers of attorney in favour of Guo as the representative of the Developers ('the POAs');

(d)  caused 5 blocks of small village type houses ('the Houses') to be constructed on Lot 154.

(e)  obtained certificates of compliance relating to the Houses.

(f)  obtained consents to assign the Houses upon payment of premium from District Lands Office, Tai Po of the Lands Department on various dates in August 2007.

(3)  In early February 2007, the Developers further agreed, in addition to the Development Agreement, that Hung was responsible for and authorized to sell 4 of the Houses and that House E would be sold to Hung at the price of HK$5 million. The purchase money of House E would be paid by way of deduction of Hung's entitlement in the profits under the Development Agreement. Subsequently, between February and August 2007, Hung, on behalf of the Developers sold four of the Houses by signing provisional sale and purchase agreements with various purchasers ('The PSPAs').

PARTICULARS

Date	Unit	Purchaser
2007-2-3	Section D 2/F + roof	Andrew Kenneth Small
2007-2-10	Section D G/F + 1/F + garden	Chan Yuen Tung
2007-2-12	Section A 2/F + roof	OWEN, Richard Philp
2007-3-26	Section A G/F + garden	Cheung Lai Yee Oliva
	Section A 1/F	Ho Kwai Ying, Cheung Kar Kui
2007-5-27	Section C G/F + 1/F + garden	Shum Siu Ching
2007-8-15	Section C 2/F + roof	Pun Chin Kei
2007-8-20	Section B 2/F + roof	Lai Wai Kwan
2007-8-23	Section B G/F + 1/F + garden	Mellor Tymon[2]

(4)  Hung himself moved into House E in about January 2007 and the Purchasers also occupied the houses that they purchased later on.

(5)  Best Star is a company incorporated under the Hong Kong law. Between 26 August 2005 and 16 April 2007, Guo was the sole shareholder and director of Best Star. On 12 April 2007, two additional directors Xian Jueyu and Guo Lian were appointed. Shortly afterwards on 16 April 2007, Guo transferred 25% of the shareho1ding of Best Star to Xian Jueyu and another 25% of the shareholding of Best Star to Guo Lian.

(6)  The Plaintiff was incorporated on 15 May 2007. Guo Lian holds 850 out of 1000 issued shares of the Plaintiff and Xian Jueyu holds the remaining 150 shares of the Plaintiff.  They are also the only directors of the Plaintiff.  Guo is the general manager of the Plaintiff.

(7)  Both the Plaintiff and Best Star share the same address Shop Unit 9 Expo Galleria, Hong Kong Convention and Exhibition Centre, 1 Expo Drive, Wanchai, Hong Kong as their registered offices.

(8)  On 30 August 2007 and 5 September 2007, Guo, fully aware that the Houses had either been sold to bona fide purchasers or assigned to Hung as his share of profit under the Development Agreement, using the POAs, purportedly executed agreements and assignments to assign the Houses to the Plaintiff ('the Purported Transactions'). The Purported Transactions were not authorized by the Developers.

PARTICULARS

Lot No.	Registered Owner	Date of S&P Agreement	Date of Assignment	Price (HK$)
154A	Cheung Alexander King Loong	2007-8-30	2007-8-30	5,000,000
154B	Chan Cheuk Wa	2007-8-30	2007-8-30	4,000,000
154C	Chan Yuk Wing	2007-9-5	2007-9-5	4,000,000
154D	Chan Kwai Leung	2007-8-30	2007-8-30	4,000,000
154E	Chan Yu Ming	2007-8-30	2007-8-30	5,000,000

(9)  Subject to further discovery, none of the purchase prices stipulated in the assignments has ever been paid. None of the Purported Transactions was supported with any or any sufficient consideration.

(10)  The Purported Transactions are therefore sham transactions conspired and devised by Guo and the Plaintiff to defeat the beneficial interest of the Developers including Hung under the Development Agreement and the beneficial interests of the various bona fide purchasers of the Houses including the Purchasers."

7. On the other hand the Plaintiff's application was throughout supported only by a pro forma affirmation made on the Plaintiff's behalf by its solicitors, stating that the Plaintiff is the registered owner of the Premises.  There has been no attempt to deal with or answer any of the allegations made on behalf of the Defendant. 

8. Not surprisingly, the application was dismissed by Deputy High Court Judge Mimmie Chan on 16 February 2012. 

9. On 2 March 2012, the Plaintiff asked for leave to appeal out of time. The Plaintiff was 1 day late.  On 16 April 2012, Cheung JA directed that the application be heard in court.  We heard the application on 8 June whereupon we refused leave to appeal out of time essentially on the basis that the appeal has no reasonable prospect of success.  From the narration of the facts stated above and the reasons given by the learned Deputy Judge, it is clear that this case cries out for a trial.  At trial, the issues for determination will include,

(1)  whether Hung had authority to sell any of the Houses, in particular, the Property, to the Defendant;

(2)  whether the assignment to the Plaintiff was a device employed by Best Star (Guo) and/or Chan to defraud (or defeat the claim of) the Defendant (and other purchasers with whom the Plaintiff is also engaged in litigation).

10. It is so plain and obvious that there must be a trial that it is a waste of time to say more.  For these reasons we have dismissed this application for leave with costs.