YEUNG TSZ YING v. SHEN FRIEDA TONG AND OTHERS

HCA 428/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 428 OF 2012

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D E C I S I O N

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1.  The 1^st defendant (“Madam Tong”) applies for an order (i) to vacate the lis pendens registered against 4 properties and (ii) to restrain the plaintiff (“Ms Yeung”) from causing further lis pendens to be registered. Madam Tong proposes that upon sale after vacation of the lis pendens, the proceeds of sale shall be deposited into court pending trial.

The facts

2.  Madam Tong was the sole shareholder of the 2^nd to 5^th defendant (collectively “the companies”).  Between 1‑9 July 2011, the companies purchased the 4 subject uncompleted properties at Imperial Cullinan from a developer.  The total deposit paid was about $18,000,000; and the stamp duty about $4,000,000.  The balance of the purchase price for each property is payable within 14 days of the developer’s notification that it is ready to assign it to the relevant company. The anticipated date of completion of the purchases is 30 June 2012.

3.  On 3 January 2012, by 4 separate provisional agreements (“the 4 agreements”), Madam Tong purported to sell her entire shareholding in each of the 4 companies to Ms Yeung at a consideration of $100.  The sales were expressly with the benefit of the sale and purchase agreements of the 4 properties.  Clause 1(b) of each of the 4 agreements provided that the date for signing the formal share transfer agreement was to be 5 days after Madam Tong and the relevant company signed a supplemental agreement to extend the original deadline for paying a further deposit to the developer (“the deadline”) to the date of completion of the sale of the property.  If the relevant company and the developer were unable to extend the deadline, the signing of the formal share transfer agreement shall take place no later than 15 February 2012.

4.  On 13 February 2012, Madam Tong’s solicitors notified Ms Yeung that the developer had refused to extend the deadline.  Notice of rescission was accordingly given to Ms Yeung.  Two days later, Madam Tong’s solicitors returned a cheque for $400 to Ms Yeung.

5.  Despite several requests, Madam Tong has not provided proof of the developer’s refusal.  The fact, as subsequently disclosed in her affirmation, was that she had requested the developer for extension of time to pay the further deposit but the latter had not given its approval in writing.

6.  Madam Tong had failed to prepare the formal share transfer agreements despite Ms Yeung’s demand on 29 February 2012.  On the same day, Madam Tong’s new firm of solicitors even denied that there was any consideration for the 4 agreements and asserted that the 4 agreements were void for misrepresentation or unconscionability.

7.  Ms Yeung issued a writ on 17 March 2012 seeking, amongst others, specific performance of the 4 agreements, an injunction prohibiting Madam Tong from transferring her shares in the companies to other persons, and an injunction restraining the companies from disposing of the 4 properties.

8.  Madam Tong’s defence was that she was led to sign the 4 agreements by the fraudulent misrepresentations of the 2^nd to 4^th defendants by counterclaim (collectively “the agent defendants”) and their conspiracy with Ms Yeung, their ex colleague.

9.  Madam Tong is aged 73 and, having lived abroad for 40 years, had limited Chinese language skill.  According to her, late in the evening on 3 January 2012, the agent defendants attended her residence and told her that they had located a prospective purchaser.  They said that (i) she had to sign 4 draft agreements for sale and purchase of the shares of the companies to “show sincerity” and to confer authority on them to negotiate with the prospective purchaser; (ii) should she fail to complete the sale and purchase of the properties with the developer, she would lose her entire interest in the properties and the companies would become completely worthless; (“the representations”).  Madam Tong signed accordingly and agreed to pay them a commission of $500,000 if they could successfully procure a purchaser of the 4 properties.

10.  Madam Tong claims that those representations were fraudulent and the agent defendants had conspired with Ms Yeung to cause her to part with her shares in the companies for practically nothing.  The agent defendants knew that she had difficulty with Chinese and was not going to read the 4 agreements.  They told her that Ricacorp did not have the English version.  They failed to disclose that Ms Yeung was their ex-colleague. Despite knowing that the companies were entitled to a refund of the stamp duty if their agreements with the developer were cancelled, they failed to so advise her but instead wrongly advised her that the companies would become completely worthless.  Without giving valuable consideration for the shares of the companies, Ms Yeung shall make a windfall in case of non-completion on the part of the companies, or make even higher profits if she and the agent defendants could manage to resell the companies’ shares before completion.  To cover up her real identity, Ms Yeung changed to her present name.

11.  Madam Tong claims that she was entitled to exercise her right to rescind the agreements and to claim damages for breach of duty, misrepresentation and conspiracy of Ms Yeung and the agent defendants.

12.  In reply, Ms Yeung avers that the property market was not performing well.  By agreeing to purchase the 4 properties by way of shares in companies, Ms Yeung was taking a substantial risk in that the companies might be subject to unknown liabilities and potential litigation.  Those factors led to low price agreed on the 4 agreements. Further, in the event the purchase took place by direct purchase of the 4 properties, those resales taking within 6 months of its original purchase would have been subject to substantial levies of stamp duty, being 15% of the purchase price: section 29CA of the Stamp Duty Ordinance.  After the 4 agreements were signed, the property market has improved and that might have prompted Madam Tong to rescind the 4 agreements.

13.  Madam Tong now seeks to vacate the lis pendens so that she can sell the properties to mitigate her loss.

The applicable legal principles

14.  The summons stated that the application was under Order 29 rule 1.  At the hearing, Mr Cheung, counsel for Madam Tong, relied instead on section 19 of the Land Registration Ordinance, Cap 128:

“The court or judge before whom any property sought to be bound is in litigation, may on the determination of the lis pendens, or during the pendency thereof, where the said court or judge is satisfied that the litigation is not prosecuted bona fide, or for other good cause shown, make an order for the vacating of the registration in the Land Registry of such lis pendens without the consent of the party who registered it, and may direct the party on whose behalf the registration was made to pay all the costs and expenses occasioned by the registration or the vacating thereof, including the costs of the application to vacate, or may make such other order as to such costs or any of them as to the said court or judge may seem just.”

15.  Mr Cheung submits that the present litigation was “not prosecuted bona fide” in that it was “not instituted bona fide”.  No authority has been cited by Mr Cheung in support of his interpretation of the former phrase in quote. 

16.  It has been said that “it is good faith with reference to the mode of prosecution of the litigation to which the section refers, not merely good faith as regards the institution of the proceedings”: Thian’s Plastics Industrial Co Ltd & others v Tin’s Chemical Industrial Co Ltd [1970] HKLR 498, Blair-Kerr J.

17.  In Tahir v Cheung Wai Bun Charles [1980] HKC 371 at 375, Zimmern J held that the phrase referred to “dilatoriness in the prosecution of the action”.

18.  Hence it is bona fides in the handling or processing of the litigation, not its institution, which will be examined by the court. Even in the context where the court examines whether or not the litigation concerns some interest in land, the court does not go into the merits in the sense of determining if each party’s case is to be believed or not.

Dilatoriness in prosecution of the litigation?

19.  In the present case, the writ was issued on 17 March 2012, just over a month after Madam Tong’s alleged attempts to resell the 4 properties came to Ms Yeung’s notice.  The defence and counterclaim were filed on 5 April.  The writ was amended to add Ms Yeung’s usual address on 25 April.  The reply and defence to counterclaim was filed on 10 May.  The counterclaim was served on the agent defendants on 22 May.  In no way can it be said that the litigation was not prosecuted bona fide.

Lack of bona fides in institution of the litigation?

20.  If I am wrong and the court should consider if the litigation was instituted bona fide, Mr Cheung’s bases are as follows.  He submits that evidence of propriety was everywhere:

(i)  The 4 agreements made no commercial sense at all.  The $400 consideration was in to be in exchange of stamp duty refund of $4,000,000, which per se spoke of fraud.

(ii)  Anything in excess of $400 would be a windfall to Ms Yeung.

(iii)  Ms Yeung had been trying hard to conceal her real identity by changing her name and omitting to state her address in the writ of summons.

(iv)  Ms Yeung was a colleague of the agent defendants who worked with Ricacorp Property (“Ricacorp”).

(v)  In preparing the 4 agreements, the agent defendants did not use Ricacorp’s standard forms although they worked with Ricacorp.  Apparently, Ms Yeung was happy to go along with whatever documents her ex-colleagues chose to use.

(vi)  Ms Yeung has failed to show that she intends to and has the means ($73,000,000) to complete the purchase of the 4 properties.

(vii)   Ms Yeung had been evasive when challenged in correspondence as to the matters in this paragraph.

21.  Ms Yeung submits that the registration was to make the properties unsellable.  In fact, Ms Yeung and the agent defendants had their sight on the refundable stamp duty.  To allow the lis pendens to stand is to allow Ms Yeung to complete the fraudulent scheme.  She had not identified an interest in land to protect.  At the same time, Madam Tong would not be able to mitigate her loss.  There was no allegation (not to say evidence) from Ms Yeung that she could make good Madam Tong’s loss.

22.  In my view, the 4 agreements may appear to be commercially insensible but that does not per se speak of fraud.  Madam Tong was educated in Mainland China up to secondary level when she left Hong Kong for the USA at the age of about 24.  She said a lengthy and complicated document in traditional Chinese was not just a challenge but an impossible task to her.  Despite that, Madam Tong is a retired university professor and non est factum or undue influence are not her case.  There was at least some evidence from Ms Yeung’s side that the defendant received interpretation of some English documents indicating that Madam Tong knew Chinese.  Moreover, Madam Tong has purchased and sold numerous properties in Hong Kong since 2007.

23.  Ms Yeung has explained why she changed her name.  She has also amended the writ to include her usual address.  The fact that she once worked together with the agent defendants for less than 2 months was admitted in the reply. 

24.  Whether there was impropriety as to constitute fraud/conspiracy involve questions of fact to be canvassed at the trial.  I note that it was not even pleaded that Ms Yeung knew of the fraudulent misrepresentations.

25.  The time has not yet come for Ms Yeung to show her readiness and willingness to complete the 4 agreements with ability to pay.  As disclosed in the letter of Madam Tong’s solicitors, Madam Tong has not received the notice of completion from the developer yet.

26.  Looking at the statement of claim, one cannot say that Ms Yeung is not entitled to insist on specific performance of the 4 agreements and injunction against disposal of the properties.  When asking the court to hold that institution of the action was not bona fide, Mr Cheung is effectively inviting the court to determine the merits of his case on fraud and conspiracy in a summary manner, decide that Ms Yeung’s claim has no merits and order the lis pendens to be vacated regardless of its proper registration in the first place.  This is not permissible under section 19.  Even if Madam Tong were to invoke any summary judgment procedure under the Rules of the High Court to try and achieve this purpose, it is doubtful if the court will grant her judgment on her counterclaim.

27.  Considering all the circumstances, I am not satisfied that Ms Yeung has not instituted the action bona fide, if that were the correct test to apply.  That being the case, registration of the lis pendens should stand.  It is not necessary to consider the application for injunction at all.

Conclusion

28.  I order as follows:

(1)  that the application be dismissed;

(2)  on a nisi basis, that costs should follow the event and be borne by Madam Tong.  Such costs are summarily assessed and allowed at $90,000.

29.  I thank counsel for their assistance.