CHEUNG FUK HOI v. POON WING PUI

1991 No. A8063

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_____________

_____________

_______________

J U D G M E N T

_______________

1. This is a claim for specific performance of a sale and purchase agreement in relation to an apartment. The document essentially relied upon is dated 29th July 1991. For an action seeking specific performance, it is notably stale. The parties had changed solicitors a number of times. The Defendant now conducts his defence himself. The crucial witness for him is Madam Cheung yet strangely enough, in view of the issues, she was not made a Defendant. The action itself went to sleep between November 1991 and October 1992 and between December 1992 and June 1994.

2. The claim is shortly stated on the pleadings. Madam Cheung who was the beneficial owner of the property concerned (in fact she was a beneficial owner) approached the Plaintiff through an intermediary known to both of them, a Mr. Ding, for a quick sale of a property in order to raise money quickly, and particularly the sum of $300,000 which was to be the deposit. Events moved quickly. The initial approach was on 23rd July. There was a meeting at the Plaintiff's solicitors' offices on 26th July. The document was signed by the Plaintiff in the presence of the Defendant (who held the legal title but as trustee - he was the brother-in-law of Madam Cheung) and then the Plaintiff contends, solicitors acting for the Defendant, Crawford & Co., who had prepared the standard form agreement according to the name on the back sheet, arranged for and witnessed the signature of the Defendant to the agreement. The document is dated 29th July 1991 which is three days later than the date of its actual execution. I am told by Mr. Wong on behalf of the Plaintiff that this is quite normal and simply allows the document to be registered in time. In other words the document is not dated until it is convenient to do so and the date bears no relation to the date of execution but is adjusted to comply with time requirements for registration.

3. The document also bears a form of receipt signed by the Defendant to the effect that he has received (on or before the date on the document) the deposit and part payment of $300,000. The Plaintiff's case is that he handed over two cheques, each of $150,000, to Madam Cheung in MacDonald's Café on the date that he and the Defendant signed the document. These were cash cheques allowing Madam Cheung to use the money forthwith.

4. The date fixed for completion was 27th September. In fact the Defendant (in effect Madam Cheung) wanted the date extended and it was extended by a supplementary agreement until 14th October. This document appears to have been completed in the same way as the sale and purchase agreement by Crawford & Co.. On 14th October the Defendant through Madam Cheung offered the $300,000 back to the Plaintiff in the form of a bank draft made payable to the Plaintiff's solicitors. The Plaintiff declined to accept it saying he wanted the property.

5. One other fact, which is not disputed, emerged during the period 26th July to 27th September. This was that there were tenants in the property under a tenancy agreement granted in June 1991 before the sale and purchase agreement. That tenancy was registered in August 1991. The Plaintiff complains that it was never disclosed to him at the time but that Madam Cheung had simply said she had some relatives in the property. When his solicitors found out on a search that a tenancy had been registered he wanted the tenancy cancelled or arrangements to be made for him to take it over. As a consequence of this tenancy he says his bank withdrew the offer of a loan, he was not in a position to make the purchase, he did not in any event seek a reduction of the purchase price to reflect the existence of a registered tenancy, yet he refused the return of the deposit. A strange and ill advised state of affairs.

6. On this basis the Plaintiff seeks specific performance; there was an agreement for sale, a deposit paid, an extension of the completion date and the refusal by the Defendant to complete and to transfer the property unencumbered.

7. The picture is not however as simple as that. The Plaintiff says he made a loan to Madam Cheung in cash of $120,000 some time in late August in a restaurant where she explained to him that she needed it for her business and could repay it after one day. Apparently, according to the Plaintiff, she was going to close down her video rental shop and sell the whole of her stock to a purchaser in Shenzhen. All this to be achieved within 24 hours.

8. The next day she returned only $30,000 in the form of a cheque which was dishonoured. He contacted her and he was asked to represent it. He did so on 5th September. Again it was dishonoured. Apparently he then contacted Mr. Ding, the go-between on the original contact with Madam Cheung. It is important to note that (1) the Plaintiff obtained no receipt for this cash payment (2) he did not tell his solicitors about it or require them to confirm it in writing (3) he was prepared to extend the completion date by the agreement dated 26th September even though he was owed $120,000 and a cheque in part repayment had been dishonoured twice and the agreement made no reference to any such loan.

9. On 2nd October the Plaintiff says he was given a cheque for $90,000 by Madam Cheung. That was dishonoured, but $90,000 were in fact paid into his account. On 11th October the balance of $30,000 was returned to him in cash at a café and, the Plaintiff says, the dishonoured cheque for $30,000 was returned to Madam Cheung.

10. When I asked in due course about the imprudence of such a cash loan not evidenced by any document and not referred to by his solicitors in any letter or document, the Plaintiff said he was not worried because it would simply be deducted from the balance of the purchase price to be paid to the defendant on completion. Madam Cheung of course was not a party to the conveyancing transaction and although she had received the deposit, it was in fact the Defendant who signed the receipt (seemingly on the Plaintiff's case in advance of the actual payment of the deposit).

11. Mr. Wong submitted that because on the face of it this was a straightforward sale and purchase agreement properly evidenced by documentation and the Defendant was alleging it was a sham and in effect a fraud, the defence case should be presented first. With this I agreed although I did regard the Plaintiff's case in relation to the defence contentions, as indicated in the statements of the Plaintiff and the solicitors' clerk Mr. Tsang, as somewhat curious in parts. There was no pleaded reply to the defence contentions, a little surprising in my view.

12. The defence case as it unfolded was at first blush somewhat convoluted and strange. The evidence of the Defendant himself was very limited; that of Madam Cheung was the most pertinent. However, I accept Mr. Poon's evidence on the few matters with which he was directly involved namely the signing of the two documents, the handing over the two cheques totalling $300,000 to Madam Cheung at Massie & Co.'s office and the fact that at no stage did the Defendant instruct Crawford & Co. or attend their offices. I will come back to those matters in due course. I am bound to say that at one stage I had serious doubts as to the likelihood of many of the contentions. The pleaded defence certainly did not contain all the details a defence should have done, and the statement of Madam Cheung was late in the day. However the picture, though remaining somewhat complex, began to assume a greater degree of definition.

13. The Defendant's evidence was in essence limited to the arrangements whereby on Madam Cheung's instructions he attended the offices of John Massie & Co., solicitors for the Plaintiff to sign the document. It was his understanding that the document was to act as a security for a loan of $300,000 to Madam Cheung - the second document being to extend the date for the repayment of a loan. He realized that if the loan was not repaid the property would be transferred to the Plaintiff. Madam Cheung equally made it clear to me that this was her understanding. The Defendant says he did not see the whole of the original document. He said two cheques, each of $150,000, were handed over to Madam Cheung after he had signed the document. As I have indicated, I accept his evidence as to this. It is also Madam Cheung's evidence. I am satisfied that those two cheques were in fact handed over after the signing of the first agreement at the Plaintiff's solicitors' office and not at MacDonald's Restaurant as alleged by the Plaintiff. The receipt for that sum, signed by the Defendant, was signed at John Massie & Co.'s office as one would expect, and not at some offices of Crawford & Co. As I have already indicated I will return to the question of Crawford & Co. in due course.

14. The case according to Madam Cheung's evidence is that she needed a loan of $300,000 essentially for her brother's benefit, and it was to be raised with the property of which she, the Defendant and another woman were the beneficiaries under a trust declared by the Defendant.

15. The loan was going to cost her an extortionate rate of interest - $30,000 per month. The payments she made by cheques which were dishonoured and were eventually repaid by cash were, she says, in respect of interest on that loan. She said she handed over two post-dated cheques of $30,000 each to the Plaintiff at the offices of Massie & Co. When the cheques were dishonoured, a penalty was imposed upon her in varying sums and certain shadowy figures emerged at meetings, two at one stage, at another a group of 7 or 8. She was cross-examined as to discrepancies between her oral evidence and her written statement and the statement which she made to the police when she reported position on 14th October, the amended completion date, and the day on which it is agreed by all that she offered to the Plaintiff a banker's draft for $300,000 which he rejected saying he wanted the property. Neither of the Plaintiff's two statements to the police made on 14th and 15th October were put before me nor had they been disclosed in the documents of either party. Madam Cheung was simply cross-examined on one or two paragraphs in the first statement. Accordingly I do not know the full context of the paragraphs in question. I was at first sceptical of some of Madam Cheung's contentions but when set against the evidence of the Plaintiff and of his witness Mr. Tsang and in the light of the Plaintiff's somewhat curious evidence about the "loan" of $120,000 and his complete lack of concern in relation to the dishonoured cheques, her evidence became more credible. It was her contention that no solicitors acted for her and the Defendant. The Plaintiff's case was of course to the contrary. This was an aspect which needed close examination - it had in fact formed the subject of some investigation by the Law Society.

16. Apart from a letter of 7th September 1991 and the existence of Crawford & Co.'s name on the two agreements, nothing had emerged in discovery indicating Crawford & Co.'s involvement on behalf of the Plaintiff prior to that date. The Plaintiff called no evidence from Crawford & Co. but more importantly, the conveyancing file of John Massie & Co., had not been disclosed in the Plaintiff's list of documents. This was at least surprising, and as will be seen, eventually became a matter of some concern.

17. Mr. Tsang, the clerk from John Massie & Co. who represented the Plaintiff in this transaction was called to give evidence on behalf of the Plaintiff. He was glib and cavalier in his approach to the matter. I found him unimpressive and to the extent that he gave evidence which supported the Plaintiff I rejected his testimony. He did not have with him the conveyancing file. In fact, that was not produced until the last day of the hearing when Mr. Wong was in the midst of his submissions. The file contained nothing prior to the letter of 7th September 1991 purporting to come from Crawford & Co. Mr. Tsang said that he recommended Crawford & Co. to the Defendant. It emerged that the principal of Crawford & Co. and the clerk who Mr. Tsang said "acted on behalf of the Defendant" were former colleagues of his in John Massie & Co. They had left and formed Crawford & Co.. Mr. Tsang said he directed this matter to Crawford & Co. because he knew them. If Crawford & Co. had acted on behalf of the Defendant in a bona fide capacity there would have been clear documentary support for that ab initio - i.e. in July and August 1991 well before the letter of 7th September. The conveyancing file of Massie & Co. had all the hallmarks of having been constituted from that date, at the earliest, to give some semblance of respectability and form to the transaction. The complete absence of any evidence from Crawford & Co. confirms that view.

18. I am satisfied that this transaction was not as the Plaintiff contends. I accept the evidence of the Defendant and of Madam Cheung that Crawford & Co. did not act for them on their instructions. The transaction was not a straightforward sale and purchase agreement. It was a loan secured by a sale and purchase agreement in the event of a loan of $300,000 not being repaid. The payments made by Madam Cheung were some form of consideration for the loan - an extortionately high rate of interest in short. By reason of the amount of the loan which she had difficulty in repaying, unsurprising in itself because of the bounced cheques and the delay in paying the charges "or interest", the time for payment was extended. Her emotional upset during the giving of her evidence was probably the result of the fear of losing the property, the desperate financial situation which she sought to alleviate, and the stress that such a high charge on the loan was likely to cause. Of course she was extremely unwise ever to have entered into such arrangement. Indeed it is clear from the Defendant's evidence that he had asked her to consider the wisdom of her action at an early stage. I do not doubt that she was confused to some extent over the amount of the penalties which she says were added because of the dishonoured cheques. This has been unnecessarily prolonged litigation. Certainly the Plaintiff or one or more of his original solicitors, did not act with expedition. When the $300,000 bank draft was proffered it must have been alarming for her when the Plaintiff refused it. She promptly went to the police that very day. She may in her concern have exaggerated her understanding of the shadowy figures who she was told, had an interest in the payments which she was required to make and on which she had defaulted. She had complained to the police that the premises at which she worked had been daubed with characters telling her in effect that she had to repay.

19. In my judgment the Plaintiff's claim fails. This was a sham transaction. The Defendant through Madam Cheung sought to repay the loan on the last day available. Accordingly the Defendant is entitled to judgment with costs.

20. I have seriously considered whether the papers should be forwarded to the Law Society and/or to the Attorney General's Department for an investigation into the fraudulent aspects to which I have referred. However, over four years have now elapsed. Mr. Tsang is no longer employed by the firm as solicitor's clerk. I am told that the whereabouts of the clerk of Crawford & Co. are not known. The police made some form of investigation at the end of 1991 but were unable to make any progress. It is however the professional aspects involving two firms of solicitors which concern me most. However after this length of time I doubt any inquiry will get to the bottom of the matter.

(Conrad Seagroatt)

Judge of the High Court