CHEUNG HAU CHUN v. LEUNG PAK KAN RORY

DCCJ 3263/2019

[2021] HKDC 605

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3263 OF 2019

-------------------------

-------------------------

--------------------

DECISION

--------------------

Background

1.  This is an appeal against the decision of Master Rita So dated 12 October 2020 granting summary judgment in favour of the plaintiff for the sum of HK$800,000.00 as claimed in paragraph 2 of the relief of the Statement of Claim.

2.  The plaintiff’s case as pleaded under the Statement of Claim is as follows:-

(a)  The defendant is the sole shareholder of a Hong Kong incorporated private limited company named Seemly Building Construction Company Limited (“Seemly”) with a total issued share capital of 62,880 shares at a par value of HK$100 per share.

(b)  By an oral agreement reached in about late October or early November 2018 (“the Agreement”), the defendant agreed to sell and the plaintiff or his nominee agreed to purchase/subscribe from the defendant all 62,880 shares of Seemly at a consideration of HK$8,000,000.

(c)  In compliance and performance of the Agreement by the plaintiff, the plaintiff has on or about 5 November 2018 procured Pacific Fine Engineering Limited (“Pacific Fine”) of which the plaintiff was and is shareholder and director thereof to issue a cheque in the sum of HK$800,000.00 in favour of the defendant being the initial deposit and part payment of the Price of which the said cheque was deposited and credited into the defendant’s bank account numbered 012-802-0-013242-9 held with Bank of China (Hong Kong) Limited and the said sum of HK$800,000.00 was duly received by the defendant.

(d)  After making payment of the initial deposit of HK$800,000.00 to the defendant, the plaintiff nominated his wife namely Madam Lai King Mui Annie (“the Nominee”) to take up the purchase of the said Shares, such nomination was duly notified by the plaintiff to the defendant.

(e)  By a letter dated 19 February 2019 sent by the solicitors for the plaintiff and the Nominee Messrs Joseph P K Pang & Co, Solicitors & Notaries LLP (“the Plaintiff’s Solicitors”) to the Defendant’s Solicitors Messrs Clyde & Co (“the Defendant’s Solicitors”), a draft Agreement for Sale and Purchase (“the Formal Agreement”) was sent by the plaintiff to the defendant through the Defendant’s Solicitors for his approval and/or execution.

(f)  In breach of the Agreement and despite repeated requests and demands of the plaintiff including the said letter dated 19 February 2019, the defendant failed and/or refused and still fails and/or refuses to approve and/or execute the Formal Agreement.

(g)  Wrongfully and in breach of the Agreement, it is discovered that shortly after the making of the Agreement, the defendant has on three occasions namely, 10, 19 and 24 December 2018 procured or caused the Company to increase and allot new shares to himself up to 96,700 ordinary shares without the prior knowledge approval and consent of the plaintiff.

(h)  Wrongfully and in further breach of the Agreement, the defendant has on or about 12 November 2018 procured the Company to create an encumbrance by executing a Deed of Assignment of Receivables assigning to OCBC Wing Hang Bank Limited all the accounts receivables payable or which may become payable by the various employers from time to time to the Company in respect of various contracts for construction works entered into by the Company with various employers.

(i)  Further or in the alternative, the plaintiff claims against the defendant the sum equivalent to the said sum of HK$800,000.00 on the ground of money had and received and/or unjust enrichment.

3.  The plaintiff claims, inter alia:-

(a)  A declaration that the defendant was in breach of the Agreement;

(b)  Return of the HK$800,000.00; and

(c)  Damages for breach of the Agreement to be assessed.

4.  The Defence, in a nutshell, as pleaded by the defendant in paragraph 3 of the Defence is as follow:-

(a)  In or around November 2019, the plaintiff and the defendant commenced negotiation regarding the share purchase in Seemly.

(b)  There was no concluded agreement reached between the plaintiff and the defendant.

(c)  The defendant received a cheque for the sum of HK$800,000.00 from Pacific Fine which was intended as a show of good faith and seriousness on the part of the plaintiff.

(d)  The HK$800,000.00 was held on a without prejudice basis and would be refunded should the negotiation not resulted in any agreement.

(e)  The said sum of HK$800,000.00 should be returned to Pacific Fine upon return of corporate documents by the plaintiff to the defendant.

(f)  The repayment of HK$800,000.00 should be made payable to Pacific Fine, and not the plaintiff.

5.  The claim of which this appeal relates is for the return of the HK$800,000.00.

6.  Whether there was a concluded agreement between the plaintiff and the defendant is not within the ambit of this hearing.

Order 14

The Principles

7.  The principles as contained in the following paragraphs in the Hong Kong Civil Procedure 2021 Vol.1 are well established:-

“14/4/1:

The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff ’s claim: Man Earn Ltd v Wing Ting Fong [1996] 1 H.K.C. 225. …… it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court. To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice. On the other hand, if he has no defence and he obtains leave to defend, equally, there is injustice to the plaintiff” (Manciple Ltd v Chan On Man [1995] 3 H.K.C.459 at 466, per Mortimer J.A.).

14/4/8:

When the Judge is satisfied not only that there is no defence but no fairly arguable point to be argued on behalf of the defendant it is his duty to give judgment for the plaintiff. ……once the court concludes that there is no triable issue or question or that for some other reason there ought to be a trial, it will ordinarily give judgment for the plaintiff. …… Where the application is in respect of the whole or part of one of several claims included in the writ, judgment may be given for that claim or part, leaving the residue to be tried. In such event, it may be convenient for directions to be given as to such residue.

14/4/9:

He has to satisfy the court that he has a “real or bona fide defence” or “a fair probability or reasonable grounds that a bona fide defence exists” (see Toy Major Trading Co Ltd v Plastic Toys Ltd [2007] 3 H.K.L.R.D. 345 at [12], per Ma C.J.H.C.). If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. As Bokhary J.A. said in Re Safe Rich Industries Ltd (unrep, CACV 81/1994, November 3, 1994, [1994] H.K.L.Y. 183): “The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized—because failure to recognize it would create a debt-dodger’s charter—that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as [is] either undisputed or beyond reasonable dispute. …… Unless it is obvious that the defence put forward by the defendant is “frivolous and practically moonshine, O.14 ought not to be applied”: Codd v Delap (1905) 92 L.T. 510 at 511, per Lord Lindley. “Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise.... The procedure is entirely inappropriate where the plaintiff ’s entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. …… Where the point at issue is at heart a short one the court will recognize the fact and act accordingly no matter how bulky its outer garments: Crown House Engineering v Amec Projects Ltd (1990) 6 Const. L.J. 141 at 154, per Bingham L.J.”

(emphasis added)

Defendant’s Argument

8.  The gist of the defendant’s case is that Pacific Fine had paid HK$800,000.00 to him and the plaintiff had not paid any sums of money to the defendant.

9.  Mr Hu for the defendant submitted that the signature appearing on the cheque issued by Pacific Fine belongs to the plaintiff, with the company chop which reads: “For and on behalf of Pacific Fine Engineering Limited”.

10.  Mr Hu argued that a company is a separate legal entity from its shareholders and thus the plaintiff cannot rely on the fact that he is a shareholder and director of Pacific Fine to suggest that the HK$800,000.00 belonged to him.

11.  Mr Hu further argued that the transfer by Pacific Fine of the HK$800,000.00 to the defendant was for a specific purpose, ie allegedly part payment of the purchase price for the Shares if the parties could arrive at an agreement.  Under such circumstances, there is a Quistclose trust imposed on the said sum. 

12.  Upon the failure of this purpose, the money was repayable to Pacific Fine, not the plaintiff, as it has retained the beneficial interest.

13.  It is said that the payment of the said sum to the plaintiff would not result in a valid discharge of the HK$800,000.00 owed to Pacific Fine, as:-

(a)  It is not the plaintiff’s case nor is there any evidence adduced which shows that Pacific Fine has authorised the plaintiff to receive the Sum.

(b)  Nor is there any direction issued by Pacific Fine to the defendant that the Sum is to be paid to the plaintiff instead of Pacific Fine.

(c)  There is also no evidence to show nor is it the plaintiff’s case that Pacific Fine has assigned the repayment of the Sum to the plaintiff.

14.  Under such circumstances, said Mr Hu, the defendant’s liability to return the said sum to Pacific Fine continues to exist and any payment by the defendant to the plaintiff would not discharge his debt to Pacific Fine.

15.  The defendant did, on 8 October 2020 (4 days before the hearing before Master So) return HK$800,000.00 to Pacific Fine. 

16.  Mr Hu argued that if the plaintiff were to insist on being personally entitled to the said sum, then he, as the sole director and shareholder of Pacific Fine, ought to cause Pacific Fine to return the money to the defendant otherwise the defendant will have to pay the same sum twice. 

17.  Pausing here, I note that the Master has imposed an undertaking on the part of the plaintiff not to pursue enforcement of the sum of HK$800,000.00, obviously with the intent to avoid the defendant having to pay the same amount twice.

18.  Mr Hu contended that it is wholly improper to deal with this issue simply by way of an undertaking given by the plaintiff not to enforce the judgment since it cannot bind Pacific Fine, who is not a party to the present proceedings nor did it take part in any of the negotiations which form the background to these proceedings.  It is also not appropriate (and not possible) for the plaintiff to confirm that the sum has been received by Pacific Fine since:-

(a)  it was Pacific Fine which received the Sum, not the plaintiff,

(b)  there was no evidence to show that Pacific Fine had authorized the plaintiff to make such confirmation in this action, and

(c)  the plaintiff therefore speaks on Pacific Fine’s behalf as it is a separate entity and non-party to this action.

19.  As said, the undertaking imposed by the Master is on the plaintiff.  If the plaintiff undertakes not to enforce the summary judgment over the HK$800,000.00, I fail to see how the defendant would have to pay twice.  The “debt” to Pacific Fine was in any event discharged.  The summary judgment was in essence satisfied upon the clearing of the cheque paid to Pacific Fine.

Plaintiff’s Argument

20.  Mr Cheung for the plaintiff pointed out that as the defendant claims that there is no concluded agreement in respect of the sale and purchase of the shares of Seemly had been reached between the parties, the defendant is obliged to return the deposit.

21.  Mr Cheung argued that a Quistclose trust is created in favour of the plaintiff against the defendant to use the HK$800,000.00 in accordance with the stated purpose, ie deposit for purchase of the shares of Seemly, failing that purpose the defendant is obliged to return the said sum to the plaintiff.

22.  Mr Cheung submitted that it is common ground that it was the plaintiff who physically and personally negotiated with the defendant regarding the purchase of the shares of Seemly.  Pacific Fine was never a party to the negotiation of purchase of the shares.

23.  It is not uncommon that the plaintiff used other person’s cheque to make the deposit.  Further, the plaintiff was and is a director and sole shareholder of Pacific Fine and he has full authority to represent Pacific Fine.

24.  Mr Cheung argued that the defendant’s contention to join Pacific Fine as a co-plaintiff in this action seeking for return of the HK$800,000.00 is ill-founded as Pacific Fine is never a party to the negotiation or contract and it has no locus standi to commence this action.

25.  In any event, Mr Cheung submitted if the defendant is of the view that the proper recipient of the deposit is Pacific Fine, the defendant ought to tender to the Plaintiff a cheque for HK$800,000.00 made payable to Pacific Fine and the defendant may impose undertaking against the plaintiff to return the alleged corporate documents.

26.  Mr Cheung referred to a letter dated 8 April 2019 from the Plaintiff’s Solicitors to the Defendant’s former Solicitors requesting a cheque drawn in favour of “Pacific Fine” for HK$800,000.00:-

“2. However, if your client is now prepared to fade out or cancel the Agreement reached between our respective clients, our Client will, as a matter of gesture to an old friend in the same industry, agree to such cancellation provided that your client or your firm shall on or before 5:00 p.m. of 17^th April 2019 return to us (i) your client’s cheque drawn in favour of “PACIFIC FINE ENGINEERING LIMITED” for HK$800,000.00 being refund of deposit paid to your client…”.

27.  Mr Cheung also referred to the letter dated 3 April 2019 from the Defendant’s former Solicitors to the Plaintiff’s Solicitors:-

“In any event, we are given to understand that our respective clients have since attended a further meeting on 29 March 2019, wherein it was agreed that:… 2. our client [i.e. the Defendant] will refund a sum of HK$800,000 to your client [i.e. the Plaintiff] directly on or around the Easter Holiday”.

28.  It shows that the defendant, through his former Solicitors, has already agreed to return the deposit to the plaintiff directly.  

Discussion

29.  Whether or not there was a concluded agreement between the parties is not the ambit of this application.

30.  The present application concerns only the HK$800,000.00 paid by way of cheque issued by Pacific Fine in favour of the defendant.

31.  The defendant did not dispute that the money should be returned because the plaintiff and the defendant have failed to reach an agreement over the acquisition of shares in Seemly.

32.  The issue is a simple one, ie whether the money should be returned to the plaintiff or Pacific Fine.

33.  The plaintiff’s case is based on money had and received and unjust enrichment: paragraph 15, Statement of Claim.

34.  The Defence put forward is that the money should be payable to Pacific Fine and not the plaintiff.

35.  Mr Hu framed the HK$800,000.00 as a “debt” owed by the defendant to Pacific Fine and submitted that it is a Quistclose trust situation as the money was paid over with a mutual intention that it was for a particular purpose (ie a concluded agreement for the purchase of Seemly shares), and that the defendant was holding the money on trust for Pacific Fine.

36.  Mr Hu stressed that Pacific Fine is a separate legal entity from the plaintiff even he was the sole shareholder and director of Pacific Fine.

37.  Mr Cheung, on the other hand, argued that although the money was paid by the plaintiff using the cheque of Pacific Fine, the plaintiff was the actual payer.  The Quistclose trust is created in favour of the plaintiff against the defendant to use the money in accordance with the stated purpose (ie deposit for purchase of Seemly shares).

38.  I note the following paragraphs under the plaintiff’s first Affirmation:

“8. …in or about October 2018 I heard … that the Defendant was intended to sell all his shares in [Seemly]”

“9. …on a date in late October 2018…I indicated to the Defendant that I am interested to purchase all his entire shares held in [Seemly]. The Defendant after thought verbally offered to sell [Seemly] to me at a consideration of HK$8,000,000. I forthwith verbally accepted his offer.”

“10. …I then suggested to pay the Defendant HK$2,000,000 as deposit and part of the purchase price. The Defendant replied that he will first receive HK$800,000 as initial deposit and part of the purchase price. The Defendant also gave me his Bank of China (Hong Kong) Ltd. Account Number 012-802-0-013242-9 and instructed me to pay such HK$800,000 into the [account]”

“11. As a result thereof, the Agreement had been reached between the Defendant as vendor and me as purchaser…”

39.  In the defendant’s Affirmation, he states, under paragraph 5 that:-

“(b) I received a cheque from Pacific Fine for the sum of HK$800,000, which was intended to be a show of goodwill towards both the Plaintiff and I working out the details to the share purchase. I have not provided any of Seemly’s corporate documentation to the Plaintiff for him to conduct any due diligence in Seemly until late December 2018/January 2019.

(c ) …At the same time, my solicitors were stating that both the Plaintiff and I were engaged in further without prejudice negotiations, clarifying that the sum of HK$800,000 should be returned to Pacific Fine upon the return of the Corporate Documents.”

(emphasis added)

40.  It is clearly pleaded under paragraph 3(b) of the Defence that the defendant received the cheque for the sum of HK$800,000.00 from Pacific Fine which was intended as “a show of good faith and seriousness on the part of the plaintiff”.

41.  After considering carefully all the pleadings, affirmations and Counsel’s submissions, I find that it is clear to both the plaintiff and the defendant that negotiations and any concluded oral agreement for the shares purchase was between the plaintiff and the defendant.  The money was paid to the defendant pursuant to the oral agreement or the on-going negotiations either as deposit / part payment from the plaintiff or show of goodwill on the part of the plaintiff.

42.  It must be clear to both parties that the money was paid for the specific purpose of acquiring shares in Seemly by the plaintiff (or his nominees).  I also agree with Mr Cheung that it is not uncommon that the plaintiff used other person’s cheque to make the deposit.

43.  Pacific Fine was never a party to the on-going negotiation or concluded oral agreement (if any).  I fail to see why it should be joined purely to sue for the return of the deposit or “good faith payment” because it has issued a cheque as procured by the plaintiff.  There was no “debt” owed to Pacific Fine.

44.  The defendant’s assertions are not believable if taken into context of the background of the case which is beyond reasonable dispute.

45.  The Defence put forward is frivolous and practically moonshine.

46.  I find that there is no Defence and that there is no fairly arguable point to be argued on behalf of the defendant over the return of the HK$800,000.00 to the plaintiff.

47.  There is no triable issue or question that ought to go to trial.  I also do not see there are any other reasons that there ought to be a trial over the return of the HK$800,000.00.

48.  As said, whether or not there was a concluded agreement between the plaintiff and the defendant is not within the ambit of this appeal and the O.14 hearing. In any event, whether or not judgment will be entered regarding the HK$800,000.00 would not affect the outcome of the trial between the parties in relation to the other claims under the Statement of Claim.

49.  I therefore uphold the Master’s decision in grant summary judgment in favour of the plaintiff as per paragraph 2 of relief under the Statement of Claim.

50.  I have already dealt with the question of whether the defendant would have to pay twice (as he has already paid HK$800,000.00 to Pacific Fine). I agreed with the Master that his position is safeguarded by the undertaking imposed by the Master.

51.  The defendant’s appeal is dismissed and I uphold the Master’s Order of 12 October 2020.

52.  I will also order the defendant to pay the plaintiff’s costs in the appeal, with certificate of Counsel, to be taxed if not agreed.