SAM NICKOLAS DAVID HING CHEONG v. LOWE EDWIN RYAN

CACV268/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 268 OF 2010

(ON APPEAL FROM DCCJ NO. 4846 OF 2009)

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BETWEEN

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J U D G M E N T

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Hon Cheung CJHC:

1.  I agree with the judgment of Tang VP and the order he proposes.

Hon Tang VP:

2.  In May 2008, the Plaintiff and the Defendant agreed to purchase Flat 35A, “MOD 55”, No. 595 Reclamation Street, Kowloon (“the Property”) for $4,545,000 (“the Agreement”).  At the time, the Defendant was the fiancé of the Plaintiff's sister.  The Plaintiff and the Defendant agreed that they would have an equal share in the Property; and bear the costs of the purchase; and all expenses in connection with the Property equally.  It was also agreed that they would take out a mortgage to finance the purchase of the Property.

3.  The preliminary agreement for the purchase of the Property was entered into on 4 May 2008 by the Plaintiff and the Defendant.  The preliminary deposit in the sum of $227,250 was paid by the Plaintiff.

4.  Subsequently, the parties agreed that the Property would be assigned to the Plaintiff alone and the Plaintiff would take out a mortgage in his own name to finance the purchase.  Notwithstanding such arrangement, both the Plaintiff and the Defendant remained equal owners of the Property.

5.  The Plaintiff executed the formal sale and purchase agreement in his own name on 9 May 2008.  The sale was completed on 16 June 2008 and the Plaintiff obtained a mortgage loan of $4,480,960.95 from HSBC.  The Plaintiff and the Defendant paid the solicitors fees, stamp duty and developer’s deposit equally.

6.  Originally, it was intended that the Plaintiff would occupy one of the bedrooms of the Property while the other bedroom would be let out to a tenant if the Defendant decided not to live in it.  On 17 August 2008, the Defendant and the Plaintiff’s sister moved into and lived in the Property. The parties then agreed that the Defendant would bear two-thirds of the outgoings of the Property including management fees and utilities.

7.  On or about 5 April 2009, the Defendant and the Plaintiff’s sister broke up and the Defendant moved away from the Property on the same day.

8.  In the meantime, there was the Global Financial Crisis.  As of February 2009, the value of the Property had fallen so it is said there was a negative equity of approximately $749,000.

9.  On 13 November 2009, the Plaintiff issued the present proceedings against the Defendant.  The crux of the Plaintiff's claim can be found in the following paragraphs in the Amended Statement of Claim dated 18 January 2010:

"19. Wrongfully and in breach of his contractual obligations under the Agreement, by a letter to the Plaintiff dated 27^th July 2009, the Defendant alleged, inter alia, that his obligations under the Agreement ceased on 10^th April 2009, and that he was not liable to pay for his share of the monthly mortgage instalments as from 10^th April 2009.  The Defendant purported to deduct the same from the Agreed Outstanding Sum and alleged that the Agreed Outstanding Sum should be $17,711.18.

20. The Defendant has thereby wrongfully repudiated the Agreement and the Plaintiff had no alternative but to accept such repudiation by letter through his solicitors dated 24^th August 2009."

10.  It is said that as a result of the Defendant's repudiation, the Plaintiff:

"23. … has suffered loss and damages in the amount of HK$153,108.48.

Particulars

Balance of the Outstanding Sum as of July 2009		$142,051.48
Mortgage instalment for July 2009 ($19,766/2)	$9,883.00
Rates (July to September 2009) ($961/2)		$480.50
Management fees (July 2009) ($1,387/2)	$693.50	$11,057.00
		$153,108.48

24. The Defendant is also liable to pay the Plaintiff the sum of $389,166.50 representing, or such sum as shall be found by this Honourable court to represent, the Defendant's half-share of the difference between the purchase price of the Property and the market value of the Property as at 24^th August 2009 when the Plaintiff accepted the Defendant's repudiation.

Particulars

Purchase price of the Property	$4,545,000.00
Less  :  Market value of the Property as at 24th August 2009 (by taking the mean figure of the estimated market price provided by 4 leading banks, viz. HSBC at $3.9 million, Bank of East Asia at $3.6 million, Hang Seng Bank and Standard Chartered Bank at $3.8 million)	$3,766,667.00
Negative equity:	$778,333.00
Defendant's half-share thereof:	$389,166.50 "

11.  On 21 December 2009, the Defendant filed a Defence and Counterclaim.  He counterclaimed for a share of the proceeds of the future sale of the Property to be assessed.

12.  On 1 March 2010, the Plaintiff applied for summary judgment against the Defendant.  That was supported by an affirmation of the Plaintiff affirmed on 26 February 2010.

13.  On 19 March 2010, Master S Lo made the following order:

"1. Paragraph a of the prayer for relief in the Defendant's Counterclaim that 'The Defendant seek share of proceeds resulting from the future sale of the Property to be assessed' be struck out on the ground that the Defendant's Counterclaim does not disclose a reasonable cause of action for the said prayer, that it is scandalous, frivolous or vexations, that it may prejudice, embarrass or delay the fair trial of the action and/or that it is otherwise an abuse of the process of the Court.

2. Final judgment against the Defendant in the amount of $153,108.48 as pleaded in paragraph 23 of the Amended Statement of Claim as damages for the Defendant's breach and repudiation of the Agreement.

3. Final judgment against the Defendant in the amount of $389,166.50 as pleaded in paragraph 24 of the Amended Statement of Claim as damages for the Defendant's breach and repudiation of the Agreement, being the Defendant's share of the difference between the purchase price of the property in question and the market value thereof as at 24^th August 2009."

14.  The Defendant appealed the order of Master S Lo.  By a decision dated 22 September 2010, District Judge Lok allowed the appeal to the extent that the final judgment against the Defendant in the sum of $153,108.48 was reduced to $71,311.00.  Also, the final judgment against the Defendant in the sum of $389,166.50 was replaced by an interlocutory judgment against the Defendant for damages to be assessed because the claim was not for a liquidated sum.  At the hearing before District Judge Lok, both the Plaintiff and the Defendant were represented by counsel.

15.  Both the Plaintiff and the Defendant are obviously well-educated persons, and they communicated mostly by e-mail. 

16.  This is the Defendant's appeal against the decision of District Judge Lok.

17.  Mr Paul Leung appeared for the Defendant.  The first ground relied on by Mr Leung is that the joint purchase of the Property constituted a partnership within the meaning of the Partnership Ordinance (Cap 38).  He relied on the facts pleaded in the Amended Statement of Claim, and the e-mails and correspondence exchanged between the parties.  He contended that the usual consequence on the dissolution of partnership should follow in the present case.

18.  However, it was never the Defendant's case that there was a partnership.  Indeed, in para 26 of the Defence and Counterclaim, the Defendant pleaded:

"a) The relationship between the Plaintiff and Defendant is not a joint venture.  There is no existence of an economic/business relationship and there is no revenue being generated from the relationship."

19.  Earlier, in para 19, the Defendant asserted that:

"… The intention of the Defendant was to obtain Tenant in Common title to the Property and apply for a partition order through the Honourable Courts."

20.  Mr Leung noted that the Defence and Counterclaim was filed whilst the Defendant was acting in person, but it is not disputed that the Defendant is a qualified foreign lawyer.

21.  Indeed, in the Defendant's letter of 27 July 2009 he had written:

"7. In terms of our oral agreement to meet all obligations on MOD, whether MOD was purchased as a partnership venture, one must turn to the law (which is clear in all recent civil court action cases in Hong Kong).

The fact that we entered into an oral agreement where we agreed to pay equal share of the mortgage installments, management fees, rates and other expenses of MOD is not evidence which, on its own, could establish either the existence of a partnership or the fact that the property was purchased as a partnership business venture.

The following paragraphs of Halsbury's Laws of England, volume 35, support this.

In relation to paragraph 2 headed 'Essentials of Partnership'.

'Partnership involves a contract between the partners to engage in the business with a view to profit.  As a rule each partner contributes either property skill or labour but this is not essential.'

In paragraph 4, headed 'Business', it states:

'The existence of a business is essential to a partnership and for this purpose business includes every trade, occupation, or profession.  The idea involved is that of joint operation for the sake of gain:

In paragraph 6, headed 'Co-ownership and Partnership Distinguished', it states:

'Co-ownership of any property does not of itself create a partnership between the co-owners whether or not they share any profits made by use of it.  Whether co-owners are also partners is a question of evidence.  The mode in which the property has been dealt with and divided and the way in which it and any consequent proceeds and income have been treated in the books may well prove important because persons who are only co-owners keep books in a different footing from those who are also partners.'

In paragraph 7, headed 'Co-owners of Land', it states:

'Co-owners of land who merely share the expenses of management and divide the income arising from their land in specified shares are not thereby constituted partners.

Nor is it a partnership if two co-owners agree that one is to manage and provide funds for the repair of a house and that the net rent is to be divided equally between them.'

The Partnership Ordinance of Hong Kong also sets out the law on property clearly."

22.  Mr Leung also made the point that on the evidence available to the learned judge, one could make out a case of partnership and that it did not matter that the Defendant had not raised the defence himself.  With respect, I disagree.

23.  On an application for summary judgment, the obligation is on a defendant to show cause why summary judgment should not be entered.  And in doing so, he must condescend upon particulars.  See O 14 r 4.

24.  Nor is this a case where we should allow a new point to be taken on appeal.  The point is fact sensitive.  So this first ground is rejected.

25.  The second ground of appeal is directed against the learned judge's decision on damages.  Essentially, Mr Leung's submission is that only nominal damages should have been awarded.  The learned judge relied on Golden Strait Corporation v Nippon Yusen Kubishika Kaisha (The Golden Victory) [2007] 2 AC 353 and ordered that damages should be assessed on the difference between the purchase price and the market price at the time of the acceptance of repudiation.  Mr Leung submitted that had there been no repudiation on the part of the Defendant, the parties would have kept the Property as a medium to long-term investment and the residence for the Plaintiff and the Defendant or his tenant.  Notwithstanding the repudiation, the Plaintiff has continued to keep the Property as such an investment and as his own residence.  That being the case, Mr Leung submitted that the Plaintiff has suffered no loss or that any damage would be nominal.

26.  I do not agree.  The Plaintiff's case was that the Defendant had repudiated his obligations, and the repudiation was accepted by the Plaintiff.  That was not disputed by the Defendant.  Indeed, the Defendant has said in his letter 27 July 2009 at para 8(2) that the issue for the court was:

"Whether I am required to pay for any unrealized loss suffered by reason of the Property (MOD 595) being in negative equity by terminating our property-sharing relationship."

27.  In such context, the learned judge said:

"35. … By so doing, the Defendant had clearly waived his right in the Property and he is now estopped from asserting otherwise.  Obviously, the Defendant cannot have the second bite on the cherry depending on the development of the property market." 

28.  The third ground of appeal was ostensibly directed at the final judgment against the Defendant in the sum of $71,311.  However, it appeared from Mr Leung's oral submission that his complaint was not that the learned judge was wrong in deciding that $71,311 was payable by the Defendant to the Plaintiff.  Rather, his complaint was that at para 38, the learned judge had said:

"… the damages should be assessed based on the difference between the purchase price of the Property and its market value at the time of the acceptance of the repudiation." 

29.  Mr Leung said that if the damages are taken as the difference between the purchase price and its value at the time of repudiation, then any reduction in the principal outstanding on the mortgage as a result of payments made would not have been taken into account.

30.  I note the order of the learned judge was for interlocutory judgment against the Defendant for damages to be assessed.  The order does not spell out the basis upon which such damages should be assessed.  If the principal payable under the mortgage had been reduced as a result of contributions made by the Defendant, that may, indeed, result in a smaller negative equity.  That is a matter for consideration in the assessment.

31.  For the above reasons, I would dismiss the appeal, and order (nisi) that the Defendant pays the costs of the appeal.

Hon Wright J:

32.  I agree with the reasons of the Vice-President and the order proposed.