MOK PAK KEUNG v. WONG IP MING

HCA 10036/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10036 OF 1997

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J U D G M E N T

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1. In 1993, the Plaintiff and the Defendant entered into a joint venture to purchase a piece of vacant land in the New Territories, namely, Lot No. 365, 366 and 369 in Demarcation District 106, Kam Tin, New Territories ("the property"). The property was to be used for storage of vehicles and as a garage. Sunny Nation Ltd ("the company") was formed to purchase the property and the Plaintiff and the Defendant became the only 2 shareholders and directors of the company.

2. In this action, the Plaintiff claims the return of $140,000 from the Defendant which he paid to the Defendant on 28 February 1997 by making a deposit of that sum into his bank account. The Plaintiff's case is that the sum of $140,000 represented his half share of the sum of $280,000 which the Defendant informed him was the sum for the proposed payment of lawyers' and surveyors' fees. A portion of the property was liable to be resumed by the Government for the purposes of the Shek Wu Tong Access Road Upgrading Project. It is the Plaintiff's case that the Defendant represented to him that it would be necessary to engage lawyers and surveyors to deal with the land resumption so as to try and persuade the Government to resume the whole of the property instead of a trivial portion and that the fees to be incurred in engaging lawyers and surveyors would be $280,000. It was further represented by the Defendant to the Plaintiff that each of them would contribute $140,000 and that the said sum of $280,000 would be used for the said purpose. In the event that fees were not be incurred for the said purpose, then the Plaintiff's contribution would be returned to him. As a result of such representations, the Plaintiff entered into the oral agreement with the Defendant to pay the sum of $140,000.

3. At the Defendant's request, the Plaintiff paid the sum of $140,000 into the Defendant's personal bank account so that the Defendant could pay it into the company's bank account together with his own contribution of $140,000.

4. The sum of $140,000 which the Plaintiff paid into the Defendant's bank account was never paid by the Defendant into the company's bank account and lawyers and surveyors were never engaged to try and persuade the Government to resume the whole of the property. It is also the Plaintiff's case that the representations made by the Defendant were false and that the Defendant made the same fraudulently well knowing that they were false and untrue or recklessly, not caring whether they were true or false.

5. The Defendant admits receiving the sum of $140,000 but his case is that it was paid for a completely different purpose. His case is that it was never paid as a half share to engage lawyers and surveyors on behalf of the company to try and persuade the Government to resume the whole of the property. It was paid to him by the Plaintiff as a compromise of a dispute he had with the Plaintiff over the original cost of the purchase price of the property. The Defendant thus gives a completely different version from the Plaintiff's version as to why the sum of $140,000 was paid to him.

6. I heard evidence from 2 witnesses namely, the Plaintiff and the Defendant. The dispute between the parties is a dispute of fact. The case rests on the credibility of the witnesses.

The evidence

7. The Plaintiff is 36 years old and is younger than the Defendant. The Defendant is 45 years old. The Plaintiff and the Defendant knew each other for about a year or so before 1993 when they decided to enter into a joint venture to purchase the property. They agreed to become partners and it is common ground that the company was in effect a quasi - partnership between them. Of the 10,000 shares in the company, 5001 shares were registered in the Defendant's name whereas 4,998 were registered in the Plaintiff's name. There is a dispute between the parties as to how this division was arrived at and whether the Plaintiff agreed to this at the time the company was set up in 1993. The registered office of the company was the Defendant's office address. It was agreed that the administration of the company be carried out there and that the books and chops of the company be kept there.

8. It is common ground that in August 1993, a Miss Hui, of Ngai Wai Property Company, was engaged for the company to purchase the property. The Plaintiff knew Miss Hui and introduced Miss Hui to the Defendant.

9. The Plaintiff said that Miss Hui located the property and he went to inspect it with the Defendant and Miss Hui. He said that the Defendant stated that the property could serve as a garage and storage space for vehicles and it suited their mutual needs. As the property was agricultural land, there had to be a change of user before they could use it for that purpose. According to the Plaintiff, the Defendant said that if he agreed to buy the land, he would proceed to apply for a change in the use of the land as he was more familiar with such applications. The Plaintiff then agreed to buy the land and entrusted the Defendant to apply for a change of land use. According to the Defendant, it was Miss Hui who felt that there would not be a problem in getting the land user changed.

10. It is not in dispute that the Defendant was the one who instructed solicitors to deal with the relevant Government departments regarding the change of user of the property. The company's application was rejected in September 1994. As the property could not be used for storage purposes, the Plaintiff said that he requested the Defendant to sell the property. The property could be used for village type development and the Plaintiff said that the Defendant wished to build village houses on the land to which the Plaintiff objected.

11. There were attempts to sell the land after September 1994 but those attempts were unsuccessful. According to the Plaintiff, it was the Defendant who asked for prices higher than what the agents said was the market price and the property was not sold.

12. There was also an unsuccessful attempt to sell by auction in January 1997. The Plaintiff said that the reason why the auction was unsuccessful was because the Defendant had set the reserve price at $4.1m. which was too high as the valuation given by the auctioneers was $3.6 m.

13. As there was deadlock between the Plaintiff and the Defendant, the Plaintiff on 14 August 1997 presented a Petition in Companies Winding-Up No. 424 of 1997 seeking, inter alia, an order that the Defendant purchase his shares in the company at a reasonable market price and/or an order that the property he sold by private treaty or public auction at market price and/or an order that the company be wound up. On 23 November 1998, Le Pichon J ordered in the winding-up proceedings that Jones Lang Wootton Ltd be appointed by the Court to sell the property and gave directions for the same as well as for the disposal of the proceeds of sale. The Petition was stayed in the interim. The property was subsequently sold. On 29 March 1999 Le Pichon J ordered, inter alia, that the Petition be dismissed.

The $140,000

14. The Plaintiff said that on 12 February 1997 the Defendant faxed him three letters regarding the resumption of the property by the Government. He said that the Defendant telephoned him on that day telling him that the Government wanted to resume part of the property to build a road and that the remaining part which would not be resumed would be irregular and would affect the value of the land. The Plaintiff said that the Defendant told him that he could cause the Government to resume the whole property instead of just a portion but he would have to engage surveyors and lawyers to persuade the Government to resume the whole property. This would cost $280,000 and each had to contribute $140,000. He asked the Plaintiff to deposit $140,000 into his personal bank account and together with the Defendant's own $140,000, the Defendant would deposit the $280,000 into the company's bank account. The Plaintiff told the Defendant that he needed time to think it over. The Plaintiff said that he wished to think about it and seek advice from others. On 28 February 1997 the Defendant telephoned again telling the Plaintiff that the matter was very urgent and said that if there was any loss caused to the company by the Plaintiff's delay, he should bear the loss. He was asked to deposit the sum into the Defendant's personal bank account. He was assured by the Defendant that the money would be deposited into the company's bank account, that the money would only be used in relation to the land resumption matter and that if no money was to be used, he would return it to the Plaintiff. The Plaintiff then deposited the sum of $140,000 into the Defendant's personal bank account.

15. The Plaintiff said that in March 1997 he asked to be shown receipts for fees paid to surveyors and lawyers but the Defendant told him that there were none. In April and May 1997, he pursued the matter with the Defendant but was told that the sum had not been deposited into the company's bank account and that he had not found a suitable surveyor and lawyers to deal with the land resumption matter. The Plaintiff then asked for the return of the $140,000. A letter of demand from the Plaintiff's solicitors demanding the return of the $140,000 was sent to the Defendant on 2 September 1997.

16. The Defendant denied that he had ever asked the Plaintiff for $140,000 to be paid into the company's bank account for engaging lawyers and surveyors to persuade the Government to resume the whole of the property. He denied the conversation on 12 February 1997 and 28 February 1997 that the Plaintiff gave evidence about.

17. The Defendant said that in July 1996 he received a letter from Raymond Chan, Kenneth Yuen & Co., Solicitors dated 10 July 1996 (" the 10 July 1996 letter") sent on behalf of the Plaintiff to him. This stated as follows:

"We act for Mr Mok Pak Keung, the shareholder of the abovementioned limited company.

We are instructed that you have agreed with our client to purchase his share (i.e. 4,998.00) of and in the said Sunny Nation Limited at the price of HK$1,600,000.00

We shall be much obliged if you will kindly confirm to us the aforesaid and let us know how and when you will pay the said sum of HK$1,600,000.00 to our client and/or to us on behalf of our client."

He said that he had never reached an agreement with the Plaintiff to purchase his shares as stated in the letter and he telephoned the Plaintiff on receipt of the 10 July 1996 letter to ask him about it. He felt that the price of $1.6m. for the Plaintiff's shares was too low. He said that prior to receipt of the letter the Plaintiff had told him on 2 or 3 occasions that he would sell his shares to him at cost price. During the telephone conversation, he questioned the Plaintiff on the price of $1.6m. and the Plaintiff said that it was just the cost price. He asked the Plaintiff how that was calculated and was told that it cost about $1.5m. each to purchase the property and $100,000 was for the agent's commission and handling charges for solicitors and stamp duty. He said that he then remembered some rumours he had heard in 1993 after the purchase of the property to the effect that the property did not cost as much as they had paid. His recollection was that each had in fact spent $1.8m. and not $1.6m. for the property and there was, therefore, a difference of $200,000. So he queried the Plaintiff about this accusing him of making a profit out of the purchase. He said that the Plaintiff at first denied it and there was a long discussion. The Defendant threatened to report it to the police and to tell fellow traders about the Plaintiff. On hearing this, the Defendant said that the Plaintiff's tone changed and he became soft and asked the Defendant what he wanted. The Defendant asked him to return the money and asked for the difference namely, the $200,000. The Plaintiff insisted that it was not that much but did not actually say how much it was. They then negotiated and eventually a figure of $140,000 was agreed. This was 70% of the $200,000 difference. The Defendant said that the Plaintiff agreed to pay him the $140,000 by the end of 1996. Despite this, the Plaintiff failed to pay him the $140,000 in December 1996. He said that the Plaintiff suggested to him that the $140,000 be deducted from the proceeds of the sale of the auction scheduled for January 1997 to which the Defendant agreed. The auction was unsuccessful and the Defendant said that when he asked the Plaintiff about the payment of the $140,000, the Plaintiff said that he needed money to pay the Lunar New Year bonus to his employees and suggested that he pay the Defendant after the Lunar New Year which was in February 1997. The Defendant agreed.

18. The Defendant went for a holiday to Egypt and returned to Hong Kong on 11 February 1997. On 12 February 1997 he faxed letters to the Plaintiff but denied any conversation with the Plaintiff where he asked for $140,000 to pay for engaging lawyers and surveyors on behalf of the company to persuade the Government to resume the whole of the property. He said that he received the $140,000 into his bank account on 28 February 1997 and that this represented the compensation that the Plaintiff had agreed to pay him in July 1996.

19. As regards the 10 July 1996 letter, the Plaintiff said that he had verbally agreed to sell his shares to the Defendant for $1.6m. and that is why his solicitors sent that letter to the Defendant to confirm the sale. But the Defendant did not confirm the sale and gave no reply. He said that he agreed to sell his shares to the Plaintiff because the Defendant kept asking him to build village houses on the property which he refused. So he agreed to sell his shares to the Defendant for $1.6m.

20. I found the Plaintiff to be a simple and unsophisticated man. Although both the Plaintiff and the Defendant are successful businessmen, I formed the impression that the Defendant was the more sophisticated and intelligent of the two of them. The Plaintiff struck me as an honest and credible witness. I cannot say the same for the Defendant. His evidence as regards the agreement and the circumstances under which the $140,000 was paid into his bank account was, in my judgment, incredible. I have no hesitation in rejecting his version of the events and in accepting the Plaintiff's version. I believe and accept the Plaintiff's evidence on this. I disbelieve and reject the Defendant's evidence on this.

21. It is clear from the Defendant's evidence that in the course of the telephone conversation with the Plaintiff in July 1996, he realised that the Plaintiff had committed a serious criminal offence against him when the property was purchased in 1993. His partner had made a secret profit and in July 1996 had agreed to compensate him with $140,000 which he agreed to pay by the end of 1996. It is inconceivable that an intelligent businessman like the Defendant would not even ask for anything in writing from his partner who had abused his trust so to confirm the oral agreement. This is particularly so as the Defendant said that it did occur to him that the Plaintiff might not pay that sum. Also, according to the Defendant, when the Plaintiff suggested in December 1996 that the $140,000 be deducted from the proceeds of the forthcoming auction in January 1997, it is also inconceivable that nothing was put in writing to confirm this arrangement or indeed, the later arrangement that the money be paid after the Lunar New Year.

22. I also believe the Plaintiff when he said that the Defendant had verbally agreed to purchase his shares for $1.6m. in July 1996. There is no plausible reason why the Plaintiff should incur the expense of engaging solicitors to write to the Defendant to say that there was an oral agreement if in fact there was no such agreement. I find that the Defendant changed his mind after receipt of the 10 July 1996 letter and did not bother to reply. On this matter, I also accept the evidence of the Plaintiff and reject the evidence of the Defendant.

23. On 28 July 1997, the Plaintiff's Solicitors, George Y C Mok & Co., wrote to the Defendant pointing out, inter alia, that there was deadlock between the Plaintiff and the Defendant in relation to the company's affairs. A proposal was put forward for settlement in order to save the company from being wound up. This was for the property to be sold by private treaty or public auction at current market price or the purchase of the Plaintiff's shares by the Defendant at current market price. In response, the Defendant himself sent a fax to George Y C Mok & Co. together with a copy of the appointment letter of Chung Sen Auctioneers dated 12 December 1996 in respect of the unsuccessful auction held on 11 January 1997 and a copy of the 10 July 1996 letter. He described these in his fax of 28 July 1997 as "relevant documents for your reference". His evidence was that there was never any agreement to purchase the Plaintiff's shares for $1.6m., so why did he send the 10 July 1996 letter to George Y C Mok & Co.? His explanation was that in response to their letter of 28 July 1997 he wanted to inform George Y C Mok & Co. of what had already been done. He also said that he sent them the two documents, one of which was the 10 July 1996 letter, to give George Y C Mok & Co. a history of the matter. The Defendant was evasive and I found his explanations unconvincing. He never informed George Y C Mok & Co. that, despite what was stated in the 10 July 1996, there was, on his case, no agreement to purchase the Plaintiff's shares for $1.6m.

24. If indeed there was already an agreement made in July 1996 for the Plaintiff to pay him $140,000, I would have expected the Defendant to have said so in the correspondence he had with George Y C Mok & Co. from 28 July 1997 up to the issue of the Petition on 14 August 1997. The Defendant is, in my judgment, neither shy nor timid. The evidence shows that he engaged in correspondence on his own during this period. In August 1997, he also lodged a complaint himself to the Law Society in respect of the conduct of the Plaintiff's solicitors. This complaint was later found to be unsubstantiated by the Law Society. On the Defendant's evidence, he had been wronged by the Plaintiff and the Plaintiff had admitted making a secret profit over the purchase in 1993 thereby committing a serious criminal offence. When the Plaintiff and his solicitors accused him of wrongdoing leading up to the issue of the Petition, I would have expected the Defendant to promptly respond by pointing out to the Plaintiff's solicitors that it was the Plaintiff who was guilty of a very serious wrongdoing by making a secret profit which led to an agreement made in July 1996 to pay him $140,000, if indeed the Defendant is telling the truth about the $140,000. The Defendant, however, did nothing of the sort. Also, after the letter of demand of 2 September 1997 was sent to the Defendant which gave him 5 days to respond, he failed to respond promptly. The response only came by his solicitor's letter of 15 October 1997 which was after the writ had been issued. His explanation was that he had left the matter to his solicitors but he was unable to remember whether he pressed his solicitors to reply before the letter of 15 October 1997. I do not believe the Defendant. If he is telling the truth about the $140,000, I am confident that he would have been outraged at receiving a letter of demand and would have immediately responded with his version of events. He would have impressed upon his solicitors to respond without delay. That was not done. I find that the Defendant made up his story in the interim and on 15 October 1997 the gist of his case was put forward by his solicitors in their letter.

25. There is also the matter of Exhibit P1, which is the $5,000 fee note dated 31 July 1997 from Richard Tai & Co., solicitors engaged by the Defendant for the company. Richard Tai & Co., on the Defendant's instructions, wrote on behalf of the company on 1 March 1997 to the District Lands Office enquiring about the intended resumption and the compensation available to the company. There was, of course, no attempt made by the solicitors to try and persuade the Government to resume the whole of the property instead of a portion thereof. The solicitors billed the company $5,000 for their services in respect of the Government resumption as evidenced by Exhibit P1. The evidence is that the Defendant settled the fee note himself. The Defendant referred to his witness statement which stated that he had not asked the Plaintiff for his half share of $2,500. This, in my view, is unusual as the Plaintiff and the Defendant had agreed to share the expenses of the company in equal shares. This is evidenced by the deposits, sometimes of small amounts of a few thousand dollars, made by the Plaintiff into the Defendant's personal bank account being the Plaintiff's half share for the company's expenses.

26. It is, in my view, significant that the Defendant never at any time asked the Plaintiff to pay his half share of the $5,000 bill from Richard Tai & Co. He tried to explain this by saying that in August 1997 he had difficulty contacting the Plaintiff but that is unconvincing. If that is correct, there is no plausible reason why the Defendant did not send the Plaintiff a written demand to pay his half share. The fact remains that he never at any time asked the Plaintiff either verbally or in writing to pay him the half share of the $5,000 fee note. This, in my view, tends to support the Plaintiff's version of events that he had already paid the Defendant $140,000 for lawyers' and surveyors' fees and the Defendant knew this. That explains why he never bothered to ask the Plaintiff for the half share of the $5,000 fees due to Richard Tai & Co.

27. It was pointed out by Mr Aiken, SC, for the Defendant, that the Plaintiff gave inconsistent evidence about his discussions with friends in the period from 12 February 1997, after the telephone conversation with the Defendant, to 28 February 1997, when the Defendant spoke to him again. He said in evidence that he did ask his friends about whether it would be useful to engage surveyors and lawyers to try and persuade the Government to resume the whole of the property. Some told him it would be successful; some told him it would not be successful. He also said later on in evidence that his fellow traders did not know much about it so he did not check on it. He was also cross-examined about his 2nd affirmation in the winding-up proceedings where he said that after 28 February 1997 he discussed the matter with his friends and they all advised him that only a small trivial portion of the property would be resumed and that it would be a waste of money and time to coerce the Government to resume the whole of the property. Quite obviously, there are inconsistencies in his evidence about this but I do not regard these as demonstrating that the Plaintiff is not telling the truth. Notwithstanding the inconsistencies, I am satisfied that the Plaintiff has told me the truth in his version of events in respect of the payment of the $140,000 into the Defendant's bank account. I believe the Plaintiff and disbelieve the Defendant on this.

28. The Plaintiff and the Defendant also gave different versions of the events surrounding the signing of the chinese agreement dated 28 July 1997 which the Plaintiff signed with Miss Hui, the estate agent. By the agreement, the company engaged Miss Hui's firm to introduce the sale of the property at $300 per sq. ft. and on a successful completion, the company would pay the estate agent commission at $250 per sq. ft., which was about 8% of the purchase price. This is an unusually large commission, the usual commission being 1% of the purchase price.

29. The Plaintiff said that the agreement was made, not by him with Miss Hui, but by the Defendant with Miss Hui. The Defendant asked him to sign the agreement first which he did. He had in the past signed documents first with the Defendant signing later on as the company's chops were with the Defendant. An example of this was the letter of appointment of Chung Sen Auctioneers Ltd. dated 12 December 1996 which, it is undisputed, was signed by the Plaintiff first and then later on the Defendant added his signature and the company's chop to this document.

30. The Plaintiff also said that after he had signed the agreement, the Defendant refused to sign it. He then asked Miss Hui to formally write to the Defendant which she did on 29 July 1997 to cancel the agreement of 28 July 1997 appointing her to sell the property at $300 per sq. ft. The Plaintiff said that he was agreeable to paying the 8% commission as the selling price the agent could obtain was a high price. The price was over $6m. for the property. Considering the unsuccessful auction in January 1997 with a reserve price of $4.1m., it is not surprising that the Plaintiff would consider the price that the agent could obtain in July 1997 to be a high price. He did not, in the circumstances, mind paying 8% commission. Also, the Defendant had agreed to this on 28 July 1997 but changed his mind the following day.

31. The Defendant denied that he had ever agreed to the chinese agreement dated 28 July 1997 signed with Miss Hui. He said that he had never reached such an agreement with Miss Hui and he was shocked and angry at seeing that her commission would be 8%. He refused to enter into that agreement.

32. On this dispute of fact, I believe the Plaintiff and disbelieve the Defendant. I find that the Defendant did enter into the agreement verbally with Miss Hui and he did ask the Plaintiff to sign the agreement first. The next day he changed his mind and refused to sign it. The property market had evidently risen from January 1997 and it is probable that the Defendant was hoping to get an even better price for the property than the price that Miss Hui could get.

33. It was submitted by Mr Aiken, for the Defendant, that by agreeing to pay 8% commission to Miss Hui, the Plaintiff arranged for Miss Hui to benefit excessively in July 1997. I was asked to draw the inference that the Plaintiff would derive some benefit out of this. I cannot accept this submission. To suggest that in July 1997 the Plaintiff entered into a transaction so that he would obtain a secret profit together with Miss Hui is, in my view, unrealistic. On the Defendant's evidence, the Plaintiff had in July 1996 admitted to committing a serious criminal offence by making a secret profit out of the original purchase of the land in 1993. If the Defendant is telling the truth, the Plaintiff would have had to be extremely stupid to try and make a secret profit once again after having been caught out by the Defendant the previous year and after having been threatened with a report to the police. The Plaintiff certainly did not strike me as a stupid man. I have no hesitation in rejecting the Defendant's evidence and accepting the Plaintiff's evidence on this.

34. I find that the Plaintiff's claim is proved. I am satisfied that the parties entered into an oral agreement on 28 February 1997 that each would contribute $140,000 for the purpose of the proposed payment of the fees for lawyers and surveyors to be incurred by the company. It was also agreed that the total sum of $280,000 would be deposited by the Defendant to the company's bank account and that in the event that the company did not incur fees for the said purpose, the Defendant would return the Plaintiff's contribution of $140,000 to him.

35. I am satisfied also that the Plaintiff was induced to enter into the oral agreement and to pay the sum $140,000 into the Defendant's bank account by the representations of the Defendant that the sum of $140,000 together with the Defendant's own $140,000 would be deposited into the company's bank account, that the said total sum of $280,000 would be used for the purpose of engaging lawyers and surveyors to persuade the Government to resume the whole of the property instead of a portion of it, and that if no fees were to be incurred for the said purpose, the Defendant would return the sum of $140,000 to the Plaintiff.

36. I am also satisfied that the said representations were false. It is clear from the evidence that the Defendant never had any intention of engaging surveyors and lawyers on behalf of the company to try and persuade the Government to resume the whole of the property. I am satisfied that the representations were made fraudulently by the Defendant well knowing that they were false and untrue.

37. I am satisfied also that the Plaintiff asked the Defendant for the return of the $140,000 in May 1997 and that the contract has been rescinded. The Plaintiff is entitled to damages for breach of contract as well as damages for fraudulent misrepresentation. I am satisfied that the Plaintiff is entitled to total damages in the sum of $140,000. I give judgment to the Plaintiff in the sum of $140,000. I also award interest on that sum at 1% above prime rate from date of writ, i.e. 23 September 1997 until judgment and thereafter at judgment rate.

38. I also make an order nisi that the Plaintiff is entitled to the costs of the action which are to be borne by the Defendant.