CHEUNG YUK FUNG v. YIP CHI KEUNG AND ANOTHER

CAMP 471/2022, [2023] HKCA 665

On Appeal From [2022] HKDC 266

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 471 OF 2022

(ON AN INTENDED APPEAL FROM DCCJ NOS. 259 & 306 OF 2019)

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J U D G M E N T

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Hon Cheung JA (delivering the Judgment of the Court) :

I.  Leave to appeal

1.  This is the renewed application by the 1^st defendant and 2^nd defendant for leave to appeal from the judgment of Deputy District Judge George Lam dated 31 March 2022 who ordered the defendants jointly and severally to pay the plaintiff the sum of $97,618 with interest and costs. The Judge had previously refused leave. We will deal with the application on paper.

II.  The facts

2.  We will adopt the summary by the defendants of the facts of the case as found by the Judge :

1)  On 29 May 2018, the plaintiff and the 1^st defendant reached an Oral Agreement that :

(1)  Both parties should be equal shareholders and directors of a new joint venture company to be acquired to carry out a property agency business.

(2)  The parties should each contribute $400,000 to the new company as initial capital.

(3)  $5,000 of the contribution from each party should be used as the share capital while the remaining $395,000 would be used as working capital.

(4)  The new company would be renamed ‘OOne Property Group Limited’ (‘the Company’).

2)  Pursuant to the Oral Agreement, on 15 June 2018, the plaintiff paid $400,000 to the 1^st defendant and the 2^nd defendant (a company owned and controlled by the 1^st defendant). Specifically, the sum was paid at the 1^st defendant’s direction into the 2^nd defendant’s bank account pending for use as the working capital of the new company.

3)  There was no dispute that the 1^st defendant agreed to, and did, contribute his share of $400,000’s worth of renovation. The dispute only concerned the $400,000 contributed by the plaintiff. The Judge found that the 1^st defendant failed to account for the use of $79,618, in addition to a shortfall of $18,000, out of the plaintiff’s contribution making a total sum of $97,618.

III.  The judgment

3.  The plaintiff relied on two causes of action namely, breach of contract and breach of a Quistclose trust. The Judge rejected the trust claim. He held that the defendants’ failure to apply the plaintiff’s funds to defray the new company’s expenses, constituted a breach of the Oral Agreement, with the result that the funds ought to be returned.

IV.  Proposed grounds of appeal

4.  The defendants relied on two grounds of appeal :

1)  The Judge erred in law by granting any relief for breach of contract against the 2^nd defendant which was not, even on his findings, a party to the Oral Agreement.

2)  There was no valid legal basis for the Judge to order a refund of $97,618 by the 1^st defendant and the 2^nd defendant to the plaintiff, purportedly representing the unaccounted for portion of the plaintiff’s total investment of $400,000 towards the Company’s working capital, in circumstances where :

(1)  The Judge dismissed the claim based on a Quistclose trust on the basis, inter alia, that there was no agreement or restriction that the funds were not at the free disposal of the 1^st defendant or the 2^nd defendant;

(2)  The plaintiff failed to (i) plead any relevant breach of any contractual obligation on the part of the 1^st defendant or the 2^nd defendant to ensure that the all funds were used as the Company’s working capital, or (ii) show that any loss was sustained by the plaintiff when he was irrevocably committed to investing $400,000 in return for a 50% share in the Company under the Oral Agreement;

(3)  The order is not supported by any other valid, pleaded cause of action for unjust enrichment or otherwise.

V.  Our view

5.  It is logical to deal with the second ground first.

1)  Ground 2(1)

6.  As to ‘the plaintiff got what was agreed and he must pay the agreed price for it’ argument, the Judge had specifically found that it was agreed that the $400,000 would be used for the working capital of the Company and part of the $400,000 had never been applied by the defendants as the Company’s working capital. Hence, there was a breach of contract. There is no merit in this ground.

2)  Ground 2(2)

7.  As to Ground 2(2)(i), on the lack of pleadings, the Judge had dealt with this point and found the matter was sufficiently pleaded. We agree.

8.  As to the Ground 2(2)(ii), the defendants argued in the written submission that the Judge’s order of damage effectively put the plaintiff in a better position than he would have been in had the Oral Agreement been performed. We disagree. This is merely a variation of the argument on Ground 2(1). It is precisely because the whole of the $400,000 was not being applied as the working capital of the Company that the plaintiff was entitled to seek recovery of that part of the money.

3)  Ground 2(3)

9.  In the written submission, the defendants elaborated that a claim for unjust enrichment is untenable because (a) there was no total failure of consideration (as shown by the fact that the plaintiff received 50% shareholding in the Company and most of the $400,000 had been expended on the agreed purposes); and (b) there is no suggestion that Oral Agreement had ceased to be subsisting, e.g. by a valid discharge.

10.  The argument can be divided into three points. The first is a matter of pleadings. We agree with the Judge that the claim for unjust enrichment has been pleaded having considered the whole of the pleadings.

11.  As to the second point which is the ‘no total failure of consideration’ point, the Judge referred to Chitty on Contracts (34^th Ed) [29‑025], Footnote 142 and [32‑072] and was of the view that the consideration is divisible. He held :

‘ 59. I believe the part that had been found being double‑charged by the defendants was clearly divisible. In respect of that part, total failure of consideration had been caused by the defendants’ conduct of double charging and misappropriation.’

12.  The only answer by the defendants to this is that the Oral Agreement was not a building contract and relied on Goff & Jones, The Law of Unjust Enrichment 9^th Ed [12‑24]. However, as shown by Goff & Jones in the passages following [12‑24], the doctrine of severability is well recognized in other situations. We are not satisfied that the Judge’s view on severability is a reasonably arguable ground of appeal in the context of this case.

13.  As to the last point on the subsistence of the Oral Agreement, reading the Decision on Leave and the written submissions of the parties, this point was not raised below when the defendants applied for leave to appeal. We see no justification why we should consider this point now.

3)  Ground 1

14.  The defendants argued that the claim for breach of a Quistclose trust having been dismissed, there was no remaining valid, pleaded cause of action against the 2^nd defendant. That should have been the end of the matter. It was wrong for the Judge in the Decision on Leave to justify his decision against the 2^nd defendant on two entirely new grounds, namely, an alleged concession made by the defendants’ trial counsel and the 2^nd defendant’s liability for unjust enrichment. The defendants referred to Brewer v Mann [2012] RTR 28 at [31] and submitted that it is highly irregular for the Judge to seek to alter or supplement his reasons for an impugned judgment in the course of an application for leave to appeal.

15.  In our view, this is not a situation like Brewer where the judge on his own initiative rewrote his judgment that had already been issued (without changing his decision) in order to meet the criticisms that were raised in the grounds of appeal of an application for permission to appeal. The Judge in this case simply addressed the argument raised against the order he made against the 2^nd defendant. Whilst the judgment itself does not specifically refer to unjust enrichment, the Judge was entitled to hold that the argument relied upon by the defendants can be addressed by the principles on unjust enrichment and material facts to support such a claim had been pleaded. However, it is useful to remind judges of what the Court said in Brewer :

‘ 31. ......where a judge has received no request from the parties to reconsider his judgment or add to his reasons, and has not demonstrated the need in conscience to revisit his judgment, but on the contrary has received grounds of appeal and an application for permission to appeal on the basis of the alleged inadequacies of his judgment, then it would be most unwise for him to rewrite his judgment (other than purely editorially) and it would take the most extraordinary reasons, if any, to justify such a course on his part. It is also plain to us that this was not the case of a short judgment on a straightforward issue where an appeal might be avoided if the judge supplied further reasoning which had been requested of him.’

16.  Although the Judge had referred to counsel’s concession, at the same time, he had made independent findings on the money which was not applied for the working capital. In our view, the following paragraphs of the Judge’s Decision on Leave adequately addressed this point :

‘ 29. Mr Tsui submitted that the essential question to ask is whether the arrangement of directing the plaintiff to pay the 2^nd defendant in discharge of his contractual obligation vis-à-vis the 1^st defendant per se is a result of the parties’ choice of risk allocation in a certain way. He said the answer must be “no” and quite to the contrary, the plaintiff did so on the mere direction of the 1^st defendant. He also pointed out that the 2^nd defendant was under the sole ownership and control of the 1^st defendant. As such, he submitted that the Order against the 2^nd defendant was rightly made.

30. I entirely agree.

31. For local authorities, see Yew Sang Hong Ltd v Housing Authority [2008] 3 HKLRD 307, per Reyes J, at para 23:-

“One must examine each situation. Where allowing restitution would subvert a contractual (or statutory) regime whereby risks have been allocated in a particular manner, restitution will be excluded as a matter of principle. However, where no relevant regime of risk allocation can be identified, there may well be scope for the grant of restitution.” (Emphasis added)’

17.  For the reasons set out above, we refuse to grant leave to the defendants to appeal against the judgment. The summons of 11 November 2022 is accordingly dismissed.

18.  We order the defendants to pay the plaintiff’s costs of this application which is assessed summarily at HK$65,000. The sum includes $35,000 for counsel’s fee.

19.  As this application is entirely without merit, pursuant to Order 59, rule 2A(8), we further order that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing inter partes.