WU FUNG CHU v. NG PAK WING

HCA 654/2014

[2020] HKCFI 615

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 654 OF 2014

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D E C I S I O N

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A.  INTRODUCTION

1.  The Plaintiff is the undisputed beneficial owner of a half-share in Flat H, 12/F, Tower 2, Tierra Verde, Tsing Yi (“the Property”). The half-share, acquired in the circumstances outlined below, is the subject of a Deed of Trust signed and delivered by the Defendant in the Plaintiff’s favour on 16 May 2003 (“the Deed of Trust”).

2.  On 4 February 2019, Master Kate Li dismissed the Plaintiff’s Order 14 application against the Defendant, based on the Deed of Trust, for an assignment or conveyance of the half-share following the Defendant’s refusal to do so. The Plaintiff now appeals.

3.  The parties agree that this appeal involves a fresh hearing of the summary judgment application. The governing summary judgment principles set out in the parties’ skeleton submissions are undisputed and very well-established. The focal concern is whether the materials before me disclose serious disputes of law or fact that warrant a full trial.

B.  BACKGROUND

4.  The following background matters are largely undisputed.

5.  The Plaintiff’s husband (“Mr Lui”) and the Defendant were secondary schoolmates who remained friends after graduation.

6.  In about 1993, Mr Lui and the Defendant decided to invest in real estate together. They eventually jointly invested in two properties.

7.  The first property was a Cheung Sha Wan industrial unit bought for HK$1,988,000 in 1994 (“the Workshop”). The Workshop’s initial registered owners were Mr Lui and the Defendant’s first wife (“Ms Leung”) as tenants-in-common in equal shares, with Ms Leung’s half-share held on trust for the Defendant. Certain changes to the legal ownership later followed. The details of those changes are presently immaterial, save that the legal title to half-share held by Ms Leung was transferred to the Defendant in October 2000 upon their divorce.

8.  Mr Lui and the Defendant next acquired the Property in 1999 for $3,252,000 as tenants-in-common in equal shares.

9.  In 2002, Mr Lui became embroiled in litigation following a claim brought against him under HCA 1346/2002 (later CACV 283/2003) by his associates in another joint property investment in the Kornhill development (“the Kornhill Litigation”).

10.  It is common ground that, following the onset of the Kornhill Litigation, Mr Lui and the Defendant decided to cease their joint property ownership, and agreed that they would each solely hold either the Workshop or the Property. While the precise reasons for this decision are disputed, it undisputedly resulted in the following arrangements regarding the Property.

11.  On 16 May 2003, the Plaintiff and the Defendant signed a sale and purchase agreement (dated 13 May 2003) in respect of the Property with the Defendant as Vendor and the Plaintiff as Purchaser of the Defendant’s half-share of the Property (“the Agreement”).

12.  Under the Agreement:

(1)  Clause 2 provides that the Defendant shall hold the half-share “in trust for and on behalf of” the Plaintiff by executing a Deed of Trust in her favour.

(2)  Clause 4 states that:

“[The Plaintiff] hereby further confirm undertake and guarantee to return to [the Defendant] for half share of any sum in excess of the price of HK$2,150,000.00 in case of any future sale of [the Property] with the actual selling price over HK$2,150,000.00 after the date of 16^th May 2003”.

13.  The Defendant duly executed the Deed of Trust the same day as the Agreement. The document was prepared by a firm of solicitors. The Defendant accepts that the terms were explained to him by the handling solicitor before execution.

14.  After some opening recitals referring to the Agreement, the Deed of Trust provides that:

“the Trustee DOTH hereby declare that as from the date of the said Agreement the Trustee has held and will henceforth hold and stand possessed of the Property and the rents therefore (if any) UPON TRUST for [the Plaintiff]…and the Trustee DOTH hereby agree that he will at the request costs and expenses of [the Plaintiff] assign transfer or otherwise dispose of the Property to [the Plaintiff] or to such person or persons, company or corporation at such time and in such manner as [the Plaintiff] shall direct or appoint” (“the Assignment Obligation”). (underlining added)

15.  Nearly a decade on from the signing of the Agreement and the Deed of Trust, the Plaintiff through letters from her solicitors dated 23 December 2012 and 3 January 2013 requested that the Defendant transfer the half-share under the Deed of Trust.

16.  The Defendant has since refused any transfer, prompting this litigation.

C.  THE DEFENDANT’S CASE

17.  The Defendant does not dispute that the Plaintiff is prima facie entitled to judgment on the express terms of the Deed of Trust.

18.  However, he seeks unconditional leave to defend by reference to the following alleged matters:

(1)  As pleaded in the Amended Defence and Counterclaim §11, an implied term in the Agreement and/or “common understanding” between Mr Lui and the Defendant that

“within a reasonable time after the completion of the [Kornhill Litigation], the Plaintiff shall cause the Property to be sold at an open market value to be agreed by the Defendant in order to give effect to the Agreement, in particular Clause 4 thereof”,

(“the Implied Term”).

(2)  As pleaded in the Amended Defence and Counterclaim §12, an implied condition in the Agreement that the Plaintiff

“shall only request the Defendant to assign, transfer or dispose of the half share of the Property under his name to her or any such third party as she shall direct or appoint pursuant to the Deed of Trust executed under Clause 2 thereof for the purpose of selling the Property in the open market as required by the Implied Term as well as the Common Understanding”,

(“the Implied Condition”).

(3)  By reason of the Implied Term and the Implied Condition, the Plaintiff “shall not request the Defendant to assign, transfer or dispose of the half share of the Property under his name to her…other than for the purpose of selling the Property in open market in compliance with the Implied Term”: Amended Defence and Counterclaim §17, §21A.

19.  The Defendant has also faintly suggested a “defence of misrepresentation” (Defendant’s Skeleton §30.4.3), based on the claims that:

(1)  In his dealings with the Defendant leading to the Agreement and the Deed of Trust, Mr Lui had represented to the Defendant an “intention to further sell the Property” (Defendant’s Skeleton §30.4.1).

(2)  But for Mr Lui’s alleged representation of intent, the Defendant would not have executed the Agreement or the Deed of Trust.

20.  Any such defence sits uneasily with the Defendant’s own pleaded case:

(1)  The pleading at its highest suggests that the sale of the Property on the open market by the Plaintiff “within a reasonable time after the completion of [the Kornhill Litigation]” was a matter of either an implied term of the Agreement (see §18 above) and/or “common understanding between [Mr Lui] and the Defendant”: Amended Defence and Counterclaim §11.

(2)  Mr Lui has never been a party to the Agreement and it is not alleged that he acted as the Defendant’s agent in that regard.

(3)  The Defendant’s entire counterclaim against the Plaintiff is premised, without qualification, on the subsisting validity of the Agreement and/or the Deed of Trust: see Amended Defence and Counterclaim §§35-36.

(4)  As recognised at §11 of the Amended Defence and Counterclaim, Clause 4 of the Agreement expressly refers to a sale of the Property only in tentative and contingent terms (“…any sum…in case of any future sale of [the Property]” …). This is, on its face, inconsistent with any actionable representation to the effect that the Property would be sold within the foreseeable future.

21.  Perhaps in view of these difficulties, there was scarce mention of any possible misrepresentation defence by counsel for the Defendant, who focused his submissions on the Implied Term and the Implied Condition.  It is clear that no credible misrepresentation-based defence has been shown.

22.  Any defence resting on the alleged “common understanding” pleaded in the Amended Defence and Counterclaim (see in particular §11 and §12) is likewise untenable. On the Defendant’s own case, the alleged common understanding was between himself and Mr Lui, rather than the Plaintiff.

23.  The discussion below will therefore focus on the Defendant’s case on implied terms within the Agreement and their effect, if any, on the enforceability of the Deed of Trust.

D.  APPLICABLE PRINCIPLES

D1.  Interpretation of terms in a deed

24.  The Plaintiff relies on the undisputed general principle that extrinsic circumstances are inadmissible for the purposes of adding to, contradicting, varying or altering the terms of a deed of trust.

25.  As summarised in Lewin on Trusts (19^th edn.) at §6-005:

“The intention that the court seeks is the intention as expressed, that is, the way in which the document is to be understood, not the purpose or motive, desire or other subjective state of mind of the settlor. The reason for the rule is that otherwise no lawyer would be safe in advising on the construction of a written instrument, nor any party in taking under it. The traditional formulation of the parol evidence rule is that no evidence of extrinsic circumstances is admissible to add to, contradict, vary or alter the terms of a deed or other written instrument. This is to be understood, however, not as excluding parol evidence of the surrounding circumstances to explain the objective meaning of a settlement or evidence to show what the words mean, but forbidding evidence called to show that the subjective intention of the settlor was different from what the settlement itself expresses. If the settlement does not express the true intention of the settlor, it may be possible to alter it in rectification proceedings, but that is rectification, not construction.”

26.  Fox LJ’s observations in Rabin v Gerson Berger Association Ltd [1986] WLR 526, 534G are also apposite:

“Of course, if a document is drafted in terms which are contrary to the settlor’s directions, it may be rectified, but no question of rectification arises in the present case at all. It is admitted that the document was drawn in the intended form; what the settlor wishes to escape from is the legal effect of the words which were chosen deliberately. I should observe at this point that the rule against extrinsic evidence seems to me in no way a technicality. A person should be able, as far as possible, to rely upon written documents as representing the true intentions of the parties to them ...”

D2.  Implication of contractual terms

27.  The Defendant has cited several well-established principles on implied contractual terms.

28.  As the Court of Final Appeal affirmed in Kensland Realty v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §23, to be properly implied, a term must comply with the following (potentially overlapping) conditions identified by Lord Simon of Glaisdale for the majority of the Privy Council in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at p.26:

(1)  It must be reasonable and equitable.

(2)  It must be necessary to give business efficacy to the contract.

(3)  It must be so obvious that it “goes without saying”.

(4)  It must be capable of clear expression.

(5)  It must not contradict any express term of the contract.

29.  More recently, in Marks and Spencer pls v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742, Lord Neuberger of Abbotsbury PSC characterised the type of term alleged in the present case as one that is implied “into a particular contract, in the light of the express terms, commercial common sense, and the facts known to both parties at the time the contract was made” (§15).

30.  At §21 of his judgment in Marks and Spencer, Lord Neuberger added the following six comments on the conditions summarised by Lord Simon in the BP Refinery case:

(1)  “First…the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting”.

(2)  “Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term”.

(3)  “However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable”.

(4)  “Fourthly…although Lord Simon’s requirements are otherwise cumulative…business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied”.

(5)  “Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed…with the utmost care’”.

(6)  “Sixthly, necessity for business efficacy involves a value judgment...the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

E.  TRIABLE DEFENCE?

31.  Assessing all the materials and submissions put forward by the Defendant in the light of the above principles, I see no tenable defence to the Plaintiff’s claim.

32.  As earlier noted, the Defendant’s purported defence to the Plaintiff’s claim for relief rests on the alleged Implied Term and Implied Condition. But even assuming for discussion that these provisions can be shown, they cannot suffice to defeat the Plaintiff’s claim:

(1)  The Plaintiff’s claim rests on the terms of the Deed of Trust, and in particular the Assignment Obligation.

(2)  Yet on the Defendant’s own case, the Implied Term and Implied Condition are merely terms within the Agreement.

(3)  Accordingly, the alleged terms have – at most – the effect of contractually obliging the Plaintiff to:

(a)  Sell the Property at a price to be agreed by the Defendant within a reasonable time after completion of the Kornhill Litigation (per the Implied Term).

(b)  Only request the Defendant to transfer the legal title pursuant to the Deed of Trust for the purpose of selling the Property (per the Implied Condition).

(4)  In the case of any alleged breach of the Implied Term or the Implied Condition, the Defendant may potentially have a claim against the Plaintiff for remedies for breach of the Agreement. That indeed is what the Defendant primarily pursues in his counterclaim (Amended Defence and Counterclaim §35, which is not specifically put forward by the Defendant as a ground of opposition to the present summary judgment application).

(5)  However there is nothing in the Deed of Trust that makes the Assignment Obligation subject to the terms of the Agreement. In contrast to his pleaded case on the alleged implied terms of the Agreement, the Defendant does not claim that the Deed of Trust, properly construed, is itself intended to be subject to any terms outside of the instrument. The Defendant moreover does not contend for any implied provisions akin to the Implied Term or the Implied Condition within the Deed of Trust itself. In my assessment, any such contention would be unviable in view of the principles summarised in Section D1 above.

(6)  In my view the terms of the Deed of Trust are perfectly clear: they admit of no qualification to the Assignment Obligation by reference to any sale of the Property to a third party as a pre-condition of the assignment.

33.  In any event, the Defendant’s underlying case on the Implied Term and the Implied Condition is in my view unsustainable.

34.  There is no discernible reason why the alleged Implied Term, which on the Defendant’s case compels the Plaintiff to sell the Property within a reasonable time, is necessary to “give effect to the Agreement, in particular Clause 4” (Amended Defence and Counterclaim §11).

35.  The Defendant fails to demonstrate why the Agreement would lack business efficacy without such a provision. Whatever the respective parties’ background reasons, or their broader personal objectives as for entering into the Agreement, it is undisputed that the Agreement is itself a contract for the sale of the half-share in the Property by the Defendant to the Plaintiff. There is reason why that sale of the half-share would depend for its efficacy upon the Plaintiff effectively undertaking an onward sale of the entire Property, to some undetermined third party, at any particular point in the future. Nor is it reasonably arguable that, without such a term, the contract would necessarily lack commercial or practical coherence (c.f. Lord Sumption’s formulation cited by Lord Neuberger at §21 of Marks and Spencer).

36.  Indeed the express wording of Clause 4, which refers in open-ended terms to “any future sale” of the Property, contradicts the existence of any such implied requirement – or at any rate “lies uneasily beside” it, (c.f. Bingham MR’s phrase cited by Lord Neuberger at §20 of Marks and Spencer). It bears emphasis that it has been no part of the Defendant’s case that Clause 4 itself, properly construed, mandates a future sale of the Property within any particular time or at all.

37.  There is also no sound basis for contending that the Implied Term is “so obvious as to go without saying”. Besides the absence of any circumstantial reasons that might objectively support such a contention, the existence of such a term was evidently far from obvious to the Defendant and his own (then) solicitors when they responded to the Plaintiff on her request for an assignment of the half-share under the Deed of Trust. No mention of any implied provisions of the Agreement appears in the relevant correspondence. Instead:

(1)  A letter dated 7 January 2013 from Messrs. Yeung & Chan on behalf of the Defendant cites only the express agreement of the Plaintiff (under Clause 4 of the Agreement) to pay the Defendant “half share of any sum in excess of the price of HK$2,150,000 in the event of any sale of the property…”, together with a request for confirmation (in the light of Clause 4) whether the Plaintiff had entered into any sale and purchase agreement in respect of the Property.

(2)  In their letter of 29 June 2013 to the Plaintiff’s solicitors, Messrs. Yeung & Chan confirmed the Defendant’s instruction “that he shall have no objection to assign and/or transfer the one half share of the property to your client in order to discharge his duty”. They stated that “our client sincerely hopes that [the Plaintiff] would also respect the [Agreement] and to honour her commitment to our client”. On that basis, it was then merely “suggested” that “a special covenant be incorporated in the Assignment to the effect that [the Plaintiff] shall pay to our client half share of any sum in excess of HK$2,150,000.00 in the event of the sale of the property”. On its own terms, this covenant was (a) proposed only relation to the Deed of Trust, rather than the Agreement; and (b) in any case went no further in substance than Clause 4 of the Agreement in providing a form of price-balancing mechanism “in the event of” the sale of the Property.

38.  For similar reasons, the Defendant’s case on the Implied Condition is also untenable. In particular, the restriction alleged under the Implied Condition is neither “goes without saying” obvious nor necessary for the efficacy or commercial and practical coherence of the Agreement.

39.  In reaching these conclusions, I have considered the Defendant’s detailed factual allegations as to the background events and respective motivations of the parties leading to the formation of the Agreement and execution of the Deed of Trust, including but not limited to the alleged desperation of Mr Lui to liquidate his assets in the face of the Kornhill Litigation.

40.  In my view, even if the Defendant’s elaborate factual narrative were accepted, there is nothing in it that would sustain a legal defence to the Plaintiff’s claim based on her entitlement under the Deed of Trust. The problems identified above would remain.

F.  CONCLUSION

41.  For the reasons above, the Plaintiff has a clear case against the Defendant based on the express terms of the Deed of Trust. The Defendant is unable to demonstrate triable issues or any other good reason for withholding judgment against him.

42.  I will therefore allow the Plaintiff’s appeal and grant an order in terms of the Plaintiff’s Summons dated 28 September 2018, encompassing the costs of the action and the present application including the costs of the hearing below, together with a certificate for counsel.

43.  I thank counsel for their assistance in this matter.