LAU CHUN KAM v. LAI TAK SHING

HCA 2126/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2126 OF 2007

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J U D G M E N T

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THE APPLICATION BEFORE THE COURT

1.  Before the court is the Summons taken out by the Plaintiff on 21 December 2007 under Order 14 for summary judgment on his claim against the Defendant for the following relief:

(1)  a declaration that the Defendant is holding, as trustee for and on behalf of the Plaintiff, the 1^st Floor (“the 1^st Floor”) of the three-storey village house (“the House”) erected on Lot No.752 in Demarcation District No.436 (“the Land”);

(2)  a mandatory injunction that the Defendant do redeem or cause to be redeemed at his own costs the Legal Charge (“the Charge”) dated 1 June 2004 and registered at the Land Registry by Memorial No.TW1583234 against the Land and the House;

(3)  an order that the Defendant do enter into and execute a deed of mutual covenant with the Plaintiff to define their respective rights and obligations of and in the Land and the House;

(4)  an order that the Defendant do by way of assignment convey the 1^st Floor to the Plaintiff free from encumbrances;

(5)  so far as is necessary, an order that the Registrar of the High Court do execute such deed of mutual covenant and assignment under s.25A of the High Court Ordinance, Cap.4;

(6)  an order that the Defendant do pay the Plaintiff, with interest, the sum of $47,791 being the costs and expenses of the additional decoration and variation work done by the Plaintiff to the Ground and 2^nd Floors of the House;

(7)  damages for breach of the agreement dated 12 June 2003 between the Plaintiff and the Defendant (“the Agreement”), to be assessed;

(8)  a declaration that the Plaintiff is entitled to a lien on the Land and the House for all costs and expenses incurred by the Plaintiff in and about the construction of the House including additional expenses;

(9)  a declaration that the Defendant has at all material times been holding the Land and the House on trust for the Plaintiff to the extent of the aforesaid lien; and

(10)  costs of this action.

2.  By paragraph 18 of his Skeleton Argument, Mr Anthony P.W. Cheung, Counsel for the Plaintiff, abandoned the claim for declarations in the terms set out in paragraphs 1(8) and (9) above.

EVENTS FROM WHICH THE PLAINTIFF’S CLAIM AROSE

3.  It is not in dispute that:

(1)  On 26 April 2002, the Defendant in his capacity as the sole executor of the estate of Lai Chee Mau alias Lai Chi Mau, deceased was granted the Land under New Grant No.7170.

(2)  On 7 August 2002, 10 and 18 February 2003, Affluent Construction Company Limited (“Affluent”), a company of which the Plaintiff is and was at all material times a director, and the Defendant entered into 3 agreements (“the Prior Agreements”) whereby Affluent agreed to construct the House at the total costs of $1,215,000 payable by the Defendant to Affluent by stages as the construction progressed.  In arriving at the said amount of $1,215,000, the 2^nd and 3^rd items of work under the second Prior Agreement dated 10 February 2003, each for a sum of $8,000, were expressly stated to have been included in the first Prior Agreement dated 7 August 2002 which was for a total sum of $1.2 million.  And the work provided for by the third Prior Agreement dated 18 February 2003 was likewise expressly stated to have been included in the first Prior Agreement.  In short, only 1 item worth $15,000 was added by the second and third Prior Agreements.   

(3)  Shortly after the making of the Prior Agreements, the Defendant came under financial difficulties as a result of which the Plaintiff (in his personal capacity) and the Defendant entered into the Agreement.

(4)  The Agreement, written in Chinese and entitled “合作協議”, reads as follows:

“甲方:   黎德成先生

乙方:   柳振錦先生

合作協議地點:   青衣青衣墟村D.D.436, LOT NO. 752 (以下簡稱 “該地段”)

雙方同意如下:

(1)  甲方向乙方聲明及保證，在該地段位置，葵青地政署及有關部門批出小型屋宇建屋批准書。

(2)  甲方承諾將該地段二樓(1/F.,)一層於發出滿意紙，律師樓造分層契時，轉名予乙方或其代理人，甲方絕不收取任何費用。

(3)  乙方同意負責支付8-8-2002 甲乙雙方簽署之建屋合約內容之全數費用。  10-2-2003 日協議書內容渠務圖則費，平面、外型圖則設計費，申請建屋顧問費，18-2-2003日協議書內容專業人士監督工程費。該地段交由乙方負責興建。

(4)  甲乙雙方各自負責擁有樓層之水電按金及後加更改費。其他駁渠費及駁喉費用均由甲方負責支付。

(5)  甲方負責支付該地段補地價費用 (如需要)。

(6)  甲方承諾若該地段二樓 (1/F.,) 一層未能轉名予乙方，甲方需在一個月內支付建築費、什費港幣壹佰伍拾萬元正予乙方以作賠償。

(7)  轉名時乙方有權要求甲方轉名予乙方公司或其指定之公司人士，乙方可將本協議之權益轉讓第三者，惟有關之合約內容(金額除外)，均需與本協議相同及沒有抵觸，甲方亦承諾確保此協議如期進行。

(8)  甲乙雙方各自負責支付此項合作協議合同之律師費用。其他分層契、轉名契、律師費、稅務費用均由甲方負責支付。

(9)  該小型屋宇如未能發出全部開工紙，本協議即作廢。雙方不需就本協議內容負責。

(10)   甲乙雙方均同意遵守以上各項條款、內容及細則，如有不遵守，便當毀約論，受損一方可向另一方追討一切賠償及損失。

本合作協議共為兩頁，內容十項。”

(5)  The construction of the House commenced in July 2003. 

(6)  It was completed at the Plaintiff’s costs in either February or April 2004 (the precise date being irrelevant). 

(7)  A Certificate of Compliance (“the Certificate”) was issued by the District Lands Office (Tsuen Wan and Kwai Tsing) on 7 April 2004.

(8)  In about May 2004, the Plaintiff and his family moved into the 1^st Floor and have since been occupying such premises free of rent and licence fee. 

(9)  The Defendant and his family have been occupying the 2^nd Floor of the House also since about May 2004.

(10)  By an Assent dated 1 June 2004 and registered in the Land Registry by Memorial No.TW1583233, the Defendant in his said capacity as executor assented the Land and the House to himself as beneficial owner.  That is to say, the Defendant has since about 1 June 2004 been the registered owner of the Land and the House.

(11)  By the Charge (also dated 1 June 2004), the Defendant mortgaged the Land and the House to GE Capital (Hong Kong) Limited to secure “general credit facilities”.

(12)  The Defendant has neither assigned the 1^st Floor to the Plaintiff nor paid him $1.5 million.

4.  On 9 October 2007, the Plaintiff commenced this action.  Apart from the relief sought in the Order 14 Summons, the Plaintiff also claims as an alternative (1) the sum of HK$1.5 million under Clause (6) of the Agreement and (2) a sum of HK$222,662 being the additional costs and expenses that the Plaintiff had incurred in the construction of the House.  The latter sum is made up of the said sum of $47,791 and a sum of $174,871 said to be the costs of the additional decoration and variation work done by the Plaintiff to the 1^st Floor.

CLAIM FOR COSTS OF ADDITIONAL AND VARIATION WORK TO THE GROUND AND 2^ND FLOORS

5.  The Defendant’s Affirmation in opposition does not respond to the Plaintiff’s claim for the sum of $47,791 at all.  All I have by way of evidence from the Defendant is paragraph 3 of his Affirmation in opposition dated 16 January 2008 which contains a general non-admission in these terms:

“There are a lot of matters in the Plaintiff’s Affirmation which are untrue.  I have however been advised that not all matters as stated thereof are relevant for the application for summary judgment which require me to rebut.  Therefore the fact that I do not deal with some of the matters in the Plaintiff’s Affirmation should not be taken as my admission of the same.”

6.  On pleading, the Defendant

(1)  denies that he had requested the Plaintiff to carry out any additional work in the construction of the House;

(2)  denies that the Defendant had carried out any such additional work;

(3)  avers that the alleged additional work, if done, was part and parcel of the construction work agreed to be undertaken by the Plaintiff pursuant to Clause (3) of the Agreement.

7.  Although the defendant may show cause by “affidavit or otherwise” such as by service of a defence, in practice, an affidavit will generally be required from the defendant save in exceptional and obvious cases: Hong Kong Civil Procedure 2009, Volume 1, §14/4/3.

8.  On the other hand, the Plaintiff’s case on this claim is not at all satisfactory:

(1)  By Clause (3) of the Agreement, the Plaintiff undertook to discharge for the Defendant only the amounts payable by the Defendant to Affluent under the Prior Agreements.   

(2)  This claim is premised upon the Plaintiff having paid for work to the House (other than the 1^st Floor for which the Plaintiff was solely responsible under Clause (4) of the Agreement) not provided for in the Prior Agreements.

(3)  Neither the Amended Statement of Claim nor the Plaintiff’s Affirmations in support of this application give any particulars of such work.

(4)  The only document produced by the Plaintiff in support of this claim is what appears to be an invoice dated 28 September 2003 to the Defendant on Affluent’s letterhead.  This document is not without problems:

(A)  Though dated 28 September 2003, on the Plaintiff’s own case, this invoice was not presented by the Plaintiff to the Defendant until after the completion of the construction of the House which, according to the Plaintiff, was in about February 2004. 

(B)  It listed 85 items of work.  Two (items 8 and 16) were expressly said to be have been done in respect of the 1^st Floor. 

(C)  Contrary to the submission made by Mr Cheung in paragraph 17 of his Skeleton Argument, one cannot, at least not without some detailed explanation which has not been given, sensibly compare the 83 items of work enumerated in this invoice as having been done to the Ground and 2^nd Floors of the House with the lists of work contained in the Prior Agreements. 

(D)  More importantly, the 83 sums charged by this invoice for work done to the Ground and 2^nd Floors add up to $349,302.  It is not clear what the sum of $47,791 now claimed by the Plaintiff comprises.

9.  Given that Order 14 is for clear cases only, I give the Defendant unconditional leave to defend the Plaintiff’s claim for the sum of $47,791.

CLAIM TO THE 1^ST FLOOR

The defence

10.  In defence to the Plaintiff’s claim to the 1^st Floor, on pleading, the Defendant avers that:

(1)  On a fair and proper construction, the Agreement gave the Defendant the option to either assign the 1^st Floor to the Plaintiff or pay the Plaintiff $1.5 million (“the Alleged Option”).

(2)  The Defendant opted to pay the Plaintiff $1.5 million.  The Plaintiff was informed of and accepted the Defendant’s election to pay him $1.5 million on a date in about April 2004 upon the completion of the construction of the House.

(3)  Upon the issuance of the Certificate, due to lack of funds on the part of the Defendant, the parties entered into an oral agreement (“the Alleged Subsequent Agreement”) whereby it was agreed that the Defendant would allow the Plaintiff to reside at the 1^st Floor free of rent and licence fee until such time when the Defendant was able to pay the Plaintiff $1.5 million.

(4)  The Plaintiff and his family moved into the 1^st Floor in about May 2004 and have since been occupying such premises without having to pay the Defendant anything only pursuant to the Alleged Subsequent Agreement. 

(5)  The Defendant is therefore not obliged to assign the 1^st Floor to the Plaintiff.

11.  By his Affirmation in opposition, the Defendant elaborates on the circumstances leading to the conclusion of the Agreement and the Alleged Subsequent Agreement:

(1)  Sometime after the signing of the third Prior Agreement dated 18 February 2003, the Defendant asked the Plaintiff for a loan to cover the costs of construction of the House payable by the Defendant to Affluent under the Prior Agreements. 

(2)  The Plaintiff agreed to make the advance in his personal capacity but asked for security and suggested that the Defendant would have to assign the 1^st Floor to the Plaintiff if the Defendant was unable to repay the Plaintiff the construction costs which should for that purpose be fixed at $1.5 million. 

(3)  The Defendant agreed but stressed to the Plaintiff that he would have the option to decide whether he would assign the 1^st Floor to the Plaintiff or pay him $1.5 million upon completion of the construction of the House.

(4)  This was the agreement which the Plaintiff was asked to reduce into writing. 

(5)  The Agreement was drafted by the Plaintiff. 

(6)  When the Defendant asked the Plaintiff to spell out in Clause (6) his right to refuse to assign the 1^st Floor to the Plaintiff, the Plaintiff assured the Defendant that Clause (6) as drafted clearly provided that the Defendant could choose to pay the Plaintiff $1.5 million instead of assigning the 1^st Floor to him and that Clause (6) granted an option to the Defendant.

(7)  The Defendant continued to experience financial difficulty after the completion of the construction of the House.  He realized that if he did not immediately pay the Plaintiff $1.5 million, he would need to assign the 1^st Floor to the Plaintiff.  The Defendant did not want to do so.  The parties further negotiated.  The Plaintiff initially agreed to give the Defendant a few months’ time to pay him $1.5 million but later asked for security and suggested that the Defendant should allow him to move into and live at the 1^st Floor rent free until the Defendant was able to pay him $1.5 million.  The rent saved by the Plaintiff would be interest for late payment by the Defendant.  The Defendant agreed and let the Plaintiff move into the 1^st Floor in about May 2004.

Relevant principles

12.

(1)  The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary. 

(2)  The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend. 

(3)  The burden is on the defendant to show a real or bona fide defence or some other reason for a trial.  The defendant must satisfy the Court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4)  In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the Court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible.  Rather, the Court must look at the whole situation.  

(5)  In assessing the credibility of the defendant’s factual case, while the Court will not embark upon a mini-trial on affidavit evidence, the Court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.

(6)  If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(7)  If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

See Hong Kong Civil Procedure 2009, Volume 1, §14/4/1; National Westminster Bank plc v Daniel [1993] 1 WLR 1453, per Glidewell J at 1457; Re Safe Rich Industries Ltd, Civ App 81/1994, unrep., 3 November 1994, per Bokhary JA at p.5; Manciple Ltd v Chan On Man [1995] 2 HKC 459, per Mortimer JA at 466 and Microsoft Corporation v Electro-Wide Ltd [1997] FSR 580, per Laddie J at 593.

Analysis

13.  I disagree with the Defendant that the Agreement, as it stands, can be properly construed as giving the Defendant the Alleged Option.  In my view, Clause (6) of the Agreement provides to the Defendant an alternative mode of performance by paying the Plaintiff $1.5 million only in the event of incapability, as opposed to mere unwillingness, on the part of the Defendant to assign the 1^st Floor to the Plaintiff.  The meaning of the words “未能”Clause (6) is, to my mind, clear. 

14.  However, the Defendant’s evidence as summarized in paragraph 11 above regarding the discussions between the parties prior to the signing of the Agreement, in particular, the agreement that the Defendant should have the Alleged Option and the Plaintiff’s assurance that Clause (6) contained such an option, if believed, may found a claim for rectification of Clause (6) under the doctrine of A Roberts & Co Ltd v Leicestershire County Council [1961] Ch 555.  See also Citilite Properties Ltd v Innovative Development Co Ltd [1997] HKLRD 311, per Le Pichon J at 319F-I.   

15.  At this stage, in the context of an application for summary judgment, the questions for the Court are whether such evidence by the Defendant is capable of belief and if so, whether on the basis of such evidence there is a fair or reasonable probability of the Defendant having a real or bona fide defence.

16.  Following the approach set out in paragraphs 12(5) and (6) above, I am unable to answer the first question in the affirmative and the second question does not arise for consideration.

17.  The reasons why I find the Defendant’s evidence incredible are as follows: 

(1)  First, the Agreement was a short document written in Chinese, a language which, apparently, the Defendant can read and understand.  Clause (6) is clear and unambiguous.  It is difficult to see any room for the Defendant to think that it embodies the Alleged Option.

(2)  Second, the parties have treated the 1^st Floor and the other floors of the House as being in the separate ownership of the Plaintiff and the Defendant respectively.  In this regard,

(A)  Clause (4) provides for the parties to be responsible for the deposits for the supply of water and electricity to the floors they respectively own (which in the case of the Plaintiff must be a reference to the 1^st Floor).  It also provides for the parties to be responsible for paying for the additional and variation work to the floors they respectively own (which in the case of the Plaintiff must again be a reference to the 1^st Floor).  There is no suggestion that Clause (4) does not accurately reflect the agreement between the parties.

(B)  The 3 floors of the House initially shared the same layout and design.  As evidenced by the revised plans submitted under a letter dated 10 October 2003 from Affluent to the District Lands Office (Tsuen Wan & Kwai Tsing), the layout and design of the 1^st Floor was subsequently changed by the Plaintiff, following advice from a feng shui master as to what would best suit him and his family. 

The design of the 1^st Floor to the Plaintiff’s particular feng shui requirements and the assumption by the Plaintiff of the liabilities for the utility deposits and the costs of additional and variation work attributable to the 1^st Floor appear to me to be inconsistent with the Defendant having an option to retain the 1^st Floor.

(3)  Third, the suggestion that a creditor owed $1.5 million would agree to an open-ended extension of time until such time when the debtor has the means to make repayment sounds to me to be implausible, even in return for the payment of “interest’.

(4)  Fourth, paragraphs 11 and 14 of the Plaintiff’s first Affirmation in support dated 19 December 2007 read as follows:

“11.   … In about May 2004, the Defendant informed me that the Certificate of Compliance (“the Certificate”) had been issued by the DLOKT.  He said that in order to instruct his solicitors to prepare the Deed of Mutual Covenant (“the Deed”) whereby the building erected on the Lot would be divided into 3 shares to be respectively allocated to the Ground Floor, 1^st Floor and 2^nd Floor of the building (“the Property”), he needed to obtain a set of Floor Plans prepared by an Authorized Person (“the Assignment Plans”).  As the costs of the Assignment Plans were not included in the Final Agreement as part of the building costs payable by me, the Defendant would have to pay for these costs.  However he said he had no money and requested me to obtain the Assignment Plans on his behalf and on his account.  There are now produced and shown to me marked “LCK-9” copies of the Assignment Plans prepared by Poon Wood Keung, Authorized Person and the invoice dated 28^th February 2005 issued to me and settled by me on 9^th May 2005. …”

“14.  When I obtained the Assignment Plans from the Authorized Person in about early March 2005, I gave the same to the Defendant to enable him to instruct his solicitors to prepare the Deed. …”

The facts that the Plaintiff had at the request of the Defendant procured and paid for the making of a set of “assignment plans” which were then passed to the Defendant for the preparation of a deed of mutual covenant many months after the completion of the construction of the House are clearly relevant to the Plaintiff’s claim to the 1^st Floor as they are inconsistent with the Defendant having an option to retain the 1^st Floor and having exercised such option.  The Defendant has not dealt with these paragraphs of the Plaintiff’s first Affirmation in support at all. 

18. For these reasons, I declare that the Defendant is holding the 1^st Floor as trustee for and on behalf of the Plaintiff and order

(1)  that the Defendant do redeem or cause to be redeemed at his own costs the Charge against the 1^st Floor;

(2)  that the Plaintiff and the Defendant do enter into and execute a deed of mutual covenant to define their respective rights and obligations of and in the Land and the House, to be settled by the Court if not agreed between the parties;

(3)  that the Defendant do assign the 1^st Floor to the Plaintiff free from encumbrances;

(4)  that the Defendant do pay the Plaintiff damages for breach of the Agreement to assign the 1^st Floor to the Plaintiff (if any) to be assessed.

I also give liberty to apply.

19.  It is to be noted that the Charge is required to be discharged in respect of the 1^st Floor only.  There is no reason why the Defendant cannot encumber other parts of the House.

20.  The application under s.25A of the High Court Ordinance is premature.  The Court’s power under s.25A is exercisable only upon the party ordered to execute a document neglecting or refusing to comply with the judgment or order or not being found after reasonable inquiry.

COSTS

21.  Although I have given the Defendant unconditional leave to defend the claim for $47,791, the Plaintiff, having succeeded in the more substantial claim to the 1^st Floor, should have the costs of the action to date, including the costs of this application, to be taxed if not agreed.  And I make an order nisi to such effect.