ASGAIN CO LTD v. CHENG KA YAN

DCCJ 81/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 81 OF 2014

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J U D G M E N T

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1. The Plaintiff is a company incorporated in Hong Kong. It took out this claim as vendor for outstanding payment arising from the sale and purchase (“the Transaction”) of an industrial unit at Workshop 6 of 8^th Floor, Shiu Fat Industrial Building, No. 139 & 141 Wai Yip Street, Kwun Tong, Kowloon, Hong Kong (“the Workshop”). It says that the Defendant had not made full payment for the Transaction. The Defence is that first, as a matter of fact, $750,000 being payment for purchase price had been fully paid to the Plaintiff. Further or alternatively, the Plaintiff is estopped from making any claim because of the receipt clauses (collectively called the “Receipt Clauses”) set out in the Memorandum of Agreement for Sale and Purchase (“the Memorandum”) and an assignment dated 31 January 2011 (“the Assignment”) for the Transaction.

Background to the Transaction

2. The non-controversial facts on the background are these.  In 1992 when Cheng Koon Ming (“Ming”) was holding the Plaintiff’s shares with two other persons whose identities are unimportant in these proceedings, 4 industrial units including the Workshop and its neighbouring workshops number 5, 6, 7 of 8^th Floor were acquired in the name of the Plaintiff.  After some transfer of shares in the years that followed Ming became the sole shareholder of Plaintiff.  The Workshop is the only property relevant in these proceedings.  It is to be noted that since its acquisition back in 1992, the Workshop had been leased to the company of Mr Cheng Koon Hoi (“Hoi”), elder brother of Ming, to conduct his school uniform trading business.

3. People involved in the present proceedings are relatives.  Hoi is not only brother of Ming but also father of Cheng Yuk Nam (“Nam”) and the Defendant.  In other word, the Defendant is the niece of Ming. Nam at the time of the Transaction was the other director of the Plaintiff.

4. In about 2007 it was decided that the Plaintiff’s assets including all the workshops were to be sold.  After selling 3 workshops in March 2007 and in July 2009, the Workshop was the only one remaining.

5. On or about 30 August2010, the Memorandum was executed between the Plaintiff, as the vendor, and the Defendant and Ming, as the purchasers.  Under the Memorandum, the total purchase price of the Workshop was $1,500,000.  Subsequently, on or about 31 January 2011, the relevant parties executed the Assignment.  As a result, the Defendant has thereby become one of the registered owners of the Workshop and is holding 50%  share as tenant-in-common with Ming.

6. On the same day the Assignment was executed, the Defendant got a mortgage loan secured by the Workshop from China Construction Bank (Asia) Corporation Limited (“CCB”) for $750,000 (“the Mortgage Loan”).  The mortgage deed was executed by CCBCL as the lender; the Defendant as the borrower, and Ming and the Defendant as mortgagors.  The Mortgage provided that:-

(1)	The Defendant’s share of the interest of the Workshop was subject to the mortgage;
(2)	Ming’s share of the interest of the Workshop was also subject to the mortgage; and
(3)	Ming and the Defendant jointly and severally covenanted with CCB to repay the facility arranged by CCB.

The said $750,000 was drawn down and transferred to the Defendant’s personal account directly on 31 January 2011.

The Issues

7. Notwithstanding the Receipt Clauses, Ming said that the Defendant had in fact not paid in full.  On behalf of the Plaintiff he asked that judgment be entered for the Defendant to pay the balance of the purchase price in the sum of $683,000.  As mentioned, the Defendant said that payment had been made in full or alternatively, the Plaintiff is estopped from making any claim under common law and s.18(1) of the Conveyancing and Property Ordinance (“s.18(1)”).

8. The issues for trial are therefore:-

(1) Whether purchase price had been paid in full by the Defendant; and

(2) Whether the Plaintiff is now estopped from making any claim.

Whether Purchase Price had been Paid in Full to Plaintiff

Incidents Leading to the Transaction

9. Parties could not agree on facts leading to the Transaction.  The Plaintiff’s case is that after the sale of the 3 workshops, Hoi approached Ming and indicated his desire to acquire the Workshop from the Plaintiff so that he could continue his business thereat.  After some discussion Hoi decided to buy 50% of the Workshop which was what he could afford to buy at that time.  Finally, in or about April 2010, Ming, on behalf of the Plaintiff, agreed to sell 50% share of the Workshop to Hoi at the price of $750,000.

10. The Defendant’s case is that Ming approached the Defendant and suggested that she should buy half the Workshop for her father to continue his business to show her love to him.  The Transaction had therefore been kept from her father, Hoi, until after the Assignment had been signed.

Arrangement of Payment between the Parties

11. Again, this is hotly disputed by parties.  According to Ming, Hoi proposed that the Workshop was to be held under the name of the Defendant on Hoi’s behalf.  Reason given by Hoi was that since the Defendant, his daughter, had a steady job with the Shanghai Commercial Bank and would thus it would be likely for her to obtain a mortgage loan on better terms if a mortgage was secured therefrom.  Ming accepted this proposed arrangement.  Further, it had been agreed between Ming and Hoi that payment of the purchase price would be made after the mortgage loan was drawn down.  Further according to Ming, the Memorandum was signed to facilitate the Defendant to obtain a mortgage loan as there had to be a document to prove that the Transaction was to be materialized.

12. The Defendant’s case is that she alone borrowed from a maternal uncle, Mr Wu, to pay off the purchase price before the Mortgage Loan was drawn down.  The purchase price was paid to Ming in person and in cash by 6 installments.  Part had been paid prior to the signing of the Memorandum and the balance was fully paid eventually before the signing of the Assignment.  She said she owed the Plaintiff nothing.

Discussion on what had Led to the Transaction and Payment Arrangement

13. As to what had led to the transaction, I find Ming’s account on the incidents more probable.  It was logical.  He could have sold all 4 workshops to outsiders.  I accept Ming’s saying that he agreed to assign half of the interest in the Workshop to Hoi upon Hoi’s request. I am of the view that the request made by Hoi was also logical and probable.  It would allow Hoi’s business to stay in the same place where it had been using for more than 15 years.  I accept Ming’s saying that because Hoi could not afford to buy the whole of the Workshop he agreed on behalf of the Plaintiff to sell half.  The fact that he had asked Nam to become a director of the Plaintiff could also prove that Ming had trusted Hoi’s family and both sides had been on good terms at that time.  On this basis he acceded to the request of Hoi, his brother.

14. On the other hand I find the Defendant’s evidence in this regard unbelievable.  I do not accept that Ming would have suggested to her that she should buy half share of the Workshop to show her love for her father.  This is too much of a gift to the father from a fresh graduate with no assets.  The repayment for the Mortgage Loan was about $5,000 per month when the Defendant was making slightly less than $10,000 per month at the material time.  Her saying that Ming had suggested to her that she should borrow from relatives to pay him before the Mortgage Loan was drawn down is unbelievable.  This account of event did not sound right especially when the Defendant said she was asked by Ming not to tell her father about this plan.  I am of the view that even if it was the idea of Ming that the Defendant should buy half of the Workshop for Hoi, there was no reason for her to keep the Transaction from Hoi until after the Assignment was executed just to give him a pleasant surprise.  The Defendant could not explain how she had planned to repay the Mortgage Loan for 10 odd years.  I do not believe that Ming would have suggested to his niece to undertake commitment without knowing that she would have sufficient means to do so at that time.

15. When the Defendant was being cross-examined, she gave an impression to this court that she had paid not much attention to the interest rate and monthly installments.  She did not get it right on the number of years she had to pay the Mortgage Loan.  This is inconsistent to an educated person working in a bank unless it would not be her burden to repay the same.

16. Further I do not accept her saying that Ming had suggested that he should be paid before the Mortgage Loan was drawn down as he was in need of urgent cash.  This is illogical.  There was no suggestion that it was difficult to sell the Workshop to outsiders and in fact 3 neighbouring workshops had been sold.  If he was in need of cash he could have done so.  Further with the arrangement as alleged by the Defendant it took more than 6 months for the whole sum to be received by Ming while she agreed that normally it would take 3 months to get a mortgage loan.  This contradicted the Defendant’s evidence that Ming was in need of urgent cash.  I see no reason for Ming to make such request to the Defendant.  The Defendant’s explanation on why the purchase price was paid over a time of 6 months was that she paid when Ming asked her to pay.  This is beyond common sense.

17. I also reject the evidence of Nam in this regard.  Nam is the elder brother of the Defendant.  He is a degree holder also working in a bank.  He said he heard from the Defendant that she had a plan to buy the Workshop for his father’s use to show her love to her father.  That was April 2010.  He learned from the Defendant that she did not want to tell their father about the Transaction but he somehow learned later after execution of the Assignment that she had told their father about it already.  But he said the first time he heard about his parents talking with the Defendant about the Transaction was sometime in 2012 or 2013 which was at least one year after if not two afterwards.  This is strange as they all live in the same household.  He said parents asked the Defendant why she paid Ming $750,000 to buy the Workshop as it belonged to their family from the beginning.  He admitted that this conversation was not mentioned in his witness statement and said that he had forgotten to put it down.  This was improbable as first there was no reason to hide the Transaction from the parents.  His account of event was unnatural and improbable.  His evidence that parents did not ask why the Defendant had to pay for the purchase until 1 or 2 years after they learned about it is unbelievable.

The Alleged Default in Paying the Purchase Price to the Plaintiff

18. It is the Plaintiff’s case that notwithstanding the presence of the Receipt Clauses the Defendant had in fact never paid the sum of $750,000 or any other sum to the Plaintiff before she obtained the Mortgage Loan as the Defendant so alleged.  It is Ming’s evidence that despite the agreement between him and Hoi, after the Mortgage Loan was drawn down, he had never been paid the whole of the $750,000.  Ming said that he had asked for payment of purchase price after knowing that the Mortgage Loan had been drawn down but was told initially by the Defendant that the cheque book of her bank account had not yet been issued to her, and later, she said that her mother discovered the Transaction and seized the cheque book from her.  For these reasons, she said she was unable to issue any cheques and pay the purchase price of $750,000 to Ming.  According to Ming, Hoi also told him that his wife was very upset about the Transaction and threatened that if payment was to be made to Ming or the Plaintiff she would jump from height.  Ming said as far as he could understand from Hoi, his wife had the belief that the Workshop belonged to Hoi’s family.

19. Ming said that upon his demand for purchase price, some small amount had been paid for only $68,000 over 8 incidents by monies transferred into his bank account or by cheque during the period from 1 February 2011 to 14 September 2011.  Ming said there was still an outstanding amount of $683,000 (i.e. $750,000 – $67,000) payable and due to the Plaintiff.  Schedule of payment is listed below:-

Date	Amount of Payment (HK$)	Method of Payment
1 February 2011	10,000	Credited into Ming’s bank account at ATM by cash
2 February 2011	10,000	Credited into Ming’s bank account at ATM by cash
7 March 2011	10,000	Defendant’s father on behalf of the defendant to issue a cheque to Ming
22 March 2011	10,000	Credited into Ming’s bank account at ATM by cash
26 April 2011	10,000	Transferred from Defendant brother’s bank account to Ming’s bank account at bank
27 May 2011	10,000	Transferred from Defendant brother’s bank account to Ming’s bank account at internet bank
13 July 2011	5,000	Credited into Ming’s bank account at ATM by cash
14 September 2011	2,000	Credited into Ming’s bank account at ATM by cash
Total:	67,000

20. The Defence is that first, as a matter of fact, payment had been fully paid to the Plaintiff through Ming on 6 occasions before the Assignment was executed:-

Date	Place of Payment	Amount of Payment (HK$)
Around mid-May of 2010	Ming’s home	150,000
Around mid-June of 2010	A restaurant in Yau Tong	100,000
Around early August of 2010	A restaurant in APM, Kwun Tong	150,000
Around October of 2010	Defendant’s home	100,000
Around December of 2010	Hang Hau MTR station	100,000
Around late-December of 2010	Defendant’s home	150,000

21. According to the Defendant the transfer of $67,000 set out in paragraph 20 above were loans to the Defendant at his requests at different times in 2011.  Such transfer of small amount of money had nothing to do with the purchase price.

Whether Payment had been Made

22. As to the payments made to Ming, this involved several topics.  They include first whether the Defendant had borrowed $750,000 from Mr Wu and repay the same to him eventually.  Secondly whether she had passed the $750,000 to Ming after she received the same from Mr Wu on 6 occasions.  Further whether the transfer of $67,000 to Ming were loans to him or payments for purchase price.  The Defendant called one further witness in addition to herself and Nam on these and that was Mr Wu.

Whether $750,000 had been Loaned to the Defendant by Mr Wu and Repayment

Mr Wu’s Evidence

23. Mr Wu is cousin of the mother of the Defendant.  He is a taxi driver and at the same time running 2 hawker stalls in Mong Kok.  In his witness statement he said that when the Defendant came and asked for a loan of $750,000 to buy the Workshop, he agreed to lend her the money. He however learned from the Defendant that she would like to have the money by installments and in cash, so he had on 6 occasions passed to the Defendant some cash at her requests.  They met at different locations each time.  He had paid her a total of $750,000.  He said he had sufficient money to lend to the Defendant in the bank but he said in particular that he did not have to go to the bank to make withdraws because he always had an amount of $200,000 at home.  This purportedly explained why he did not produce proof on the source of $750,000 he had loaned to the Defendant.

24. Mr Wu said he did suggest to the Defendant she could try to get a mortgage loan instead of getting a loan from him. He said however the Defendant told him that it was Ming’s request to have money paid to him in cash and by installments.  She also said that Ming needed the money urgently and mortgage loan might not be able to assist.  He however agreed that the first loan he made to the Defendant was 1 month after the Defendant’s raising it with him and the last loan was given to her about 6 to 7 months thereafter.

25. As to the repayment of the $750,000 made by the Defendant to he himself he said the Defendant paid him back in cash by installments.  He could not explain why the repayments were not done through bank accounts.  He said the Defendant paid him back by installments in the sum of $5,000 to $10,000 on each occasion.  The repayments were handed over to him by the Defendant face to face every time.  He agreed that in order to fully pay him, the Defendant would have to meet him for over 70 times if not more at the rate it went.  At that juncture in court he said the Defendant had not fully paid him.  He said there was an outstanding amount of about $100,000.  He could not explain why he knew there was this amount outstanding.  He said that he had made no record of repayments but trusted that there was a record with the Defendant.  He agreed he did not mention this outstanding amount in his witness statement and instead said that the loan of $750,000 had been repaid.

26. He admitted that he knew the Defendant had eventually got the Mortgage Loan.  When asked why he did not ask for repayment in full by one lump sum when she had the money from the Mortgage Loan, he said he was treating the Defendant as a very close relative.  He further said that the Defendant had in fact suggested to pay him back when she got the Mortgage Loan but he refused and said she could keep the money for herself and could use the money to redeem the Workshop.  He said he was very close to the family and knew the Defendant well.

The Defendant’s Evidence

27. The Defendant’s account on how she got a loan from Mr Wu and how the loan was repaid was this. She said she got a loan from Mr Wu for a total amount of $750,000 in cash by 6 incidents.  She had by now repaid to Mr Wu approximately $600,000.  Again all repayments, no less than 70 installments were repaid in cash and handed over to Mr Wu personally.  Individual repayments were in the amount of $5,000 or $10,000.  She said she had a record of repayment but it was rough as she only put down on a piece of paper some strokes for the character of “正”.  It is a primitive way of counting, drawing a Chinese character of 正which took 5 strokes to complete, so each character would represent 5 counts (劃正字).

28. When asked why she did not get a lump sum of $750,000 from Mr Wu instead of taking them by 6 installments especially when Mr Wu could afford to loan to her $750,000 in one lump sum.  She said it was the request of Ming that money be paid to him by installments and in cash.  She also mentioned that she was busy and did not want to queue up at a bank to cash the cheque of Mr Wu. But later she said that in order to get the cash from Mr Wu and paid that to Ming, she sometimes had to take half day off or to leave work early.  

29. When asked why she did not repay Mr Wu in one sum in early 2011 when she got the Mortgage Loan for like amount, she said Mr Wu did not want to take repayment in full as he wanted her to have some money with her and to redeem the Workshop after the penalty period.  She also said that she handed the money over to Mr Wu in person because she wanted to see him.  

30. Further, same as Mr Wu, the Defendant also said that $600,000 had been repaid but this was not mentioned in her witness statements in which she said that the loan of $750,000 had been repaid. 

Nam’s Evidence

31. Nam said he had heard from the Defendant that she would ask Mr Wu to lend her the purchase price.  There was no evidence from him to say that he saw Mr Wu pass money to the Defendant on any of the 6 occasions.

Discussion on the Alleged Loan from Mr Wu and Repayments

32. After hearing Mr Wu, I could not accept his evidence.  His evidence on the transactions for about $1,400,000 (lending $750,000 and receiving $650,000) completed over 76 incidents was not supported by any proof but his words.  He said that he was suspicious when the Defendant said she could not get receipts from Ming for receiving the money but he did not suggest to her that she should do something to protect herself.  Nor did he do anything to protect her by putting the transactions on records be they formal like making transfers through bank accounts or informal to be in the form of his own hand-writing.  Or he could have gone over and met Ming to witness the payment since most of the time he walked the Defendant to meet Ming.  He was asked whether he found the story told by the Defendant illogical especially when she said cash was needed because Ming said he needed urgent cash but at the same time the Defendant asked for a loan by installments. He could not give an answer.

33. I find the evidence of the Defendant not credible either.  Her account of events were full of contradictions.  On the one hand she said Ming wanted urgent cash on the other hand payments were made by installments spreading over 6 months.  Moreover her record for repayment of the loan to Mr Wu was almost laughable.  She said she had marked some strokes (劃正字) on a piece of paper.  When repayment was not made at regular intervals on fixed amount, I do not see how a record of strokes without particulars on dates and amount could assist at all.

34. To be fair to her, she said when she had to repay Mr Wu, she had to go to bank to withdraw some cash and said that she could get those records if necessary.  It seems she had never thought of going through those bank records when preparing for the trial to supplement the piece of paper with marking of character 正 to tell this court on how many occasions, on what date and how much she made repayments to Mr Wu.  Neither any bank records nor the piece of paper was produced although she said they were available.

35. Further it was the Defendant’s case that when she received the Mortgage Loan she made no repayment to Mr Wu.  She however could not give a reasonable explanation to that.  She only said that Mr Wu told her to  keep the money.  This is not convincing.  When asked why she had to hand money over to Mr Wu in person she said she wanted to see him.  I cannot challenge her saying that she wanted to see Mr Wu so much but this could not have stopped her from paying him in one go through bank transfer and then they could enjoy their gatherings for 70 odd times without money concern.

36. After hearing both Mr Wu and the Defendant, I reject their evidence on the alleged loan from Mr Wu.  Nam’s evidence in this regard had no value at all.

Whether Full Payment had been Passed to Ming

Nam’s Evidence

37. Nam said he witnessed the Defendant passing money in paper packets to Ming on two occasions in June and August 2010.  In his witness statement he said on one occasion, there was $100,000 inside and $150,000 on the other. Upon cross-examination, he admitted that he did not see whether it was really money inside the paper packets.  He did not open the paper packet to see and did not see Ming take the money out to count.  He said he saw the paper packets but could not give particulars on their size and how they were wrapped.  He once said that they were grey in colour then changed to say that they were brown envelopes.

38. I do not accept his evidence.  He was evasive when giving evidence.  In any event, his evidence was of little value because he did not actually see that the packets contain $100,000 and $150,000.  It would also be improbable that Ming would not try to check the amount knowing that the money was not from the Defendant but another person as alleged by Nam.

The Defendant’s evidence

39. The Defendant gave evidence on how she had paid Ming a total sum of $750,000 by 6 installments prior to the execution of Assignment.  She said whenever she got a loan from Mr Wu she would immediately went to see Ming and passed the money over to him.  They met at different locations but each time it was Ming who decided where to meet. She said since all transfers were done in cash there was no record from bank transfer or issuance of cheques.  She agreed that in her witness statement she never mentioned that Ming was in urgent need of money and wanted to be paid in cash by installments.  She said she had left this part out when preparing her witness statement.

40. Further, she agreed that normally a mortgage loan would be approved in less than 3 months’ time.  She agreed the way she paid Ming took 7 months to fully pay him the total of $750,000.  She could not explain why Ming would prefer her seeking help from Mr Wu instead of going for a mortgage but then at the end there was a mortgage in which Ming was involved.  She could not explain why if Ming was in urgent need of money she did not ask Mr Wu to pay her $750,000 by one payment.  She said Ming would ask her to make part payment of the $750,000 and she would then ask Wu for loan.

41. She said she did not ask Ming although she also found it weird that he only wanted to be paid in cash.  She said when she asked, Ming would say if she did not want to buy he would sell the Workshop to other person.

42. As to whether the Defendant had asked for receipts from Ming, in court she said she did.  She even said that she had drafted a receipt for Ming to sign for the payment of $150,000 in May 2010.  She said she had in August 2010 asked for proof of payment either in the form of receipt or transfer of the Workshop. She said that Ming refused to sign the receipt and said he would take care of the Transaction.  In her witness statement however she said she did not ask for receipt or proof because she trusted Ming who is her paternal uncle.  When asked why there was such a difference in the two versions between her evidence in court and that she had put down in her witness statement, she said she saw no discrepancy between the two.

Mr Wu’s Evidence

43. Mr Wu made some faint attempts to say that the money he loaned to the Defendant was eventually passed to Ming.  He however admitted that although the Defendant told him so he himself had never seen this happen.  In fact he had never met Ming throughout all the incidents of his passing money to the Defendant although sometimes he walked the Defendant over to meet Ming.

Discussion on Whether Full Payment had been Passed to Ming

44. I find the Defendant’s evidence full of contradiction.  Her content of story was either inherently improbable, full of contractions or inconsistent with what she had said in her witness statement.  The handing over of large amount for over $100,000 in cash to Ming each time seemed extremely odd when, in contrast, payments of a total of $67,000 on 8 occasions were done by bank transfer or cheque.  Her saying that she had not counted the money given to her by Mr Wu and did not ask Ming to count the money at the time it was handed over to Ming is unbelievable.  Her approach with money was strange by any standard and is unacceptable for a person who had already worked in a bank for two years by that time.  She said looking back she might have been negligent.  I do not accept this explanation.

45. I have no difficulty in rejecting the Defendant’s evidence on whether payment in the sum of $750,000 had been passed to Ming.

46. I find Mr Wu and Nam’s evidence of little value as Mr Wu admitted that he did not witness the Defendant passing the loaned money from him to Ming and Nam also admitted that he did not see that there was money inside the envelop be they brown or grey in colour.

The Purpose of the Payment of $67,000 to Ming

47. There was also dispute as to the purpose of payment of $67,000.  The Plaintiff said they were payment for purchase price made after the Mortgage Loan was drawn down.  The Defendant said the transfers were loans made to Ming by the Defendant.  I do not accept that Ming who had been running business for long and had at one stage owned 4 workshops would have to borrow small money from his niece whom he knew had no asset.  If he was in need of cash, he would have his way of getting this relatively small amount for example by making a loan from Hoi who had been in business for years and is the brother of Ming.  I find the version of Ming more probable.

48. For the above reasons, I reject the evidence of the Defendant and her witnesses.  I accept the evidence of Ming.  I find his evidence probable.  I accept that they were part payments of a total sum of $67,000  for the purchase price by installments.  

49. In my judgment the Defendant had failed to prove that she had paid $750,000 to Ming in the manners she described.  I find a total sum of $67,000 had been paid to Ming as part payment.  I find that a sum of $683,000 is still outstanding.

The Estoppel Point

50. The Defendant’s alternative position is that even if there is still outstanding payment due, the Plaintiff is estopped from making a claim because of the Receipt Clauses in the Memorandum and Assignment.  She also relied on s.18(1).

The Receipt Clauses

51. The Memorandum was executed by the directors of the Plaintiff, Ming and Nam, as vendor, and Ming and the Defendant as purchasers on 30 August 2010.  Clause 1 of the Memorandum provided that:-

“1. The Vendor shall sell as beneficial owner and the Purchaser shall purchase all that property described in the First Schedule hereto on the following terms and conditions:-
(a)	Purchase Price:	HK$1,500,000.00
(b)	Manner of Payment:	HK$1,500,000.00 being the purchase price has been paid by the Purchaser to the Vendor DIRECT (receipt whereof is acknowledged) PRIOR TO the signing of this Memorandum of Agreement for Sale and Purchase.
(c)	Completion:	31st January 2011”

52. Towards the end of the Memorandum of Agreement, it was stated that:-

“RECEIVED on or before the day and year first above written of and from the Purchaser the above mentioned HK$1,500,000.00 being the full payment of the purchase money payable to me as abovementioned).

[Signatures of Ming and Nam]”

53. On 31 January 2011, the Plaintiff (as represented by Ming and Nam) as vendor, and Ming and the Defendant as purchasers executed the Assignment.  Clause 1 of the Assignment provided that:-

“1. IN CONSIDERATION OF the sum of HONG KONG DOLLARS ONE MILLION AND FIVE HUNDRED THOUSAND ONLY (HK$1,500,000.00) paid by the Purchaser to the Vendor (receipt whereof is hereby acknowledged) (“Receipt Clause 3”) the Vendor as Beneficial Owner ASSIGNS to the Purchaser the land described in the Schedule hereto (“the Property”)…”

54. There is no dispute that pursuant to the Facility Letter and the Mortgage:-

(1) CCB advanced the Mortgage Loan to the Defendant on 31 January 2011; and

(2) The Defendant had been making monthly repayments to CCB in accordance with the Facility Letter.

Evidence on the Receipt Clauses

Ming’s Evidence

55. I shall start with the evidence of Ming.  In the present case, the Receipt Clauses appeared both on the Memorandum and the Assignment.  Ming explained that he had not paid attention to them when the two instruments were executed.  He said that the lawyer went through the terms to him in a broach brush manner.  From the explanation and interpretation of the lawyer he got a rough idea that the Transaction was for the Plaintiff to sell the Workshop to him in his personal capacity and also to the Defendant.  The lawyer mentioned also the amount for the Transaction.  He did not have any impression that he had mentioned there was a term saying that money had been received.

56. He was however adamant that the lawyer had asked him how he would prefer the Defendant to pay the Plaintiff.  He was given a choice between (i) the mortgage loan to be obtained by the Defendant should the $750,000 to the solicitors’ firm when the Mortgage Loan or (ii) to pay to the Plaintiff.  He said to him it did not matter one way or the other since the Transaction was between family members.  He would not mind if payment was to be made to the Plaintiff or Ming himself by the Defendant.  He was not aware that it had been stated on the instruments that money had been fully paid.

57. When asked by this court what was the payment arrangement between him personally and the Plaintiff, Ming said no actual payment was to be made because he was holding 100% shares of the Plaintiff at that time and the Plaintiff was indebted to him for $2,000,000 over.  He said he had told the lawyer that it should be treated that the purchase money was already paid instead of going through the formality that he should issue a personal cheque to the Plaintiff for $750,000 and then to be paid back by the Plaintiff.  Ming also said he did not have that kind of money at that time.

58. Ming’s evidence was by and large supported by Nam who said that upon execution of the two instruments he signed as one of the two directors of the Plaintiff.  He said that on both occasions he paid no attention as to whether the lawyer had said anything about the Receipt Clauses.  He did not know much about them either.  On both occasions, the lawyer gave very brief interpretation and explanation to them only.  He said the lawyer explained to them who the parties were and the amount involved.  He was with the Defendant when the Memorandum was signed. Ming was not there.  In any event he would not know whether Ming had fully paid his purchase price in full to the Plaintiff and he could not confirm whether the whole sum had been paid at the time the two instruments were executed.

59. In particular, he said at the time the Assignment was executed, Ming was there with them.  The lawyer, as what he did at the execution of the Memorandum explained the Assignment briefly.  He only mentioned the parties’ name, the address of the property and the amount of money involved in the Transaction.  He said that by the time of executing the Assignment the Defendant had told him that she had paid the purchase price and although he could not know whether Ming had paid his half share to the Plaintiff, he signed because Ming and the Defendant had signed.  Upon my asking whether he had any impression that it was ever mentioned by the lawyer that money had been paid, after a long pause, he said yes, that should be the case.

The Defendant’s Evidence

60. The Defendant’s evidence in this regard was that she was asked to go to the law firm to sign the two instruments by Ming.  At the time she signed the Memorandum she had paid half; and when she signed the Assignment she had already fully paid the Plaintiff through Ming.  She went further to say that at the time of signing the Memorandum the lawyer explained to her the parties involved, the address of the property and the purchase price.  She said the lawyer then asked her whether she had paid and she said she had, the lawyer then asked her to sign.  She did not explain why she signed knowing that the receipt clauses in the Memorandum did not reflect the truth.  Further she said that the it was not put there for acknowledgment of payments because she had not paid in full at that time.  

61. In relation to her signing of the Assignment, her evidence was that she heard the lawyer ask Ming whether payment had been paid and she saw Ming nod his head.  She then signed.  She agreed that this part was not mentioned in her witness statement. She denied it was fabricated by her.  

Discussion on how the Instruments were Executed

62. In my judgment, the Defendant’s saying about seeing Ming nod his head to the lawyer in acknowledgement of payment at the time of the Assignment was contradicted by Nam’s evidence.  Nam was adamant that he did not know whether Ming had paid the Plaintiff his half share.  If Ming was asked the questions as alleged by the Defendant, I do not think Nam could have forgotten.  In fact Nam mentioned nothing about the two questions posed by the lawyer as alleged by the Defendant both in court or in his witness statement.

63. After hearing the witnesses, I accept Ming and Nam’s evidence on how the instruments were explained to them before the same were executed.  I accept that they did not hear interpretation or explanation on the Receipt Clauses.  I reject Nam’s answer to my question about whether there was impression of lawyer saying payment had been made one way or the other.  Such bare assertion could not stand on its own and it was in any event different from the Defendant’s evidence that Ming nodded his head upon being asked by the lawyer.  Further this was not mentioned in his witness statement and did not sit well with his saying that he paid no attention to the Receipt Clauses as they were not mentioned by the lawyer during the interpretation and explanation.  For same reason, I reject what the Defendant had said about Ming nodded his head when the lawyer asked him whether money had been paid.  This was not consistent with Nam’s evidence nor her own witness statement.  It must be noted that Nam was called as one of the Defendant’s witness.  I reject their evidence.  I accept Ming’s evidence that there was only brief explanation of the instruments by the lawyer and he was not aware of the Receipt Clauses.

Legal Position of the Receipt Clauses

64. Mr Ho, counsel for the Defendant said the Plaintiff was  estopped from making any claim on the unpaid balance if any.  He relied on the doctrine of contractual estoppels under the common law and also a provision stipulated in s.18(1).

65. It was his submission that under the common law parties are free to enter into contracts in whatever terms they deem fit.  If factual premise is truthfully recorded in a contract, and parties agree to perform their obligations under the agreed factual premise, there will be no conflict between what has factually happened and what a party is required to do under a contract.  On the other hand, parties can also proceed on a mutually agreed premise that does not accurately state what has factually happened, and agree to perform their obligations under the mutually agreed premise.  In this scenario, he said, the court has to determine what a party is required to perform in accordance with the terms of the contract.  Mr Ho submitted that if the contract clearly evidenced the intention that parties would proceed on the basis that a party had fully performed his / her obligations under the contract, then what factually had happened is of little relevance.

66. Mr Ho referred this court to the Privy Council decision in Prime Sight Ltd v Lavarello [2014] AC 436 (“Lavarello”).  The issue is set out at §1 thereof:-

“If a written agreement contains an acknowledgement of a fact which both parties at the time of the agreement know to be untrue, does the law enable one of them to rely on that acknowledgement so as to estop the other from controverting the agreed statement in an action brought on the agreement?”

67. There is no argument that in Lavarello no payment was in fact made by the company to Mr. Marrache (§9) but at the end the court held that estoppel had been established. Lord Toulson JSC held at §§45 – 47, 49, 53, 55 that:-

“45. The law is correctly analysed by Spencer Bower, Estoppel by Representation, 4^th ed, p 197:

‘an estoppel by convention need not involve any misleading of a representee by a representor, nor is it essential that the representee shall be shown to have believed in the assumed state of facts or law. The full facts may be known to both parties; but if, even knowing those facts to the full, they are shown to have assumed a different state of facts or law as between themselves for the purposes of a particular transaction, then a convention will be established. The claim of the party raising the estoppel is, not that he believed the assumed version of facts or law was true, but that he believed (and agreed) that it should be treated as true.’

…

47. …In short, contractual estoppels are subject to the same limits as other contractual provisions, but there is nothing inherently contrary to public policy in parties agreeing to contract on the basis that certain facts are to be treated as established for the purposes of their transaction, although they know the facts to be otherwise.

…

49. In the Court of Appeal Jonathan Parker JA said, rightly, that it was not for that court to speculate as to the reasons why the parties acted as they did…

…

53. To treat the deed as creating a valid contract but delete the acknowledgement of payment would be to alter significantly the nature of the transaction agreed between the parties.

…

55.  …The Board concludes … that the Official Trustee is estopped by the terms of the deed of assignment from asserting that the purchase price has not been paid.”

68. Mr Ho also referred this court to the analysis of DHCJ Marlene Ng on the topic in her decision in DBS Bank (Hong Kong) Ltd v Sit Pan Jit HCA 382/2009, unreported, 2 April 2015 (“DBS”).  DHCJ Marlene Ng after reviewing authorities in England, Scotland, Ireland, Singapore, Hong Kong and Malaysia from §§312 – 326, held at §332 that:-

“In my view, the ultimate rationale for contractual estoppel is freedom of contract.  Contractual estoppel arises from the contract between the parties.  Since the parties had agreed a state of affairs to be the case, a party who denied such state of affairs was the case was in breach of contract, and the court would not permit a party to benefit from his own wrong.  The basis for upholding or striking down a contractual provision was not so much whether the parties were commercial or non‑commercial, sophisticated or unsophisticated, of equal or unequal bargaining power, but rather that the provision was one which both parties were aware of and freely agreed to.”

69. Mr Ho highlighted the observation of DHCJ Ng at §347 that the juridical basis of contractual estoppel has been well established for over 150 years:-

“… But Mr Wong SC argued there was full juridical basis for the doctrine, and he referred to the decision of the Supreme Court of Canada in The Manitoba Assurance Company v Whitla & anor which explained that contractual estoppel had been well settled for at least 150 years. …

…if they so think fit, from agreeing that, as between them a certain fact, or state of facts, shall, for the purposes of a particular transaction, which it is competent for them to enter into, and into which they propose to enter, be taken to be true, whether it be in fact true or not, or although they know, or either of them knows, it to be untrue.

That is called estoppel by contract.

The meaning of estoppel, says Martin B. is this: that the parties agree for the purpose of a particular transaction to state certain facts as true; and that so far as regards that transaction there shall be no question about them.

In Ashpitel v. Bryan, Pollock C.B. says:

For the purpose of the transaction in question the parties agreed that certain facts should be admitted to be facts, as the basis on which they would contract, and they cannot recede from that ... We all agree with the court below that there may arise an estoppel by agreement, and that such an estoppel arises here.

And in McCance v. London & North Western Railway Co., Williams J. in delivering the judgment of the Exchequer Chamber says:

Here it appears in evidence that the contract declared on was to be regulated and governed by a state of facts understood by the parties ... It is laid down in my brother Blackburn’s Treatise on the Contract of Sale, p. 163, that ‘when parties have agreed to act upon an assumed state of facts, their rights between themselves are justly made to depend on the conventional state of facts, and not on the truth.’ Applying that rule to the present case, we think that both parties are bound by the conventional state of facts agreed upon between them.” (my emphasis)

Although Mr Lee SC submitted that Ashpitel and McCance were cases of estoppel by convention, it was plain that what was being discussed in those cases and in The Manitoba Assurance Company were precisely the concept of contractual estoppel canvassed in Peekay, Springwell (HC) and Springwell (CA). I disagree contractual estoppel was a new concept.”

70. Another case relied on by Mr Ho is Best Joint Investments Limited v Kagani Ltd 及另一人 HCA 2608/2006, unreported, 13 July 2015 (“Best Joint”).  The 2^nd Defendant therein assigned a property to the Plaintiff by an assignment at a consideration of $9.2 million (§5).  The Plaintiff sought vacant possession of the property, which was opposed by the 2^nd Defendant claiming, inter alia, that she never received any consideration from assignment of the property (§24(2)).  This assertion was rejected by DHCJ Leung and his holding at §§44, 47, 49 – 52 are as follows:-

“44.   上述轉讓契第一段訂明：“IN CONSIDERATION of the sum of HONG KONG DOLLARS NINE MILLION AND TWO HUNDRED THOUSAND ONLY (HK$9,200,000) paid by the Purchaser to the Vendor (the receipt whereof the Vendor hereby acknowledges) the Vendor as Beneficial Owner ASSIGNS to the Purchaser the Property described in the Schedule hereto…”。

…

47. 《物業轉讓及財產條例》第18條規定：
“（1）文書内所載的代價收據，對支付代價的人而言，足以解除其支付代價的責任，而為惠及基於對該收據的信賴而行事的任何其他人，該收據須為付款的充分證據。
（2）…..”

 …

 49. 根據上述條例，契中認收樓價，足以構成對Best Joint作為買家，解除其支付樓價的責任。根據普通法，陳女士就契中確認之事宜，包括她已收所指樓價，在沒有指稱或證據顯示，該契約應因法律認可的理由而作廢的情況下，皆不容反悔（estoppel by deed）：見Greer & Anor v Kettle [1938] AC 156，第171頁。
50. 在Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386，第56段，英國上訴庭有相關說明：

“There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not.  For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance.  Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed.  The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith [1991] Ch 448, affirmed on appeal [1992] Ch 421. ”

51. 選擇性地漠視這認收條文，則無異於改寫該契約：見Prime Sight Ltd v Lavarello [2014] 2 WLR 84，第52至54段。
52. 本席同意陳大律師陳詞，裁定陳女士所指沒有得到售賣該物業代價，在法律和事實上並不成立。”

71. In Wong Lai Ling v Lam Kin Chung HCA 828/2011, unreported, 10 August 2012, the Plaintiff sued the Defendant on a written agreement by which the Plaintiff said she lent the Defendant a sum of $5 million.  The Defendant argues that the loan agreement does not represent a genuine borrower / lender transaction, and that the contents of the loan agreement do not reflect the true nature and the extent of the transaction between the parties.  The Defendant also argued that there was an issue on whether the $5 million had been passed to the Defendant pursuant to the loan agreement.  These arguments were rejected by DHCJ Carlson, who held at §§34 and 36 that:-

“34. In my judgment, the real stumbling block for the defendant is created by the terms of the Loan Agreement.  Where in my judgment it is quite impossible for the defendant to demonstrate that this agreement was a sham then the law must take its course on the face of the document itself which contains an “express acknowledgment” clause which will bind the party signing the document and give rise to a contractual estoppel which prevents the defendant from now asserting facts contrary to what he has acknowledged.  In this case the defendant acknowledged receipt of the loan advance in the Loan Agreement and in my judgment is now estopped from denying that this was so.  The parties had entered into this agreement which in my judgment is conclusive.  How the money was then used is neither here nor there.  The case of Peekay Intermark Ltd v ANZ Banking Group Ltd [2006] 1 CLC 582 at paras 57-60 and para 70 is authority for the proposition that it is open to a party to enter into transactions on the basis that a certain state of affairs is true.  In this case the defendant had acknowledged receipt of the loan and he is therefore now to beprevented from denying that this was the case.

…

36. I am afraid that having regard to the terms of the written document and the numerous repayments made by the defendant to the plaintiff, which incorporated the 5% interest chargeable under the Agreement itself, that the defendant must be held to what he signed up to.  I can see no possible defence which can be reasonably available to him and which ought to go to trial.”

Discussion on Doctrine of Contractual Estoppel

72. I shall deal with the doctrine of contractual estoppels first.  As gleaned from the authorities above, the doctrine of contractual estoppel was founded on freedom of contract and agreed contractual rights and obligations.  When Mr Ho went through the authorities in his submissions, he focused on the fact that in those cases there was no payment made although there was a receipt clause.  In some cases, it was even common grounds that payment had not been made.  The courts nonetheless found that estoppel had been established.  I think Mr Ho might have missed the point.  The relevant question in the present case is whether the parties had agreed to admit or treat that payment of $750,000 had been fully made putting aside whether that was factually true or not.  This goes to whether they had actually agreed to the inclusion of the Receipt Clauses.

73. Further, as cited by Mr Wong, proof of payment has also been dealt with in paragraph 115.508 Halsbury Volume 7.  It says “A receipt, even under seal is not conclusive evidence of payment, but merely an admission, and evidence is admissible to prove the intention with which it was given and whether any payment was in fact made, and if so, on what terms and in respect of what matter.”  Further in paragraph 170.078 it says that “A receipt for consideration money in the body of a deed or indorsed on it is not conclusive as between the parties that the money has in fact been paid, although it may, in the case of a conveyance, raise an estoppels in favour of a subsequent purchaser.

74. From my above finding of fact that Ming was not aware of the Receipt Clauses  I do not find that the Plaintiff had intended the inclusion of the Receipt Clauses in the Memorandum and had agreed to their effects.  The Defendant said it was not there to acknowledge payment as payment had not been fully made at the time of signing the Memorandum.  She did not suggest other purpose for the receipt clause to be included in the Memorandum.  In the circumstances I find that there was no evidence to prove that the Plaintiff had through Ming admitted that money had been paid by the Defendant or that parties had agreed to treat that payment had been made at the time of the Memorandum. 

75. More importantly, in my finding of fact, the Defendant had not relied on the Receipt Clauses in both of the instruments.  In the case of the Memorandum, it was her evidence that she continued to pay after its execution.  In the case of the Assignment, it is my finding that she made some part payments after the Assignment was executed (see paragraphs 48-49 above).  She herself had not relied on the Receipt Clauses.

76. In summary, on basis of what Ming and Nam had said and it is my finding of fact that there was no agreement between parties to proceed with the Transaction on the basis of the Receipt Clauses; and more importantly, part payment had been made by the Defendant albeit in small amounts after execution of the Assignment and drawn down of the Mortgage Loan, I am of the view that the Defendant could now say that the Plaintiff is estopped from making a claim for the unpaid balance.

Statutory Discharge

77. The Defendant relied on section 18(1) which provides that:-

“A receipt for consideration in the body of an instrument shall be a sufficient discharge to the person paying the consideration…”

78. Mr Ho said that the above statutory provision does not provide that the Receipt Clauses shall conclusively prove that consideration has been paid.  Rather, it provides that the obligation to pay shall be discharged.  In this connection, he said, it is important to understand two related concepts.  The first concept is what has factually happened.  The second concept is what a party is required to do under a contract.

79. Mr Ho referred this court to Best Joint in which Deputy Judge Leung had briefly discussed s.18.  In paragraph 48, Deputy Judge Leung has indicated that the parties had agreed to proceed on the payment arrangement that payment would be made to the then mortgagee for the property to be released from the mortgage.

“46. 整個透過律師進行的交易，直至簽署轉讓契，RYC是代表陳女士，認收和處置Best Joint支付的樓價。同時從來樓價都不是落在她手中，而大部份根據她的指示用作歸還集友，從而令她和該物業可從擔保CDL債項中解除。Ron在證供中確認這是當時他和陳女士的理解。

47. 《物業轉讓及財產條例》第18條規定：

“（1）文書内所載的代價收據，對支付代價的人而言，足以解除其支付代價的責任，而為惠及基於對該收據的信賴而行事的任何其他人，該收據須為付款的充分證據。

（2）任何律師出示載有代價收據的文書，須當作已獲授權收取該代價，但如有法律責任支付該代價的人獲送達書面通知，述明該律師並未獲得如此授權，則屬例外。“

48. 雖然Ron和陳女士在庭上指，當時代表雙方處理交易的律師，都是由Ron安排的，但陳女士是知悉這安排。如陳大律師所指，沒有指稱或證據顯示，當時RYC如此處理交易其實未獲陳女士授權或有犯錯。”
49. 根據上述條例，契中認收樓價，足以構成對Best Joint作為買家，解除其支付樓價的責任。根據普通法，陳女士就契中確認之事宜，包括她已收所指樓價，在沒有指稱或證據顯示，該契約應因法律認可的理由而作廢的情況下，皆不容反悔（estoppel by deed）：見Greer & Anor v Kettle [1938] AC 156，第171頁。”

80. On basis of his fact findings, Deputy Judge Leung came to his conclusion that the doctrine of estoppel was established.  

81. Mr Wong on the other hand said that the receipt under s.18(1) constituted sufficient but not conclusive discharge.  He relied on 2 passages in the Annotated Ordinance for Cap 219.

“[18.09] Sufficient discharge

'Discharge' refers to the deprivation of an obligation of its binding force (R v Hill [1982] Tas R 1at 3 per Green CJ). At common law, a receipt in the body of the deed operates as a complete estoppel between the parties (Rowntree v Jacob (1809) 2 Taunt 141), but in equity the receipt is merely a presumption of payment which can be rebutted (Wilson v Keating (1859) 4 De G & J 588, in which it was held that upon the receipt being disproved, the vendor's lien would revive; and Capell v Winter [1907] 2 Ch 376; 76 LJ Ch 496). Under s 18(1), a receipt is a sufficient but not a conclusive discharge; accordingly, an unpaid vendor is able to continue to rely upon his lien, the enforceability of which is governed by the appropriate priority rules (Kwok Wai Fan v Tse Kin Chung [1998] 2 HKC 105).

[18.11] Sufficient evidence of payment

A receipt is sufficient but not conclusive evidence of payment. An unpaid vendor may continue to rely upon his unpaid vendor's lien, the enforceability of which, as an unwritten equity, continues to be governed by the appropriate priority rules. A volunteer or a purchaser of a subsequent equitable interest will be bound by an unpaid vendor's lien but a subsequent purchaser or mortgagee of the legal estate who has no notice, actual or constructive, will take free of an unpaid vendor's lien (Rice v Rice (1853) 2 Drew 73).”

82. I find the facts in Kwok Wai Fan not pertinent to the present case.  I bear in mind that a party in a deed bears a heavy burden to say otherwise than what he had signed to endorse on the instrument.  For the reasons I have stated in paragraph 76 above, i.e. the Defendant had failed to prove that the parties had agreed to proceed with the Transaction premised on the Receipt Clauses on the one hand and the Defendant had been making payments for the purchase price after the execution of the Assignment on the other, the Defendant could not now rely on s.18(1).

Conclusion

83. I accept Ming’s evidence that full payment had not been made to him on those occasions and in those manners as alleged by the Defendant except there were several payments made through bank transfer for a total of $67,000 after the Assignment had been executed as testified by Ming.  I find that the Plaintiff has proved his claim.  I find that the Defendant failed to  establish her defence.  There was no proof on the necessary agreement made between the parties for the Defendant to rely on the Receipt Clauses to say that the Plaintiff was estopped from making a claim.  Further, part payments made after the Assignment had made it not possible for the Defendant to rely on the Receipt Clauses under common law.  For the same reasons I find that she could not rely on s.18(1) also.

84. Judgment is entered for the Plaintiff’s claim with interest as claimed.  Costs be to the Plaintiff with counsel certificate, such costs are to be taxed if not agreed.  This is an order nisi to become absolute unless there is application to vary the same within 14 days.

85. This is my order:-

(1) Judgment is entered for the Plaintiff for the sum of $683,000;

(2) Interest at HSBC best lending rate plus 1% per annum  from the date of the Assignment until judgment;

(3) Interest at judgment rate from date of this judgment until  fully paid; and

(4) Costs order nisi with counsel certificate.