KING MOUNTAIN INVESTMENTS LTD AND ANOTHER v. TANG YUK LING DOBE AND ANOTHER

HCA 257/2023

[2024] HKCFI 1720

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 257 OF 2023

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D E C I S I O N

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A.  INTRODUCTION

1.  By summons dated 15th March 2024 (“the Summons”), the Plaintiffs seek leave to appeal against my decision of 1st March 2024 (“the Decision”) granting unconditional leave to the 2nd Defendant to defend the Plaintiffs’ claim for restitution.

2.  This decision should be read in conjunction with the Decision, which sets out the relevant background.  The abbreviations used in the Decision are also used here.

B.  THE APPLICATION FOR LEAVE TO APPEAL

3.  The principles applicable to an application for leave to appeal against an interlocutory judgment or order of the Court of First Instance are not in dispute.

3.1  Under s.14AA of the High Court Ordinance (Cap.4), leave to appeal is not to be granted unless the court hearing the application for leave is satisfied that (a) the appeal has a reasonable prospect of success or (b) there is some other reason in the interests of justice why the appeal should be heard.

3.2  For this purpose, a reasonable prospect of success means a prospect that is more than “fanciful”, without having to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at [17] (Le Pichon JA).

C.  THE INTENDED GROUNDS OF APPEAL

4.  The first intended ground of appeal is that the court erred in holding that the 2nd Defendant had a real or bona fide defence that there had not been a total failure of consideration (in that it was at least arguable that the 2nd Defendant had nothing further to perform under the Agreements and that the Plaintiffs had obtained what they had paid for).

5.  The Plaintiffs say that as the 2nd Defendant’s skeleton had not relied on the defence, which was only advanced in oral submissions at the hearing,^[1] the court did not have the benefit of full submissions from the Plaintiffs on the point.

6.  The Plaintiffs’ argument is that even on the 2nd Defendant’s case as to what it was obliged to do under the Agreements, nothing was conferred on the Plaintiffs, and the Agreements were not executed agreements.  The Plaintiffs say that the 2nd Defendant’s case is that the Plaintiffs paid for the Development Rights – essentially the rights to step into the 2nd Defendant’s shoes; however, the Development Rights were illusory and did not exist save for the 2nd Defendant’s promise that as between the Plaintiffs and the 2nd Defendant, it would be the Plaintiffs (rather than the 2nd Defendant) who would be entitled to proceed with development of the Lots; such rights were prospective in nature and the Agreements could therefore not be said to have been executed.

7.  However, after signing the Agreements, there was nothing further for the 2nd Defendant to do.  The Payments under the Agreements were not conditional on any further performance by the 2nd Defendant.  The fact that the Lots remained to be developed in the future was no longer a matter that concerned the 2nd Defendant.  The 2nd Defendant simply dropped out of the picture.  For the purpose of a summary judgment application, it is at least arguable by the 2nd Defendant that there was no failure of consideration.

8.  Moreover, whilst the Plaintiffs’ skeleton submissions^[2] focuses on what the 2nd Defendant’s case is, it is the Plaintiffs’ own claim that should be considered, it being the Plaintiffs’ case that they are entitled to summary judgment on that claim.  The Plaintiffs’ pleaded case as to failure of consideration is that there was an implied term that the 2nd Defendant would procure the Villagers to do various things, and that the 2nd Defendant failed to do this – hence there was a failure of consideration: see Decision paragraph 14.  The 2nd Defendant says that under the Agreements, it did not have to do these things at all (and indeed it is common ground that there were no express terms requiring the 2nd Defendant to do them), so that the case based on failure of consideration fails.  The 2nd Defendant may or may not prevail on this argument at the end of the day, but for the purpose of a summary judgment application, it seemed to me to at least be arguable.  See Decision paragraph 27.

9.  The Plaintiffs also say^[3]that the Development Rights were illegal and unenforceable, so that it cannot be said that the Plaintiffs obtained what they wanted in return for the Payments.  The 2nd Defendant’s case is that the Plaintiffs knew about the illegality and unenforceability and were willing to take the risks involved, and that this was reflected in the pricing. If so, it is arguable that they got what they paid for.  See Decision paragraphs 28, 29.  On these facts (as alleged by the 2nd Defendant), it does not seem to me that the Plaintiffs can go so far as to say that they have a reasonable prospect of establishing that the 2nd Defendant’s case is not even arguable.

10.  The second intended ground of appeal is that the court erred in holding that it is arguable that there is no failure of consideration where the Agreements had been performed, notwithstanding their ineffectiveness.^[4]

11.  The Plaintiffs say that Westdeutsche Landesbank Girozentrale v Islington LBC [1994] 4 All ER 890 and Guinness Mahon & Co Ltd v Kensington and Chelsea RLBC [1999] QB 215 establish the proposition that restitution is available in cases of legally ineffective contracts regardless of whether there has been a failure in the counterperformance of the contract.^[5] I did not agree that these cases established such a sweeping proposition: see Decision paragraph 23.  The Plaintiffs say that the analysis was also accepted in Yeung Ga Wai v Lau Ming Shum, unreported, CACV 196/2013, 22nd February 2014 at [23], but what was there held, obiter, was that the consideration for the contract had wholly failed so that payments made were recoverable as money had and received; there was no discussion of whether the position would have been different had there been performance of the contract.

12.  In any event, even if one proceeds on the basis of the Plaintiffs’ proposition, one comes back to the question of whether the Agreements in the present case are “legally ineffective” in the sense of Westdeutsche Landesbank Girozentrale and Guinness Mahon (where the contracts were void ab initio, so that payments made thereunder were not, in law, contractual payments at all).  That question is fact-sensitive.  In the present case, the 2nd Defendant says that the Plaintiff knew of the illegality of the proposed arrangements but were confident that they could overcome the risks and get the Lots developed for profit; the risks were reflected in the pricing under the Agreements.  These matters are the subject of factual disputes, and I have already held that I cannot at this stage accept the Plaintiff’s submission that the 2nd Defendant’s case is incredible: Decision paragraphs 28 to 30.  If the facts are those as claimed by the 2nd Defendant, then, even leaving aside whether the sweeping proposition contended for by the Plaintiffs is established, the 2nd Defendant would have an arguable defence that it does not apply on the grounds that the Agreements were not “ineffective” in the Westdeutsche Landesbank Girozentrale and Guinness Mahon sense.  Even if the Agreements are illegal, so that the court will not enforce them, they may not necessarily be void and treated in law as if they had not been made at all.

13.  The Plaintiffs have sought to side-step this by equating “ineffectiveness” with illegality and unenforceability.^[6]  They say that the 2nd Defendant has “admitted”^[7] the “ineffectiveness” of the Agreements (so that there are no disputes of fact), but what the 2nd Defendant in fact admitted was their illegality and unenforceability.^[8]  It is not at all clear the Agreements are ineffective in the Westdeutsche Landesbank Girozentrale and Guinness Mahon sense of not being contracts at all.  The factual issues will first have to be resolved.

14.  That it is over-simplistic and over-broad to say that “restitution is available in cases of legally ineffective contracts regardless of whether there has been a failure in the counterperformance of the contract”, and that the point is fact-sensitive, is shown by passages in Goff and Jones subsequent to the ones cited by the Plaintiffs.

14.1  In paragraph 13-32, the learned editors say: “Where the contract that the parties have made is ineffective, but one of them is both willing and able to perform it in full, it has been held that there is no failure of basis entitling the other party to recover benefits conferred under the agreement…”.  Thomas v Brown (1876) 1 QBD 714 is cited and the commentary is that Quain J’s judgment was a lone one, but the point is that even in the case of an “ineffective” contract, the availability of restitution of benefits conferred thereunder is fact-sensitive.

14.2  In paragraph 13-33, the learned editors say: “Situations might be imagined where the parties to an agreement were genuinely indifferent to the legal effects it created…” although they do go on to say that these situations are “likely to be unusual”. One example given is Begbie v Phosphate Sewage Co Ltd (1875) LR 10 QB 491 where a claimant wished to obtain a document which he knew had no legal validity; it was held that the basis for the claimant’s transfer under the contract had not failed when the legally ineffective document was delivered.  It is therefore not invariably the case that where an “ineffective” contract has been performed, restitution will always be available irrespective of whether there has been performance of the contract.

15.  Indeed, Goff and Jones at paragraph 13-27, relied on by the Plaintiffs, does not go so far as to say that restitution is always available for ineffective contracts regardless of whether there has been a failure in the counterperformance of the contract.  It only stated that where there had been counterperformance, a claim for restitution might still be made.

16.  In the circumstances, it does not seem to me that the Plaintiffs can go so far as to say that they have a reasonable prospect of establishing that the 2nd Defendant does not even have an arguable case that there was no failure of consideration.

17.  As noted in paragraph 27 of the Decision, the Plaintiffs’ application was for summary judgment.  Whether or not they will prevail at the end of the day, the state of affairs at present is that the facts have not been established to the extent that it can be said that there is no arguable defence.  Order 14 is for clear cases in which there is no serious material factual dispute, and if a legal issue, no more than a crisp legal question as well decided summarily as otherwise; leave should be given to defend where an issue of law arises which depends on undecided issues of fact (Hong Kong Civil Procedure 2024, notes 14/4/9, 14/4/12). 

D.  DISPOSITION

18.  I therefore dismiss the application for leave to appeal, and make a costs order nisi in favour of the 2nd Defendant, to be assessed summarily on the papers. The 2nd Defendant is to lodge and serve a statement of costs within 5 days, limited to two pages in bullet point form; the Plaintiffs are to lodge and serve their list of objections, if any, within 5 days thereafter, limited to two pages in bullet point form; the 2nd Defendant has leave to lodge and serve a reply within 3 days after, limited to two pages in bullet point form.