LO WO AND OTHERS v. CHEUNG CHAN KA, JOSEPH AND ANOTHER

HCA 618 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 618 OF 1997

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J U D G M E N T

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1. The 1st Plaintiff ("Lo Wo"), the 2nd Plaintiff ("Lo Tai") and the 3rd Plaintiff ("Lo Lan") are three sisters. The fourth sister LO YIN or otherwise known as PO LO YIN ("Deceased Sister") died intestate in 1984 in China. The three Plaintiff sisters (referred to collectively as the "Sisters") are now aged respectively 91, 87 and 84. This Action is their claim against the Defendants to set aside a contract of sale of a flat in Hong Kong, entered into by them with the 2nd Defendant in 1993 (Provisional Purchase Agreement) and 1995 (Formal Purchase Agreement), on the ground that the said contract of sale was an unconscionable bargain.

HISTORY

2. In 1993, the 2nd Defendant ("the Developer") wished to redevelop 2 adjoining buildings in Ming Yuen Street, North Point. The process of buying up all the flats of 24-26 Ming Yuen Street ("1st Building") and of 28-30 Ming Yuen Street ("2nd Building") took very little time. The following 2 Tables shows the details of these acquisitions:-

1ST BUILDING

2ND BUILDING

3. In August 1993, there was a visit to the Sisters by the 1st Defendant, Mr. Joseph Cheung Chan Ka ("Cheung") and Mr. Lum Yee Cheung ("Lum"). Cheung was a conveyancing clerk employed by the Hong Kong solicitors firm of Gary Mak & Co. Lum was at that time working as a property broker or agent, being earlier a partner of an estate agency company by the name of Mutual Link Development Company. Lum and Cheung were sent by the Developer to China that day in August 1993 in order to purchase from the Sisters the half share of a flat in North Point, Hong Kong left by their Deceased Sister. The 2nd Defendant was a substantial property developer in Hong Kong and for the purpose of redevelopment, it had acquired by the time of the Cheung and Lum visit to the Sisters on the 24th August 1993, all the units of the 1st Building and of the 2nd Building with the exception of the aforesaid half share of the 3rd Floor of No. 28 of the 2nd Building ("the Flat") which half share was registered in the name of the Deceased Sister of the Plaintiffs. The other half share of the Flat ("Pon Half Flat") was owned by Pon Mok Yuet Ming ("Pon") and the Developer had purchased such Pon Half Flat for $2,400,00 plus $300,000 as removal expenses by the Provisional Agreement dated 16th August 1993.

4. The Deceased Sister died in 1984 intestate and her 3 sisters, namely the Sisters were her only surviving successors, as her parents, her husband had all died previously and she had no children. The Sisters therefore were entitled to succeed to her estate including her half share in the Flat ("Sister Half Flat") and it was for this reason that the visit to the Sisters that August day in 1993 was very important to the Developer. The Sister Half Flat was the only outstanding interest in the 2 Buildings not yet acquired by the Developer. A successful redevelopment could not take place without the acquisition of that vital outstanding half share in the Flat.

5. Cheung and Lum came prepared for the intended purchase from the Sisters. Cheung had brought $100,000 to pay as deposit and also a prepared contract with blanks. Cheung told Lo Lan that the Developer wished to buy from the Sisters the Sister Half Flat so as to demolish the 2nd Building to store sand. The offer of $870,000 was made by the Developer and Cheung said to Lo Lan that a higher sum could not be paid. The final sale price of $870,000 was agreed to include legal costs of the vendors Sisters. Persuading the Sisters to sell was quite easy. It did not even take long that day for the purchase agreement to be reached and for the Sisters to sign the Provisional Agreement by marking their crosses on the document (the Sisters were illiterate). The Provisional Agreement made on the 24th of August 1993 ("August Agreement") provided for the following essential terms:-

Cheung signed the August Agreement on behalf of the Developer with Lum signing as a witness. The Sisters put their crosses on the August Agreement. The Deposit of $50,000 was paid by Cheung on behalf of the Developer to Lo Lan who acknowledged receipt by putting her cross under the Receipt Clause. Lo Lan's version of what took place at the meeting when the August Agreement came to be made was different from the version given by the witnesses for the Developer, namely Cheung and Lum.

6. Prior to the making of the August Agreement, the Developer had already acquired the full interests in all the units in the 1st Building as can be seen from the dates in the Acquisition Table of the 1st Building. In respect of the units in the 2nd Building, the August Agreement was the last of the Provisional Agreements to be signed by the Developer. Without waiting for:

the Developer proceeded to sign formal Agreements of Purchase (between 2nd September to 14th September 1993) in relation to all other units in the 2nd Building. In fact by the 30th of September 1993 (less than 6 weeks after the August Agreement) all other units apart from the Sister Half Flat were assigned to the Developer (see Acquisition Table of 2nd Building).

7. The Developer however did not move with the same speed in relation to the purchase of the Sister Half Flat. In early January 1994, Cheung paid another visit to the Sisters in China and this was to arrange for:-

The evidence also shows that on that occasion in January 1994, a sum of $100,000 was paid by Cheung to Lo Lan although the receipt of this $100,000 was said to have been lost by Cheung and initially in the proceedings, the Defendants denied a case of having paid the vendors this $100,000 in January 1994.

8. By letter dated 23rd of April 1994, Sin Cheuk Kin the nephew of Lo Lan wrote to Cheung asking when the purchase of the Sister Half Flat could be completed and when the Sisters could be paid the balance of the purchase price. There was no response from Cheung.

9. Letters of Administration of the estate of the Deceased Sister were granted to Cheung on the 19th of September 1995. Cheung as Administrator of the estate of the Deceased Sister signed formal Sale and Purchase Agreement dated 9th of October 1995 ("Formal 1995 Agreement") for the Vendor with the Developer as the Purchaser. By the Assignment also dated 9th of October 1995 ('the Assignment"), the Sister Half Flat was assigned to the Developer. The curious feature of that completion in October 1995 is that a cheque payable to Cheung in the full sum of $870,000 was given by the Developer to Cheung and no deduction was made on completion for the $150,000 ($50,000 and $100,000) already paid by the Developer to Lo Lan.

10. Cheung having received $870,000 from the Developer however did not pay any money to the Sisters. Cheung said he sent a letter in December 1995 to the Sisters but there is a dispute as to whether this letter was ever received. What is clear is that Cheung did not immediately go up to China to tell the Sisters that the sale of the Sister Half Flat had been completed. He did not pay or tried to pay the Sisters the proceeds of sale until much later Eventually through friends, the Sisters found out that the Sister Half Flat they had agreed to sell in 1993 was worth a great deal more than what they were been led to believe and by that stage the Sisters refused to accept any money from Cheung. Steps were then taken by the Sisters to have the purchase agreement they made with the Developer set aside. This Action was commenced on the 18th of January 1997 and it was bitterly resisted by both Defendants with a number of interlocutory battles being waged by them against the Sisters.

11. At the trial of the Action, the Sisters as Plaintiffs asked for the August Agreement and the consequential Formal 1995 Agreement as well as the Assignment to be set aside on the ground that there was unconscionable bargain entered into by the Defendants. Developer strongly resisted the claim and contended that there was no unconscionable bargain, that there was a legal bar in Hong Kong to such claim of unconscionable bargain and that in any event the remedy of setting aside should not be ordered by the Court in the circumstances. Cheung took a less prominent role at the Trial but was not however prepared to submit to judgment as sought by the Plaintiffs.

PRINCIPLE OF UNCONSCIONABLE BARGAIN

12. The principle of freedom of contract and certainty of contract does not normally allow contracts to be easily set aside. However equity has laid down from old days equitable rules permitting the Court's intervention with unconscionable bargains. A review of a few leading cases will demonstrate a variety of situations where the Court has exercised its equitable jurisdiction to set aside unconscionable bargain.

13. In Fry v Lane (1888) 40 Ch. D. 312 where sale of the inherited property was by two poor ignorant brothers in humble positions at a gross undervalue with no independent advice, Kay, J. after reviewing the authorities said at page 322:-

14. In Blomley v Ryan [1956] 99 CLR 362, where a property was sold by an old drunk at a considerable undervalue without independent advice, the High Court of Australia held that the contract of sale should be set aside. Fullager, J. said at page 405:

15. In Alec Lobb Garages Ltd. v Total Oil [1983] 1 WLR 87, where a garage/petrol station company tried to set aside a tie agreement with the petrol company on the ground that the agreement was harsh and unconscionable, the Court refused to set aside the agreement because the Court was not satisfied that the behaviour of the defendant or the terms of the transaction were improper, the garage in any event was independently advised. After a careful review of all the authorities, in a celebrated and classic passage, Millet, J. (as he then was) said at page 94:-

16. In Commercial Bank of Australia v Amadio [1983] 151 CLR 447, where elderly immigrant parents executed a mortgage containing also a guarantee in favour of a bank in respect of the financial facility of a company controlled by their son, the High Court of Australia set aside the mortgage on the ground that the mortgagors were under a special disability evident to the bank so that it was unconscionable for the bank to rely on the guarantee. Mason, J. (as he then was) said at page 461:-

It will be noted that this case is not a typical two parties situation where the vulnerable party as result of direct act of the stronger party gave away an asset of value to the stronger party. In Amadio, there was a three parties situation, where the vulnerable party gave away an asset of value to the third party bank as result of the act of the second party, their son. This is a situation more akin to often seen undue influence cases, where a bank mortgagee is seeking to enforce a mortgage given by the mortgagor as result of undue influence by someone close to the mortgagor to secure the debt of that person.

17. Finally in the case of Boustany v Piggott [1996] 69 P. & C.R. 298, where a lease was renewed by a "slow" landlord on particularly disadvantageous terms to herself, the Court set aside the lease renewal on the ground that the renewal was an unconscionable bargain. The Privy Council at page 303 accepted the five propositions advanced by the tenant appellant:-

The analysis in this Pigott case is in many ways not entirely satisfactory and some of the propositions accepted by the Privy Council overlap with others or merely repeat others.

18. The authorities in discussing the various ways transactions attract the interference of the Court, have not laid down any unifying principle or comprehensive requirements for the operation of the unconscionable bargain principle. This is not surprising as that is not the way equitable principle is developed or applied. During submissions at the trial, parties have argued whether there was a more conservative principle or requirement under English law or a more liberal principle or requirement under Australian law. For the purpose of deciding this particular case, it seems to me that a fair reading of the relevant authorities including authorities from Australia suggest the following factors are relevant to Court's consideration of whether to set aside for unconscionable bargain.

1. Serious Disadvantage of the Exploitee

19. The traditional requirement of poverty and ignorance of the person exploited ("Exploitee") stated in the old cases such as Fry v Lane had been broadened in recent years to include all species of serious disadvantage so that age, poverty, ignorance, lack of assistance or independent advice or inability to judge what is in his best interest are merely various aspects of serious disadvantage suffered by the Exploitee giving rise to the opportunity for the other party who gains from the transaction ("Exploiter") to take unconscionable advantage.

2. Terms of Bargain being Oppressive

20. The cases have shown that mere inadequacy of consideration is not sufficient for the court to act. The undervalue has to be such as to lead to the view that the Exploitee had given away valuable assets or rights for much less than what they are worth to such extent as to either reinforce the view that the Exploitee was at a serious disadvantage by a morally culpable Exploiter or that the conduct of the Exploiter was morally culpable.

3. Morally Culpable Conduct of the Exploiter

21. Exploitation is the foundation for a finding of unconscionable bargain and exploitation usually takes the form of the strong party, the Exploiter taking unfair advantage of the seriously disadvantaged party, the Exploitee. What seems to be present in all cases where the courts have set aside for unconscionable bargains are circumstances of the transactions which suggest that the Exploiter was aware of an opportunity for exploitation and has taken advantage of such opportunity. Examples of this would be the ignorant brothers in Fry v Lane, the drunk old man in Blomley v Ryan, the elderly immigrant parents in Commercial Bank v Amadio, the "slow" lessor in Boustany v Piggott. In Hart v O'Connor relief was denied because although the vendor was of unsound mind, this fact was not apparent to the purchaser. In Credit Lyonnais Bank Nederland NV v Burch [1997] 1 A.E.R. 144, Millett, L.J. expressed the view at page 153 that impropriety could be inferred from the terms of the transaction itself in the absence of an innocent explanation and it seems to me that implicit in that statement is the assumption that the terms of the transaction are so unfavourable to the Exploitee that the Exploiter did know that the transaction was exploiting and unconscionable and hence there was impropriety in his conduct. It has been suggested that some of the cases were decided on basis of an objective standard instead of a subjective standard. (see Bamforth on Unconscionability as a Vitiating Factor (1995) Lloyd's Maritime and Commercial Law Quarterly 538 at pages 548-551). This is an area of some difficulty, where the special facts of the cases (such as Amadio which has large elements of constructive notice) might lead to specific conclusions which may not be wholly consistent with the subjective standard approach. For the limited purpose of this judgment and in the absence of focused arguments, I will assume that the traditional subjective standard applies and that for the court to reach a conclusion of unconscionable bargain it is necessary to have a finding of moral culpability against the Exploiter, either by way of over-reaching or oppressive conduct or in the form of actual or constructive fraud. What seems to be necessary in my view is that the conduct of the Expoiter in the circumstances has shocked the conscience of the court.

APPLICATION OF THE PRINCIPLE

22. From very early on in the Trial, it emerged clearly that it was not the legal principle but the application of the legal principle which widely divided the parties. The factual disputes largely contributed to the disagreement as to the proper application of the legal principle. An assessment of the credibility of witnesses is essential to the resolution of the factual disputes.

Credibility of Witnesses

23. Three key witnesses gave evidence at the Trial, namely Lo Lai for the Plaintiffs and Cheung (the 1st Defendant) and Lum for the 2nd Defendant. Alexander Cheung of Gary Mak & Co. ("Solicitor Cheung") also gave oral evidence but his evidence was not of crucial importance.

24. Lo Lai gave evidence extending over 5 days. She is 84 and she is an old lady. She could not read or write and the giving of her evidence was slow in that all documents written in Chinese had to be read and explained to her carefully by the interpreter before she could be expected to give any answer to questions. There was also the difficulty of her speaking in a dialect of a somewhat remote part of Quangdong Province of China which dialect although close to the Cantonese spoken by the people of Hong Kong is yet sufficiently different as to require from time to time the interpreting assistance of Mr. Edward Chan, Leading Counsel for the 1st Defendant whose family came from the Plaintiffs' part of Quangdong. Because of her age, every now and then Lo Lai had to rest when giving evidence. Very often she could not keep up because of inability to concentrate or to follow the proceedings. She was a simple peasant woman from a rural part of China, with no education and no exposure to the wiles of the world. But she knew that she must tell the Court in so far as she could remember what happened and I have no doubt that she did her best and she impressed me greatly as an honest and generally reliable witness. I accept all her evidence except where I indicate to the contrary in relation to some specific evidence on which I find she must be mistaken.

25. Cheung, the 1st Defendant gave very extensive evidence. He is obviously a man of the world (he was for example the consultant of Polytec International (Holdings) Ltd., the parent company of the Developer) and as a conveyancing clerk in Hong Kong who had moved from firm to firm, he knows his way around the world of money and business. It was he who brought this deal from the Developer to his law firm. He does not however inspire confidence and I have formed a very negative view of his credibility and trustworthiness. I reject his evidence in all material respects unless where I specifically indicate to the contrary. As will be apparent later, I find his behaviour throughout this transaction to be morally reprehensible and I find that he acted together with Lum and the Developer with the deliberate objective of taking advantage of the Plaintiffs.

26. Lum who was engaged by the Developer to act for the Developer in this transaction also gave evidence. This is a man who admitted to having a large financial interest in the purchase of the units in the 1st and 2nd Buildings. He gave his evidence in a business like manner but I do not believe a single word of what he said unless some independent contemporaneous evidence powerfully confirms his evidence. I reject his evidence as being unreliable.

27. It was argued by Mr. Chong that in assessing credibility of the witnesses I must have regard to the uncontroversial background as well as reasons why certain acts were said to be done. I of course accept that is the general approach of the Court. But that does not lead to a conclusion desired in this case by Mr. Chong and as I have indicated unless compelled by unchallengeable contemporaneous documentary evidence, I reject all the material evidence given by Cheung and Lum. I will give an example. It was argued by Mr. Chong that because Lum had been involved in the previous negotiations in relation to purchase of other units therefore he must have also done this rather than Cheung on the 24th of August. I do not accept this at all. There are advantages to the Developer and to Lum and Cheung to have all dealings with the Sisters done by someone from a lawyer's firm. In fact that was the reason why the visiting card of Cheung bearing his connection with Gary Mak & Co. was given by Cheung to Lo Lan. Common sense tells us that simple peasants in China will have greater confidence in a Hong Kong lawyer or an officer from a Hong Kong law firm than some unknown representative of some property company. In the eyes of the Sisters who are trusting, there is a great deal of sense in the same person of Cheung, a quasi-Hong Kong lawyer (see expression "our lawyer" in the appointment letter in Chinese dated 6th January 1994) talking to them about the deal, being appointed to act for them in obtaining the Hong Kong Letters of Administration, signing the August Agreement, coming back in January 1994 to deal with the Chinese Certification and then acting for them with the formal completion. For me the surrounding circumstances confirm my view of the witnesses, namely that Lo Lan is to be believed and Cheung and Lum are not.

Serious Disadvantage of the Plaintiffs

28. Surprisingly, the Developer chose to dispute this matter of the serious disadvantage of the Plaintiffs. Various contentions were raised by the Developer why the Plaintiffs were not under serious disadvantage. Without dignifying too much the arguments advanced by the Developer, most of which are marked more for their boldness than their merit, I will state briefly my findings on the various aspects which constitute serious disadvantage of the Plaintiffs.

29. The old age of the Plaintiffs is beyond dispute and although I have heard and seen only Lo Lan the youngest of the three sisters, whose physical condition was far from good, it is commonsense that the other 2 sisters who are much older were all very old persons at the time of the sale in August 1993. The fact that they were living in rural China where life of course was much harder than comfortable urban Hong Kong simply made their old age a very serious disabling condition in so far as understanding, negotiating and agreeing a contract of sale of property in Hong Kong is concerned. The old age disadvantage of the Plaintiffs were well known to the Developer through their agents, Cheung and Lum.

30. The Plaintiffs were illiterate which is a common disability of Chinese ladies of that sort of age and specially of that sort of background. Cheung and Lum had the audacity to tell the Court that they did not know until the time when it came to put signatures to the August Agreement that the Plaintiffs were illiterate. I do not believe a word of what they said. It would be apparent to them from looking at the Plaintiffs with their background and old age that these old ladies were illiterate. This disability was a serious disadvantage of the Plaintiffs in relation to the making of the August Agreement.

31. The poverty of the Plaintiffs was seriously disputed and it was said by Mr. Chong for the Developer that there is no direct evidence of the poverty of the Plaintiffs. While it is true that there is no direct evidence of the extent of the poverty of the Plaintiffs, the surrounding circumstances are such that the Court can draw the inference that they were poor by Hong Kong standard and in relation to the amount of money involved in the proposed sale of this Sister Half Flat. It must not be forgotten that these are old ladies with no independent income or resources living in a rural part of China where the general standard of living compared to Hong Kong is very very low. Their poverty or lack of wealth therefore make them particularly disadvantaged and vulnerable when vultures such as Cheung and Lum descended on them. I find as a fact that poverty was also a serious disadvantage of the Plaintiffs and this was well known to Cheung and Lum.

32. Ignorance of the Plaintiffs was another serious disadvantage which was disputed. The impression I gained from seeing and hearing Lo Lan is that although truthful she was a simple poor ignorant peasant lady who had little knowledge or exposure of the outside world. Although there might be access to Hong Kong television programs from her home, that did not cease to relieve this lady or her older sisters from their serious disadvantages. Her general ignorance made her extremely vulnerable in the making of the August Agreement and this fact was well known to Cheung and Lum who took advantage of the Plaintiffs.

33. What is even more disturbing is the lack of proper assistance and independent advice when the August Agreement was made and this is a fatal disadvantage suffered by the Plaintiffs. The Plaintiffs have no experience of ownership of property in Hong Kong or even China (we have not heard any evidence to such effect) and certainty no knowledge of the true value of the Sister Half Flat or proper procedure to adopt when owners in Hong Kong wish to sell properties. With their backgrounds and conditions, the Plaintiffs should have been properly advised by professionals such as Hong Kong lawyer, Hong Kong accountant or Hong Kong real estate consultant or agent as to the proper price which should be sought in a case of proposed sale of their property to a developer for redevelopment in a situation where theirs was the last unit to be sold. With the figures which one can see in Table 1 and Table 2, any competent professional from Hong Kong would have advised the Plaintiffs if they wished to sell to the Developer to take nothing less than $2,700,000 which is the price paid by the Developer for the Pon Half Flat. I suspect that a good professional would probably be able to negotiate on the Plaintiffs behalf an even better price. The situation prevailing on the 24th August 1993 called out for proper professional assistance to be given to the Plaintiffs and this was well known to the Developer duo of Cheung and Lum. They did nothing to redress that serious disadvantage. They did not even tell the Plaintiffs that the Pon Half Flat was sold for $2.7 million or that the average price paid for units in the 2nd Building was well in excess of $4.6 million (including removal expense). Of course they did not because that would give the game away and the Developer would then be unable to take unfair advantage of the Plaintiffs. It was the serious disadvantage of the Plaintiffs which gave the Developer the unfair gain. I find therefore that the serious disadvantage of no proper assistance and independent professional advice was well known to the Developer and Cheung which enabled them to take unfair advantage.

34. It was contended by Mr. Chong for the Developer that as the families of the Plaintiffs consisting of husbands, sons, nephews and grandchildren etc. were there in the house when the August Agreement was made, therefore the Plaintiffs were not seriously disadvantaged because they had the benefit of the family discussion or advice. I reject such contention. The fact that there were these people there did not help the Developer because they were not the people who could give independent proper professional advice or assistance to the Plaintiffs. Whether it was the husband or young nephew of one of the Plaintiffs who spoke to the Plaintiffs does not matter, because he was hardly in a position to know what ought to be the proper price or terms (such as asking for a deposit not of $50,000 but of at least $100,000 which everyone else received from the Developer or even 10% of the purchase price) which the Plaintiffs should insist upon from the Developer. In fact the presence and interference of the family members made the matters worse because by reason of their poverty and possibly also ignorance and lack of independent assistance, instead of properly advising the Plaintiffs, they would be improperly urging the Plaintiffs to accept unreasonable terms. These relatives have their financial interest in the Plaintiffs possibly passing on to them part of what the Plaintiffs might be receiving (seemingly "big money" by their rural China standards) and they hoped to gain by the making of the August Agreement. For me the presence of the family members simply pointed to a case of the blind leading the blind or of the weak leading the weak (in the sense of what McTiernan, J said in Blomley v Ryan at page 392 of "essence of such weakness is that the party is unable to judge for himself"). This aspect therefore does not in any way assist the Developer or Cheung on the matter of serious disadvantage.

35. I conclude and find as a fact that the Plaintiffs were under serious disadvantages when the August Agreement and the Formal 1995 Agreement were made and these serious disadvantages were well known to Cheung and Lum, the agents of the Developers who acted in concert with such knowledge to the benefit of the Developer, Lum (who admitted to receive the very large commissions) and Cheung who was given the whole of $870,000 by the Developer and who I find as a fact has not repaid to the Developer any sum and certainly not the $150,000 which he had no business to keep.

Terms of Bargain Oppressive

36. In resisting the allegation of the Sisters that the terms of the August Agreement were unconscionably unfair and oppressive, the Developer contends inter alia that it was not buying the Sister Half Flat but merely the expectancy of the Sisters to the property and that in the circumstances the sum of $870,000 was not an unfair price to pay under the August Agreement. Is there any substance or merit in this contention.

37. Before the 24th August 1993 visit, the Developer had been buying up very quickly all the units in the 1st Building and in the 2nd Building. The Table relating to the 1st Building shows that during a two week period from 15th June to 1st of July, all 10 units in the 1st Building were signed up with an average price of some $4.26 million per unit exclusive of removal costs or some $4.38 million inclusive of removal costs. It is to be noted that in respect of the 1st Building, the Developer paid to each vendor under each purchase a deposit of $100,000. In relation to the 2nd Building, the purchases were made by the Developer in even shorter period of time from 10th to 16th August 1993 at the average price of $4.4 million exclusive of removal expenses or some $4.64 million inclusive of removal expenses. Again the deposit paid to each vendor (even for interest in half of a unit) was $100,000 (see for example deposits paid for First Floor (a) and (b) of No. 28 and Third Floor (b) of No. 28). On the basis of the above actual agreed prices for the units in the 1st and 2nd Building, it is clear that by the 24th August 1993 (merely 8 days after the last purchase of the Pon Half Flat of No. 28 on the 16th August 1993) the minimum fair figure to be paid for the other half of the Third Floor of No. 28, namely for the Sister Half Flat should be not less than $2.7 million. The reason for this is simple because the Developer had agreed to pay just 8 days ago $2.7 million for the Pons Half Flat. Thereafter the Sister Half Flat was the only remaining interest to be acquired and the Developer would then have acquired all the interests in the 2 Buildings to enable it to commence the intended large redevelopment. A premium or a higher sum is normally paid for the last few properties to be purchased for redevelopment (e.g. on 16th August 1993, $4.9 million for First Floor No. 28, $4.8 million for Second Floor No. 28 and $5.3 million for Top Floor No. 30). The last property should therefore command an even higher premium. I hold therefore that on the 24th of August 1993, a proper price which the Developer would be willing to pay for the Sister Half Flat should be at least $2.7 million (with a deposit of not less than $100,000) and the figure could be quite a bit more if the owners of the Sister Half Flat knew how to hold out for the full and proper price and deposit. It is therefore against these figures of not less than $2.7 million (for the half flat) and $100,000 (for the deposit) that one has to determine whether what was agreed in the August Agreement could be said to be fair as contended by Mr. Chong or oppressively unconscionable as contended by Mr. Remedios.

38. A number of things were said by the Developer to suggest that my finding of minimum price of $2.7 million for the Sister Half Flat was incorrect. Mr. Chong mounted an argument based on the internal arrangement between the Developer and Lum or Lum's company in the sense that there was an alleged arrangement between the Developer and Lum whereby the Developer was only going to pay a flat sum for all the purchases of units in the 1st Building and another flat sum for all the units in the 2nd Building and therefore the profit which Lum was going to earn would depend on the total amount of the prices which the Developer had to pay for all the units of the 1st Building and for all the units in the 2nd Building. First of all, as I have indicated earlier, I do not accept the evidence of Lum and therefore I do not accept his evidence about the overall arrangement between the Developer and Lum, including the supposed documentation put before the Court in support of such alleged arrangement. By the own admission of Lum, the parties did not strictly follow the documentation (for example the timing and terms of payment to Lum). It is also to be noted that the very person in the Developer who should tell the Court the precise details of such arrangement and produce all the necessary contemporaneous documents in support had chosen not to give evidence or to produce all the relevant documentation. The story of the internal arrangement and its alleged documentation has many questionable aspects, an example of which is the evidence by Lum that he did not negotiate the internal arrangement agreement with the Developer nor had he ever met or spoken to any director of the Developer. Another example of the incredible story told about internal arrangement is that Lum did not discuss with the Developer the possibility that the Sisters might refuse to sell the Sister Half Flat for anything like $870,000 which would therefore eat into the alleged profit of Lum and what would happen to the question of Lum's commission if the total purchase price for all the units of the 2nd Building exceeds $56 million. The Court is expected to believe that with such a major redevelopment project, the Developer had left it to Lum to offer a ridiculous price (to protect Lum's alleged profit) and jeopardise the whole redevelopment because of the alleged internal arrangement. I find the story simply incredible. I am therefore wholly unconvinced as to the truth of the alleged internal arrangement between the Developer and Lum. More importantly however on this matter of internal arrangement between the Developer and Lum, it seems to me that this is wholly irrelevant as to what was the true price which ought to be payable for the Sister Half Flat. Such true price for the Sister Half Flat could not be dependent on what were the total prices paid by the Developer for all the other units of the 2nd Building. The matter of the internal arrangement between the Developer and Lum or his company is a red herring and in any event is not a credible story which could affect the outcome of this case.

39. It was further said by Mr. Chong on behalf of the Developer that what was being purchased was not the Sister Half Flat but only an expectancy because the Sisters were not the registered owners of that property. It is of course true that on the 24th of August the Sister Half Flat was registered in the name of the Deceased Sister and not in the name of the Sisters. But these 3 sisters were the only successors to the estate of the Deceased Sister. The evidence shows conclusively that to be the case and I find that the Sisters were on the 24th of August the only lawful successors to the estate of the Deceased Sister. But more importantly than this is the fact that the Developer knew that the Sisters were the only lawful successors to the estate of the Deceased Sister or in other words the Developer knew that the Sisters were the only lawful owners of the Sister Half Flat. I have no doubt that the Developer and its team including people like Lum and Cheung had done their homework and had made sure that the Sisters were the lawful successors because of the circumstances of the visit to the Sisters on the 24th of August. The fact that the blanks in the typed contract had to be filled in at the meeting on the 24th August does not change the picture. It is to be noted that the whole success of the proposed large redevelopment involving land of 1st Building and land of 2nd Building would depend on every single unit being fully acquired giving good title to the Developer. It would be of no use to the Developer if there was doubt as to the lawful title to even a fraction of a unit acquired such as for example if there was a doubt as to whether the Deceased Sister might have left a son somewhere. The Developer had to be sure it had acquired the full title to all the units and it was only when it was sure that it had acquired the full title to all the units, could it be sure that the redevelopment could be successfully launched. The Developer was not interested in expectancy or chose in action. It was only interested in 100% interest in the land, not 99.5% or even 99.99%. The facts show that the Developer was very sure on the 24th August when it bought from the Sisters and that is confirmed by the conduct leading to the making of the August Agreement and reinforced by the subsequent conduct of the Developer when it confirmed within days all the purchases which were till them conditional upon the acquiring of the Sister Half Flat. It is to be noted that in less than 2 weeks after the making of the August Agreement the Developer was sufficiently confident that the Developer would be able to acquire from the Sisters the full title to the Sister Half Flat that it started to sign the formal Purchase Agreements (from 2nd to 14th September 1993) followed by completion and full payments by the end of September 1993. We have heard nothing which had happened from the 24th of August to 30th September 1993 which might suggest a sudden increase in confidence of the Developer that the Sisters could deliver full title to the property. I have no doubt that on the 24th August 1993, the Developer just as Cheung and Lum knew full well that the Sisters had the full right to sell the Sister Half Flat. The so called element of discount because of the uncertainty of right of inheritance or in other words the expectancy point is for me a manufactured defence of no merit and the technical authorities simple do not help the Developer but in fact in a case such as this adds to the Court's distaste for the conduct of the Developer.

40. The position on the 24th August was therefore that the proper price which ought to be paid for the purchase of the Sister Half Flat should be at least $2.7 million with $100,000 deposit. By contrast the terms agreed in the August Agreement were price $870,000 with deposit of $50,000. The price was therefore less than one third of the proper price and the deposit was half of what was paid to everyone else. These two terms alone would render the August Agreement oppressive and unconscionably unfair. But in fact the terms of the August Agreement were even worse. The balance of the purchase price was only to be payable on completion and completion was set for 3 weeks after Cheung obtained the Letters of Administration. But Cheung was the agent of the Developer throughout on the 24th August in talking to the Plaintiffs and in agreeing with the Plaintiffs in respect of the August Agreement. (I find as a fact that it was Cheung and not Lum who discussed with Lo Lan and negotiated the August Agreement.) Therefore the timing of the completion or when the balance of the purchase price was to be paid to the Plaintiffs was put wholly into the hands of the Developer who could decide if and when to proceed with the redevelopment and therefore if and when the Plaintiffs would receive their money. As it happened the Developer did benefit from such provision in the August Agreement and Developer did not have to make any payment for the balance until October 1995 some two years after the making of the August Agreement. I am wholly unpersuaded by the feeble excuse given for the delay in obtaining Letters of Administration. A serious effort in China and Hong Kong would have resulted in a speedy Chinese Authorities certification and a even speedier Letters of Administration in Hong Kong.

41. The terms of the August Agreement contained other features of disadvantage to the Sisters. By giving to Cheung the agent of the Developer the Power of Attorney to apply as Administrator, the Developer in fact gave to its agent Cheung the power and the decision as to when to pay the Sisters the balance of the purchase price. As it happened, Cheung kept the money for a long time after completion and only took steps in 1996 to pay the Sisters when it became apparent that the Sisters wanted to set aside the transaction. The whole arrangement of putting Cheung the agent of the Developer into a position to represent the interests of the Sisters gave the Developer a whip-hand control over the vendors and rendered the Sisters impotent to enforce their rights under the August Agreement.

42. I am therefore of the view and I hold as a fact that the terms of the August Agreement were oppressive and unconscionably unfair to the Sisters. In fact the extent of the oppressive terms are such as to suggest strongly to me that these terms were obtained from the Sisters as result of the combination of the serious disadvantages suffered by the Plaintiffs and the morally reprehensible conduct on the part of the Developer.

Morally Culpable Conduct of the Developer

43. Once it is shown that the Developer and its agent, Cheung and Lum knew that the on the 24th of August the proper price which ought to have been paid by the Developer for the acquisition of the Sister Half Flat was not less than $2.7 million with not less than $100,000 deposit, then the various acts or omissions of the Developer could be shown to be designed for and leading to the object of taking unconscionable advantage of the Plaintiffs.

44. The starting point for this is of course the knowledge of the Developer and its agents, Lum and Cheung of the serious disadvantages suffered by the Plaintiffs as I have found earlier. Knowing of these serious disadvantages of the Plaintiffs, the Developer and its agents Cheung and Lum took various steps to ensure that these serious disadvantages continued and that the Developer would obtain the oppressive terms of the August Agreement. The steps taken (or not taken) by Cheung and Lum consisted of amongst others:-

It is clear from the above recital of acts and omissions of the Developer and its agents, Cheung and Lum that they had full knowledge that the Developer was gaining an unconscionable bargain against the Sisters and knew that if the Developer had taken proper steps and the true position be known to the Sisters with many of the serious disadvantages removed, then the August Agreement would not have been made by the Sisters as there was no possibility that the Sisters would then agree to the unconscionable and oppressive terms of the August Agreement. I conclude therefore that the manner of the making of the August Agreement and the Formal 1995 Agreement by the Developer and its agents Cheung and Lum was reprehensible, to be condemned and certainly culpable in a high degree.

45. Having regard to the serious disadvantages suffered by the Sisters, the oppressive unconscionable terms of the August Agreement and the high moral culpability of the Developer in the making and performance of the August Agreement and its consequential Formal 1995 Agreement, I have no doubt that the conscience of this Court is shocked by this August Agreement and its Formal 1995 Agreement and that no Court in these circumstances could tolerate such unconscionable bargain being retained by the Developer.

Statutory Bar of Unconscionable Bargain Principle

46. Mr. Chong in a surprising final submission argued that not withstanding the otherwise applicability of the Unconscionable Bargain Principle to the facts of this case as to be found by the Court, nevertheless there is in Hong Kong a statutory bar of this Principle by reason of what he says is the result of the statutory history in Hong Kong of this aspect of Unconscionable Bargain. Mr. Edward Chan for the 1st Defendant does not support this contention of Mr. Chong.

47. The basis of this legal submission of Mr. Chong stems from the wording of Section 59 of the Conveyancing and Property Ordinance of 1984 ("HK Section 59" ) which provides:-

48. The argument of Mr. Chong is that if this provision is compared with the source provision in the 1868 Act of England which provides:-

the deletion of the words "or unfair dealing" from the aforesaid Hong Kong Ordinance suggests that unfair dealing cannot be the subject of setting aside in Hong Kong. Mr. Chong neglected to draw the Court's attention to Section 11 of the Law of Property Amendment Ordinance of 1873 which is in very similar terms to the 1868 English Act. Section 11 of the Hong Kong 1873 Ordinance was replaced by the aforesaid HK Section 59.

49. In my judgment the argument of Mr. Chong is erroneous for a number of reasons which I will simply state without too much elaboration as the point seems so devoid of merit as to be incapable of serious argument:-

I therefore conclude that in Hong Kong there is no statutory bar to the Plaintiffs claim to set aside and that in any event the facts of this case as found by me bring this matter outside the scope of any statutory bar even if there is in law any bar which I hold to be not the case.

Remedies against the Developer

50. Having made the finding against the Developer that there was an unconscionable bargain, the normal equitable remedy of setting aside the transaction ought to follow. But the Developer argued that in the exercise of its equitable jurisdiction, the Court should decline to order a setting aside and a number of grounds were submitted as reasons why the Court should decline to exercise the equitable jurisdiction of setting aside.

51. The first ground advanced is that the Developer has changed it position in that:-

52. Having regard to my findings of high culpability of the Developer, it follows that the Developer changed its position knowing that it had the benefit of an unconscionable bargain and decided to go ahead. This is hardly to be compared with a situation where the Exploiter has more sympathy on his side for changing position. In this context it is worth remembering what was said by Lord Wright in Spence v Crawford [1939] 3 A.E.R. 271 at page 288:-

The distinction between a case where there is no moral wrongdoing and a case such as this involving serious moral culpability amounting to equitable fraud is important I can see no basis for the Court to decline the remedy of setting aside because of the Developer Exploiter's acting upon its unconscionable gain.

53. The second ground advanced is that the Developer had completely discharged its obligation to the Sisters under the August Agreement and that some of the services rendered by the Developer to the Sisters could not be quantified. I do not accept that this provides a valid ground. The fact that the Developer knowing that the bargain was unconscionable took steps to perform the August Agreement does not make that unconscionable bargain less worthy of setting aside. In fact this is the sort of feature one would expect to see in unconscionable bargain situations. The more quickly the Exploiter acts to perform the contract and to consolidate its gain under that oppressive contract the more likely that he could keep the gain but it does not provide any reason why the court's hand should be hampered by the speedy acts of the Exploiter. In many situations, the acts of the Exploiter subsequent to the contract simply confirms the view of the court that the conduct of the Exploiter is morally culpable with knowledge that full exploitation had to be consolidated before the innocent party finds out. It should also be noted that the alleged unquantifiable services provided by the Developer could be easily done by an independent third party professional at minor costs and so far as most of these had been done by Cheung, there is no evidence that such legal costs had been billed by Cheung or his firm to the Developer.

54. The third ground advanced by the Developer is that the property has changed its character because the 2nd Building had been pulled down. Although the building has been pulled down, the land on which it stands is still there and the interest of the Sisters in the land represented by the Sister Half Flat is intact and capable of being returned to the Sisters. Further, it must not be overlooked that the demolition was a deliberate act of the Developer with full knowledge of its own unconscionable conduct. The court will not refuse the equitable remedy of setting aside because the Exploiter had seen fit to act on its own unlawful gain. In this case, the Developer had misrepresented to the Plaintiffs that it was buying the Sister Half Flat to demolish for storing sand. In my judgment, justice is plainly done by setting aside the transaction rather than to allow the Developer to keep the fruit of its exploitation.

55. Then finally it is said that an order of setting aside will be a futile exercise because the Developer is entitled to seek the remedy under the Partition Ordinance as co-owner with the Sisters or to apply to the Lands Tribunal under the Land (Compulsory Sale for Redevelopment) Ordinance as majority owner for order for compulsory sale of all interest in the land of No. 28 and 30. The short answer to this last submission is that there is in my judgment no certainty that the Developer would obtain the suggested remedies from the various court and tribunal under the two Ordinances. I agree with Mr. Remedios that there would be many obstacles to the Developer obtaining the suggested orders under these two Ordinances. But even if there might be substance in what Mr. Chong says that under the two Ordinances some form of orders might be ultimately made, that does not make it right that this Court should deprive the Sisters their statutory rights which normally reside in any owner of the property to resist applications under these statues. There is no substance in this ground of opposition.

56. My conclusion on the argument that the Court should refuse to set aside is that in the circumstances of this case, having regard to the nature and manner of this unconscionable bargain and the fact that the Sisters are:-

overall justice will be done by an order of setting aside on the condition of the Plaintiffs repaying to the 2nd Defendant $50,000 with interest at 2% above prime from 24th August 1993 and $100,000 with interest at 2% above prime from the 6th of January 1994. In coming to this decision, I have not overlooked any of the extensive submissions made to me by Mr. Chong as to why I should exercise my discretion against setting aside. I regret that however his arguments are put, whether on the basis of practical justice or substantial restitution or in some other way, the same result is reached. What is of significance to me is that the land interest which has been unlawfully gained by the Developer can be returned intact to the Plaintiffs and the Plaintiffs can repay the money received from the Developer and that this is a case of such distasteful unconscionable conduct by Hong Kong sharks against defenceless mainland Chinese persons of serious disadvantage that both as a matter of application of the protection of the weak by the equity court and as a matter of public policy, the Developer should not be allowed to keep its unconscionable gain. As to the form of Order against the 2nd Defendant, having regard to the submissions made to me, I am of the judgment that the following order should be made against the 2nd Defendant:-

Remedies against Cheung

57. Although the main contest at the Trial is between the Plaintiffs and the 2nd Defendant, the 1st Defendant cannot escape responsibility for the part he took in the making of and in the performance of the unconscionable bargain. He played an important role throughout extending in period from August 1993 until well after October 1995 when he had received the entire proceeds of sale of $870,000 but did not account the same to the Plaintiffs. He said he repaid $150,000 to the Developer but I do not believe him. Not only did he, knowing of the serious disadvantages of the Plaintiffs, obtained from the Plaintiffs on oppressive terms and in morally culpable manner the August Agreement, paying only $50,000 deposit but he persisted in this unconscionable bargain in January 1994 when he went back to have the Chinese Certification aspects dealt with and in October 1995 when purportedly on behalf of the estate of the Deceased Sister, he signed the Formal 1995 Agreement when he knew full well that the proper price for the Sister Half Flat was at least three times higher and that the Sisters had been cheated by the Developer under the August Agreement. In these circumstances, Cheung as attorney for the estate of the Deceased Sister and as Administrator had no business signing the Formal 1995 Agreement in October 1995. It was his last act of signing away the Assignment which led directly to this Action. He was clearly in a conflict situation where in the words of Kay, J. in Fry v Lane at page 324: "To act for both sides in such a case, and permit a sale at an undervalue, is a position in which no careful practitioner would allow himself to be placed." He is a large culprit notwithstanding the most charming submissions made on his behalf by Mr. Edward Chan. If Cheung is a solicitor, his conduct in this transaction ought to be the subject of professional misconduct inquiry.

58. What should be the proper remedies against him. Mr. Edward Chan in his very low key submissions suggested that a minimum form of order should be made against the 1st Defendant. Having regard to the submissions made to me and my findings, it seems to me that the following order should be made against the 1st Defendant:-

Costs

59. This Trial has been long and not without a number of difficulties. At the end it is quite clear that both the 1st and 2nd Defendant have been found to be culpably responsible for this unconscionable bargain which the Court has held to be one which shocks the conscience of the Court and therefore must be set aside. In my view both Defendants must be responsible for the costs of the Action including the costs of the Trial. As to the details of the costs order against each Defendant and the question of whether the Court should do a gross sum assessment on all or any part of the Action such as the Trial of the Action, I will hear the parties so that this aspect can be considered in the light of submissions from the parties.