TALENT WISE LTD. v. CHEUNG SHUI CHING

HCA11309/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11309 OF 1997

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J U D G M E N T

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1. On the 12th February 1998, Master Chu gave judgment in favour of the Plaintiff on its application under Order 86 of the rules of the High Court.

2. The background to the application may be briefly related.

3. The Defendant was and is the registered owner of premises known as Flat A on the 9th Floor of Tower 2 and Car Parking Space No. 17 on the Carpark Level 2 of The Redhill Peninsula-Phase IV, No. 18 Pak Pat Shan Road, Hong Kong, referred to as "the Premises" in the Statement of Claim.

4. By an agreement in writing dated the 27th May 1997 and this is referred to as "the Provisional Agreement" in the Statement of Claim and made between the Defendant as the vendor, the Plaintiff as the purchaser and Centaline Property Agency Limited, the Defendant agreed to sell and the Plaintiff agreed to purchase the Premises for $20,000,000.

5. Clause 2(a) of the Provisional Agreement provided that a sum of HK$1,000,000 should be paid upon signing of the Provisional Agreement as deposit.

6. Pursuant to the Provisional Agreement, a further agreement in writing dated the 19th June 1997 referred to as "the Agreement" in the Statement of Claim was made between the Defendant as vendor and the Plaintiff as purchaser under which the Defendant agreed to sell and the Plaintiff agreed to purchase the Premises for $20,000,000 to be paid in accordance with the detailed provisions set out in Clause 2 and Part IV of the Schedule to the Agreement.

7. By Clause 3 and Part V of the Schedule to the Agreement, the purchase was to have been completed at the offices of Messrs. Lau Pau & Company, solicitors or as they might direct on or before the 12th day of September 1997 when the whole of the purchase money should be fully paid and the Defendant and all other necessary parties would execute a proper assignment of the Premises to the Plaintiff or his nominee(s) or sub-purchaser(s).

8. Clause 14 of the Agreement provided that if the Defendant should fail to complete the sale in accordance with the terms of the Agreement, then all moneys paid thereunder should be returned forthwith to the Plaintiff who should also be entitled to recover from the Defendant such further damages (if any) over and above the deposit or any further sum or sums paid under the Agreement.

9. Clause 16 provided that time should be of the essence of the Agreement and Clause 27, which I set out in full, reads as follows:-

"The Vendor hereby declares and confirms that no third party (whether related or otherwise) has any right or interest whatsoever, whether legal or equitable, in the Premises. The vendor hereby further declares and confirms that the vendor has the absolute right and interest in the Property and that the Property was purchased with the vendor's own monies, (and the mortgage loan was repaid by the vendor with the vendor's own monies). In the event of any third party claim to the Property on or before completion, whether legal or equitable, the vendor shall forthwith return all monies paid to the purchaser and without prejudice to the purchaser's right to claim against the vendor for all losses and damages sustained by the purchaser by reason of the vendor's failure and/or inability to complete the sale in accordance with the terms hereof and it shall not be necessary for the purchaser to tender an assignment of the Property to the vendor for execution."

10. Pursuant to the Provisional Agreement and to the Agreement, the Plaintiff made various payments of deposits and partial payments totalling $3,000,000 and also paid $550,000 to the Hong Kong Government by way of Stamp Duty.

11. On the 11th September 1997, the solicitors then acting for the Plaintiff, Messrs. C. W. Heung & Partners, received a letter from Messrs. Chan & Chu, a firm of solicitors, of the same date. By that letter, Messrs. C. W. Heung & Co. were told, first, that Messrs. Chan & Chiu acted for one Lee Lo Ngai, referred to as "Lee" throughout these proceedings, who was alleged to be one of the beneficial owners of the Premises; secondly, the Premises were in fact held by the Defendant upon trust for herself and Lee in equal shares and thirdly, that Lee was entitled to a half share of the interest in the Premises; adding that "and we shall be obliged if you can note our Client's interest thereof". So far, no suggestion was made that there was any legal impediment to the sale being completed.

12. On the same day, Messrs. C. W. Heung & Co. received a second letter from Messrs. Chan & Chu in which Messrs. Chan & Chu said that Lee, as one of the beneficial owners, objected to sell the Premises to the Plaintiff; and that Lee would commence proceedings against the Defendant to preserve his interest in the Premises.

13. The first letter of the 11th September 1997 was passed to the Defendant's solicitors by Messrs. C. W. Heung & Co. The Defendant's solicitors promptly replied on the 12th September 1997, correctly as it turned out, that the Defendant had no knowledge of Lee and completely denies the allegations made on his behalf.

14. On the 12th September 1997, Lee issued proceedings against the Defendant in Court of First Instance Action No. A9612 of 1997. The Writ of Summons claimed a declaration that the Premises were held upon trust by the Defendant for herself and Lee in equal shares. It also claimed an account and payment of the proceeds of sale of the Premises and damages for breach of trust. I pause to note that there was no claim for any injunction restraining the sale.

15. The Writ was registered with the Land Registry against the Premises on the 12th September 1997 under Memorial No. 7256700.

16. On the same day, that is the 12th September 1997, Lee obtained a Mareva injunction in his Action which restrained the Defendant from disposing of certain of her assets within the jurisdiction. Paragraph 1 of the order made by Barnett, J. reads as follows:-

"That the Defendant be restrained and an injunction is hereby granted restraining her until after the hearing of a summons to continue this injunction returnable on 19th September 1997 whether by herself, her servants or agents or otherwise howsoever from removing, disposing of, diminishing, assigning, charging or in any way howsoever dealing with any of her assets within the jurisdiction, whether the same be held in either of her name alone or jointly with others or by nominees or trustees for her and without prejudice to the forthgoing, in particular the proceeds of sale of the property known as Flat A, 9th Floor, Tower 2, The Redhill Peninsula, Phase IV, No.18 Pak Pat Shan Road, Hong Kong and Car Parking Space No. 17 on L2 save insofar as the value of such assets exceeds the sums of HK$8,000,000."

17. Again, I note that there was no injunction restraining completion.

18. By reason of these matters, the Plaintiff, relying on Clause 27 of the Agreement, has sought the return of the sums paid under the Agreement and the $550,000 paid by way of Stamp Duty.

19. A Writ with the Statement of Claim endorsed was issued on the 13th November 1997 and the summons under Order 86 was issued two days later.

20. As I mentioned earlier, Master Chu gave judgment in the Plaintiff's favour on the 12th February 1998 and it is against this judgment which the Defendant now appeals.

21. Very capable arguments have been deployed before me on the effect of the various provisions of the Agreement and, in particular, Clause 27 and the correspondence amongst the various parties and the exact times and dates faxes and letters were sent and received.

22. The Defendant has also raised the possibility of the Plaintiff being in some way implicated with the claim made by Lee who took out his proceedings, as it were, to give the Plaintiff an excuse not to complete the sale and purchase.

23. Mr. Scott for the Plaintiff objects to the Defendant through Ms Lam making these submissions since they amount to serious allegations of fraud which have not been referred to in the Defendant's affidavit evidence and, in particular, Mr. Scott says, none of these matters are new matters, so that there is no excuse for not having referred to them. Mr. Scott further underlined the point and his objection by submitting that most of these matters were not even referred to in the hearing before Master Chu. Ms. Lam's retort was that all the various matters pointed to by her were already in the evidence from which she was asking the Court to draw the appropriate inference as to whether the matter ought to undergo further enquiry.

24. I have to say I have been troubled by this. It is not entirely clear to me if a conspiracy is being alleged, but on any view, an allegation of knowledge on the part of the Plaintiff, or some director of the Plaintiff, of Lee's bogus claim would appear to be required. While I have vacillated on this point during the argument, and I can see the force of Mr. Scott's "ambush" argument, I decided to allow the point to be developed as otherwise an irremediable injustice may be done to the Defendant. Ultimately, while the Defendant may have difficulties formulating a plea by way of defence, I am, at this stage, reluctant to shut out the Defendant if the matters raised are, in any way, suspicious or require further investigation.

25. It is not necessary for me, of course, at this stage to make any findings on this suggestion of wrongdoing or collusion. I have to say, however, that Ms Lam has managed to refer to, to put it no higher, very intriguing possibilities. I certainly do not consider what she has so carefully marshalled in paragraphs 28 to 40 of her skeleton submissions and elaborated upon and added to, perhaps rather substantially, orally, to be moonshine or the pure surmise or Micawberism of the type described by the Vice Chancellor in Lady Anne Tennant v. Associated Newspaper Co. [1979] FSR 298, at page 303. I also note that, in the course of argument, Ms Lam no longer considers it is necessary for her to prove or even to allege fraud on the part of the Plaintiff at this juncture. I agree with her, but the matters she has raised are nonetheless matters of gravity. Those paragraphs in her written submissions and her oral elaboration thereon, despite Mr. Scott's very cogent observations on them, point, in my view, to circumstances which call for further investigation. In my judgment, far more pertinent are the observations of Megarry, J. in Miles v. Bull, [1969] 1QB 258, at 265 in the paragraph just beneath the Letter C going on to page 266 just before the Letter G:

"Accordingly, if the question is whether or not the defendant has an arguable defence to the claim, I would have to answer No: for as matters stand I can perceive no such defence. All that can be said is that this is a transaction which ought to be scrutinised with some care; for plainly it bears something of the appearance of a device to evict the defendant. A device may, indeed, be a perfectly genuine transaction and no sham: that it was devised for a particular purpose by no means necessarily implies that it pretends to be what it is not. However, if a transaction is carried through not for its own sake, but in order to achieve some ulterior purpose, it may be found on examination that it has travelled the road from artifice and artificiality to sham.

In these circumstances, I think that it is necessary to examine the precise wording of Order 14. Under the former Order 14, r. 1, a defendant could obtain leave to defend if he satisfied the judge that he had a good defence to the action on the merits, or disclosed 'such facts as may be deemed sufficient to entitle him to defend the action generally.' I do not see how that can be said to be the case here. The language of Order 14 has, however, been changed, and it is the new language that I must apply.

Under rules 3 and 4 of the present Order 14, the defendant can obtain leave to defend if (and I read from rule 3(1)) the defendant satisfies the court 'that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial.' These last words seem to me to be very wide. They also seem to me to have special significance where, as here, most or all of the relevant facts are under the control of the plaintiff, and the defendant would have to seek to elicit by discovery, interrogatories and cross-examination those which will aid her. If the defendant cannot point to a specific issue which ought to be tried but nevertheless satisfies the court that there are circumstances that ought to be investigated, then I think that those concluding words are invoked. There are cases when the plaintiff ought to be put to strict proof of his claim, and exposed to the full investigation possible at a trial; and in such cases it would, in my judgment, be wrong to enter summary judgment for the plaintiff. In the present case the plaintiff's evidence initially consisted of a single affidavit in which brevity could scarcely be carried further. He has now amplified this by further evidence, but this is certainly not exhaustive or conclusive. The words 'there ought for some other reason to be a trial' seem to me to give the court adequate powers to confine Order 14 to being a good servant and prevent it from being a bad master. If I may adapt the language of Lord Parker of Waddington in Daimler Company Ltd. v. Continental Tyre & Rubber Co. (Great Britain) Ltd., referred to in the notes to Order 14 in the Supreme Court Practice, 1967, p. 122, if the circumstances of the case are 'such as to require close investigation,' this will 'preclude the propriety of giving leave to sign judgment under Order 14, r. 1.' The question is thus whether this is such a case.

I think it is. In my judgment 'there ought for some other reason to be a trial'; and the reason is that of justice. By carrying through a transaction at unusual speed the defendant's husband is seeking to enable the plaintiff to do what he himself cannot do, namely, evict the defendant from her home. The husband has whatever rights the law gives him, and so has the plaintiff; but in the circumstances of the case I do not think that it would be just if the plaintiff were able to enforce the rights which he claims without being put to strict proof that they do enable him to evict the defendant. I was told that, in granting leave to defend, Master Jacob said that the case was 'too near the bone for Order 14.' That, if I may say so, seems to me to summarise admirably what I have tried to express in greater detail. Order 14 is for the plain and straightforward, not for the devious and crafty. There is here a case for investigation, and so not for summary decision."

26. I also rest my decision on the ground that to succeed on an Order 86 application, the Plaintiff has to show a clear case to which the Defendant is unable to put up any sensible argument or triable issue, either on fact or on law. It seems to me to be more than arguable that Clause 27 is not triggered simply by a third party making an unsubstantiated claim to a beneficial interest in the premises, particularly where there is no sufficient suggestion that the third party is either entitled to or will apply for an injunction restraining the sale or completion. Clause 27 does not say that it operates whenever a claim to the proceeds of sale is made. A fraudulent or bogus claim may well not fall within the clause. Otherwise even a claim which is shown to be groundless before completion may trigger Clause 27, a rather unusual and perhaps unreasonable result.

27. In the circumstances, I do not believe it is either necessary or desirable for me to pronounce on any of the other matters so capably canvassed before me. I would simply allow the Defendant's appeal.

28. I am very grateful to both of you for the care and effort you have taken in the preparation and in the presentation of your submissions.

[Submissions on Costs]

29. As far as the costs of the appeal is concerned, I bear in mind the argument which Mr. Scott presented to me earlier that when allegations of this serious nature are made, it is incumbent upon the Defendant to give adequate notice and there is justification in his complaint that such notice, such as there was, given all these wide-ranging points, was not really adequate.

30. Mr. Scott also refers me to a passage in the White Book at marginal note 14/7/16 on page 179, to the effect that if the appeal turns upon evidence or material not placed before the Master, the costs below are normally left undisturbed and the costs of the appeal made costs in the cause. I believe the just and reasonable order to be made in this case is that both the costs here and the costs below should be costs in the cause.