TO HOI YIP AND OTHERS v. LAI SIU WAI LOUIS AND OTHERS

HCA1607/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1607 OF 2004

D E C I S I O N

1.  This is an application by the 4th, 5th and 6th plaintiffs under Order 29, Rule 2(3) of the Rules of the High Court for an order that the 1st defendant do pay into court certain licence fees generated out of the letting of certain land in Tuen Mun.  Order 29, Rule 2(3) provides:

“

(3)

Where the right of any party to a specific fund is in dispute in a cause or matter, the Court may, on the application of a party to the cause or matter, order the fund to be paid into court or otherwise secured.”

2.  The plaintiffs are brothers and sisters.  They used to own several lots of land in Tuen Mun.  They entered into a development agreement dated 2 February 1997 with the 1st defendant to develop 17 blocks of three-storeys small village houses on these lots.  Under the agreement, the plaintiffs were to provide these lots and the 1st defendant to provide the necessary funding for the applications for building licences and the building and construction works.  Of the small houses to be developed, the plaintiffs would take 30 per cent of them and the 1st defendant would take the remaining 70 per cent.  There are detailed provisions for the sharing of the fruits of the agreement, and it is not necessary for me to go into them for the purpose of this application.

3.  The agreement provided a performance period of 42 months, and the 1st defendant should start applying for the building licences within six months from the making of the agreement.  There is a provision that at the expiry of the 42 months, if there should still be some of the lots that are subject to applications for building licences lodged with the government, then unless the government should expressly state that these remaining applications will not be approved, the parties shall continue with the agreement until the development is completed.

4.  Pursuant to the agreement, a number of lots had been assigned to the 1st defendant and his nominees.  One of these lots was Lot 1171 in DD130 which was owned by the 4th, 5th and 6th plaintiffs and was transferred to the 1st defendant on 24 January 1998.  Though the assignment stated that the lot was transferred in return for $250,000, there is no dispute that this sum was never paid as the transfer was in fact for the purpose of the development agreement.

5.  However, the 1st defendant had not submitted any application to the government for building licence in respect of this lot, whether within six months from 2 February 1997 or from 24 January 1998.  His counsel said that this lot was intended to be used for the construction of car parks.  Thus, no application for building licence was lodged.

6.  On 9 July 2004, the plaintiffs started this action for retransfer of the undeveloped lots back to them together with damages to be assessed.  The ground of the claim is the 1st defendant’s breach of the development agreement in failing to carry out the development within time.

7.  There is a further claim that the 1st defendant had breached the agreement by letting out Lot 1171 to a company called Hoi Kong Cars and Parts Company.

8.  The other defendants are sued because they are the registered owners of the lots in question.  The claims against the 4th and 5th defendants have ceased because of a settlement with the 4th defendant and the death of the 5th defendant.  The lot formerly held by the 5th defendant is now registered under the name of the 6th defendant who is the wife of the 1st defendant. 

9.  The defendants have filed a defence containing a counterclaim by the 1st defendant.  The defence makes cross charges against the plaintiffs for having breached the development agreement.  There are also allegations by the 1st defendant against the 1st plaintiff for breaches of a consultant agreement made between them on 14 January 1997, but that agreement does not concern the 4th, 5th and 6th plaintiffs.  By the counterclaim, the 1st defendant seeks specific performance by the plaintiffs of the development agreement.  Since this action is still at the interlocutory stage, the less I mention about the merits, the better.

10.  As I have said above, the 1st defendant had let out Lot 1171 to Hoi Kong Cars and Parts Company.  He did so by a licence agreement dated 21 July 2003 which expired on 31 July 2004.  Under the agreement, he was entitled to receive $8,000 per month as licence fee from Hoi Kong.  The undisputed evidence is that despite the expiry of the agreement, he is still receiving such licence fees every month.

11.  By this application, the 4th, 5th and 6th plaintiffs seek an order requiring the 1st defendant to pay such licence fees into court.  The 1st defendant opposes this application but he does not say that he is entitled to receive such fees as of right under the development agreement.  He said in paragraphs 34 and 35 of his affirmation filed on 5 July 2005:

“	34.	I admit that I have since about 1 August 2003 through my company granted a licence to Hoi Kong Cars and Parts Limited in respect of Lot 1171 in DD130 at a monthly licence fee of HK$8,000 for the purpose of mitigating for the loss and damage suffered and continued to suffer by me.  Nevertheless, I have incurred expenditure to operate my business, including the granting of licence to the aforesaid licensee.
	35.	It is my respectful submission that by ordering me to make payment into court, the plaintiffs are putting pressure on me which would cause irreparable damage on me in that I, in the absence of receiving licence fee from the licensee, would face substantial financial burden to meet the expense for day-to-day operation and administration of my business.”

12.  Since the action is still in the interlocutory stage, I do not think the 1st defendant is entitled to exercise self-help to satisfy a judgment that he may or may not obtain at the end of the trial.  His counsel submitted that he is the registered owner of Lot 1171.  However, the lot was not transferred to him in the ordinary course of sale.  It was transferred to him for the specific purpose of the development agreement, and he did not even dare to depose in his affirmation that he is entitled to keep the licence fees under the agreement.  I think this is a case which warrants an order for payment of the licence fees into court.

13.  Counsel for the 1st defendant also submitted that any order for payment should not cover licence fees received in the past but only future payments to be received.  He refers me to a paragraph of the plaintiffs’ written submissions which seeks to limit the scope of the application to the future.  I must say that this paragraph in the written submissions is a deviation from the stance taken in the summons and the plaintiffs’ affirmation in support.  Since the written submission was only filed and served this morning, the deviation in stance has not caused any prejudice to the 1st defendant.  If any order for payment into court is warranted, it should cover all the licence fees, whether received in the past or to be received in the future.

14.  Counsel for the 1st defendant further submitted that the licence fees received in the past had already been spent by the 1st defendant.  I do not think such a submission can entitle the 1st defendant to keep the licence fees received in the past.  It is his obligation to come up with funding for the applications of building licences and the building and construction works.  He is not entitled to make use of money which may belong to the 4th, 5th and 6th plaintiffs for such purpose.  I therefore order that the 1st defendant do pay into court all the licence fees or rent he has received out of the licensing or letting of Lot 1171 within 21 days from today and to pay into court all the licence fee or rent to be received in future out of the licensing or letting of this lot within 14 days of such receipt.

(Court discussion re costs)

15.  On the question of costs, counsel for the 1st defendant submits that the 1st defendant may win the case at the very end, and hence, the funds would have to be paid out to him.  He therefore asks for costs to be in the cause.  I do not agree with that.  Whoever may win the action or any particular claim at the end may also have the costs for the action or that particular claim to be ordered to him, but that does not mean that he is thus entitled to oppose interlocutory applications without adverse consequence on costs.  If he should oppose an interlocutory application and lose it, then he should in the usual case be liable for the costs incurred, and I do not see any particular reason why this should not apply in the present case.  I therefore order that the 1st defendant do pay the costs of this application to the 4th, 5th and 6th plaintiffs.