XCHRX TSO YUK YIN v. YAU KWONG WANG

HCA 8154/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8154 OF 2000

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REASONS FOR JUDGMENT

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1. This is an appeal from the decision of Master De Souza on 18 April 2001 in an application by the plaintiff for summary judgment, alternatively for interim payment under O. 29 r. 10 of the Rules of the High Court. The learned Master gave judgment to the plaintiff in the sums of HK$3,634,555.71 with interest thereon at the rate of 1.5% per month from 1 May 2000 until payment and HK$962,880.00 with interest thereon at the judgment rate from 14 August 2000 until payment.

2. At the end of the hearing, I allowed the appeal in part by deducting the sum of HK$350,000.00 from the sum of HK$962,880.00. The judgment of the Master in respect of the other sum is left undisturbed. These are the reasons for my decision.

Fresh evidence on appeal

3. The defendant's Notice of Appeal was filed on 21 May 2001. It was only on 27 July 2001, four days before the hearing of the appeal, that the defendant put in a further affirmation made by him and an affirmation by another witness, Mr Po Sek Bun. Mr David Tsang, who appeared on behalf of the plaintiff, opposed the admission of these affirmations.

4. I was referred by both sides to the decision of Kaplan J in Core Resources (Far East) Ltd v. Sky Finders Limited [1992] 1 HKLR 193 in which it was held that in an appeal from a Master which is a hearing de novo, the court would usually allow a party to put in additional information which was available but not placed before the Master, such as additional documents or an affirmation from another deponent to deal with matters which should have been dealt with below. However, where the evidence sought to be put in raises a completely new defence as compared to the defence raised before the Master and was rejected, the court would not exercise its discretion to permit a party to adduce such new evidence in this situation.

5. Having considered the two further affirmations of the defendant, I am satisfied that the defendant has not raised a completely new defence and that what he seeks to do is merely to give additional documents or information in support of the case advanced in the existing pleading and evidence.

6. Having sought instructions whether it was necessary to apply for an adjournment so that the plaintiff could file an affirmation to rebut the allegations in the defendant's latest affirmations, Mr Tsang informed me that he had decided not to do so but he wished to make clear and to put it on record that the allegations made in the two further affirmations of the defendant are denied by the plaintiff.

7. In the exercise of my discretion, I allowed the defendant to rely on the two new affirmations filed on 27 July 2001.

The background matters

8. The plaintiff was involved in developing small houses in the New Territories. The plaintiff and her husband, Mr Wong Kong Lee Henry, were introduced to the defendant by Mr Po in mid 1996. The defendant was and is a resident of Sun Uk Tsai Village in Lam Tsuen, Tai Po, New Territories.

9. In about July or August 1996, the defendant took the plaintiff and Mr Wong to view some plots of land in Sun Uk Tsai. These included Lot No. 253 in Demarcation District No. 19 ("Lot 253") and another lot. According to the plaintiff, the other Lot was Lot No. 83 in Demarcation District No. 19 ("Lot 83"). According to the defendant, the other lot was Lot No. 84 in Demarcation District No. 19 ("Lot 84").

10. Some time in 1996, a written proposal for developing Lot 83 was provided to the plaintiff for consideration. It is the defendant's case that he did not notice the lot number stated in the proposal was Lot 83 and not Lot 84.

11. According to the proposal, the total estimated development cost was HK$8.4 million and the 1st instalment to be paid by the plaintiff was HK$3.2 million.

12. It is not in dispute that on 6 January 1997, the plaintiff paid the 1st instalment of HK$3.2 million to the defendant for the development of Lot 83, albeit that the correct property should have been Lot 84 according to the defendant's case.

13. It is also not in dispute that the plaintiff appointed the defendant her agent to develop a property on the land (whether this be Lot 83 or Lot 84) and that the defendant would take all necessary steps and make all necessary arrangements to develop the land.

14. On the plaintiff's case, it was in June 1998 that she was informed that the land to be developed should be Lot 84 and not Lot 83. The defendant makes no admission as to when the plaintiff was informed of the mistake but avers in the Defence that the mistake was discovered at quite a late stage.

15. It is common ground that no progress was made for the development of Lot 84. A Cancellation Agreement in Chinese dated 21 September 1998 was signed between the plaintiff and the defendant ("the Cancellation Agreement").

16. The material terms of the Cancellation Agreement, which are admitted by the defendant, were as follows:

(1) the defendant would return the sum of HK$3.2 million with interest to the plaintiff on or before 28 December 1998;

(2) the interest on the said sum from 6 January 1997 to 28 December 1998 was agreed at HK$434,555.71;

(3) the defendant would draw a cheque in the sum of HK$3,634,555.71 (being the total of HK$3.2 million with the agreed interest) in favour of the plaintiff and the cheque would be post-dated to 28 December 1998.

17. It is not in dispute that the cheque was not paid by the defendant because the parties entered into another agreement in Chinese dated 1 February 1999, referred to in the Statement of Claim as the "1st Supplemental Agreement" and in the Defence as "the New Agreement". I shall refer to this as the "1st Supplemental Agreement".

18. The material terms of the 1st Supplemental Agreement, which are also admitted by the defendant, were as follows:

(1) the defendant would return the sum of HK$3,634,555.71 in two instalments together with interest to the plaintiff. The 1st instalment including interest would be in the sum of HK$1,857,450.57 and this was to be paid on 31 March 1999. The 2nd instalment including interest would be in the sum of HK$1,885,032.30 and this was to be paid on 31 May 1999;

(2) the defendant was to give two post-dated cheques to the plaintiff in the respective sums of the 1st and 2nd instalments. The dates of the cheques would be the repayment dates for the 1st and 2nd instalments;

(3) the defendant was to execute a mortgage deed to mortgage three properties to the plaintiff as security of his obligation to pay under this agreement. The properties were Lot No. 33 in Demarcation District No. 19, the Remaining Portion of Lot No. 2061 in Demarcation District No. 19 ("Lot 2061 RP") and Lot No. 2065 in Demarcation District No. 19.

19. A mortgage deed dated 1 February 1999 was executed by the defendant in favour of the plaintiff in respect of the three properties mentioned above to secure repayment of the principal sum of HK$3,634,555.71 with interest thereon.

20. Some time in July or August 1999, the plaintiff and the defendant entered into a 2nd Supplemental Agreement ("the 2nd Supplemental Agreement") granting further time to the defendant to pay the amount he had agreed to pay in the 1st Supplemental Agreement being HK$3,742,482.87, which was the total of the 1st and 2nd instalments.

21. It was a term of the 2nd Supplemental Agreement that interest on HK$3,742,482.87 should be calculated at 1.5% per month and payable from 1 July 1999 onwards. It is the plaintiff's case that no interest payment was made as from 1 May 2000. Hence, the defendant had repudiated the 2nd Supplemental Agreement and the plaintiff is entitled to recover HK$3,634,555.71 forthwith in view of the defendant's default in making the interest payment. This formed the basis of the 1st claim for which the Master had awarded judgment in the plaintiff's favour.

22. The other amount awarded by the Master in the sum of HK$962,880.00 is the total of two amounts claimed by the plaintiff being HK$262,880.00 and HK$700,000.00. These claims arose out of an agency agreement between the plaintiff and the defendant whereby the defendant was appointed the plaintiff's agent to develop Lot 253. Pursuant to this agreement, the plaintiff paid the defendant a total sum of HK$3,694,771.00.

23. In the application for summary judgment alternatively for interim payment, the plaintiff does not seek to recover the full sum of HK$3,694,771.00. Instead, the plaintiff seeks to recover merely the two sums that I have mentioned, being HK$262,880.00 and HK$700,000.00.

24. The plaintiff had terminated the agency agreement in respect of Lot 253 alleging breach of the agency agreement, breach of fiduciary duty, and/or fraudulent misrepresentation and seeks to recover the sum of HK$3,694,771.00 which she had paid for the development of Lot 253. Alternatively, she seeks an account of what balance of the sum of HK$3,694,771.00 should remain in the hands of the defendant after giving credit for all sums properly spent by the defendant for and on behalf of the plaintiff in the development of Lot 253 and an order that the defendant is to pay the balance that may be found due upon the taking of the account. There is also a claim for damages for fraudulent misrepresentation, and/or breach of fiduciary duty and/or breach of the agency agreement.

25. The two sums which the plaintiff seeks to recover under the application for summary judgment alternatively for interim payment are premised on these grounds. The sum of HK$262,880.00 is the remaining balance retained by the defendant out of the HK$3,694,771.00 paid by the plaintiff and which had not been spent towards the development of Lot 253 when the agency agreement was terminated. The plaintiff says that the unused balance should be returned to her regardless of whether she is entitled to recover the full amount paid to the defendant for the development or the balance of the amount due after the taking of an account or damages for misrepresentation or for breach of contract.

26. As for the other sum of HK$700,000.00, this amount was alleged by the defendant to have been paid on the plaintiff's behalf as an "introduction fee". The plaintiff's position is that this sum was not properly charged to her account and that the defendant has failed to provide any documentary evidence that this amount had been paid at all. On that basis, the plaintiff seeks to recover this sum as an amount payable in any event regardless of whether she is entitled to full recovery on the various bases as mentioned above.

27. Two broad grounds were relied on by Mr Edward Chow, who appeared for the defendant in this appeal. Firstly, it was argued that the defendant has raised substantial disputes of fact which should go to trial. Secondly, it was contended that the plaintiff's claim is not amenable to the O. 14 procedure because the plaintiff has alleged, inter alia, fraudulent misrepresentation against the defendant. I will deal with the second ground first.

Whether the plaintiff's claim is amenable to an application for summary judgment

28. Mr Chow referred to O. 14 r. 1(2)(b) of the Rules of the High Court which provides that the O. 14 procedure applies to "every action begun by writ other than - ... (b) an action which includes a claim by the plaintiff based on an allegation of fraud". I was referred to paragraph 14/1/1 of the Hong Kong Civil Procedure 2001 and the cases cited therein. This point taken by Mr Chow may be disposed of shortly. There are two answers to this.

29. Firstly, the plaintiff's application is for summary judgment alternatively for interim payment under O. 29 r. 10. An application for interim payment may be included in a summons for summary judgment, see O. 29 r. 10(2). Hence, plaintiff can rely on O. 29 r. 10 as an alternative basis for the relief sought. The exclusion of an action based on an allegation of fraud under O. 14 r. 1(2)(b) would have no application in respect of an application for interim payment.

30. Secondly, it is quite clear from what I have stated above that the amounts claimed by the plaintiff in this application, being the sums of HK$3,634,555.71 and HK$962,880.00, are not based on an allegation of fraud, whether in the sense as defined in Derry v. Peek (1889) 14 App Cas 337 or dishonesty in the wider sense. The plaintiff has not sought to invoke the O. 14 procedure in respect of its claim for the full recovery of the amount paid or for damages which is based, inter alia, on an allegation of fraudulent misrepresentation. The exclusion in O. 14 r. 1(2)(b) has no application to this situation.

31. I turn to consider the disputes of fact raised by the defendant under each of the amounts claimed by the plaintiff in this application.

The claim for HK$3,634,555.71

32. The defence raised by the defendant is two-fold. Firstly, the defendant alleges that the agency agreement to develop Lot 84 was varied in that the parties had agreed to substitute this plot of land with another property being Lot 2061 RP. This was referred to as the "Substitution Agreement" in the two new affirmations filed by the defendant. It is alleged that the effect of the Substitution Agreement was that the parties had agreed that the defendant would procure the sale of the building erected on Lot 2061 RP, that the proceeds of sale would be paid to the plaintiff for settlement of the defendant's debt due to the plaintiff in respect of the development which was aborted (whether this be Lot 83 or Lot 84), and that the plaintiff would not sue the defendant to recover the debt in the meantime.

33. I reject the first line of defence. I have reviewed the defendant's evidence. In my view, the case he has advanced is full of holes and is simply incredible. There is conflict in the defendant's affirmation with the affirmation of Mr Po who is a witness for the defendant. The defendant's evidence is also contradicted by the agreements which he had signed.

34. A few examples would serve to illustrate the discrepancies and contradictions:

(1) It is the defendant's pleaded case that after the agreement to substitute Lot 2061 RP was made, the Cancellation Agreement was entered into by the parties. The Cancellation Agreement was made in September 1998. He repeated this version in his 1st affirmation. It is different from the version given by Mr Po who stated in his affirmation that it was in or after June 1999 that he had suggested to the plaintiff to ask the defendant to assign the village house to be built on Lot 2061 RP to her and to use the proceeds of sale to set off the defendant's debt as the defendant could not repay the debt and that was how the Substitution Agreement was made.

(2) The defendant's allegation that the Cancellation Agreement was entered into as a result of the parties agreeing to substitute Lot 2061 RP as the property to be developed is not borne out by the Cancellation Agreement. I have set out the essential terms of the Cancellation Agreement in the earlier part of this judgment. No mention was made in the Cancellation Agreement of Lot 2061 RP.

(3) The defendant's allegation of the terms of the Substitution Agreement is not borne out by the 2nd Supplemental Agreement, which is the only agreement to have mentioned using the proceeds of sale of Lot 2061 RP to settle the defendant's debt. According to the Statement of Claim, the 2nd Supplemental Agreement contained inter alia these provisions and they are admitted in the Defence:

(a) the defendant was to pay interest of HK$56,317.24 on the first day of each month;

(b) in the event of the defendant making default in paying the agreed interest, the plaintiff would commence legal proceedings to recover the agreed sum in the 1st Supplemental Agreement being HK$3,634,555.71;

(c) the defendant should, as quickly as possible, develop a three-storey small house on Lot 2061 RP of a style and specification to the approval of the plaintiff;

(d) the small house on Lot 2061 RP should be assigned to the plaintiff on completion and the plaintiff would be entitled to sell the house and retain the proceeds of sale. In the event that the proceeds of sale were insufficient to pay off the amount owed by the defendant, the defendant would be responsible for paying the deficit to the plaintiff.

Thus, it would appear from the terms of the 2nd Supplemental Agreement as pleaded and admitted by the defendant that the agreement of the plaintiff to accept the proceeds of sale of the house to be built on Lot 2061 RP was conditional on the defendant making punctual payment of the agreed interest, and not on an unconditional basis as suggested by the defendant.

35. The second line of defence advanced by the plaintiff to this claim is that he was not at fault when he stopped paying interest from May 2000 and he should not be regarded as having breached the 2nd Supplemental Agreement. I also reject this line of defence as having no basis in law and the evidence put forward is plainly unbelievable. I should point out that in the Defence, the defendant has even denied that he had failed to pay interest from May 2000 onwards. As I have pointed out to counsel in the course of submission, the reference to the paragraph numbers of the Amended Statement of Claim in the Amended Defence is incorrect in a number of instances, as these paragraph numbers have not been altered when the Defence was amended consequent upon the amendment of the Statement of Claim. It is clear from a reading of the original Statement of Claim and the original Defence that the allegation of the failure to pay interest from May 2000 is denied by the defendant. It is only in the new affirmation filed by the Defendant in July 2001 that he has admitted he had stopped paying interest since May 2000.

36. Three different reasons were advanced by the defendant and by Mr Po for his failure to pay interest. The first reason was that he stopped paying interest after various works had been proceeded with for the building of small houses on Lot 2061 RP. The second reason was that the plaintiff had told the defendant she was going to sue him because of an argument she had with the defendant over their personal relationship and she had allegedly told him that it would be useless for him to pay interest as she would sue him to recover all the monies owed to her. The third reason was that the defendant had stopped the interest payment and stopped the building work on Lot 2061 RP in May 2000 because the plaintiff has issued a writ against him in May 2000. This is plainly incorrect because the writ herein was issued in August 2000. I fail to see how any of these three reasons, which is inconsistent with one another, could have constituted any valid ground at law to release the defendant from his obligation to pay interest under the 2nd Supplemental Agreement.

37. The defendant has failed to raise any triable issue in respect of the plaintiff's claim for HK$3,634,555.71. It is clearly correct for the Master to enter summary judgment in respect of this claim against the defendant.

The claims for HK$262,880.00 and HK$700,000.00

38. In respect of the claim for the unused balance of HK$262,880.00, the plaintiff has produced an account rendered by the defendant on 15 March 2000 in which he stated that he held a balance of HK$262,880.00 for the plaintiff.

39. In the defendant's new affirmation, he has exhibited a statement of account with an unused balance of HK$201,821.00. This statement of account is identical to a statement of account that had been exhibited to the 1st affirmation of the plaintiff filed in January 2001 and it was sent to the plaintiff's husband under cover of a letter written by Mr Po dated 12 August 1998.

40. I am satisfied that the account produced by the defendant in his new affirmation was prepared by 12 August 1998 at the latest and was prepared earlier than the account he rendered in March 2000 which gave an unused balance of HK$262,880.00.

41. No other material was provided by the defendant to challenge this figure. I hold that he should have an unused balance in his hands of not less than HK$262,880.00.

42. The only defence advanced on behalf of the defendant why he should not be liable to pay the said sum to the plaintiff at present is a defence of set-off. It is alleged by the defendant that he has a set-off against the plaintiff in the sum of HK$350,000.00, which has not been pleaded in the Defence notwithstanding that it has already been amended. The alleged set-off may be considered conveniently with the defence to the plaintiff's claim for HK$700,000.00.

43. It is the defendant's case that the sum of HK$700,000.00 was paid by the defendant on the plaintiff's behalf when Lot 253 was purchased in June 1997. According to the land search record, this property was sold to a Mr Wan Wai Hung in the sum of HK$2,439,360.00. Mr Wan is an indigenous villager. I understand from Mr Chow that Mr Wan was used as a "nominal purchaser" to acquire the land because he would be able to enjoy certain benefits extended by the Government to indigenous villagers in the development of small houses.

44. In addition to the purchase price, the defendant alleges that HK$700,000.00 was paid as "an introduction fee" or "commission" for an under-the-table dealing. It is alleged that the plaintiff's husband had agreed on her behalf to pay the said sum, an allegation denied by the plaintiff and her husband.

45. I regard the defendant's evidence that he had paid the sum of HK$700,000.00 as alleged to be incredible. The plaintiff has challenged that the sum of HK$700,000.00 was actually paid by the defendant. The defendant has not adduced any evidence, such as bank records, to show that the amount alleged had been paid at all.

46. Moreover, in the revised development proposal of Lot 253, it was stated that a sum of about HK$700,000.00 (being HK$100.00 per sq ft for the property with an area of 6,969 sq ft) was to be paid to one of the owners as commission. However, in the new affirmation of the defendant, he stated that the amount was paid to a Mr Wong So Lun who was an estate agent and that he charged an introduction fee of HK$100.00 per sq ft for introducing the defendant to the owner who was abroad. The defendant alleged that he could not obtain any evidence in this regard because Mr Wong So Lun had passed away in 1999. This is very different from the alleged recipient of the said sum in the revised development proposal.

47. For the above reasons, I reject the defendant's allegation that he had paid HK$700,000.00 on behalf of the plaintiff as alleged. The reason why I have reduced the amount awarded by the Master by HK$350,000.00 is due to the fact that the defendant has filed evidence being his new affirmation to show that he had paid HK$350,000.00 to the plaintiff on 25 May 1999. According to him, this payment was made to settle the dispute with the plaintiff who had queried the sum of HK$700,000.00 allegedly paid by the defendant and had demanded particulars of payment of the said sum.

48. It was to avoid argument with the plaintiff that the defendant paid the plaintiff HK$350,000.00 in settlement of this issue and the plaintiff had agreed to take no further action on this issue. This would appear be borne out by a letter dated 16 March 2000 of the plaintiff exhibited to the affirmation of Mr Po. In view of the evidence that the defendant had paid the plaintiff a sum of HK$350,000.00, whether in settlement of this issue or otherwise, the plaintiff should give credit for the amount of HK$350,000.00 already received. The sum awarded by the Master in respect of this claim should be reduced by this figure.

Orders

49. For the above reasons, I have allowed the appeal from the Master by reducing the sum of HK$350,000.00 in respect of the claim for HK$700,000.00. Otherwise, the amounts awarded by Master are unaltered.

50. As the plaintiff has succeeded substantially in the reliefs sought, the costs of the hearing before the Master should not be disturbed. For the costs of this appeal, I have awarded 80% of the costs to the plaintiff in any event as the defendant is partially successful to a limited extent.