HUNG HEUNG KENG v. GUO QIGUI AND OTHERS

HCA 1735/2012

[2022] HKCFI 410

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1735 OF 2012

____________________

(By Counterclaim)

AND

HCA 558/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 558 OF 2012

____________________

(By Counterclaim of 9th and 10th Defendant)

AND

HCA 208/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 208 OF 2011

(Transferred from DCCJ No. 5204 of 2008)

____________________

(By Counterclaim)

AND

HCA 209/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 209 OF 2011

(Transferred from DCCJ No. 5206 of 2008)

____________________

(By Counterclaim)

AND

HCA 210/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 210 OF 2011

(Transferred from DCCJ No. 5208 of 2008)

________________________

(By Counterclaim)

AND

HCA 222/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 222 OF 2011

(Transferred from DCCJ No. 5205 of 2008)

________________________

(By Counterclaim)

AND

HCA 640/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 640 OF 2011

________________________

(By Counterclaim)

____________________

(Heard together)

____________________

JUDGMENT

____________________

1.  This is the trial of 7 actions, namely, HCA 1735/2012 (being the Lead Action), HCA 558/2012, HCA 208/2011, HCA 209/2011, HCA 210/2011, HCA 222/2011 and HCA 640/2011 which, pursuant to an order by L Chan J dated 21 January 2013, shall be tried together.  The trial was reserved for 40 days.  Due to the effort of the parties in narrowing down the issues and settling part of the disputes, the trial actually lasted for 11 days.  Nevertheless, the number of trial bundles exceeds 80 and submissions run to hundreds of pages.

I.      BACKGROUND

I.1    The parties and the various legal proceedings between them

2.  The present proceedings concern multiple parties and multiple causes of action on multiple projects.  Essentially, the antagonists are Hung Heung Keng (“Hung”) and other members of the Hung’s camp (“Hung Camp”), and Guo Qigui (“Guo”) and other members of the Guo’s camp (“Best Star Camp”) on the other.

3.  The disputes between the two camps relate to various projects for the development of small village houses, or commonly known as “ting’s houses”, in the New Territories.  Unfortunately, various other parties were dragged into the dispute which is one basically between the two camps, and as a result there are other parties involved in these proceedings.

4.  In mid-2004, Hung and Guo co-operated together with Li Kam Shun and Cheng Hoi Tao (“Cheng”) for the development of small village houses in the New Territories.  Hung was familiar with the development of small houses, and Guo, being a Mainlander, was responsible for financing those projects.

5.  There is no dispute that: (i) Best Star Holdings Ltd (“Best Star”) which was a company controlled by Guo; (ii) Hung; and (iii) CGT International PTY Ltd (“CGT”)which was a company controlled by Cheng, signed a written agreement with the title “合作開發香港區域丁屋協議書” dated 29 October 2004 (“the 2004 Agreement”).  However, there is serious dispute whether the relationships of the parties were governed solely by the terms of the 2004 Agreement.

6.  Hung Camp says no.  It claims that the joint venture in developing small houses was operated in the form of partnership and Best Star was only a vehicle of the joint venture in operating these projects, whereas Best Star Camp contends that, as shown in the 2004 Agreement, Best Star was the sole owner of these projects, and Hung was only an agent of Best Star in running these projects,  For easy reference, I will use the term “Joint Venture” in describing the entity that operated the development business, whether it was in the form of partnership as contended for by the Hung Camp or Best Star was the sole developer (with the respective shareholders as individual owners) as argued by the Best Star Camp.

7.  For the purpose of these actions, the court is only concerned with the 6 projects operated by the Joint Venture in the period between mid-2004 and May 2006 (“the Projects”).

8.  HCA 1735/2012is the lead action as it concerns the “partnership” disputes in relation to the Projects.

9.  It may be said that the relationship of the parties commenced in mid-2004 but deteriorated in the course.  In October 2007, Hung reported to the police about problems in selling one of the projects, namely, Lot 154 Century Villa Project (consisting of Lots 154A-E, F, H & RP) (“the Lot 154 Project”).  Broadly speaking, the dispute arose regarding the taking of accounts and funding of the Projects.

10.  The major dispute leading to litigation was triggered by the fall out in the Lot 154 Project.   Essentially Guo had caused Best Star (through the relevant tings) to assign its title in Lots 154A-E to a newly incorporated company, Lawin (HK) Limited (“Lawin”), on either 30 August 2007 or 5 September 2007, when Hung, allegedly on behalf of the Joint Venture, had already sold Lots 154A-D to other purchasers who were and at present are still occupying these houses.  I will refer these purchasers as “the Lot 154 Purchasers”, and they include, inter alia, the parties represented by Mr Wang and the Cheung’s family (with Cheung Kwok Kwong as their representative).

11.  When Hung reported to the police about the dispute regarding the Lot 154 Project in October 2006, the parties were still entangled in:

(i)  one of the projects concerning Lot 223A (“the Lot 223A Project”) which was just completed (on 2 October 2007); and

(ii)  another project which was ongoing concerning Lots 2441, 2442, 2443, 2472 and 2276RP in DD19 (for easy reference, I will refer this as “the Lot 2441 Project” though such project actually covered 5 lots of land).

12.  Lawin then commenced various actions in either the District Court or the High Court for re-possession of the houses on Lot 154.  That took place in November 2008 in 4 actions.[1] Summary judgment applications by Lawin against the Lot 154 Purchasers had all failed and the proceedings were brought in under this trial, with some original District Court actions transferred to the High Court.  As a result, the 154 Purchasers have been brought into these proceedings due to the competing claims between them as against Lawin for the ownership of these houses.  The actions concerned are HCA 208/2011 (Lot 154D), HCA 209/2011 (Lot 154B 2/F & Roof), HCA 210/2011 (Lot 154A), HCA 222/2011 (Lot 154C) and HCA 640/2011 (Lot 154B G/F & 1/F).

13.  On the contrary, the Best Star Camp disputes Hung’s authority, both to enter into the sale transactions by preliminary sale and purchase agreements and to receive the proceeds from such transactions.  As mentioned above, Guo denies the existence of the partnership relationship and claims that Hung was merely acting as an agent for Best Star in running the Lot 154 Project.  The Best Star Camp alleges that Hung had not obtained the consent of Best Star or Lawin to sell the properties in Lot 154, and Best Star had paid over $20,000,000 for developing Lot 154 except Lot 154G.

14.  As toHCA 558/2012, it concerns Lots 2441 and 2442 of the Lot 2441 Project.  Hung, on behalf of Best Star, sold various units of the small houses in Lot 2441 to the family members of Li Fu Wing[2] (being in Hung’s Camp) (“the Lot 2441 Purchasers”) and Lot 2442 to various purchasers (“the Lot 2442 Purchasers”)[3].   Hung Camp claims that Hung had lawfully done so pursuant to an oral agreement made in May 2006 (“the Lot 2441 Agreement”) which was subsequently varied a couple of times.

15.  On the contrary, Best Star Camp denies the existence of the Lot 2441 Agreement.  Hung therefore did so wrongfully, and the Lots 2441 and 2442 Purchasers were in wrongful possession of the small houses in these lots. Further, Best Star Camp contends that the relevant tings, Lam Chun Hing and Lam Yat Hung[4] who were then the registered owners of Lots 2441 and 2442, were also involved in the alleged wrongful conducts of Hung.  Hence, Best Star Camp claims against all of them.

16.  There are voluminous issues in the present case.  Despite the active case management by this court throughout the proceedings, the parties only managed to list out the main issues that require the adjudication of the court. I understand that the parties will then try to resolve their remaining disputes in accordance with my findings in this Judgment.  In the case of any disagreement, the parties will be at liberty to restore the hearing for further arguments.

17.  The four main areas that the parties require the court to adjudicate are:

(i)    What was the nature of the cooperation arrangement for the operation of the Projects, which would in turn affect whether Hung had the authority to sell the houses;

(ii)   Whether Guo and Hung had made the oral agreement for the Joint Venture to sell Lots 154E, F & H and the use of RP (remaining portion) to Hung at $7,200,000 (“the Lot 154 Agreement”);

(iii)  Whether Guo and Hung had made the Lot 2441 Agreement concerning, inter alia, the sale of Lot 2441 to Li Fu Wing at $5,000,000 and Lot 2472 to Hung at $3,000,000; and

(iv)  What were the accounts between the parties under the different Projects developed by the Joint Venture, including whether certain expenses were proper expenses for the development of the Projects.

I.2    The relationship between the parties and the background of the Projects run by the Joint Venture

18.  Here it would be convenient for me to address the question as to how Guo, Hung, Li Kam Shun and Cheng came together to operate the Joint Venture business and the backgrounds of the 6 Projects under the Joint Venture.

19.  Back in 1998, Guo made acquaintance with Li Kam Shun when they co-operated in a property development project in Zhuhai of the Mainland.

20.  In or about October 2004, Li Kam Shun interested Guo in a project involving the construction of small houses on 63 lots in DD 10, Chai Kek Village, Tai Po (“the Chai Kek Village Project”) and introduced Hung to Guo on a visit to the site.

21.  The parties agreed to enter into a cooperation arrangement for the development of small houses in the New Territories.

22.  There is no serious dispute on the following matters:

(i)    Guo is a Mainlander who, at the relevant time, only came to Hong Kong about 4 to 6 times a year;

(ii)   Hung was familiar with various matters relating to the development of small houses in the New Territories, and he had good connections with various local villagers for the purpose of the development of small houses; and

(iii)  Guo was mainly responsible for providing the finances for the development of the different Projects.

23.  The parties signed the 2004 Agreement on 29 October 2004.

24.  The first project was the Chai Kek Village Project, which was commenced before the signing of the 2004 Agreement.

25.  There was an opportunity open to the parties to acquire the right to develop this particular project in or about early October 2004.  The project first started when the sale and purchase agreement dated 12 October 2004 was signed, first by a company designated by Hung (pending the setting up of Best Star), then by signing a new agreement using the name of Best Star (when it was eventually set up).  The agreement to purchase the land to develop the Chai Kek Village Project dated 12 October 2004 (“the 1^st Chai Kek Agreement”) was at first signed between Luk Ngai Ling as the vendor and Chan Shiu Hung[5] and Lam Siu Pui on behalf of Richgain Property Development Limited as the purchaser.  Hung also signed the agreement as the guarantor of Richgain.  Since Best Star had not been set up by that time, Hung arranged another company to sign the agreement first but would later transfer the right back to Best Star, the company to be set up in due course.  Hung knew that Chan Shiu Hung and Li Fu Wing had interests in Richgain, and so he “borrowed” Richgain to sign the aforesaid agreement to avoid Luk Ngai Ling reneging on the sale of the land for the Chai Kek Village Project.

26.  On 17 November 2004, Guo and Li Kam Shun met Hung, who introduced one Hui Kwan Yee (“Hui”)[6] to Guo.  Hui produced the 1^st Chai Kek Agreement dated 12 October 2004.  Guo then signed another agreement with the identical contents bearing the same date, i.e. 12 October 2004, on behalf of Best Star to purchase the land (“the 2^nd Chai Kek Agreement”).  It is clear that that the 2^nd Chai Kek Agreement was to replace the 1^st Chai Kek Agreement but with Best Star as the purchaser of the land concerned.

27.  The development of the Chai Kek Village Project proceeded without much issue.  On or about 25 July 2006, Best Star entered into a written agreement (“the Kilo Agreement”) with Kilo Trade Investment Limited (“Kilo”) for assigning all its interests in the Chai Kek Village Project to Kilo for the consideration of $18,000,000.  On 20 September 2006, Best Star entered into supplemental agreement with Kilo (“the Kilo Supplemental Agreement”) whereby Best Star agreed to deduct a sum of $189,000 from the $1,000,000 payable by Kilo.  It is not in dispute that Kilo had paid a total of $17,000,000 to Best Star.  Having discharged its obligation, Best Star counterclaimed Kilo for Kilo’s failing to pay Best Star the balance in the sum of $811,000 ($1,000,000 - $189,000) in HCA1970/2007.  It was Guo’s testimony that should Best Star proceed with the counterclaim against Kilo, Best Star might incur legal costs well in excess of $811,000, and hence it was not worth pursuing the claim for the outstanding payment against Kilo.

28.  Hung’s case, which Best Star and Guo deny, is that Guo failed to account for Hung’s 30% share of profits from the Chai Kek Village Project.  The details of the dispute will be addressed in the latter part of this Judgment.

29.  The second and third projects were the Shea Shan Village Project and the JC Castle Project.  These two projects were completed in late 2005 or early 2006 without any issue, and the dispute between the parties only relates to the distribution of the profits after the completion of the two projects.

30.  It is common ground that Li Kam Shun, Guo and Hung signed a document with the title “城堡及社山 DD19 Lot 872E 利潤分配表” (“the Profit Sharing Note”) after the completion of the two projects.

31.  According to the Best Start Camp, the Profit Sharing Note contained the profits and the accounts agreed by the parties after the completion of the two projects.  The accounts for both projects were therefore settled and cannot be re-opened, and Hung had been paid all the profits he was entitled to in respect of both projects. In fact, Hung borrowed $540,000 from Best Star out of the deposits he was authorised by Best Star to receive from the purchasers of the units of the Shea Shan Village and JC Castle Projects.  Hung signed a receipt dated 15 October 2005 which set off the borrowed sum against his share of profits under the two projects, and acknowledged Hung’s debt to Best Star in the sum of $367,211.

32.  On the other hand, Hung Camp challenges the accuracy of the accounts in the Profit Sharing Note.  Furthermore, there was no agreement between the parties that the accounts in such document were the final and settled accounts, and so Hung Camp is entitled to revisit the accounts if they were not correct.  These are the main disputes between the two camps on these two projects.

33.  The fourth project was the Lot 154 Project.  One of the main disputes between the parties concerning this project is whether Guo and Hung had made the oral Lot 154 Agreement, under which the Joint Venture would sell Lots 154E, F & H and the use of RP (remaining portion) to Hung at $7,200,000.

34.  There is also an allegation by the Best Star Camp that Hung had made secret profit from the sale of Lot 154 to Best Star, and so Hung would have to account to Best Star for the profit he made.

35.  The Joint Venture bought Lot 154 from Cheung Wai On and Cheung Wai Kwong (collectively “the Cheung’s Brothers”) for the Lot 154 Project in the sum of $11,000,000.  There is no dispute that Hung had previously entered into some sort of joint venture with the Cheung’s Brothers for the development of Lot 154 (“the Hung and Cheungs Joint Venture”), and so he had an interest as the vendor for the sale of Lot 154 to the Joint Venture.  However, Hung claims that he had already informed Guo and the Joint Venture about his interest in the Hung and Cheungs Joint Venture, and so he is not liable to account for any of his share of the profit to the Joint Venture.  On the other hand, Best Star Camp denies that Hung had informed Guo about his interest in the sale of the land.

36.  Another major dispute about the Lot 154 Project is whether Hung had the authority to sell Lots 154A-D to the 154 Purchasers. Hung claims that Guo had agreed for him to sell the said properties.  Guo even signed on a price list to confirm the minimum prices for the sale of the various units of the said sub-lots (“the Price List”).  In addition, the staff of the solicitors’ firm acting for Best Star had made confirmations to some of the 154 Purchasers that Hung had the authority to sell the units in the Lot 154 Project to them.

37.  On the other hand, Best Star Camp contends that Hung had signed the sale and purchase agreements with the Lot 154 Purchasers without Best Star’s knowledge.  To protect its interest, Best Star (through the relevant tings) subsequently assigned its interest in Lots 154A-E to Lawin.  Hung Camp claims that such transfer was wrongfully made at an undervalue or for no consideration.

38.  On the 8th day of the trial, the dispute with the Lot 154 Purchasers was eventually settled with the result that they could obtain the ownership of the small houses they purchased.  This is a very sensible solution.  The present dispute is essentially one between the Hung Camp and the Best Star Camp, and the object of their development project was to sell the small houses they built to the purchasers.  It is regrettable that they had to involve the Lot 154 Purchasers in the present litigation, and it is very unfortunate that the dispute with the Lot 154 Purchasers could not have been settled earlier.

39.  There may be costs and other related issues concerning the actions involving the Lot 154 Purchasers that the court may have to deal with later.  Mr Wang, counsel for some of the Lot 154 Purchasers, has expressed concern as to how his clients are able to obtain the legal titles to the properties they purchased in a smooth manner.  This may have to be worked out in due course.  However, it is clear that: (i) as demonstrated below[7], the Lawin transactions would have to be set aside; and (ii) Hung himself is estopped from denying the sale of these properties to the Lot 154 Purchasers.  Following the finding about Hung’s authority to sell these properties in the latter part of this Judgment, the Joint Venture may have to pay damages to the Lot 154 Purchasers if there are any such losses.  The question of damages would have to be worked out in due course, and Hung’s authority to sell the said units would also affect the accounts between the Joint Venture and Hung.

40.  There are also disputes about the accounts of the Lot 154 Project, for example, whether the Hung Camp is entitled to be reimbursed from the Joint Venture for the expenses of building a wall enclosing Lot 154.  I will address the disputes relating to these accounts in the latter part of this Judgment.[8]

41.  The disputes relating to the Lot 154 Project triggered the complete breakdown of the relationship between the parties.

42.  The fifth project was the Lot 223A Project.  Again the dispute between the parties only relates to the accounts.  It is common ground that the project had been sold for $4,600,000, but the profits of such project have not been distributed because some expenses allegedly defrayed by Hung are disputed by Best Star.

43.  The sixth project was the Lot 2441 Project which covered Lots 2441, 2442, 2443, 2472 and 2276RP in DD19.  Between May and June 2006, Best Star acquired interests in these lots for $7,800,000.

44.  This project was one of the most problematic projects because of the following reasons:

(i)     During the development stage, dispute broke out between Guo and Hung, and as a result there were a lot of arguments between the parties as to how the project should proceed.

(ii)    While the construction of the houses on Lots 2441 and 2442 were almost completed by the end of 2007, Li Fu Wing was told to stop the construction work in October 2007 when the dispute relating to the Lot 154 Project arose and Hung had to report the matter to the police.

(iii)   The completion of the construction work was quickly followed by Best Star commencing HCA 409/2008 on about 3 April 2008, with the writ registered on 5 April 2008.

(iv)   Some of the lands covered by the 2441 Project were occupied by squatters and as a result effort had to be made to clear the sites for development.

(v)    The registered owner of one of the 5 lots, Lot 2443, was found to be a bankrupt.  The matter dragged on until November 2007 when $380,000 was repaid to Best Star.

(vi)   By the time of completion of the purchase on 28 June 2006, the time permitted for the building of a small house on Lot 2472 had already expired for 3 years.[9]

(vii)  There was serious argument between the parties as to whether they had made the Lot 2441 Agreement.

45.  Pursuant to an agreement in writing dated 22 May 2006, Best Star paid $3,900,000 to acquire Lots 2441 and 2442 from Rich United Development Ltd. (“Rich United”).  On 15 June 2006, Lam Chun Hing and Lam Yat Hung, the tings for the two lots, each executed a general power of attorney appointing Guo as their attorney in relation to Lots 2441 and 2442 respectively.

46.  Best Star paid Lee Fu Yuen Facki (Li Fu Wing’s brother) trading as Brother Engineering Co a sum of $2,000,000 for erection of two small village houses on Lots 2441 and 2442 on 21 September 2006, and paid various costs and expenses in the total sum of $216,000 between May 2006 and July 2007.

47.  On completion of the two houses on Lots 2441 and 2442, HCA409/2008 was commenced on 14 March 2008 by Best Star against the two tings and Rich United.  Best Star claimed for specific performance of the sale and purchase agreement.

48.  On 20 January 2010, Lam Chun Hing entered into sale and purchase agreements in relation to Lot 2441, by his power of attorney in favour of Lam Shui Pui, with:

(i)    Lee Fu Yuen Facki in respect of Ground Floor for $1,700,000;

(ii)   Lee Fu Sang in respect of 1/F for $1,500,000; and

(iii)  Sum Suk Wai in respect of 2/F for $1,800.000.

49.  Lam Yat Hung purportedly entered into two sale and purchase agreements with Ho Chin Wang in respect of 2/F of the small house on Lot 2442 for $2,180,000 dated 2 February 2008 and 22 April 2008 respectively.

50.  On 22 January 2010, Lam Yat Hung entered into sale and purchase agreements with Yip Siu Fun in respect of Ground Floor of the small house on Lot 2442 for $1,900,000 and Chung Wai Shan in respect of 1/F of the same house for $1,800,000.

51.  The assignments of these Lot 2442 properties to the said purchasers were made on 22 January 2010 by Lam Yat Hung as assignor acting by his attorney Li Fu Wing.

52.  According to these assignments in respect of Lots 2441 and 2442, the respective assignors acknowledged that they had received the outstanding purchase prices for the sale of the properties.

53.  In respect of HCA409/2008, Recorder Horace Wong SC held on 22 February 2012 that, inter alia, the two tings are estopped from asserting their proprietary rights over Lots 2441 and 2442 and the small houses erected thereon against Best Star.

54.  The Best Star Camp claims that the sales of Lots 2441 and 2442 to the Lots 2441 and 2442 Purchasers are voidable under section 60 of Conveyancing and Property Ordinance, Cap. 219.

55.  Apart from these disputes, there are also arguments about the accounts of the Lot 2441 Project[10], for examples, whether Hung and Li Fu Wing are entitled to be reimbursed by the Joint Venture for paying “compensation” to the squatters and clearing the sites for development, and whether Li Fu Wing is entitled to be reimbursed for the premium he paid to the Government for the building of a house on Lot 2472 (as Best Star Camp denies that Hung was authorised to build a house on Lot 2472).

56.  Having given an overview of the background of the litigations and the disputes between the parties, I now turn to the evidence of the witnesses.

II      WITNESSES AT THE TRIAL

57.  At the trial, apart from Hung himself, Hung’s Camp had called Shum Siu Ching (“Shum”), Kei Small (“Kei”), Cheung Cheuk Ying, Li Fu Wing, Chan Shiu Hung (“Chan”) and Hui to testify on its behalf.  Shum, Kei and Cheung Cheuk Ying are some of the Lot 154 Purchasers, and Hung’s Camp called them as witnesses after the settlement of the dispute with the Lot 154 Purchasers (though they were in the witnesses list prior to the settlement of their dispute).  On the other hand, Guo and Kwok Yuk Leung (“Kwok”) testified on behalf of the Best Star’s Camp.  Yip Siu Fun (“Yip”) and Chung Wai Shan (“Chung”), who are two of the Lot 2442 Purchasers, testified on behalf of the Lot 2442 Purchasers.  In this part, I will mainly deal with the credibility of the witnesses for the Hung and Best Star Camps.  For the evidence of Yip and Chung, I will deal with it in Part V.2 of this Judgment.

II.1   Witnesses for the Hung’s Camp

58.  Hung testified about his dealing and involvement in the various Projects throughout the years.  In particular, he gave the court his version of the accounts for the development of the various Projects under the Joint Venture.

59.  It is common ground that Hung had all the local connections which would facilitate the development of small houses in that area in Tai Po.  With his connections and expertise, he was the key player for the development of the Projects in the Joint Venture.

60.  Li Fu Wing was a close associate of Hung.  He had been engaged by Hung to construct a number of small houses in the various Projects under the Joint Venture. Li Fu Wing gave the court his version of the events which basically supports Hung’s evidence.  In particular, he provided the court with some of the details relating to the accounts of the Joint Venture and how he, through his family members, acquired the legal titles of the various units of the small house on Lot 2441.

61.  Chan and Hui provided various services to the Projects developed by the Joint Venture.  They confirmed that all those expenses were proper expenses. They also provided the background for the making of the 1^st and 2^nd Chai Kek Agreements.

62.  Hung’s Camp had called three of the Lot 154 Purchasers, Shum, Kei and Cheung Cheuk Ying, to testify after the settlement of the dispute with these purchasers.  They provided the court with the backgrounds as to how they eventually ended up buying the small houses in the Lot 154 Project from Hung.  According to Shum and Kei, they contacted Kwok from Tam & Partners, the solicitors then acting for Best Star, who told them that Hung was a partner of Best Star and Hung had the authority to sell the properties to them.

63.  In her supplemental witness statement, Kei mentioned about an occasion after she and her husband moved in to live in Lot 154 in April 2007.  On one particular evening, Kei met Hung in Lot 154.  Hung invited her for tea in his home in Lot 154, presumably Lot 154E.  Hung showed her the extension in his garden, and he also introduced her to his “boss” Guo.  She was also given to understand that Guo had purchased the 2^nd Floor of the small house on Lot 154E.  Guo and Kei had a casual conversation.  Kei also met Hung and Guo on a second occasion in Hung’s home.  She asked them as to when the sale of her property could be formally completed, and Guo replied probably August 2007 pending the payment of the premium to the Government.  After those two occasions, she saw Guo a few times in Lot 154.  She saw Guo making phone calls at Hung’s home at late night.

II.2   Witnesses for the Best Star Camp

64.  The key witness for the Best Star Camp was Guo himself.  Guo lived in the Mainland and Australia most of the time.  At the relevant time, he only came to Hong Kong 4 to 6 times a year with day-trips almost all the time.

65.  According to Guo, this was the first time that he got himself involved in the development of small houses in the New Territories.  In fact, he had never invested in real property development in Hong Kong prior to the Joint Venture with Hung.  As he was not in Hong Kong most of time, he had to rely on Hung to manage the various Projects.  He gave the court his version of the accounts relating to the various Projects of the Joint Venture.

66.  The second witness, Kwok, was a staff of Tam & Partners which was the solicitors’ firm responsible for preparing legal documents for the various Projects of the Joint Venture on Best Star’s instruction.  He had known Hung for a long time and it was Hung who introduced Guo to him in 2004.

67.  Tam & Partners represented Best Star in some transactions including the acquisition of the Lot 154 from the Cheung’s Brothers.  According to Kwok, he had not received any enquiry about the sale of the small houses of the Projects, and he had never told anyone that Hung had the authority to sign the sale and purchase agreements on behalf of Best Star.

II.3   General observations about the credibility of the witnesses

68.  Having listened to the testimony of the witnesses for many days in court, I have great difficulty in finding out what actually happened many years ago.  In particular, a lot of the evidence is about the accounts of the various Projects which had been completed quite some time ago.  Some of these payments are not supported by documents.  Even if there is documentary evidence, it is not easy for the court to find out whether such payments were made for the specific purposes alleged by the parties.  Without keeping proper records for the accounts, I wonder whether the parties themselves could have a clear recollection about the various payments in these accounts.

69.  Like many unsophisticated Chinese businessmen, the Joint Venture was operated by the relevant parties on a trust basis without involving too many formalities.  As a result, the parties would have to “reconstruct” the accounts and their dealings much later after their relationship turned sour.  These “reconstructed” accounts may not be reliable, as the reconstruction process took place some time later without the benefit of proper documentation and records.  Their accounts may also be distorted by the breakdown of trust between the parties and their own perception of the events which may have been influenced by the individual character of the witness concerned.

70.  Under such circumstances, the court has to approach the evidence of all these witnesses, in particular the major players Guo, Hung and Li Fu Wing, with great caution.  The court cannot accept everything said by them on face value. It is also impossible for the court to conclude that, because the court finds in favour of a particular party on certain issues, then everything said by that particular party on other issues must be true, in particular when their evidence on the other issues does not sit with the documents and the circumstances facing the parties at the relevant time.

71.  In the course of the dispute, both Guo and Hung took the matters into their own hands and did various things to protect their interests at all costs, for examples: (i) Guo caused Best Star to assign its interests in Lots 154A-E to Lawin disregarding the fact that Hung had sold Lots 151A-D to the Lot 154 Purchasers in accordance with the prices stated in the Price List signed by him; and (ii) Hung caused the two tings to execute another set of powers of attorney with a view to assign the legal titles of the small houses on Lots 2441 and 2442 to the Lots 2441 and 2442 Purchasers.

72.  Hung had certainly adopted a “high-handed” approach in handling his dispute with Guo.  Knowing full well that the tings had earlier executed a set of powers of attorney in favour of Best Star, what he did subsequently in causing the tings to transfer the titles in Lots 2441 and 2442 to other persons is quite inexcusable.  He had also run the Projects under the Joint Venture as if they were his own.  This certainly undermine the credibility of his evidence about the alleged Lot 154 Agreement and Lot 2441 Agreement.

73.  Yet I am more inclined to accept Hung’s evidence about the accounts of the Joint Venture, in particular whether the Joint Venture had incurred certain expenses for the Projects.  Most of these expenses are supported by receipts issued by the relevant parties.  Though he may be a high-handed person, I do not accept that he would have fabricated the documents to support his claims. After all, non-reimbursement of these expenses was one of the main reasons which triggered the dispute between the parties.  As he felt so strongly about the non-reimbursement of the expenses, there is some weight in his evidence about the accounts.

74.  On the other hand, Guo knew very little about the accounts.  He adopted a hand-free approach and allowed Hung to run the Projects himself.  A lot of his challenges against the accounts are no more than mere suspicion he held against Hung because of the breakdown of the trust.

75.  Though Guo had kept on reminding the court that he was an “innocent” investor, I have great reservation about the genuineness of such assertion.  As the development of small houses in the New Territories involved a lot of local knowledge and connections, which Guo himself admitted he had none, I wonder why he had chosen to invest in such risky and unfamilar business venture.

76.  In my judgment, the best approach to assess the credibility of the evidence of Hung and Guo is to test their evidence on a particular issue by reference to the objective evidence such as documentary evidence (or the absence of it) and the backgrounds and circumstances facing the parties at the relevant times.  On the question on whether certain payment had been made, the presence of a receipt may on some occasions strongly support the making and receipt of certain payment.  However, if there are other circumstances which suggest otherwise, the receipt may not be enough to support the making or receipt of the payment concerned.

77.  Since Li Fu Wing, Chan and Hui were acquaintances of Hung, the same observations can be made about their evidence.  As mentioned above, there is insufficient evidence to support the serious allegation that the expenses they charged against the Joint Venture were false or fabricated.

78.  The evidence of the Lot 154 Purchasers, namely Shum, Kei and Cheung Cheuk Ying, supports the case of the Hung Camp on two particular issues: (i) Hung’s authority to sell the small houses of the Lot 154 Project to them; and (ii) the subsequent conducts of Guo and Hung with a view to indicate whether the said parties had made the Lot 154 Agreement.

79.  On the first issue, I have no problem in finding that Kwok had made representations to at least some of the 154 Purchasers that Hung had the authority to sell the small houses in the Lot 154 Project to them.  Though the Lot 154 Purchasers may seek to protect their ownership of the properties they purchased from Hung, it is a matter of simple common sense that purchasers of these small houses would try their best to ascertain from some proper persons that the one signing on behalf of the vendor did have the authority to do so. As Kwok was someone from the solicitors’ firm acting on behalf of Best Star, it was more probable than not that Kwok did give such assurance to Shum and Kei. Without such kind of confirmation, I do not accept that these purchasers would have paid the deposits to Hung.  The conversations that Kei had with Guo in Lot 154 also support that Hung did have the authority to sell the properties to them.

80.  Hence, despite the earlier finding made by a different court in HCA 408/2008, I do not find Kwok to be a reliable witness.  Without his involvement, I do not accept that Hung could have been able to persuade the Lot 154 Purchasers to sign the various agreements to purchase the small houses in the Lot 154 Project and to pay substantial sums of deposits to him.  Obviously, Kwok was caught in a difficult position after the breakdown of the relationship between Guo and Hung.  Bearing in mind that Best Star was his ultimate client at the time, Kwok had no choice but to tailor his evidence to protect Best Star.  However, I do not accept his evidence as the truth.

81.  Regarding Kei’s evidence about what she saw about the interactions between Guo and Hung in Lot 154, I will deal with her evidence when I address the question of the Lot 154 Agreement later in this Judgment.

82.  There are also some attacks on the evidence of the Hung Camp on the following issues: (i) the payment of the deposit of one of the 2442 Purchasers into the bank account of Lam Shui Pui; and (ii) the reasons as to why Hung required Richgain to sign the 1^st Chai Kek Agreement and why Lam Shui Pui signed as a party of the purchaser.  These matters may not be directly relevant to the issues that require the adjudication of the court, but I have certainly taken into account these factors in assessing the credibility of the witnesses.  In any event, I am not prepared to accept the evidence of the witnesses on its face value and their evidence has to be tested against the documentary evidence (or the absence of it) and the circumstances of the case.

III     NATURE OF THE COOPERATION ARRANGEMENT BETWEEN THE PARTIES

III.1   The respective cases of both camps

83.  As mentioned above, it is the case of the Best Star Camp that Best Star was the sole owner of the Joint Venture developing the small houses.  The shareholders of Best Star were therefore the owners of the Joint Venture.  Hung was not a shareholder.  The cooperation arrangement between the parties did not constitute a partnership.  It was in fact a contract for supply of service by Hung and CGT to Best Star and Hung would act as an agent for Best Star in running the Projects.

84.  In supporting such contention, Best Star Camp relies heavily on the 2004 Agreement dated 29 October 2004 signed by Best Star, Hung and CGT. 

85.  It is stated in the 2004 Agreement that:

(i)     The acquisition of small houses would be made by Best Star.  The profit and loss would be borne by the parties in accordance with their rights and liabilities.[11]

(ii)    6% monthly interest would be paid to the party who provides the funds for the Projects.[12]

(iii)   Best Star is responsible for: (i) the provision of finances for the development of the Projects and the arrangement for the execution of the relevant legal documents; (ii) the sales of the small houses and the payment of all the relevant expenses for such process; and (iii) the making of the final decisions for the acquisition of the lands and sales of the developed small houses.[13]

(iv)   Hung is responsible for: (i) acting for Best Star in the acquisition of the rights to develop small houses and the liability relating to the early stage of the development of the Projects and construction of the small houses; (ii) the planning of the Projects for the acquisition of the rights to develop small houses by Best Star.[14]

(v)    CGT is responsible for liaising with Best Star for the raising of finances.[15]

(vi)   The rights to develop small houses can only be acquired in the name of Best Star, and Hung cannot use other name or format to operate similar kind of projects.[16]

(vii)  The profits, after deducting expenses, interests and taxes, would be distributed as follows: 60% for Best Star, 30% for Hung and 10% for CGT.[17]

(viii) The parties would have to comply with the terms of the 2004 Agreement. The parties should enter into supplemental agreement in case of any disagreement.[18]

86.  On the other hand, it is the case of the Hung Camp that the Joint Venture was operated in the form of a partnership between four individuals, namely, Hung, Guo, Li Kam Shun and Cheng.  The 2004 Agreement was merely a framework agreement providing for the use of Best Star as a vehicle to operate the Joint Venture in acquiring the lands and selling the developed small houses.  The document was also signed to acknowledge the joining of a new partner by that time, i.e. Cheng.  As Best Star was only used as the vehicle for the Joint Venture, Hung’s authority in the partnership with Guo did not necessarily have to be known to outsiders.

87.  In the present context, the nature of the cooperation arrangement between the parties would affect the question as to what Hung could and could not do.  There is no serious dispute between the parties that if there was a partnership and Hung was a partner, then Hung would not require “authorization” from Guo or Best Star to sell the small houses under the Joint Venture business.  The Joint Venture could not therefore deny the sale and purchase agreements signed by Hung and the purchasers.  As a partner, Hung stood in equal position as Guo to enter into legal relations for and on behalf of the Joint Venture with third parties.  However, if Hung was merely an agent of Best Star, such authorization would be required.

III.2  Analysis of the legal relationship between the parties

88.  On this particular question, I do not think that what the witnesses thought about their relationship is of much assistance.  Quite as expected, the parties did not have any express discussion amongst themselves as to the exact legal relationship between them.  Hence, the court would have to determine such question taking into account the objective conducts of the parties and the overall circumstances of the case.

89.  Given the background of this case, it is quite clear that the parties were engaged in a joint venture to develop small village houses in the New Territories.  But as pointed out in Lindley & Banks on Partnership[19], “whilst it can properly be said that all partnership involve a joint venture, the converse proposition manifestly does not hold good.”  The mere existence of the consensus that the parties will embark on some business on some terms together does not per se mean that they form a partnership.

90.  Yet, having considered the objective conducts of the parties, I find that the Joint Venture was operated by them in the form of partnership.

91.  First, the way in which the parties conducted the Joint Venture business strongly indicates that they were not just principal and agent but rather partners themselves.  In fact, before the signing of the 2004 Agreement, the parties had already commenced their cooperation arrangement in the form of partnership in the development of the Chai Kek Village Project.  As shown in the history of the development of the Chai Kek Village mentioned above[20], the cooperation arrangement between the parties had already commenced when the 1^st Chai Kek Agreement was signed on 12 October 2004.

92.  During the conduct of the business under the 6 Projects, the parties were acting as partners rather than principal and agent.  Hung signed a number of agreements to acquire the rights to develop the Projects for the Joint Venture.  He made various substantial payments under these agreements and Projects. He also agreed to act as guarantor for the purchasers of the development rights and lands.  Further, Guo and the partners also acknowledged that Hung could execute the agreements to sell the development rights and the developed small houses under the Projects.  All these facts indicate that Hung was not a mere agent for Best Star in operating the Projects.

93.  For the Chai Kek Village Project:

(i)    Hung signed twice as guarantor under the agreements to purchase the land for the Chai Kek Village Project.[21]

(ii)   Hung signed a rental agreement for road use dated 15 October 2004 with one Koo Leung Choi and paid $100,000 for the Joint Venture.

(iii)  Hung made various payments for the project, including the payment of $1,040,000 to the vendor Luk Ngai Ling by a cheque dated 13 October 2004 signed by his wife, the expenses of $534,500 expressly acknowledged by Guo in the handwritten note on profit and loss dated 20 September 2006 (“the Chai Kek Profit Note”), and part of the service fee of Shiu Yip Survey Services Company in the amount of $209,800.

(iv)  In October 2004, in order to handle villagers’ potential obstruction to the development of the Chai Kek Village Project, Hung liaised with one Chung Hei Man who was an indigenous villager.  On around 26 October 2004, Hung on behalf of Best Star as vendor signed an agreement dated 26 October 2004 to sell a piece of property in the Chai Kek Village Project to Chung Hei Man at a consideration of $1,300,000, in return for an acknowledgement by Chung Hei Man not to object the development under the Chai Kek Village Project.  Hung also paid a sum of $100,000 to Chung Hei Man.  Subsequently, to develop the land, Hung further agreed with Chung Hei Man to pay him $50,000 for him to persuade other villagers to let Li Fu Wing to carry on with the construction of a road which was part of the project.  Hung did inform Guo and Li Kam Shun about this.  Chung Hei Man’s right was later transferred to Kilo in the Kilo’s Agreement.  Two agreements were then entered into between Best Star as vendor and Kilo as purchaser to sell the Chai Kek Village Project, both of which Hung signed on behalf of Best Star as guarantor.[22] Guo prepared the Chai Kek Profit Note dated 20 September 2006 without disputing Hung’s authority to sign any of these documents or to pay on behalf of the Joint Venture.  Guo and Best Star now even say that the account of Chai Kek Village Project is settled, thereby indirectly recognizing all which Hung had done.

94.  For the Shea Shan Village Project:

(i)    On around 18 October 2004, Hung signed an agreement with the title “丁地權益轉讓協議書” with Chan Wong Yau to purchase the rights to develop the sites at Shea Shan Village.

(ii)   By three provisional sale and purchase agreements[23], the subject premises of the Shea Shan Village Project were sold at $3,800,000, all signed by Hung on behalf of Best Star which was granted the power of attorney by the then registered owner Chan Wong Yau.

(iii)  Hung also made payments on behalf of Best Star, including but not limited to $400,000 by cheque dated 19 October 2004 to Chan Wong Yau (by Hung’s wife).  The various expenses recorded in the Profit Sharing Note also came from Hung’s expenses receipts.

(iv)  The amounts of income and expenses incurred in the Shea Shan Village Project were recorded in the Profit Sharing Note.  Again, Guo had never disputed Hung’s authority to sign the relevant documents or to pay the relevant expenses when he prepared the Profit Sharing Note for distribution of profits.

95.  For the JC Castle Project:

(i)    In October 2004, Hung acted for Best Star in purchasing the JC Castle Duplex by signing the Provisional Agreement for Sale and Purchase dated 29 October 2004 between Bonny Limited as vendor and Best Star as purchaser.  Hung signed and used Guo’s Best Star company chop (“Guo’s Best Star Chop”)[24] when signing.  Guo and Li Kam Shun only signed afterwards in the Agreement for Sale and Purchase for the JC Castle Project dated 10 November 2004 and Assignment for the JC Castle Project dated 3 December 2004.

(ii   It can be seen from the said agreement signed by Hung, $200,000 was paid upon the signing of the agreement, which was a sum advanced by Hung at the material time but later repaid by Guo.

(iii)  In May 2005, Hung (together with Guo) acted for Best Star in selling the JC Castle Duplex.  In the Provisional Agreement for Sale and Purchase dated 16 May 2005 between Best Star as vendor and Ling Chi Wah as purchaser, Guo signed using Hung’s Best Star company chop (“Hung’s Best Star Chop”)[25], but Hung also signed.If Hung did not have authority and was a mere agent of Best Star, he would not have been asked to sign together with Guo for the sale of the land.  Guo and Li Kam Shun only signed afterwards using Guo’s Best Star Chop in the Agreement for Sale and Purchase For JC Castle Project dated 30 May 2005 and the Assignment for JC Castle Project dated 29 July 2005.

(iv)  The amounts of income and expenses incurred in the JC Castle Project were recorded in the Profit Sharing Note.  Again, Guo had never disputed Hung’s authority to sign the said documents or to pay the relevant expenses when he prepared the Profit Sharing Note for distribution of profits.

96.  For the Lot 233A Project:

(i)    On or about 27 February 2006, Guo acted for Best Star and used Hung’s Best Star Chop to sign the provisional agreement to purchase the right to develop Lot 223A, D.D. 19, Tai Po.   Hung also signed as guarantor to guarantee the liability of the purchaser.

(ii)   Hung signed on behalf of Best Star and its attorney (授權人) in the provisional sale and purchase agreements to sell the various units of the Lot 233A Project on 4 occasions between 6 May 2006 and 17 November 2006.[26]

(iii)  Guo acknowledged Hung’s payment of $355,000 for the purchase of Lot 223A[27], bearing in mind Guo said in cross-examination that after settling Hung’s account in relation to the Chai Kek Village Project on 20 September 2006, there was no pre-payment by him to Hung to defray expenses for the Projects.

(iv)  Hung paid expenses in the sum of $346,527 in relation to the Lot 223A Project.  Such expenses were recorded in an “發票單” signed by Hung, supported by various handwritten notes from Hung with invoices, demand notes, receipts and cheque copies. Guo indirectly recognized that such expenses were advanced by Hung before reimbursement, because Guo stated in his statement that Hung received $1,380,000 deposit for sale of Lot 223A, and after deducting Hung’s payment of deposits (i.e. $355,000) and expenses (i.e. $346,527), Hung returned $678,473 to Best Star by cheque.[28] There was no further dispute as to such sum of $678,473.

97.  I do not propose to discuss the arrangements relating to the last two projects, i.e. the Lot 154 Project and the Lot 2441 Project, due to the disputes then arose between the parties.  However, the same modus operandi were adopted by the parties to operate these two projects.

98.  Judging from the way that the parties had conducted their business throughout the years, it is clear that the parties were operating in the form of partnership.  Hung had done a lot of things on behalf of the Joint Venture which were not mentioned in the 2004 Agreement.  If Hung was merely an agent of Best Star (instead of partner), one begs the question as to why Hung would have had to do these things which were not required under the express terms in the 2004 Agreement.  In particular, the assumption of liability as guarantor would mean that Hung would expose himself to personal liability for the default of the Joint Venture, which I cannot imagine a mere agent or someone working under a contract for service would have agreed in the circumstances.  Furthermore, Hung would have to pay substantial amounts on behalf of the Joint Venture from time to time.  It certainly does not sit well with the picture depicted in the 2004 Agreement that Best Star (or Guo) was the owner of the Projects as it was the only entity which provided the finances for the development of the Projects.

99.  Further, it was intention of the parties (as confirmed in Clause 1 of the 2004 Agreement) that they would have to be liable for the loss of the Joint Venture business in the same percentage for the distribution of the profits. If Hung was merely an agent, why should he be responsible for the loss of the Joint Venture business?

100.  Hung and Guo also acted as if Hung was a partner.  Despite the existence of Best Star, Hung executed some of the agreements to acquire the lands in his own name without any reference to him being the agent of Best Star, to which Best Star and Guo raised no issue.   Despite the terms in the 2004 Agreement, Guo and Best Star did not raise any issue when Hung was executing agreements to sell the developed small houses for the various Projects before any such consent had been obtained from Guo or Best Star.

101.  In my judgment, all these factors strongly indicate that the cooperation arrangement between the parties was in the form of partnership.  It is true that the parties signed the 2004 Agreement, which provided that the final decision for the sales and development of the small houses would rest on Best Star alone.  However, it is clear that the parties conducted their business in a way that the 2004 Agreement did not form the only basis governing the relationship between the parties.   The evidence shows that Hung was able to sell some of the small houses without first obtaining the consent of Best Star or Guo.  In fact, the parties started their partnership relationship by 12 October 2004 the latest when they caused the making of the 1^st Chai Kek Agreement. 

102.  Under such circumstances, I agree with Mr Mak, counsel for the Hung Camp, that the 2004 Agreement was only a “master framework agreement” amongst the parties.  By signing such written document, the parties intended to use Best Star as the cooperate vehicle for their investment in the different Projects. Hung conducted the business as if he was a partner of the Joint Venture, signing and executing legal documents either to acquire or dispose the rights without first obtaining the consent of the other partners in particular Guo. He had a “free hand” in doing the business.  He also agreed to pay substantial sums of money for the Joint Venture, and he agreed to act as guarantor for these Projects which he was not required to do under the 2004 Agreement.  In my judgment, it would be quite hopeless for the Best Star Camp to argue that Hung was merely Best Star’s agent.

103.  In fact, the evidence shows that the parties did not really adhere to the terms in the 2004 Cooperation Agreement throughout their cooperation.  Apart from the fact that Hung could sell the developed properties under the Projects without first obtaining the consent of Guo or Best Star, there are two other important facts which show that the parties did not follow the terms of the 2004 Agreement: (i) the parties did not distribute the profits in accordance with the express provision in the 2004 Agreement; and (ii) there was no intention to pay interest, i.e. 6% monthly interest as provided for in Clause 2, to any partners who provided finances for the Joint Venture business.

104.  In the Chai Kek Profit Note, being a handwritten statement of account prepared by Guo, Guo stated that the distribution of profit was amongst Hung, Guo, Cheng and Li Kam Shun as follows: 30% for Hung, 30% for Guo, 30% for Cheng and 10% for Li Kam Shun, which are different from the percentages provided in Clause 4 of the 2004 Agreement (60% for Best Star, 30% for Hung and 10% for CGT).   There is no challenge that the profit for the Chai Kek Village Project was not distributed in such manner, and this strongly indicates that the said 4 persons were the partners of the Joint Venture.

105.  The same applies for the other projects.  For the Shea Shan Village Project and the JC Castle Project, Guo stated in the Profit Sharing Note that the distribution of the profits for these two projects was amongst Hung, Guo, CGT (with Cheng being a shareholder) and Li Kam Shun.  In relation to the Shea Shan Village Project, the profit was distributed after deducting 50% profit to the construction team pursuant to an oral agreement.  The distribution of profits after deducting all expenses and purported tax of the two projects was 30% for Li Kam Shun, 30% for Guo, 30% for Hung and 10% for CGT.  Again, there is no suggestion that the profits for these projects were not distributed in such manner.

106.  Further, despite the terms in the 2004 Agreement, no attempt had been made by the parties to pay 6% monthly interest to Hung for the expenses he paid for the various Projects.  Neither was there any intention for the partners of the Joint Venture to pay such interests for the funds provided by Guo.  Under such circumstances, the 2004 Agreement sheds very little light on the true legal relationship of the parties in operating the Joint Venture business.

107.  Second, when Best Star was sued by Luk Ngai Ling (vendor under the 1^st and 2^nd Chai Kek Agreements) in HCA 1174/2008 in relation to the Chai Kek Village Project, Best Star acknowledged the existence of a “partnership”, although it was amongst Best Star, Hung and CGT.  In the Third Party Notice dated 11 August 2008 (and amended on 13 March 2009) issued against Hung and Li Kam Shun, Best Star claimed against Hung “for a declaration that the partnership between [Best Star, Hung and CGT] was a partnership for an undertaking, namely for the development of small houses in Hong Kong, and an order that [Hung] was liable to the extent of 30% of all the Plaintiff’s claim by virtue of the [partnership].”

108.  Best Star also pleaded the partnership as follows:

(i)    Best Star would be used to buy small village houses in Hong Kong and each would share profit and loss in the agreed percentage and shoulder the corresponding rights and obligations;

(ii)   Hung would represent Best Star and take up all responsibilities when collecting data for small houses projects pre-development planning and during the construction stages;

(iii)  Hung would be responsible for the execution of whole process of the small village houses bought by Best Star; and

(iv)  after deducting costs, interest and tax, the profits would be shared: 60% for Best Star, 30% for Hung and 10% for CGT.

109.  As Best Star went all the way to claim for a declaration of the existence of a partnership in HCA 1174/2008, it is very difficult for the Best Star Camp to now contend that the Joint Venture business was solely owned by Best Star and Hung was merely its agent in operating such business.

110.  Mr Chan, counsel for the Best Star Camp, argues that, if the cooperation arrangement was in the form of partnership, it is equally odd that there was no mention of partnership by Hung in the earlier actions, i.e. the Statements of Claim in HCA 2356/2009[29] and HCA 45/2010 only referred to “Joint Development Agreement” made between the parties.   Further, Hung has pleaded in §43 of the Re-Amended Statement of Claim in HCA 1735/2012 that the Lot 154 Agreement was made between Hung and Guo acting for himself and on behalf of Best Star.[30]  If the Joint Venture was run in the form of partnership, the alleged Lot 154 Agreement should have been made between the then partners of the Joint Venture including Guo, Li Kam Shun and Hung, and not between Best Star and Hung as pleaded by him.

111.  There is some force in such argument.  However, I do not accept that the allegation of partnership is only an afterthought on the part of Hung.  In the earlier actions, it is quite clear from the pleadings that Hung claimed that there was a joint development agreement between the parties.  Tough the term “partnership” had not been used, every participants of the joint development agreement would have a stake and interest in the Projects concerned.  Hung Camp did not ignore the 2004 Agreement, but it is its case that such agreement only reflected part of the cooperation arrangement agreed by the parties.  The same observation can be about Hung’s pleading in HCA 1735/2012.  Since Best Star was used as the vehicle of the Joint Venture, whatever sale and purchase agreement Hung made with the Joint Venture would be made on the basis that Best Star would be the vendor, just like all other agreements made between Best Star and the purchasers of the properties developed by the Projects.  Hence, unlike the Best Star Camp which actually pleaded a partnership arrangement in other actions which is more damaging to its case, Hung had not deviated from his allegation that all the “partners” had a stake and interest in the Joint Venture business.

III.3  The effect of the leaving of certain partner

112.  There is also an issue as to whether the partnership had been dissolved after the leaving of certain partner.

113.  The evidence shows that the partners engaged in the development of the various Projects might be different.  Nevertheless, such fact does not automatically mean that the relationship of the parties must have been one governed solely by the 2004 Agreement. 

114.  Apparently, Li Kam Shun later withdrew from the Joint Venture.  Initially, he held 4,900 shares (out of 10,000 shares) in Best Star.  On 26 August 2005 and 5 August 2006, he transferred 4,899 shares and 1 share to Guo respectively.

115.  Although the last share was only transferred away in August 2006, Li Kam Shun effectively transferred away everything else in August 2005 remaining only as a nominal shareholder until August 2006.  In other words, he effectively left the partnership on 26 August 2005.

116.  Despite that, nothing changed in the partnership operation.  The Projects continued as usual.  For instance, the lands of the Shea Shan Village Project and the Lot 223A Project were purchased on 29 August 2005 and 27 February 2006 respectively.  The Shea Shan Village Project was sold on 29 August 2005 and assigned on 30 September 2005, but Li Kam Shun was given a share in profits according to the Profit Sharing Note.  In other words, Li Kam Shun continued to receive profit after he transferred the bulk of his shares (4,899 shares) to Guo in August 2005.

117.  Rather than regarding such withdrawal as a dissolution of the partnership, I view each Project as a separate partnership based on the previous arrangements made by the parties and the then circumstances for each development project (for example, the parties participating in that project might be different).  It is clear to me that the parties were conducting the Joint Venture business in a loose and informal manner.  But one thing is clear, each partner would have a stake (including getting the profit and bearing the loss) in each Project.  One cannot say that it was because of the subsequent withdrawal of certain partner that the Joint Venture business was solely owned by Best Star.  As mentioned above, the conducts of the parties show that each partner would have a stake and interest in the Joint Venture business.

118.  In view of such findings by the court, the parties would then have to work out the partners and the accounts for each individual Project.  In case of disagreement, the parties are at liberty to restore the matter for further argument.

III.4  Whether the form of the cooperation arrangement is a non-issue?

119.  In fact, irrespective of whether Hung was a partner or an agent, it is quite clear that Guo or Best Star had given authority to Hung to sell the small houses developed by the Joint Venture.

120.  It is not disputed that, during the parties’ cooperation, Guo came to Hong Kong once every two to three months.  On each of such occasions, he stayed for only a short time mostly leaving on the same day.  If Guo was not in Hong Kong all the time, most things would have to be handled by Hung in Hong Kong. It was not possible that for each document to be signed, each payment to be made or each negotiation or decision to be made, Hung had to wait for Guo to come to Hong Kong.  A lot had to be done immediately without delays.  Hence, Guo must have entrusted Hung with various responsibilities beyond what was stated in the 2004 Agreement.

121.  Further, Guo confirmed in cross-examination that he did not know anything about small village houses in the New Territories.  He entered into the cooperation with Hung because he trusted Li Kam Shun, and Li Kam Shun introduced Hung to him.  So Guo trusted Hung who had been in the development of small village houses for many years.  As such, Guo would not have knowledge as to what expenses needed to be incurred (such as paying “compensation” for the removal of the squatters) or what the proper market value was the land to be purchased or the developed houses to be sold.  Guo would have to rely on the experience and knowledge of Hung.

122.  The mutual understanding must be that once parties agreed to enter into certain projects, all the execution would be carried out by Hung.  Hung must have had all the ancillary power to do so for the partnership or the Joint Venture cooperation.

123.  Given such background, it is wholly understandable why two company chops were prepared: Guo’s Best Star Chop held by Guo (with English name on top of the Chinese name of Best Star), and Hung’s Best Star Chop held by Hung (with Chinese name on top of the English name of Best star).  It was for convenience so that Hung could work on the Projects when Guo was not in Hong Kong.  There is also no basis to support Guo’s serious allegation that Hung had used a forged chop.  First, if it was to be forged, Hung should have used a chop which was exactly the same as the one Guo was holding.  Second,the alleged forged chop was used way before the parties’ relationship turned sour in late 2007.[31] Guo did not raise any issue when Hung used such chop.  Obviously, there was no reason for a “forged” chop to be made other than for convenience.

124.  I also find that Guo had given express authority to Hung to sell Lots 154A-D when he signed on the Price List listing out the minimum selling prices for each unit of Lots 154A-D.

125.  According to Hung, at a meeting among Hung, Guo and Li Kam Shun held at the Panda Hotel, Tsuen Wan in early January 2007, the parties discussed the prices for the sale of Lots 154A-D to individual buyers.  At last, Hung, Guo and Li Kam Shun agreed that the total sale price of Lots 154A-D would not be less than $25,000,000.  Thereafter but before about 7 January 2007, in another meeting held at Lot 154D, Hung, Guo and Li Kam Shun, in the presence of Li Fu Wing, discussed and agreed the sale prices for the individual units in Lots 154A-D, and Hung wrote them down to prepare a price list for their sale, i.e. the Price List, which was signed by Guo.

126.  There is no dispute that Guo signed on the Price List.  Guo denied that he had given any consent for Hung to sell the units in Lot 154A-D by signing the Price List.  However, if it was just a preliminary discussion and no decision had been made to sell the said units, I cannot quite understand why Guo had to sign on the Price List itself.  As Guo would not be in Hong Kong most of the time, I find that, by confirming the prices stated in the Price List, Guo (and indeed Li Kam Shun), like the modus operandi adopted in the earlier Projects, had delegated the task of selling the various units in Lot 154A-D to Hung, and so whether he was a partner of the Joint Venture does not disturb his authority to sell Lots 154A-D to the Lot 154 Purchasers.  Hence, whether he was a partner or not is quite irrelevant.  For the sale of the developed small houses on Lots 2441 and 2442, the form of the cooperation arrangement will be relevant.  I will deal with this particular issue at the latter part of this Judgment.

127.  There is also another issue as to whether Hung had disclosed another version of the Price List which was shown by the police to Hung on 15 November 2007.  Mr Chan submits the purpose of Hung in concealing that document was that he did not want the police to know that he had held himself out as the developer of the Lot 154 Project.  I do not accept such submission.  There is no point for Hung to have concealed that particular document.  The most important fact is that Guo had signed on the Price List.  Without looking at that particular document allegedly shown by the police, I do not accept that such observation would undermine Hung’s case on the Price List.

128.  Since I find that Guo had given express authority to Hung to sell Lot 154A-D to other purchasers, the assignments of these properties from Best Star to Lawin would have to be set aside.  In any event, Lawin is not a bona fide purchaser as: (i) there is no evidence to show that Lawin had paid any consideration for the assignment of these properties; (ii) the sales were made at undervalues; and (iii) Lawin, being controlled by Guo, should have known about the prior sales of these properties from Hung on behalf of the Joint Venture to the Lot 154 Purchasers.  The Lot 154 Purchasers are therefore entitled to compel Best Star, being the vehicle of the Joint Venture, to complete the sales of the properties in Lot 154A-D.

IV     THE LOT 154 AGREEMENT

129.  The second main dispute between the two camps is whether there was an oral agreement for Hung to purchase Lots 154E, F & H and the use of 154RP from the Joint Venture at $7,200,000, i.e. the Lot 154 Agreement.

IV.1  The cases of the respective parties on the Lot 154 Agreement

130.  Hung Camp claims that, by reason of the financial difficulty then faced by the Joint Venture, Guo on behalf of Best Star and Hung orally agreed to make the Lot 154 Agreement by selling Lots 154E, F & H and the use of 154RP to Hung in the total sum of $7,200,000.  According to Hung Camp, the Lot 154 Agreement was first made in or about February or March 2006 (shortly before the construction work started in Lot 154), which was supplemented or varied in the subsequent discussions in or about October 2006 and early 2007 respectively.

131.   Hung Camp contends that the contents of the Lot 154 Agreement are as follows:

(i)    the small village house erected on Lot 154E together with: (a) its garden on Lots 154F & H;  and (b) the right and ownership to jointly use Lot 154RP as common part in association with all other owners of Lot 154, would be sold to Hung at a price of initially $5,000,000 (shortly before the construction work started in Lot 154 but only for Lot 154E) and subsequently increased to $7,200,000 (in or about early 2007 for the additional Lots 154F & H and the use of RP) to be set off against the profits to be distributed to Hung under the Joint Venture;

(ii)   Hung could build village house on Lots 154E, F and H for his own use;

(iii)  Lot 154RP would be built and used as common part for the use of all owners of Lot 154 (and hence at the costs of the Joint Venture); and

(iv)  Lot 154G would be built as a road for use by owners of Lot 154 and such costs would be borne by the Joint Venture.

132.  The evidence of Hung on the alleged Lot 154 Agreement can be summarized as follows:

(i)    After building licences of Lots 154A-E had been issued, in or about February or March 2006, Hung, Guo and Li Kam Shun discussed the type of houses to be built on Lots 154A-E.  Hung proposed to Guo and Li Kam Shun that he would purchase Lot 154E as his own residence at the price of $5,000,000 inclusive of construction costs and land premium to be paid by the Joint Venture. Guo and Li Kam Shun then agreed to sell Lot 154E to Hung at $5,000,000 as proposed.

(ii)   Shortly after 19 October 2006, Hung and Guo visited the site at Lot 154.  At that time, skeletal structures of the houses had been built.  Hung, during the visit and outside Lot 154E, orally asked Guo to reimburse him for the money he paid on behalf of the Joint Venture including:

(a)  $2,000,000 paid to the Cheung’s Brothers under the Cheung’s Agreement;

(b)  the outstanding advances made by Hung for the Chai Kek Village Project which were about $500,000 in total by that time; and

(c)  the payment of the undistributed profits, after the finalization of the accounts, for Chai Kek Village Project.

(iii)  On the same occasion, Guo said the price of $5,000,000 for Lot 154E was too low.  Eventually Hung proposed that he would buy also Lots 154F & H for use as his garden for another $2,000,000 and finally agreed to increase the price to $7,200,000.

(iv)  In or about early 2007, construction of the houses on Lots 154A-D had almost been completed.  At that time, Guo told Hung in Lot 154 that he needed money for his own use and had no means to pay back the money owed to Hung and the construction costs owed to Li Fu Wing.  Guo asked Hung to sell Lots 154A-D immediately.

(v)   In early January 2007, at a meeting amongst Hung, Guo and Li Kam Shun held at the Panda Hotel, Tsuen Wan, the parties discussed the prices for sale of Lots 154A-D to individual buyers.  At last, Hung, Guo and Li Kam Shun agreed that the total sale price of Lots 154A-D would not be less than $25,000,000.They also decided to build a wall with estimated costs of $2,000,000 to $3,000,000 for the Lot 154 Project.  Hung suggested that they should discuss the price of Lot 154RP after the construction of the wall.  Hung, Guo and Li Kam Shun also agreed that the price of $7,200,000 under the Lot 154 Agreement included Hung’s use of the communal garden in Lot 154RP.

(vi)   Thereafter but before about 7 January 2007, a meeting was held at Lot 154D to discuss the prices for sale of Lots 154A-D, attended by Hung, Guo, Li Kam Shun and Li Fu Wing.  The former three discussed the sale prices for the individual units in Lots 154A-D, and Hung wrote down the agreed sale prices in the Price List.  The Price List was signed by Guo which provided for the prices of the different houses as follows: Section A Ground and 1^st Floor $4,300,000, 2^nd Floor $2,200,000; Section B Ground and 1^st Floor: $4,200,000, 2^nd Floor $2,100,000; Section C Ground and 1^st Floor $4,200,000, 2^nd Floor $2,100,000; Section D Ground and 1^st Floor $4,300,000. 2^nd Floor $2,200,000.

(vii)  In a meeting on about 13 or 14 February 2007, Hung asked Guo to pay the outstanding contribution to him.  Guo told Hung that the outstanding sums would be repaid to Hung after he had finished the calculation, but Guo said that the previous agreed selling price of $7,200,000 for Lots 154E, F & H and the use of the garden in Lot 154RP was too low.  Guo wanted Hung to increase the purchase price, but Hung refused.

133.  Guo denied these discussions.  His evidence can be summarized as follows:

(i)    In or about April 2006, Best Star engaged Li Fu Wing to construct 5 small village houses on Lots 154A-E at a consideration of $4,750,000.  From April to June 2006, Best Star paid, at the direction of Li Fu Wing, $1,000,000 to Li Fu Wing and $4,000,000 on account of costs for other development projects to Brother Engineering Co., the sole proprietor of which was Lee Fu Yuen Facki, i.e. Li Fu Wing’s brother.

(ii)   By late 2006, 5 houses were built on Lots 154A-E.  He had never given authority to Hung to sell any of the houses on Lots 154A-E. The Price List contained the sale prices discussed but not finalised by the parties.  Further, he intended to keep the house on Lot 154E for long term investment and so there was no sale price for such house in the Price List.

(iii)  In or about February 2007, Li Kam Shun told Guo that Hung had moved into the house on Lot 154E.  On a visit to Lot 154, Guo saw a hut on Lot 154F and some cars parked on Lot 154RP.

(iv)  He tried to contact Hung but without any success.

IV.2  Analysis of the factual evidence

134.  In support of the case of the Hung Camp on the Lot 154 Agreement, Mr Mak is basically relying on the following points:

(i)    Lot 154E was missing in the Price List signed by Guo dated 7 February 2007.  Guo’s explanation of keeping Lot 154E for long term investment is not credible in view of: (a) the financial position of the Joint Venture at the material time; and (ii) the modus operandi of the Joint Venture in the development of small houses in the other Projects.  Mr Mak has traced the financial positions of the Joint Venture all the way from 2004 to 2007 with a view to show that the Joint Venture was facing financial difficulty at the material time.  Further, Mr Mak has examined the modus operandi of the other Projects in length with a view to show that the Joint Venture was aiming for short term investment gain rather than for long term investment.

(ii)   The prices agreed under the Lot 154 Agreement were in line with the market values of the relevant properties at the time.

(iii)  The evidence of Kei shows that Guo and Hung were in friendly term in April 2007, and Guo apparently was not displeased when he knew that Hung was occupying Lot 154E as his home.

(iv)  Hung had sold his original family home (which was held in the name of his wife) at House 33B, JC Castle and Car Par no 173, Tai Po in early 2007 before moving in to live in Lot 154E.  Hung would not have done so without the Lot 154 Agreement.

135.  Despite the able submissions of Mr Mak, I do not find that the state of evidence is sufficient for the court to conclude that, on the balance of probabilities, the parties had made the Lot 154 Agreement as alleged by the Hung Camp.

136.  First, there is considerable confusion in the evidence of Hung about the contents of the alleged Lot 154 Agreement:

(i)    In the statement by Hung to the police on 23 October 2007, Hung only mentioned that Lot 154E was not included in the Price List because Guo orally agreed to sell it to him for $7,200,000.  He did not say that the price included Lot 154F or H, which should have been the case according to Hung’s evidence.  Though Mr Mak tries to justify Hung’s answer by saying that he was only asked about Lot 154E by the police at that time, it is still strange that Hung, being the person who knew about all the background of the alleged transaction, did not provide more accurate details of the transaction to the police.

(ii)   Instead of one Lot 154 Agreement as pleaded, Hung in his cross-examination said there were in fact two oral agreements: one for the sale of Lot 154E including its own garden for $5,000,000, and another one for Lots 154G and H (used as garden) for $2,200,000.

(iii)  There is considerable confusion about the rights to be assigned to Hung in Lot 154RP under the alleged Lot 154 Agreement.  Hung confirmed in his witness statement that the Lot 154 Agreement was to include the sale of Lot 154RP.[32] However, the evidence revealed that Lot 154RP was intended to be used as a communal garden for use by all the occupiers of the Lot 154 Project.  The confirmation also runs contrary to the Hung’s case as pleaded in §43 of his Statement of Claim in HCA 1735/2012, which alleges that the terms of the Lot 154 Agreement as follows: (a) Lot 154RP would be built and used as common part for the use of all owners of Lot 154 and would be sold to the owners of the small houses in Lots 154A-D[33]; (b) Lot 154RP was to be used as common part for all the owners of Lot 154 and the right to exclusive possession, use and occupation of Lot 154RP was not sold to any individual owners of Lots 154A to D (which is quite different from (a) above)[34].  Hung was asked about these confusions in his cross-examination, and yet he was not able to provide a satisfactory explanation.

137.  It is surprising to see so much confusion in Hung’s evidence and pleadings about the exact contents of the Lot 154 Agreement.  One cannot simply find excuse by saying that Hung was a lay person who did not pay attention to these niceties.  After all, Hung, being an experienced developer in small houses, would have appreciated that the Lot 154 Agreement involved the transfer of interests in real property.  Agreement to sell real property is always a serious agreement, and the interests to be assigned by such kind of agreement must be certain.  With all these unexplained confusions, it would be very difficult for the court to enforce the alleged Lot 154 Agreement, or to find that such agreement was indeed made and finalized by the parties.

138.  Other confusions can be found in the allegations made in some of the related proceedings. In HCA 45/2010 which involved a complaint that Best Star had wrongfully caused the assignment of the interests in Lots 154A-E to Lawin, the full terms of the alleged Lot 154 Agreement for the sale of Lots 154E, F & H, very surprisingly, was not pleaded in Hung’s Statement of Claim.  In fact, it was specifically pleaded in §3(ii) of Hung’s Reply and Defence to Counterclaim that, under the “Subsequent Agreement” made by Guo on behalf of Best Star and him on or about 7 February 2007, Lot 154E “with garden” would be sold to Hung for $5,000,000 to be set off against the profit to be distributed to Hung under the “Cooperation Agreement”.  There was no mention that the Lot 154 Agreement also included the sale of Lots 154F, H and RP and the increased agreed price of $7,200,000.  The same also happened in DCCJ 5202/2008, which was an action taken by Lawin against alleged wrongful occupation of Lot 154E.

139.  Similar confusion can be found in the actions taken out by Best Star for the wrongful occupation of Lot 154F (DCCJ 5207/2008) and Lot 154H (DCCJ 5209/2008) and Hung’s affirmation made in HCA 640/2011.  In 5207/2008, only the alleged agreement for the sale of Lot 154E in the sum of $5,000,000 was pleaded.  There was no mention of the agreement for the sale of Lot 154F.  It is difficult to understand why he had relied on the full terms of the alleged 154 Agreement to justify his occupation of Lot 154F.  Another version was pleaded in DCCJ 5209/2008 to defend the claim for wrongful occupation of Lot 154H.  It was pleaded that Lot 154E with garden (which was formed by Lots 154F & H combined) was sold to Hung at a price of $5,000,000.  Again the purchase price of $5,000,000 is incorrect, which should be $7,200,000 according to Hung’s version of the alleged Lot 154 Agreement.  These confusions and inconsistencies are alarming.

140.  Another problem with the case of the Hung Camp is the relief sought in HCA 45/2010.  In respect of Hung’s claim for the alleged wrongful assignment of the interests in Lot 154 to Lawin, Hung asked for a declaration therein that Lawin was holding 30% interest in Lot 154 (including Lot 154E, F & H) for Hung.  On Hung’s own case, he had already bought Lots 154E, F & H, and it would be most difficult to understand why he had not pleaded the alleged full terms of the Lot 154 Agreement and contended that Lawin was holding 100% interest of these lots of land on behalf of Hung.  Hung was conducting these proceedings as if there was no Lot 154 Agreement made in the first case, and even Mr Mak cannot provide a satisfactory explanation as to why it was the case. These confusions and inconsistencies certainly undermine Hung’s case on the Lot 154 Agreement.

141.  Second, I find it extremely surprisingly as to why Hung had not insisted to reduce the Lot 154 Agreement into writing.  Hung only gave an explanation that Guo did not see the necessity of having a written agreement, but I do not accept it to be a genuine explanation.

142.  It seems that Hung was happy with the oral agreement on the basis of mutual trust.  However, the changes in circumstances over time should have prompted Hung to reconsider the position and insist that the agreement should be recorded in writing.

143.  According to Hung, Guo had already agreed in February or March 2006 to sell Lot 154E to him in the sum of $5,000,000.  However, in October 2006, Guo went back on his earlier promise and said the price of $5,000,000 for Lot 154E was too low.  Eventually Hung proposed that he would buy Lot 154F & H as garden for another $2,000,000 and finally agreed to increase the price to $7,200,000 (which was a significant increase from $5,000,000).  Later on 13 or 14 February 2007, Guo again said the price of $7,200,000 for Lots 154E, F & H & RP was too low.

144.  On Hung’s own case, Guo intended to retract from the Lot 154 Agreement on at least two occasions.  Despite being given numerous opportunities to give explanation, Hung has simply failed to provide a satisfactory explanation as to why he had not made any attempt to record the Lot 154 Agreement in writing, in particular, the purchase price of this agreement and the exact subject matters to be conveyed under the agreement had been varied substantially in the course of the alleged negotiations between the parties over a period of time.

145.  Third, on Hung’s Camp’s case, Hung did not need to make any payment for the alleged Lot 154 Agreement until he had secured the bank mortgage upon completion of the small house and Best Star’s payment of premium.If this were true, Best Star’s financial position would not improve as it had continuous cash outflow for erecting the house for Lot 154E at $950,000 and paying the premium up to about $1,000,000. In other words, the making of the alleged Lot 154 Agreement did not improve Best Star’s financial position, if not worsen it, at all.  Thus there was simply no incentive for Best Star or Guo to have entered into the alleged Lot 154 Agreement.

146.  Fourth, I find it extremely surprising as to why Hung had not put forward the Lot 154 Agreement as the basis to justify his right to own and occupy Lot 154E in the pre-action letter issued by Hung’s solicitors (Chan & Associates) dated 5 October 2007.  The letter was the first time that Hung had put forward his case because, on Hung’s case, he discovered the assignment of the interests in Lot 154 to Lawin two days previously on 3 October 2007.  It is therefore a contemporaneous document which should have truly reflected Hung’s position by that time.  Surprisingly, the letter only complained that Lots 154A-E had been assigned to Lawin below market values thereby evading Hung’s interests in the Joint Venture.  There was no mention of the alleged Lot 154 Agreement.  If the parties had made such agreement, there is no sensible explanation as to why Hung had not put forward the Lot 154E Agreement as one of the grounds of objection.  Instead, the letter just alleged that the rights of Hung in the Joint Venture had been prejudiced.

147.  Fifth, judging from the conduct of Hung in handling the disputes relating to Lots 2441 and 2442 (which I will further elaborate in the latter part of this Judgment under the section on the Lot 2441 Agreement), I have reason to believe that Hung is the kind of person who would have taken the matter into his own hands in handling the disputes relating to the Joint Venture. There might have been some discussions between the parties, but I am not convinced that the parties had come into terms of any definite agreement.  Yet Hung, like what he did in respect of the acquisition of the legal titles in Lots 2441 and 2442, just took the matter into his own hands and occupied Lot 154E without a definite agreement.  That also became the last draw which triggered the breakdown of the relationship between the parties.

148.  By reason of the confusions and inconsistencies mentioned above, I do not find that the Hung Camp has discharged the burden of proving, on the balance of probabilities, the existence of the Lot 154 Agreement.  In reaching such conclusion, I have not ignored the arguments put forward by Mr Mak. However, despite the financial difficulties that might have been faced by the Joint Venture at the material time, it does not necessary mean that Guo and Li Kam Shun would have agreed to sell Lots 154E, F and H to Hung.  In particular, as shown in the case of Lots 154A-D, there might be other potential buyers willing to purchase Lot 154E by that time.  Further, according to Hung, the relevant parties agreed to spend $2,000,000 to $3,000,000 to build a wall enclosing the site of the Lot 154 Project.  If the Joint Venture was in financial difficulty by that time, I have serious doubt as to whether they would have agreed to spend so much money on such project, in particular when Hung would be a main party benefitting from the construction of the wall.

149.  At the trial, there was serious dispute between the parties as to whether the Joint Venture was facing financial difficulty at different points in time.  I do not find it necessary to resolve this particular issue, in particular the accounts of the Joint Venture for the various Projects were quite messy at the time (as I will further demonstrate in the latter part of this Judgment).  But even if the Joint Venture was having some cash flow problem at the time, I do not find that the parties, due to the reasons given above, had made a formal agreement for the sale of Lot 154E.

150.  Having considered the circumstances of the present case, I do not find that the selling of Hung’s former residence and the then market value of Lot 154E can in any way assist Hung’s case.  Perhaps the most difficult thing to resolve is Kei’s evidence about her meetings with Guo in Lot 154.

151.  According to Kei’s evidence, Guo and Hung were apparently in friendly term in April 2007, and Guo was not displeased when he knew that Hung was occupying Lot 154E as his home.  Her evidence also contradicts that of Guo who claimed that he was not able to contact Hung after he was informed of Hung’s occupation of Lot 154E by Li Kam Shun.

152.  Whilst Kei is a more independent witness and her evidence may be preferred, she would not have been able to know the exact relationship between Guo and Hung by that time and the undercurrent between them.  It is also possible that Guo might not have revealed the whole truth to the court or that his memory was somewhat distorted, and there might be some discussions between Hung and Guo by then to discuss the accounts of the various Projects of the Joint Venture.

153.  That is the problem facing the court in deciding this particular case.  As mentioned above when I gave my observations on the credibility of the witnesses, the court should not accept the evidence of Guo and Hung on face value.  The court has to look at the whole circumstances of the case in deciding the various issues relating to the disputes of the Joint Venture.  The court has to test their evidence by reference to the documentary evidence (or the absence of it), applying logics and common sense.

154.  On this particular issue, I find that Guo and Hung might have some discussions about their disputes concerning the Joint Venture’s accounts in probably February to April 2007.  One of the options raised must have been for Hung to buy Lot 154E, using the purchase money to set off the expenses that he had paid on behalf of the Joint Venture.  That explains the absence of Lot 154E in the Price List and the meetings in Lot 154.  Nevertheless, with all the confusions and inconsistencies mentioned above, I am not satisfied on the balance of probabilities that the parties had come into terms on any final Lot 154 Agreement.

155.  At the trial, the parties only ask the court to determine whether they had made the Lot 154 Agreement.  I answer this question in the negative.  I have not been asked to determine the consequential matters upon such finding. I understand that the parties would try to work out a solution based on such finding.  In case of any disagreement, the parties are at liberty to come back to the court to argue further on the consequential matters.

156.  However, I would like to make some preliminary observations:[35]

(i)    Though I find that Hung did have authority to sell the properties developed under the Projects, in particular the properties in Lots 154A-D, to outside purchasers, that should not mean that Hung, in the absence of the Lot 154 Agreement, could sell the Lots 154E, F & H to himself.

(ii)   The properties covered by the alleged Lot 154 Agreement should now be owned by the Joint Venture.

(iii)  Hung would have to account to the Joint Venture for the mesne profit for his occupation of the properties covered by the alleged Lot 154 Agreement.

IV.3   Doctrine of part performance

157.  In view of my finding above, it is not necessary for me to consider the academic question as to whether Hung can rely on the doctrine of part performance or proprietary estoppel to enforce the unwritten Lot 154 Agreement.

158.  However, based on my analysis above, it is clear that the court cannot enforce the alleged Lot 154 Agreement for want of certainty.  Apart from the fact that whether there were one or two agreements involved, there is great uncertainty about the exact subject matters to be conveyed under the alleged Lot 154 Agreement, in particular the right associated with the use or ownership of Lot 154RP.  Hence, Hung cannot rely on this doctrine in any event.

V      THE LOT 2441 AGREEMENT AND THE SALE OF THE UNITS ON LOT 2442 TO THE LOT 2442 PURCHASERS

V.1   The Lot 2442 Agreement

159.  Another main dispute between the parties is about the existence of the alleged Lot 2441 Agreement.  According to the case of the Hung Camp, the Lot 2441 Agreement covered the following three matters:

(i)    Lot 2441 would be sold to Li Fu Wing (eventually held by Li Fu Wing’s family members instead) at $5,000,000;

(ii)   Lot 2442 would be sold to the Lot 2442 Purchasers (of which the dispute in relation to Ho Chin Wang[36] has now been settled); and

(iii)  Lot 2472 would be sold to Hung at $3,000,000.

160.  As mentioned above, there were many complications with the Lot 2441 Project. After the parties decided to proceed with the Lot 2441 Project in May and June 2006, the Joint Venture faced a serious of problems, including, inter alia: (i) discovery of the bankruptcy of the registered owner of Lot 2443; (ii) the expiry of the building covenant in respect of Lot 2472; (iii) the break out of the dispute between the parties in August 2007 relating to the Lawin transaction and the funding arrangement; and (iv) the obstruction of the progress of the construction work in at least Lot 2472.  Guo had procured Best Star to commence HCA 409/2008 in April 2008 without involving Hung.  The legal titles of the units on Lot 2441 were assigned to Li Fu Wing’s family members, whereas the ones of the units on Lot 2442 were assigned to outside purchasers.  The intended transaction in relation to Lot 2443 was eventually cancelled.

161.  Hung and Li Fu Wing testified that the parties did make the Lot 2441 Agreement whilst Guo denied the existence of such agreement.

162.  It is the case of the Hung’s Camp that, in or about May 2006, Guo, Hung and Li Fu Wing (though Li Kam Shun was also involved in the project) orally agreed to develop the lands under the Lot 2441 Project, on, inter alia, the following terms:

(i)    The right to develop the lands in the Lot 2441 Project would be acquired by Best Star at the consideration of $7,800,000;

(ii)   Construction of small village houses would first commence on Lots 2441, 2442, 2443 and 2472.

(iii)  Li Fu Wing and Hung would be responsible for negotiation with the villagers (being the occupants of those lots) on compensation to deliver up possession.

(iv)  Li Fu Wing would be responsible for construction of the small houses after obtaining vacant possession.

(v)    Li Fu Wing had the pre-emptive right to purchase the small house constructed on Lot 2441 at the price of $5,000,000 (inclusive of the premium and construction costs which would be paid by Best Star) to be paid on completion when mortgage loan could be obtained.

(vi)  In consideration of Hung being responsible for advancing funds to compensate those occupiers to deliver up possession of the respective land in the Lot 2441 Project, Hung would have the pre-emptive right to purchase the small house constructed on Lot 2472 at the price of $3,000,000 (inclusive of the premium and construction costs which would be paid by Best Star) to be set off by the funds advanced by Hung to compensate the squatters or other expenses such as decoration costs.

(vii) Hung would be separately entitled to share the 30% profit made from sale of the small house constructed on Lot 2472 which Hung would purchase.

(viii)Best Star would hold the legal titles to Lot 2472 and Lot 2276 RP prior to the completion of the houses in question.

(ix)  The profit in developing the lands under the Lot 2441 Project would be shared according to the previous arrangement.

163.  After discovering that Lam Ma Hing (the registered owner of Lot 2443) was an undischarged bankrupt, Hung, Li Kam Shun and Guo orally agreed in early June 2006 that there should be a variation of the development of the Lot 2441 Project in the following manner:

(i)    the development of Lot 2443 would be postponed;

(ii)   the lands for the development of the other 4 lots would be purchased at the following prices: $1,950,000 for Lot 2441, $1,950,000 for Lot 2442, $1,000,000 for Lot 2472, and $1,000,000 for Lot 2276RP, a total of $5,900,000;

(iii)  in consideration of the agreement to postpone the purchase of the land for the development of Lot 2443, 20% deposit or $380,000 would have to be paid.

164.  According to Hung, in the end of 2006 and early 2007, Guo had refused to make further financial contributions to the Projects under the Joint Venture. He later transferred the assets of the Joint Venture to Lawin, and this left Hung to deal with the Lot 154 Purchasers and the construction of the houses of the Lot 2441 Project by himself.  In 2008, Guo further obstructed the application to extend the building covenant in respect of Lot 2472.  As a result, pursuant to the Lot 2441 Agreement, and in exercise of Hung’s usual authority under the partnership as in the previous transactions, Hung directed the transfer of the legal titles of the units on Lot 2441 to Fu Wing’s family members and those of the units on Lot 2442 to the Lot 2442 Purchasers.

165.  On the other hand, the Best Star Camp claims that:

(i)    Neither Hung nor Li Fu Wing was authorised to sell or to receive purchase prices for the said properties, and all the purported sales are therefore void.

(ii)   The parties did not make the Lot 2441 Agreement in the terms alleged by the Hung Camp.

166.  I find against the existence of the Lot 2441 Agreement for the following reasons.

167.  First, given the circumstances of the case, it was highly unlikely that Guo would have agreed to the Lot 2441 Agreement.  At that time, if Hung and Li Fu Wing had the right to purchase Lot 2472 and Lot 2441 for $3,000,000 and $5,000,000 respectively, there was no guarantee that the project would be profit-making.  Taking Lot 2472 as an example, Best Star paid $1,000,000 for Lot 2472.  The construction costed another $1,000,000.  Government premium in the sum of $741,041.40 was eventually paid.   Then there were the costs paying to the local gangs and villagers for the clearance of the site in region of $2,000,000 to $3,000,000, which was roughly equivalent to $500,000 per lot.  Even before the payment of the legal costs and ting’s fee, the costs for the development of Lot 2472 would add up to at least $3,250,000 in excess of the alleged sale price of $3,000,000.  That means Best Star would make a loss on Lot 2472 if it had agreed to sell it to Hung as alleged.

168.  Mr Mak submits that, in determining whether the parties would have agreed to these terms, the court has to look at the profitability of the Project as a whole.  The fact that the Joint Venture might have made a loss on a particular sub-lot could have been compensated by a greater profit margin in respect of the other lots.  However, there was no guarantee that the development in the other sub-lots would make a huge profit to offset such loss. There was also no guarantee that Lot 2276 RP could be exchanged for another lot of land on which a house was to be built.  Under such circumstances, it was unlikely that Guo would have agreed to sell Lot 2472 at such a low price.

169.  Second, it would be quite absurd to suggest that Guo would have accepted that Li Fu Wing would only need to complete and pay the purchase price after he successfully applied for a mortgage loan.  It would not be possible for Li Fu Wing to apply for mortgage until all the construction and paper works were completed, not to mention the payment of the Government premium (which allegedly was the responsibility of the Joint Venture).  Such term would also mean that the Joint Venture would have no control over the mortgage application process, and Li Fu Wing could delay the payment of the purchase price for as long as he liked.  On the basis that the Joint Venture was in need of cash as alleged by Hung, it was not possible that Guo would have agreed to such generous term.

170.  Third, since the alleged Lot 2441 Agreement involved the sale of lands, it would be quite incredible that experienced businessmen like Hung and Li Fu Wing would not have insisted to reduce the oral agreement into writing.  The same observations I made about the lack of written document for the alleged Lot 154 Agreement are also applicable here.

171.  Fourth, the conduct of Hung in transferring the titles in Lots 2441 and 2442 to Li Fu Wing’s family members and the 2442 Purchasers clearly shows that Hung simply took the matter into his own hands in resolving his disputes with Guo, and hence I have serious doubt about the evidence of Hung and Li Fu Wing on the making of the alleged Lot 2441 Agreement.

172.  Hung was aware that two powers of attorney from two tings for Lots 2441 and 2442 had been executed in favour of Best Star (in the presence of Hung, Guo and Li Kam Shun at Tam & Partners’ office on 15 Jun 2006).  However in January 2010, Hung arranged for the tings to execute another two powers of attorney in respect of Lots 2441 and 2442, with a view to transfer the titles of the said two lots of land to the Lots 2441 and 2442 Purchasers.  These two subsequent powers of attorney were executed without disclosure to Best Star after the relationship between Hung and Guo had turned soured in respect of the assignment of the interests in Lots 154A-E to Lawin in August or September 2007. Hung had probably arranged for Lam Yat Hung (the ting for Lot 2442) to make a statutory declaration prepared by Chan & Associates on 11 March 2008 to declare that the title deeds of Lot 2442 were lost, which was obviously false.  At the trial, I had warned Hung his right against self-incrimination, and he exercised his right not to answer further questions about his role in the preparation of the said declaration or any other related questions.  No matter what was his answer, the court has reason to believe that he played a pivotal role in facilitating the transfer of the titles.  His conduct of taking the matter into his own hands in defiance of the earlier powers of attorney and the law is inexcusable.

173.  Under cross-examination, Hung admitted that he had no authority to sell the houses in Lots 2441 and 2442.  No matter what was the prior arrangement in respect of the earlier Projects, the circumstances had changed after the break out of the dispute.  When pressed further for the reason as to why he sold the houses without authority, Hung replied that, since Guo or the Joint Venture owed him money, he sold the houses to compensate for his losses.  He did not mention that he took such measure in response to the alleged unlawful sale of Lots 154A-E to Lawin.  No matter what was the reason, I do not accept that the parties had made the alleged Lot 2441 Agreement.  In my judgment, it was only a pretext to justify the “self-help” conduct in selling the houses.

174.  With a view to justify the sales of Lots 2441 and 2442, Mr Mak submits that:

(i)    The conduct of Hung should be viewed in the context of the circumstances facing him by that time, in particular Best Star had “unlawfully” transferred its interests in Lots 154A-E to Lawin.

(ii)   It seems that Hung had received legal advice to the effect that he was authorized to make the sale.

(iii)  The time to build the small house on Lot 2472 had expired for 3 years by that time of the completion of the purchase on 28 June 2006.  Guo’s conduct in relation to Lot 2472, i.e. by complaining that Hung did not have the authority to build the house on Lot 2472 and not paying the Government premium thereby allowing re-entry of the land by the Government, supports Hung’s case on the Lot 2441 Agreement.

(iv)  There is no evidence to show that the sales of various small houses of the Lot 2441 Project were made undervalue.

175.  I do not accept these arguments.  As mentioned above, Hung admitted in cross-examination that he had no right to sell Lots 2441 and 2442.  As to why he sold the houses, he replied that he wanted the sales to compensate for the money owed by Guo and the Joint Venture to him.   So far as the conduct of Guo in handling the dispute with the Government, I do not find that Guo behaved in the way he did in order to take revenge against Hung.  One has to bear in mind that re-entry of the land by the Government would hurt the Joint Venture as a whole.  It is clear from the correspondence of the parties by that time, as between themselves and with the Government, that there was a complete breakdown of trust between the parties.  With the ongoing dispute between the parties and the uncertainties over the accounts of the Joint Venture, Guo naturally did not want to make further payment on behalf of the Joint Venture until the matter was cleared up.

176.  For these reasons, I do not find that the parties had made the Lot 2441 Agreement in the terms alleged by the Hung Camp.  There was no agreement to grant Li Fu Wing or Hung the pre-emptive rights to purchase Lots 2441 and 2472 respectively.

V.2   The sale of the units on Lot 2442 to the Lot 2442 Purchasers

177.  Another major issue relating to the Lot 2441 Project is whether Hung had the authority to sell the units on Lot 2442 to the Lot 2442 Purchasers.  Since the claim relating to Ho Chin Wang (the purchaser of the 2/F unit) has been settled, this question only affects the sales of the Ground Floor and the 1/F units to Yip and Chung respectively.  Hung entered into the subscription agreement dated 9 September 2008 with Yip for the sale and purchase of the Ground Floor and 1/F units on Lot 2442 (“the Subscription Agreement”).  The sale and the purchase agreements for these units were made on 22 January 2010 between Lam Yat Hung (the ting concerned) by his attorney Li Fu Wing and Yip and Chung respectively.  The relevant assignments were also executed on the same day.  Yip is the mother of Chung.

178.  In trying to establish that these sales are voidable, the Best Star Camp relies on the following two matters:

(i)    The Subscription Agreement was made after the break out of the dispute relating to the Lot 154 Project, and so Hung should have known that he had no authority sell the Lot 2442 units on behalf of the Joint Venture.

(ii)   The Lot 2442 Purchasers should have known that Hung had no authority to execute the Subscription Agreement from the registration of the writ of HCA 409/2008 on 2 May 2008 (which was a claim brought by Best Star against the tings who were the registered owners of Lots 2441 and 2442 respectively at the time and Rich United), the Statement of Claim on 2 May 2008 and the Amended Statement of Claim on 18 August 2008.

179.  The question as to whether the Subscription Agreement is binding on the Joint Venture depends on: (i) whether Hung was partner of the Joint Venture; and (ii) whether he had the implied or usual authority to sell the units on Lot 2442 to the Lot 2442 Purchasers.  In Part III of this Judgment, I have already held that the parties operated the Joint Venture’s business in the form of partnership, and the Joint Venture had delegated the task of selling the developed properties to Hung.  In fact, Best Star and Guo should have known about the intended sales as there were signboards in the site advertising the sales of the units of the small house on Lot 2442, and Best Star and Guo did nothing to stop the sales or to contact the estate agent stated in the signboard responsible for the sales.

180.  Under s 7 of the Partnership Ordinance (Cap 38), the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the partnership bind the partnership.  Based on my analysis above, entering into agreements to sell the developed properties of the Projects were certainly acts for carrying on in the usual way the business of the kind carried on by the Joint Venture.  In fact, that was the modus operandi of the Joint Venture throughout.

181.  The question then arises is whether the proviso of s 7 is applicable to the effect that the Lot 2442 Purchasers cannot rely on the general rule in s 7.  The proviso states that if the partner does not have authority to do a particular act and the third party dealing with the partnership knows that that partner has no authority or does not know or believe him to be a partner, then the act done by the partner would not be binding on the partnership.

182.  First, there is no evidence to show that Guo had done anything to inform the potential purchasers that Hung no longer represented the “developer” in selling the units on Lot 2442.  As mentioned above, despite the breakout of the dispute relating to the Lot 154 Project and having noticed the signboard advertising the sales of the Lot 2442 units, Guo did nothing to stop the proposed sale of the units.

183.  The Best Star Camp then seeks to rely on the lis pendens. According to Hung, he had informed Yip before the signing of the Subscription Agreement that there were legal proceedings concerning Lot 2442.  Yip denied this.  Mr Fong, counsel for Yip and Chung, submits that the court should accept the evidence of Yip.  As the Best Star Camp had not put Hung’s allegation to Yip during her cross-examination, the Best Star Camp is deemed to have accepted Yip’s evidence in this regard.

184.  In my judgment, whether Yip had actual knowledge of the legal proceedings is quite irrelevant.  Purchasers of real properties in Hong Kong shall be deemed to have constructive knowledge of the matters and encumbrances shown and registered in the Lands Registry concerning the property that they intend to purchase.

185.  However, I do not accept that the lis pendens can assist the case of the Best Star Camp.  HCA 409/2008 was an action by Best Star against the tings of Lots 2441 and 2442 and Rich United who allegedly was the agent for the two tings in the making of the development agreements between Best Star and the tings.  There was an allegation of breach of agreements against the defendants.  But the important thing to note is that the claim, at least as formulated before the making of Subscription Agreement, had nothing to do with the allegation of the lack of authority on the part of Hung to sell the developed properties on behalf of the Joint Venture or Best Star.  As I find that the Lot 2441 Project was operated by the Joint Venture in the form of partnership and Best Star was the vehicle of the partnership, there was nothing in the lis pendens which should have alerted any potential purchasers that Hung had no authority to conduct business on behalf of the Joint Venture as per the modus operandi of the earlier Projects.   There were amendments in the Statement of Claim of HCA 409/2008 in 2010 that the tings had wrongfully sold to the properties on Lot 2442 to other persons, presumably the Lot 2442 Purchasers, but all these happened after the making of the Subscription Agreement in September 2008.

186.  At the trial, there were attacks against the testimony of Yip and Chung on the ground that they should have known about the dispute between Best Star and Hung relating to the ownership of the units on Lot 2442.  However, I do not accept that these attacks in any way undermine the credibility of their evidence.  After all, they are unsophisticated persons who knew very little about the procedures of buying ting houses in the New Territories.  Hung and the estate agent, who probably knew about the role of Hung in operating the Joint Venture’s business and the modus operandi of the earlier Projects, made representations to them that Hung had the authority to represent the “developer” in selling the units to them through the relevant ting.  There is no reason for them to doubt the truth of such representation which was made by Hung on behalf of the Joint Venture.

187.  For these reasons, I find that the Subscription Agreement made in September 2008 is binding on the partnership.  I therefore do not need to address the arguments put forward by Mr Fong as to whether Best Star is also estopped from denying the interests of the Lot 2442 Purchasers in respect of the relevant properties.  However, it is clear that Guo knew full well that Hung was going to sell the units on Lot 2442 and the intended purchasers must have been led to believe that Hung did have the authority to conduct the sale. Yet he did nothing, including contacting the estate agent stated in the signboard to cancel the sale.  Further, Best Star did not seek to register the power of attorney executed by Lam Yat Hung (the ting of Lot 2442) in favour of Guo in the Lands Registry.  Hence, Yip must have been led to believe that Hung did have the authority to act on behalf of the “developer” in selling the units on Lot 2442 to her.

188.  That is the position between the Joint Venture and the Lot 2442 Purchasers.  On the other hand, Hung admitted that he did not have authority to sell the Lot 2442 units as between him and the other partners of the Joint Venture.  What would be the consequences?  Since the parties have not addressed me specifically on this particular issue, I reserve this question for further arguments in the future.

VI     DISPUTES RELATING TO THE ACCOUNTS OF THE JOINT VENTURE

189.  There are various factual disputes relating to accounts of the Joint Venture. One of the main allegations of the Best Star’s Camp is that Hung or Li Fu Wing had been fraudulent, dishonest, or otherwise acting in bad faith in advancing or paying expenses for the development of the Projects, in particular the Lot 154 Project, and as a result Hung and Li Fu Wing should not be entitled to claim for reimbursement of these expenses.  The Best Star Camp also claims that some of the supporting documents for these expenses are fabricated documents.

190.  Mr Mak takes a pleading point.  According to him, it is trite law that fraud, dishonestly and bad faith must be distinctly pleaded with particulars and proved.[37] As there is nothing in the pleadings, the witness statements[38] or the opening submissions of the Best Star Camp to suggest that the expenses documents are fabrications, it would be inappropriate for the Best Star Camp to make such allegations in the cross examination of the witnesses for the Hung Camp.

191.  There is some weight in these submissions.  In fact, in response to the allegation of the Hung Camp that Hung had advanced the sum of $4,909,072.70 for the construction and decoration costs for the Lot 154 Project, Best Star’s Camp only pleads that Best Star and not Hung had the power to defray costs and expenses of the various Projects.[39]  Hence, on its own case, there is no allegation of fraud.  There is also no allegation that the expenses incurred were not genuine or reasonable.  The only issue is whether Hung had the obligation or power to incur those expenses.

192.  In my judgment, it is not necessary for me to resolve this particular pleading issue.  As I will demonstrate in the latter part of this Judgment, I find that Hung had the authority to pay these expenses on behalf of the Joint Venture and these expenses were proper expenses for the Projects.

193.  Both camps have put forward their own lists of issues relating to the disputes concerning the accounts.  There is great difficulty in framing the issues as both camps have different things to say about the accounts, the various payments and expenses.  In particular, the accounts involved 6 different Projects and it is not easy to say whether certain payment was for a particular Project or not.  The failure of the parties to keep proper records for the accounts further complicates the problem.

194.  In this Judgment, I will try to identity the issues between the parties relating to the accounts.  In case I miss any issue, the parties can write to the court for further adjudication.  However, I think the responsibility lies with the parties if that happens.

VI.1  Disputes about the account of the Chai Kek Village Project

VI.1.a    Whether Hung is entitled to claim back 30% of the amount of $811,000 owed by Kilo to the Joint Venture following the sale of the Joint Venture’s interests in the Chai Kek Village Project to Kilo?

195.  There is no serious dispute that Kilo owes the Joint Venture the balance of the purchase price under the Kilo Agreement (as varied in the Kilo Supplemental Agreement) in the sum of $811,000.  Best Star Camp claims that it is not worth pursuing the counterclaim against Kilo for such sum and so Hung is not entitled to claim for his 30% share.

196.  This sum of $811,000 is certainly an account receivable in the Joint Venture’s account.  This court has no idea whether the Joint Venture finally manages to recover such payment from Kilo.  In any event, this sum would be an account receivable under the partnership account, and the parties will have to resolve this matter during the taking of the partnership account which will take place after the handing down of this Judgment.

VI.1.b    To what extent had Hung received his share of profit?

197.  According to the handwritten note about the account of the Chai Kek Project dated 20 September 2006, i.e. the Chai Kek Profit Note, Hung was entitled to the sum of $2,670,000 being his share of the profit of the project.  The Best Star Camp relies on a receipt signed by Hung to show that Hung had received such payment.  Hung disputes the authenticity of the receipt.

198.  Guo alleged that the sum of $2,670,000 was paid by a cheque for Hung in the sum of $2,148,349 plus $521,651 prepayment to Hung.

199.  In the copy of the cheque kept by Guo, there was a handwritten note “另：521651(HK)按現金支付清洪向鏡分紅款＄2148349+521651=2670000 QQ” which supports the case of the Best Star Camp.  Hung claimed that those words did not appear when he signed on the copy (“the Cheque Copy”) to confirm the receipt of the cheque.

200.  As those words did not appear when Hung signed on the Cheque Copy, those words were probably added by Guo after the signing for record purposes.  If Guo had not done so, how could he be able to remember what happened to the account when there were so many payments made between the parties? Though I do not accept everything said by Guo on face value, there is simply insufficient basis for me to conclude that Guo had fabricated such documentary evidence for his own benefit.  In fact, I apply the same standard when I say that there is insufficient evidence to conclude that Hung had fabricated the expenses receipts.

201.  Hung gave his own account about the purpose of the cheque.  He said the said sum represented the total of: (i) 10% of the total selling price of the Chai Kek Project to Kilo in the sum of $1,781,100 ($17,811,000 x 10%); and (ii) Hung’s previous advance in the sum of $367,249.  Such previous advance in the sum of $367,249 was made by Hung for the expenses of the Joint Venture prior to February 2006.  In or about February 2006, Hung had already given a handwritten account together with original receipts for the $300,000 odd to Guo for the calculation of the reimbursement.

202.  Having considered all the evidence, I prefer to accept the evidence of Guo on this particular issue.  Though one can say that the note in the Cheque Copy kept by Guo is self-serving, I do not accept that Guo had fabricated the note in the Cheque Copy.  It is one thing to say that Guo’s evidence may not be reliable due to the lapse of time, it is quite another to say that Guo had fabricated the documentary evidence.  On the other hand, Hung had received a cheque in the substantial sum of $2,148,349.  He has not provided any proper record to shed light on the purpose of the cheque.  The figures in the handwritten note prepared by Hung in about February 2006 are quite messy and they do not quite add up to the sum of $367,249.  Further, these alleged expenses did not show up in the Chai Kek Profit Note.  If Hung was so concerned about these expenses, one would have expected him to state the expenses in the Chai Kek Profit Note. On the whole, I find that the evidence adduced by the Best Star Camp is more satisfactory and so I accept its evidence on this particular issue.

VI.1.c    To what extent is Hung entitled to the amount reserved for the payment of tax?

203.  There is an issue as to whether the method of calculation for the payment of tax as provided for in the Chai Kek Profit Note is correct. Apparently, gross income, instead of net profits, had been used to calculate the liability for tax.

204.  There may also be another issue as to whether the account in the Chai Kek Profit Note is final with the result that no parties is allowed to reopen the account.  This issue is more acute for the amount reserved for the payment of tax under the Profit Sharing Note under the Shea Shan Village Project and the JC Castle Project.  In my judgment, the observations I make later on the same issue relating to the account under the said two projects are also applicable here.[40] There is simply insufficient evidence for the court to conclude that the parties had agreed, either expressly or impliedly, for the account in the Chai Kek Profit Note to be final.  If no tax payment was made, or the amount actually paid was less than the tax provision stated in the Chai Kek Profit Note, the parties should be allowed to get back their shares from the fund reserved for the payment of tax.

VI.1.d    Is Hung entitled to the reimbursement of $534,500 being the alleged expenses for the Joint Venture?

205.  The Hung Camp claims that, on or about 20 September 2006 upon the completion of the sale of Chai Kek Village Project, Hung gave a batch of receipts of expenses relating to the Chai Kek Village Project to Guo. The receipts had been kept by Guo, and such expenses had not been settled by Guo or the Joint Venture.

206.  In the Chai Kek Profit Note prepared on 20 September 2006, there was a reference:“534500 (要付給洪生未報銷款)” ($534,500 need to be paid to Hung for the not yet submitted expenses).

207.  According to Hung, $534,500 was an amount advanced by him for the Chai Kek Village Project from February to September 2006, and not as alleged by Guo to be expenses advanced for the different Projects as provided in a breakdown table (“the Breakdown Table”).  Hung denied the contents in the Breakdown Table.

208.  On this particular issue, I prefer to accept Hung’s version on the balance of probabilities.

209.  First, in the Chai Kek Profit Note produced by Guo, the profit stated therein was $17,000,000, being the amount received from Kilo for the sale of the Chai Kek Village Project.  If such “profit” was used in the calculation, it is clear that even with the absence of title of the Chai Kek Profit Note, the calculations in the Chai Kek Profit Note were referring to the Chai Kek Village Project and not other Projects as alleged by Guo.

210.  Second, the alleged breakdown of $534,500 by Guo in the Breakdown Table is not accurate.  In particular, it was said that $189,000 in relation to the Kilo Supplemental Agreement was part of this $534,500 incurred by Hung.  This cannot logically be the case.  According to the Kilo Supplemental Agreement, Kilo originally had to pay $18,000,000 but later reduced to $17,811,000, because it had incurred expenses of $189,000.  So it was Kilo who paid $189,000, not Hung.  Hence, I do not accept the breakdown provided by the Best Star Camp in the Breakdown Table.

211.  Further, according to the case of the Best Star Camp, Guo withheld the payment of $534,500 because Best Star always made prepayments to Hung from time to time, and there would always be cash available to Hung to pay expenses in the region of $200,000 to $300,000.

212.  I agree with Mr Mak that this is a poor excuse to avoid settlement of Hung’s expenses because: (i) there is no documentary evidence to support such assertion; and (ii) the bank statements show that the Joint Venture was running out of fund from time to time.  Coupled with the unreliability of the information provided in the Breakdown Table, I find that the Joint Venture had not reimbursed Hung for the sum of $534,500 as provided for in the Chai Kek Profit Note.

VI.2  Disputes about the accounts of the Shea Shan Village Project and the JC Castle Project

VI.2.a    To what extent is Hung entitled to the amount reserved for the payment of tax under the Shea Shan Village Project and the JC Castle Project?

213.  For the accounts under these two projects, the incomes and the expenses were recorded in the Profit Sharing Note.  There was an item reserved for the payment of tax.  Hung Camp claims that there was in fact no payment for tax under these two projects, and so he should be entitled to claim back 30% of the amount reserved for the payment of tax, as this would be the percentage of his share of profit under the Joint Venture.  On the other hand, Best Star Camp claims that the Profit Sharing Note contained the final account between the parties and so Hung is not entitled to claim for any further payment.

214.  The starting point is that Hung is entitled to 30% of the profit of these two projects.  Hence, if there is in fact no payment for tax under these two projects, Hung would be entitled to get back 30% of the amount reserved for tax.  The burden therefore rests on the Best Star Camp to prove that the parties had agreed that the account in the Profit Sharing Note was the final account and the parties could not make further claims relating to the account set out therein.

215.   Yet even according to the evidence of Guo, there was no express discussion between the parties on this particular issue.  It is true that the parties did not take any issue with the account stated in the Profit Sharing Note, which was signed by all the relevant parties, before the commencement of these proceedings, but there is insufficient basis for the court to say that the parties had agreed, whether expressly or impliedly, that the account in the Profit Sharing Note was final.  Hence, the Profit Sharing Note is no more than a record made by the parties recording the incomes and expenses of the two projects.  It might even amount to an interim account, with the result that payments were made in reliance on such interim account.  However, there is no sufficient evidence for the court to conclude that the account therein was the final one.

216.  In so far as any suggestion is made to the effect that the account of the Chai Kek Village Project as provided for in the Chai Kek Profit Note was final and that Hung is not entitled to claim back 30% of the sum reserved for the payment of tax or the outstanding sum of $811,000 due from Kilo, the same observations apply and there is insufficient evidence for the court to conclude that the parties agreed, either expressly or impliedly, for the account in the Chai Kek Profit Note to be final.  Indeed, it is difficult for me to accept that Hung, being a person who is meticulous about the accounts, would have agreed to waive his entitlements if the Joint Venture is somehow able to recover the outstanding sum from Kilo, which is quite substantial, or that the Joint Venture does not have to pay tax for the development of these projects.

VI.2.b    Is Guo or the Best Star Camp entitled to claim the sum of $367,211 from Hung?

217.  Guo’s allegation of Hung’s liability to pay $367,211 is based on an alleged receipt dated 15 October 2005 signed by Hung.

218.  It is not understood how Guo came up with the amount of $367,211 alleging it to be a loan of Hung in the original amount of $540,000.  Indeed, Guo’s witness statement is internally inconsistent and it is not understood what the sum of $367,211 really is:

(i)    Under the first version, Guo alleged that Hung, after receiving $1,140,000 deposits[41] from the Shea Shan Village Project, kept the sum of $540,000 as a “loan” from the Joint Venture or Best Star to him, while the rest was used to pay the construction team.

(ii)   Under the second version, Guo alleged the amount consisted of: initial deposits of Shea Shan Village Project received by Hung (i.e. $1,140,000) minus (i) Hung’s entitlement to the net profits under the Shea Shan Village Project and the JC Castle Project (i.e. $180,000); (ii) net profits of the construction team under the Shea Shan Village Project (i.e. $497,239); (iii) miscellaneous costs under the Shea Shan Village Project: $95,550.  The balance was $367,211.[42] However, there was no mention about $540,000 under the second version, and there was no explanation or documentation as to what were the miscellaneous costs in the sum of $95,550.

(iii)  Under the third version, Guo alleged that it was a loan of $540,000 to Hung, and on the date of settling the account for Shea Shan Village Project, Hung had not returned the loan, and so he signed a receipt acknowledging the receipt of the sum of $367,211[43].  Hence, the receipt came from the “loan” of $540,000.

219.  I agree with Mr Mak that Guo’s explanation is unsatisfactory because:

(i)    There is a marked difference between the first and the second versions mentioned above.  Guo always claimed that Hung had obtained a loan of $540,000 orally, and the sum of $367,211 was somehow an outstanding balance of the “loan”. Then when Guo was asked to explain the sum of $367,211, he gave an account without any reference to the “loan” of $540,000.

(ii)   The alleged loan was not even mentioned in the “settled” account stated in the Profit Sharing Note.

(iii)  There was no mention of the word “loan” or its Chinese translation in any of the documents referred by Guo.

(iv)  Again no mention was made for the payment of interest or the terms for the repayment of the alleged loan.

220.  At this stage, it is unclear as to why Hung signed on the receipt. However, since Hung did advance payments for the Joint Venture from time to time, it is not surprising that he might have signed certain receipts after he obtained the reimbursement.  Hence, in the absence of further documentary proof, I do not accept that the Best Star Camp can claim for such sum based on the receipt alone.

VI.3  Disputes about the account of the Lot 154 Project

VI.3.a    Is Hung entitled to claim the sum of $2,000,000 being the final instalment payable under the Cheung’s Agreement?

221.  The Joint Venture (through Best Star) acquired the land for the Lot 154 Project from the Cheung’s Brothers under the agreement dated 18 August 2005 (“the Cheung’s Agreement”).

222.  Pursuant to the Cheung’s Agreement, Best Star was to purchase Lots 154A-F, H & RP in DD No 19[44] for $11,000,000.  The $11,000,000 was to be paid as follows: (i)$6,000,000 to be paid upon signing of the Cheung’s Agreement; and (ii)$5,000,000 to be paid within 6 months after approval to commence work was granted.

223.  There is no dispute about the payment of $9,000,000 to the Cheung’s Brothers by way of 5 cheques.  There is a dispute about the final cheque (with the number 710080) issued by Best Star in the sum of $2,000,000 (“the 710080 Cheque”).  The 710080 Cheque was dated 20 September 2006 with the “payee” in blank.

224.  Hung’s case is that the 710080 Cheque was not issued for the purpose of paying the final instalment of $2,000,000.  In early August 2006, Guo informed Hung that he did not have sufficient money to pay the outstanding balance of purchase price of $4,000,000 to the Cheung’s Brothers.  Guo was only able to pay $2,000,000 at that time.  As Guo had all along known that Hung had interests in Lot 154 under the Hung and Cheungs Joint Venture, Guo requested Hung to complete the Cheung's Agreement by paying $2,000,000 to Cheung Wai On and the remainder of $2,000,000 would be paid to Hung when the sale of the Chai Kek Village Project was completed.  Hung agreed.  Guo then issued and gave Hung a cheque of Best Star, no 710075 (i.e. the second last instalment), in the sum of $2,000,000 drawn in favour of Cheung Wai On dated 9 August 2006.Hung then passed the cheque no 710075 to Cheung Wai On to settle the balance of the purchase price of $2,000,000 out of $4,000,000 due on 3 August 2006.  For the balance of the purchase price, since Hung had interest in the Hung and Cheungs Joint Venture, Hung asked Cheung Wai On to deduct $2,000,000 from his share of profit.  Cheung Wai On agreed. As Hung had paid the last instalment on behalf of the Joint Venture, he claims for such reimbursement from the Joint Venture.

225.  The 710080 Cheque was eventually found to have been given to and banked in by one Ko Lap Kwan (“Ko’).  Hung said he had no idea about this, but Guo claimed that the 710080 Cheque was given to Ko pursuant to Hung’s request.

226.  On the other hand, the case of the Best Star Camp is that the 710080 Cheque was for the payment of the last instalment under the Cheung’s Agreement.  According to Guo, the 710080 Cheque was drawn without a payee upon the instruction of both Cheung Wai On and Hung that the $2,000,000 should be paid directly to Hung which, according to Hung, was to satisfy a personal debt between Cheung Wai On and Hung.  Hung handed to Guo a receipt dated 3 August 2006 signed by Cheung Wai On for the said sum of $2,000,000 and Hung signed at the back of the said receipt to acknowledge receipt of the said cheque.  According to Guo, when the 710080 Cheque was given to Ko, Ko hinted to him that Hung had through Ko borrowed money from Ko’s boss one Mr Hon.

227.  There is also an allegation by the Best Camp that Hung had made a secret profit under the Cheung’s Agreement.  It is common ground that Hung was involved in the Hung and Cheungs Joint Venture for the development of Lot 154. According to Guo, during a telephone conversation in early 2008, Cheung Wai On told Guo about Hung’s interest in the Hung and Cheungs Joint Venture.  It was the first time that Guo had known about this.  Cheung Wai On told him that Hung was entitled to a profit of $2,091,651 on the sale of Lot 154 to Best Star.

228.  What then really happened?  The evidence is all over the place and it is not easy for the court to find out what really happened after so many years.  Ko and Cheung Wai On would be probable witnesses and yet they did not come to court to testify.  Cheung Wai On did in fact give a witness statement for the Best Star Camp, but he did not attend the trial to give evidence.

229.  The Cheung’s Brothers had not made any complaint about the outstanding payment under the Cheung’s Agreement throughout the years.  The logical inference is that there is no outstanding payment under the Cheung’s Agreement.  If Hung wants to claim the sum of $2,000,000 from the Joint Venture despite the 710080 Cheque, Hung bears the burden of proving that he had in fact made such payment on behalf of the Joint Venture.  Yet, apart from the bare allegation of Hung, there is no other evidence supporting the making of such payment.

230.  Hung seems to suggest that since he had an interest in the Hung and Cheungs Joint Venture, he paid the remaining $2,000,000 to Cheung Wai On by way of set-off of his profit in the joint venture.  In such case, the Joint Venture still owes him the said amount.  To a certain extent, this is supported by what Cheung Wai On said in §12 of his statement.

231.  Since Cheung Wai On did not come to testify, the court should not attach any weight to what he alleged in his witness statement.  In my judgment, the bare allegation made by Hung is insufficient to substantiate the making of such payment or set-off.  In fact, in Hung’s 2^nd Affirmation filed in HCA 45/2010, he affirmed on oath that he paid $2,000,000 to Cheung Wai On on 30 December 2005 for their interests and rights in Lot 154.  Yet, no documentary evidence of the alleged payment and no receipt or cheque has been provided by Hung either in that affirmation or anywhere else.  Nor is this mentioned again in Hung’s witness statements.

232.  It is common ground that (as Hung said that) as of late July or early Aug 2006, the balance of the purchase price payable to the Cheung’s Brothers was $4,000,000[45]. If he had paid $2,000,000 to Cheung Wai On in late 2005 or any time before August 2006, then the balance of purchase price would be $2,000,000 and not $4,000,000.

233.  More importantly, towards the end of paragraph 174 of his first witness statement, Hung changed his version by saying that it was in late July or early August 2006 that, at Guo’s request, Hung paid $2,000,000 to complete the transaction, as opposed to 30 December 2005 as deposed to in the 2^nd Affirmation in HCA 45/2010.

234.  Such confusion in Hung’s evidence certainly undermines the creditability of his case either on the payment or the set-off.

235.  The parties have also referred me to the two receipts each for the sum of $2,000,000 apparently signed by Cheung Wai On dated 2 and 3 August 2006. There is a suggestion that Guo had altered the receipt dated 3 August 2006 with a view to show that the receipt was made for the payment of $2,000,000 made under the 710080 Cheque.  There is also an issue as to whether Hung signed on the back of the receipt dated 3 August 2006 to acknowledge payment. 

236.  In my judgment, Guo might have written down the number of the cheque on the receipt which, according to his understanding, was used to pay for the outstanding payment under the Cheung’s Agreement.  Though Guo’s evidence may be unsatisfactory on a number of matters, I do not accept that he had deliberately forged or altered the documentary evidence to advance his own case.

237.  Neither is the fact that the 710080 Cheque was banked in by Ko would assist either party’s case.  Both sides have not called persons like Ko and Cheung Kwok On to give evidence.  By reason of this, the court does not have a clear picture about the exact relationship between the relevant parties (including Guo, Hung, Ko, Hon and Cheung Wai On) and what were the accounts between these persons.  One thing, however, is reasonably clear.  The Cheung’s Brothers must have obtained all the payments under the Cheung’s Agreement.  There is also no dispute that Best Star issued the 710080 Cheque.  The amount tallies with the amount of the outstanding payment under the Cheung’s Agreement.  If Hung wants to establish that the 710080 Cheque was issued by Best Star for some other purposes, and he in fact made the outstanding payment of $2,000,000 on behalf of the Joint Venture either by way of actual payment or set-off, then I expect Hung to produce more evidence to support the making of such payment or the details of the account showing the set-off.  In my judgment, Hung has failed to discharge the burden of proving such payment or set-off, and I therefore find that he is not entitled to claim for the sum of $2,000,000 being the final instalment payable under the Cheung’s Agreement.

VI.3.b    Whether the Joint Venture or Best Star is entitled to claim against Hung for the profit he made arising from his interest in the Hung and Cheungs Joint Venture for the sale of Lot 154 under the Cheung’s Agreement?

238.  There is another issue relating to the Cheung’s Agreement.According to a document dated 20 August 2005 (“the 20 August Document”) allegedly supplied by Cheung Wai On to Guo, Cheung Wai On, Cheung Wai Kwong and Hung, being partners of the Hung and Cheungs Joint Venture, each had a share of the profit in the sum of $2,091,651 for the sale of Lot 154 to Best Star under the Cheung’s Agreement.

239.  Guo said that he did not know that Hung had an interest in the Hung and Cheungs Joint Venture when Lot 154 was sold to the Joint Venture under the Cheung’s Agreement.  On the other hand, Hung claimed that he had disclosed to Best Star (through Guo) and Guo well knew that Hung and the Cheung’s Brothers were already business partners in the Hung and Cheungs Joint Venture for the development of Lot 154.

240.  On this particular issue, I prefer to accept the evidence of Hung. First, Hung’s version on this particular issue is supported by the contents of his statement he gave to the police on 15 November 2007.  Second, even if Hung had not disclosed his interest in the transaction before the making of the Cheung’s Agreement, Best Star and Guo proceeded with the Lot 154 Project even after Guo was later aware of Hung’s interest in the Hung and Cheungs Joint Venture.  Apparently, Guo had not raised any issue with such matter.  If Hung had not disclosed his interest prior to the sale, I would imagine that Guo would have been very angry with such non-disclosure and he would probably have confronted Hung on such matter.  Yet Guo did none of these.  Hence, I find on the balance of probabilities that Hung had disclosed his interest to the Joint Venture prior to the sale.  In any event, there is no one to confirm the accuracy of the account as stated in the 20 August Document, and so the Best Star Camp has failed in its burden of establishing the quantum for the claim of the alleged secret profit.

VI.3.c    Is Hung entitled to claim the sum of $4,909,072.70 being the expenses incurred in relation to the Lot 154 Project?

241.  According to Hung, he had incurred expenses up to $4,909,072.70 for the Lot 154 Project.  Such expenses are recorded in an accountant’s report with receipts (“the Accountant’s Report”).

242.  Best Star challenged the following expenses at the trial:

(i)    $160,000 paid to Hung Heung Lung (item 82 of the Accountant’s Report);

(ii)   $120,000 paid to Lam Shui Pui (item 83 of the Accountant’s Report);

(iii)  $212,000 + $1,970,000 + $412,900 = $2,594,900 (items 106, 115 and 116 of the Accountant’s report) paid to Li Fu Wing for supplementary construction works for the construction of the wall enclosing Lot 154.

243.  Since no issue on quantum was raised in pleadings, the question before the court is whether these expenses had actually been incurred.

244.  I find in favour of Hung on this particular issue.  First, the Accountant’s Report was prepared by a certified public accountant and so the expenses contained in the Accountant’s Report had prima facie been scrutinized by professional.  Second, Guo was not in Hong Kong most of the time and he had no knowledge or experience about small house development.  He relied on Hung who had the knowledge and experience.  It would be hard for Guo to challenge whether certain expenses should or should not have been incurred unless actual fraud is pleaded or proven, which Hung says is not the case.

245.  For the payments of $160,000 to Hung Heung Lung and $120,000 to Lam Shui Pui, the relevant expenses are supported by documentary evidence.  Best Star Camp challenged Hung in cross-examination that because Hung Heung Lung and Lam Shui Pui are brother or good friend of Hung, Hung was transferring benefits to them.  Fraud was suggested.  However, this is mere speculation and there is nothing to support such serious allegation.

246.  I agree with Mr Mak that, given small house development is a very specialized area and has to be handled by people familiar with it, it is not surprising that Hung had to engage his close colleagues living around the area to sort out issues during the development.  The close relationship between Hung and Hung Heung Lung or Lam Shui Pui, without more, should not be a reason to suggest that fraud had been perpetrated by them together against Guo.

247.  For the payment of $2,594,900 to Li Fu Wing for the construction of the enclosing wall, the expenses are supported by documentary evidence including receipts.  In addition, some of the Lot 154 Purchasers, with no self-interest on this particular issue, confirmed the building of the enclosing wall in their oral testimony.  Shum gave evidence by referring to the enclosing wall and the gate in the photos of Lot 154.  She also confirmed that by the time she signed the documents to purchase the Lot 154 flat on around 27 May 2007, the enclosing wall had been fully built as shown in the photos.

248.  Further, Li Fu Wing explained in his oral testimony that the enclosing wall was built in around late 2006 to April and May 2007.  It was a surrounding wall later added (後加圍墻) because there were a lot of cemeteries in front of Lot 154A to E.  There was an original surrounding wall which was not tall enough to block the views of the cemeteries, and so taller walls had to be built.  He referred the court to the photos showing the cemeteries and explained how the taller wall was able to block the views of the cemeteries.  Li Fu Wing also confirmed that the Lot 154 Purchasers well knew about the building of the enclosing wall, which is consistent with the evidence of Shum.

249.  Hence, the construction of surrounding wall is wholly credible and the expenses so incurred by Li Fu Wing, who obtained reimbursement from Hung (on behalf of Best Star), is also wholly credible.

250.  According to Hung, Guo agreed to build the enclosing wall at the meetings when they discussed the alleged Lot 154 Agreement.  Though I refuse to find in favour of Hung on the alleged Lot 154 Agreement, it was more probable than not that Guo had agreed for the erection of the enclosing wall.  First, it was necessary to block the views of the cemeteries, which might help the sales of all the units in the Lot 154 Project.  Second, since Hung would have a share in the profit of this project, he would not have approved the expenses unless they were agreed or the same were for the benefit of the whole project.  Hence, even if the costs for building the wall were substantial, it might still be in the interests of the Joint Venture for such work to be undertaken.  I also do not find the issue as to exactly where the agreement was made about the building of the wall would affect the credibility of the Hung Camp. Discussions should have made by the parties in stages and one should not attach too much weight as to when the agreement was actually made.  The most important thing is that there was consensus between the parties for the wall to be built.

251.  In any event, as: (i) Hung was a partner of the project; (ii) Guo was relying on him to run the business; and (iii) the expenses were incurred for the benefit of the whole project, he should have had the ancillary power to incur such expenses on behalf of the Joint Venture, and for that he should be reimbursed of such expenses.

VI.4  Disputes about the account of the Lot 223A Project

252.  There is no dispute that Hung’s profit in respect of the Lot 223A Project has not been distributed.

253.  The Best Star Camp makes a faint suggestion that certain expenses incurred by Hung in relation to this project is disputed.  However, the “dispute” has neither been pleaded nor put to Hung during cross-examination.  The only mention of the disputed expenses is “陳百有的介紹費 HK$100,000”in Guo’s witness statement.[46]  This is insufficient to challenge Hung’s case on such expenses.

VI.5   Disputes about the account of the Lot 2441 Project

VI.5.a    Whether Li Fu Wing and Hung are entitled to claim for the premiums which they paid for Lots 2441, 2442 and 2472?

254.  Li Fu Wing paid the premium of $935,200 for Lot 2441 in March 2008.  Best Star confirms that Li Fu Wing will be reimbursed for such payment.

255.  Hung paid the premium of $913,400 for Lot 2442 on or about 23 January 2008.  Best Star confirms that such payment will be reimbursed.

256.  The only dispute relates to the payment of premium in the sum of $741,041.40 paid by Li Fu Wing for Lot 2472 on or about 12 January 2008.  Best Star Camp claims that there should be no reimbursement because Guo or Best Star had never authorized such payment and Lot 2472 has now been re-entered by the Government.  Further, Mr Chan relies on the survey photos with a view to show that the house on Lot 2472 was not built at the same time as those on Lots 2441 and 2442.

257.  I find such issue in favour of Hung.  Guo must have consented to the development of Lot 2472.  The fact that Lot 2472 was re-entered does not affect Best Star’s liability to reimburse Li Fu Wing, an outsider engaged to develop the lot who paid the premium pursuant to Hung’s request.

258.  By a “Form CE/1” dated 28 June 2006, Guo signed on behalf of Best Star in the Form to the District Land Office to appoint Chan as the building contractor for the development of Lot 2472.  Further, the appointment of Hui as consultant for the Lot 2441 Project is evidenced in a document entitled “顧問費” (meaning “consultant fees”) dated 20 July 2006 signed by Guo with Guo’s Best Star Chop.  Hui confirmed during cross-examination that there was an oral agreement between him and Guo appointing him to be the consultant.   Further, the deadline to complete the construction of a small village house expired for 3 years by the time of completion of the purchase of land.  Best Star must have been eager to build the house as soon as possible to prevent risk of re-entry for failing to comply with land condition.

259.  I also do not find that the timing for the construction of the house on Lot 2472 is of much relevance here.  Most importantly, what Hung (as partner of the Joint Venture) and Li Fu Wing had been doing was just for the benefit of the project.  If there had been no quarrel between the parties, I do not think that Guo would have raised any issue with such matter.  Since I find that there was no agreement to sell Lot 2472 to Hung, the said property should now belong to the Joint Venture.  The Joint Venture should therefore reimburse Hung or Li Fu Wing for the payment of the premium, and they should proceed to apply for relief against re-entry by the Government as soon as possible.

VI.5.b    Whether Hung is entitled to claim reimbursement in the sum of $1,900,000 for compensation paid by him to remove the squatters in respect of the Lot 2441 Project?

260.  The dispute relates to the following payments:

(i)    to Lot 2441 squatters: $300,000 dated 13 May 2007 and 21 May 2007 to “蘇志成” and “李云珍”[47];

(ii)   to Lot 2442 squatters: (a) $300,000 dated 20 May to “陳坤”[48]; and (b) $800,000 dated 22 June 2007 to “李文光”[49];

(iii)  to others in cash in the sum of $500,000[50].

261.  The first two items are supported by documents signed by the relevant parties.  The originals were also produced at the trial.  In his oral testimony, Hung drew on the maps to show the positions of the temporary house, illegal structures and container which he paid to be removed.  Hung’s description of various structures is also consistent with the record of Old Survey Sheet for the years 2005 to 2008, as shown where the “TS” (temporary structure) had been removed in the course and certain metal wire had been cut away.

262.  Hung’s account is further corroborated by the evidence of Li Fu Wing, who confirmed that there were initially metal wires and various temporary houses (棚屋) on Lot 2441. According to him, everywhere was occupied and it was like a flea market (跳蚤市場).  Those occupying the land did not allow them to get in.  Later, they even called the police but the matter still could not be resolved.  With the help of the Squatter Control Unit (寮仔部), they then managed to cut open the metal wires.  However, the squatters still did not leave.  They requested the assistance of the District Councillor Cheung Kwok Yiu, who tried to mediate the dispute with the squatters.  Cheung Kwok Yiu confirmed his role in his witness statement, the contents of which the Best Star Camp accepted resulting in him not being called as a witness.  They eventually found someone with influence in the area to clear the land.  Thus it was necessary to pay the relevant expenses to remove the squatters.

263.  There is an issue as to whether the lands occupied by the squatters actually fell within the project area.  In any event, I am satisfied that, on the existing evidence, it was quite impossible for the development work to proceed if those squatters were allowed to remain.  No purchasers would be interested in buying the properties in the case of the non-removal of the squatters.

264.  Guo had no knowledge of small house development in the New Territories and he had to rely on Hung to take care of the various matters to facilitate the development of the site.  Indeed, he was not in Hong Kong most of the time.  Having considered Hung’s experience, there is no reason to doubt his evidence that the Joint Venture had to incur these expenses to remove the squatters for the development of the site.  In fact, there were similar expenses paid by Hung for other Projects of the Joint Venture and Guo had not raised issue with those expenses.

265.  Having considered the supporting documents, the peculiar circumstances of developing tings houses in the New Territories and the photos shown in the surveys, I accept Hung’s evidence on this particular issue (despite that the last item is not supported by documents) and allow him to treat these expenses as the expenses of the Joint Venture.

VI.5.c     Whether Hung or Li Fu Wing is entitled to claim reimbursement in the sum of $560,000 for the clearance fee paid by him?

266.  Li Fu Wing’s version is that he should be entitled to the reimbursement of the sum of $560,000, which should then be paid back to Hung who had paid $3,000,000[51] to Li Fu Wing (part of which was to settle this $560,000).

267.  According to Hung, in addition to the compensation paid to the squatters, he had to pay $560,000 to Li Fu Wing for clearing the sites for the building of the houses for the Lot 2441 Project.  Li Fu Wing explained during examination-in-chief that these expenses consisted of $200,000 paid to the local gangs and related persons occupying the land, as well as the other expenses for the clearance of trees and other obstacles.

268.  Obviously, one cannot expect that there would be any receipts for the payment to the local gangs.  In any event, the record as shown in the Old Survey Sheet for the years 2005 to 2008 supports that there were temporary structures and metal wires that need to be removed at the site before the commencement of any development work.

269.  There is some attack on the alleged inconsistencies of Li Fu Wing’s evidence relating to: (i) whether the clearance fees only relate to physical clearance work; and (ii) the size of the clearance area.

270.  I do not accept that these challenges do undermine the credibility of the witnesses of the Hung Camp on these issues.  The fact that the sum was to include the payment to the local gangs had been expressly mentioned in the Amended Reply in HCA 1735/2012.  In any event, there had to be expenses for physically clearing the sites.  Furthermore, the evidence does support that there were squatters occupying the sites before the commencement of the development work.  Taking into account the peculiar circumstances for the development of such kind of houses, I would not be surprised that the Joint Venture would have to incur these expenses for the development works.  Hence, I am prepared to accept the evidence of the Hung’s Camp on the balance of probabilities, and the Joint Venture would have to reimburse the Hung’s Camp for such expenses.

271.  There is a faint suggestion in Mr Chan’s closing submissions that Hung should be made accountable to the Joint Venture for the profit made by his brother in respect of the property transaction of Lot 2443.  I am not sure whether it falls within the agreed issues that I need to adjudicate in this case.  In the absence of further submissions, I am not prepared to make any particular determination on such issue.

VI.6  Other disputes relating to the accounts

VI.6.a    Whether Guo or Best Star is entitled to claim the purported outstanding personal loans of $1,200,000 from Hung?

272.  Best Star’s Camp claimed that Guo or Best Star had advanced the following loans to Hung:

(i)    $300,000 advanced in cash on 4 October 2005, which is supported by a cheque stub;

(ii)   $100,000 advanced in cash on 5 January 2006;

(iii)  $400,000 advanced by cheque no 710077 on 20 March 2006; and

(iv)  $100,000 and $300,000 advanced in cash on 4 August 2006

273.  On this particular issue, I am more impressed with the documentary evidence and find the same in favour of the Best Star Camp.  Mr Mak submits that the documents put forward are self-serving, either by way of remarks by Guo himself on cheque stub or receipts.  Further, no effort was made to produce the evidence including any bank statement and copies of cheques to show actual payment to Hung.  However, there are actual receipts signed by Hung in respect of the advancement of some of these payments.  Though Hung disputes the authenticity of these receipts, there is insufficient evidence to support the serious allegation that the signatures on those receipts were forged.  I am therefore satisfied, on the balance of probabilities, that Best Star Camp or Guo did make the advancements as stated in the preceding paragraph.  As Hung cannot offer any explanation on the purposes for these advancements, I find in favour of the Best Star Camp that these advancements were loans and Hung is obliged to repay those loans to Best Star.

VI.6.b    Whether Guo or Best Star can claim back from Li Fu Wing the alleged prepayment of $2,250,000?

274.  The alleged prepayment of $2,250,000 consisted of the following: (i) $1,000,000 paid by cheque 710051 on 8 October 2005; (ii) $1,000,000 paid by cash on 10 June 2006; and (iii) $250,000 for payment of the expenses of the Lot 154 Project.

275.  According to the explanation of Li Fu Wing, item (i) above was payment of construction costs for the Shea Shan Village Project. I agree with Mr Mak that such explanation is consistent with the date of completion of the Shea Shan Village Project.  It was probably not the prepayment for the Lot 154 Project as such project had not even started in October 2005.  As for item (ii), Li Fu Wing could not recall what this was. However, while all other payments admitted by Li Fu Wing are supported by actual cheque copies, this is only supported by a purported receipt signed by Li Fu Wing, with no evidence of cheque or bank statement.  Li Fu Wing denied he had ever received cash of $1,000,000.  $1,000,000 is not a small sum.  If Best Star Camp wants to establish the making of such prepayment, more evidence need to be produced to substantiate such allegation.  On this particular issue, I do not find that the receipt alone is sufficient and the Best Star Camp has failed to discharge the burden of proving such payment.  As for item (iii), Li Fu Wing explained that $250,000 was for the payment of expenses of the Lot 154 Project. Originally, the five houses on Lot 154 were to be built by Li Fu Wing with $950,000 construction cost for each house, totalling $4,750,000.  It was subsequently agreed that certain bricks had to be placed on the floor of each house, hence adding $50,000 for each house, totalling $5,000,000 for the five houses.  Parties agreed to such adjustment, and so the sum of $250,000 was for such purpose.  There is no reason for the court to doubt Li Fu Wing’s evidence in this regard.

276.  For these reasons, I find that the payments under items (i) and (iii) were used to pay for the proper expenses of the Joint Venture and so Best Star Camp cannot claim back the “prepayment” from Li Fu Wing.  For item (ii), I am not satisfied that such payment had indeed been made to Li Fu Wing.

VI.7  Final remarks about the disputes relating to the accounts

277.  The accounts between the parties should then be finalised in accordance with my findings above.  The following points should be noted:

(i)    The Projects had been operated by the parties in the form of partnership.

(ii)   Hung was entitled to 30% of the profit of the Projects.

(iii)  The Lot 154 Agreement and the Lot 2441 Agreement had not been made and as a result Hung and Li Fu Wing did not need to pay the “purchase prices” to the Joint Venture.

(iv)  The ownership of Lot 154E and the other parts of Lot 154 not sold to the 154 Purchasers should remain with Best Star which was the operating vehicle of the Joint Venture.

(v)   For the deposits received from the 154 Purchasers and the Lot 2442 Purchasers, those have to be accounted to the Joint Venture.

VII    MISCELLANEOUS MATTERS AND CONCLUDING REMARKS

278.  As indicated in the trial, the court will not deal with the application by the Best Star’s Camp to enter default judgment against two of the Lot 154 Purchasers, i.e. the 2^nd Defendant in HCA 209/2011 and the 3^rd Defendant in HCA 222/2011.  These Defendants have not filed any witness statement nor attended the trial.  The court will revisit the application after the parties have the opportunity to study the findings in this Judgment.

279.  In view of all the outstanding matters that need to be followed up by the parties, it would not be appropriate for the court to make any costs order nisi at this stage and I therefore reserve the question of costs to be argued later.

280.  For this particular case, I must say a few words by way of concluding remarks.

281.  The most striking and disturbing feature of this case is how easy it is for disputes to break out in respect of the development of ting houses in the New Territories under the existing system.  I also cannot understand how the practices under the existing regime can allow developers or the tings to “sell” a piece of real property in Hong Kong twice to two different persons.  That was what happened in the present case, and as a result a lot of different parties were dragged into the litigations.

282.  The present disputes resulted in multiple litigations and 40 days were reserved for the trial.  The case requires the court to deal with complicated flow of funds and very peculiar practices for the development of ting houses in the New Territories.  Despite the active case management by the court, the parties could only work out the key questions that require the adjudication of the court, and the parties would still have to work out the solution after studying the findings in this Judgment.  In case of disagreements, they have to come back to the court for further arguments which is a further drain on the scarce judicial resources.

283.  The Basic Law preserves the right of indigenous villagers in the New Territories.  But unless the whole regime is better regulated, such kind of development projects are bound to create further unnecessary litigations which would take up an unfair share of the use of public resources. There are many loopholes which are open to exploitations by the tings and the developers, and there is much room for improvement under the existing system.

284.  In my judgment, disputes like those in the present case are easily avoidable if a better system is in place for the development of ting houses in the New Territories.  One should not therefore use the pretext of preserving the rights of indigenous villagers to oppose any necessary reforms to the existing system.  If disputes can be avoided with a better system, there is no justification to use the resources of the whole community to deal with disputes of this nature.