LAU CHUN MING v. MA KOON SIK AND ANOTHER

HCMP 5570/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5570 OF 2001

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J U D G M E N T

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1.  Around the end of 1995 Mr Lau, the plaintiff, and Mr Ma, the 1^st defendant, were contractors in the field of piling and foundations and the like.  Mr Ma owned a number of companies, one of which called SY Engineering Company Limited (SY Engineering) was the main contractor undertaking a major piling project for the Hong Kong Housing Authority at Ma On Shan.  He also owned two parcels of land at Ping Che in the New Territories.  This was and remains undeveloped land; at the material time Mr Ma allowed SY Engineering and other of the companies related to park their heavy machinery on it.

2.  In December 1995 the parties struck a deal the major feature of which was that Mr Lau would acquire all of SY Engineering from Mr Ma, including the incomplete Housing Authority contract, plant and machinery as itemised and the parcels of land at Ping Che.

3.  The parties set themselves a deadline.  But the transaction did not proceed on due date.  Attempts were made to salvage the sale and purchase on revised terms; then it was off, with both blaming the other for being in breach.

4.  There was an action begun by Mr Lau in April 1996, and in due course a trial.  Mr Lau won.  By judgment handed down in March 2001, Mr Ma was found liable in damages in the sum of more than $30 million. 

5.  Nothing was paid.  Mr Lau sought and was granted charging orders nisi over the Ping Che parcels of land.  These were made absolute in June 2001.  There was no appearance by Mr Ma or any other interested party to show cause and the orders were made unopposed.  Mr Lau also petitioned in Mr Ma’s bankruptcy and, unopposed, he was made bankrupt by order of October 2002. 

6.  Since then nothing has been paid.  With interest the judgment debt is now over $40 million.

7.  By this action Mr Lau seeks orders for vacant possession and sale of the Ping Che land, the net sale proceeds thereof to go toward the judgment debt. 

8.  Putting the matter into perspective it is pertinent to note that the recovery realistically is limited to a small percentage of what is owed; as Mr Szeto for the plaintiff has put it, “something is better than nothing”.

The Land at Ping Che

9.  Mr Ma acquired the land and took title to it in 1980.  It comprises two parcels.  The larger is the remaining portion of Lot 163 (Lot 163 RP) comprising about 36,447 square feet; the smaller is Lot 165 of about 4,741 square feet.  Both are zoned agriculture. 

10.  At the material time Lot 165 was and remains vacant and overgrown.  It is Lot 163 RP that has been utilized, over the years since 1980, for storage of piling equipment and other heavy duty plant and machinery operated by Mr Ma and his various companies.

11.  It is not disputed that this has at all material times been and remains a permitted use of Lot 163 RP.

The Action

12.  This action for vacant possession and sale began life as an originating application supported by an affidavit made by Mr Lau.

13.  It was only then that Mr Ma raised a ground to oppose; namely, that he was not as deposed to by Mr Lau in occupation of the Ping Che land.  It was, he said, then occupied by a company called Ma Shing Yip Piling and Construction Limited (MSY Piling).  That prevented him from being able to give up possession as sought in the originating summons.

14.  This opposition resulted in an order converting the proceedings to an action, with pleadings to be filed.

15.  MSY Piling was joined as 2^nd defendant.

16.  Both defendants, separately represented, filed a defence in like terms as I shall come to.  Well before trial Mr Ma was made bankrupt.  The trustees of Mr Ma’s estate indicated that they would take no part apart from maintaining a watching brief. 

17.  MSY Piling remained an active party. 

18.  I come now to its pleaded defence.

The Defence

19.  Up to 1992 MSY Piling was one of the several companies that were permitted to use Lot 163 RP without charge for the purpose of storing piling and other heavy duty equipment. 

20.  I should mention that Mr Ma had a significant but not total interest in MSY Piling, and he was one but not the only director on the Board.

21.  From about 1992 under what is referred to as “the Oral Agreement” between Mr Ma and MSY Piling, the parties agreed orally that MSY Piling should thereafter be entitled to possession and occupation of the Ping Che land at a rental of $50,000 per month, otherwise on terms to be varied from time to time.

22.  Then there was the agreement of December 1995 whereby Mr Ma and Mr Lau agreed the purchase by Mr Lau of the SY Engineering shares and Ping Che land, and the collapse of that agreement which resulted in the action brought by Mr Lau and the judgment in his favour against Mr Ma of March 2001.

23.  Meanwhile, in or about June 2000, Mr Ma and MSY Piling reached a further oral agreement concerning the Ping Che land, called “the Agreement for Lease and Sale”, in several parts.

24.  The first was that MSY Piling pay to Mr Ma the sum of $969,040, referred to as an initial deposit; the second that MSY Piling would lease the land from Mr Ma at $15,000 per month for a term of 16 years and 8 months from December 2000 to July 2017; the third that MSY Piling could exercise an option to purchase the land at the date of expiry of this lease for payment of $10,000.

25.  In September 2000 the Agreement for Lease and Sale was reduced to writing in a document called the “Chinese Agreement”. 

26.  It was further pleaded that these agreements have not been registered because they are not registrable, but that such non-registration does not confer on the charging orders any priority.

27.  It is pertinent, and important, to record further matters that emerged from the pleadings.  The first was that it was admitted in the defences of both defendants that the 1^st defendant (Mr Ma) was “the sole legal and beneficial owner” of the Ping Che land.  The second was that MSY Piling pleaded that the Agreement for Lease and Sale and its successor the Chinese Agreement were and remain together a contractual licence.

The Issue

28.  This is simply whether MSY Piling is able to demonstrate that it has an interest in the Ping Che land that is sufficient to upset the plaintiff’s claim for possession and sale.

The Trial

29.  The status of the Agreement for Lease and Sale and the Chinese Agreement was in hot contention.  Evidence adduced for MSY Piling was confined to that from a lady called Wu Chow Ha (Ms Wu).  She is and has at all material times been employed by MSY Piling as its finance officer.  Further, until his bankruptcy, she was the personal assistant of Mr Ma.  She claimed to have personal knowledge of events pertinent to this action either because of her direct involvement or because she was kept in the picture by Mr Ma as his ‘girl Friday’ and confidante.

30.  She deposed that the transactions between Mr Ma and MSY Piling were bona fide for value, entered into following the collapse of the sale to Mr Lau but before resolution of his claim because Mr Ma was looking to retire or at least not be quite so involved in the business; the monthly payments were for the purpose of providing a pension.

31.  It was claimed that during the course of the negotiations, Mr Lau was told of MSY Piling’s interest (then right of possession and occupation under the “Oral Agreement”); furthermore, during a stocktaking exercise undertaken it was evident from signage that MSY Piling owned machinery on the land.  The retort in response was that Mr Lau was told no such thing; that the land was Mr Ma’s to be disposed of as he wished; after all, it was to have been part and parcel of the 1995 deal. 

32.  It was contended that the timing of the Chinese Agreement, its terms and its stamping promoted the assumption that it was a sham to defeat enforcement in the event that judgment adverse to Mr Ma was the outcome.

33.  There was also an allegation that the land was ‘sold’ to MSY Piling at a material undervalue; valuers on each side were called in support of and in opposition to this aspect.

34.  I have to say I view with some scepticism the coming into being of the Chinese Agreement.  It was not an arms’ length transaction — Mr Ma’s wife signed on behalf of MSY Piling — and the timing was to say the least highly suspicious.

35.  There is evidence that payments referred to in the Chinese Agreement were made or at least debited to MSY Piling, but there are significant gaps in the documentation and only a bare assertion that they found their way to Mr Ma as landlord/vendor.

36.  However, in the end, the issue of whether or not Mr Lau is entitled to the relief he now seeks is determined on an application of legal principles without resort to the findings of fact on disputed matters.

Legal Principles and their Application

37.  Taking MSY Piling’s case at its highest, what is its interest in the Ping Che land?  Its pleaded case is that it has a contractual licence.

38.  A licence, contractual or not, creates no interest in land; see Woodfall — Landlord and Tenant, para. 1.033.  And I quote direct from Halsbury’s Laws of Hong Kong, volume 16, para. 230.0401:

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[230.0401] Licences over land A licence to enter land does not create an interest in land.  It is a personal interest which when giving occupation rights or access to land, simply acts as a defence to an action in trespass.  When the licence is coupled with a contract, then even as a contractual licence it creates no interest in land.  When the contract is breached the only remedy is that of common law damages.  In some cases the licence will be coupled with a grant of an interest in land.  In such a case, the grant does create an interest in land, but the licence remains a personal interest, although in this case more apt as a defence to an action in trespass.  Entry on the land is necessary to take the benefit of the grant, for example a profit à prendre.”

For completeness, the paragraph concludes:

“

The licence is not registrable because it does not create an interest in land: even the licence coupled with a grant is not registrable, although the grant itself would be registrable if in writing.  In recent years doubts have been raised as to whether the grant of exclusive possession, together with a term certain and perhaps the payment of rent, created a lease, or something less.  In some cases the important factor was the intention of the parties, as interpreted by the court, so that the grant of the right to exclusive possession could mean that the interest created was either a lease or a licence.  However, the question has now been settled and the grant of exclusive possession for a term certain represents a lease.  A lease is registrable, unless it is for a term not exceeding three years.”

39.  That does not however alter the status of the Ping Che land.  MSY Piling’s pleaded defence is binding on it, and that includes the admission that Mr Ma is the sole legal and beneficial owner of the land.

40.  In the absence of a proprietory interest in the Ping Che land, does MSY Piling have a locus?

41.  The answer is ‘No’ even were, as is disputed, Mr Lau to have had notice of its purported interest.  Its claim if any must be in damages for breach of contract against Mr Ma.

Order

42.  In the event that I am to find in favour of Mr Lau as I now do, the terms of my judgment are not contentious. 

43.  That follows.

44.  There is a declaration that the 2^nd defendant does not have any interest title and/or rights in the Property.  There are the following orders:

(a)	an account be taken of what is due to the plaintiff from the 1st defendant under and by virtue of a Charging Order Absolute imposing charge on land dated 1st June 2001 as amended on 19th November 2001 pursuant to the Order of Master Ho dated 15th November 2001 made in the Action (‘the said Charging Order Absolute’), whereby the Property or interest in the Property of the 1st defendant stands charged with payment of the Judgment.
(b)	that the Property be sold by private treaty or by public auction and the sale be conducted by the plaintiff in his capacity as vendor or by an agent for and on behalf of the plaintiff as the plaintiff deems fit;
(c)	that the 1st and 2nd defendants do within 42 days deliver up vacant possession of the Property for the purpose of public auction;
(d)	that the proceeds of sale of the Property (‘the Proceeds of Sale’) be paid to Messrs Wilkinson & Grist, Solicitors & Notaries, as the Court appoints as trustees appointed by the Court and be applied according to the following priority:
	(i)	for discharging all Government rent, rates, tax and other outgoings due and affecting the Property;
	(ii)	for paying all lawful remuneration, legal costs, charges and expenses properly incurred in the sale or other dealing of the Property;
	(iii)	the residue, after deducting as per (i) and (ii) from the Proceeds of Sale, for repaying the plaintiff such amount due and owing under the said Charging Order Absolute; and
	(iv)	the residue, after deducting as per (i), (ii) and (iii) from the Proceeds of Sale, if any, be to the trustees in bankruptcy of the 1st defendant;
(e)	that upon such sale the trustees of the 1st defendant in bankruptcy shall do all acts or things as shall be necessary for the assignment of the interest of the 1st defendant in the Property to the purchasers thereof; in particular, they shall execute the necessary conveyance or assignment to give effect to the order;
(f)	liberty to apply.”

45.  Costs are nisi.  The 2^nd defendant shall be liable for the plaintiff’s costs.  There shall be no order as between the plaintiff and the 1^st defendant on costs.