HUANG YU HUI v. ZHENG SHIZHI (also known as ZHENG SHIZHI)

HCMP 1037/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1037 OF 2017

(ON AN INTENDED APPEAL FROM HCA NO. 646 OF 2015)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

I. The application

1.1   The plaintiff applied for summary judgment under Order 86, rule 4(1) of the Rules of the High Court (‘RHC’) against the defendant for specific performance.  Master Chow granted the order and struck out the defendant’s counterclaim.

1.2   Upon the defendant’s appeal, Deputy High Court Judge Alex Lee set aside Master Chow’s decision and granted conditional leave to the defendant to defend the claim.

1.3   The plaintiff sought leave to appeal from the Judge.  Having failed to do so, he renews the application before this Court.  We will deal with his application on paper.

II.  Background

2.1   The defendant is the sole owner of a residential property on Pokfulam Road (‘the Property’). 

2.2   A sale and purchase agreement was purportedly signed on 29 January 2015 (‘the Agreement’) whereby the defendant agreed to sell and the plaintiff agreed to purchase the Property at HK$21,200,000.

2.3   The plaintiff alleged that he paid deposits in the total sum of HK$2.12 million but the defendant failed to complete the transaction or to return the deposits.  He commenced the present action against the defendant for specific performance and damages.

2.4   The defendant filed a defence and counterclaim (later amended on some minor matters).  The defence which was verified by a statement of truth signed by the defendant stated, in summary, that

1)   The defendant does not understand English. 

2)   The defendant had a commercial dispute with a Mr Sze and he was forced by Mr Sze (who acted together with one Mr Ng) under threats of personal safety, to sign documents which include the Agreement, the assignment for the transfer of the Property and the power of attorney authorizing the attorney to sell the Property.  The documents were written in English.

3)  The defendant also claimed that he had not received any of the deposits paid by the plaintiff.

2.5   In his counterclaim the defendant asked for, among other things, a declaration that the Agreement does not bind the defendant and be vacated from the Land Registry. 

2.6   After the plaintiff issued the summary judgment application, the defendant did not file an affidavit to oppose the application.  Instead his brother filed an affidavit and exhibited a letter from the defendant dated 30 March 2016 (‘the Letter’).  In the letter, the defendant said he was unable to leave the Mainland freely due to the dispute he had with Mr Sze.  The content of the letter is similar to the amended defence and counterclaim.

III. The Decision

3.1   The Judge held that the defence is one of duress.  In paragraph 18 of his judgment he identified some of the unusual and suspicious features in the sale of the property which supported the defence:

‘ i) the land search record shows that there was an attempt by Mr Sze to register an encumbrance against the Property which indicates a financial dispute between he and D [the defendant] involving $100 million;

(ii) there is some evidence, in the form of a Whatsapp message from the estate agent to P [the plaintiff], saying that the asking price of the Property was, to the knowledge of the estate agent, substantially below the market value;

(iii) the PSAP [provisional sale and purchase agreement] was first signed by Mr Ng as the vendor, apparently without any power of attorney;

(iv) contrary to the usual practice, it was provided in the PSPA that P would pay all the commissions (2%) to the estate agent and the vendor was not required to pay any commission;

(v) neither the estate agent nor the Solicitors was engaged personally by D;

(vi) the initial deposit and the further deposit did not go to D but went eventually to the bank account of Mr Ng who, D said, was a stranger to him;

(vii) the signature of Mr Ng on the PSPA was subsequently crossed out and replaced by D’s signature.  As regards the SPA [Sale and Purchase Agreement], although the execution of it was said to have been witnessed by a clerk of the Solicitors, it was not executed at the office of the Solicitors in Hong Kong.  The SPA was taken by the clerk to the Mainland for D’s signature there.  I note that it is D’s pleaded case is that he was made to sign certain documents on the Mainland by Mr Sze; and

(viii) shortly after the SPA was signed and before the present action was taken out by P, D had already written to the Solicitors raising queries about the transaction.’

3.2   The Judge also stated that there is a triable issue whether the estate agent had constructive knowledge of the improper conduct of Mr Sze and Mr Ng.  Such improper conduct being identified at paragraph 22 of the judgment :

‘ (i) the estate agent was apparently not personally engaged by D;

 (ii) it is reasonable to expect that the estate agent would have done a land search soon after he had received instruction to promote the Property and in any event before the signing of the PSPA and he would have known that Mr Ng was not the registered owner of the Property;

 (iii) the estate agent should have required Mr Ng to produce evidence that he had D’s authority to sign the PSPA.  However, it is apparent that the agent estate had not done that; otherwise, there should be an indication on the PSPA showing that Mr Ng was signing in a representative capacity;

 (iv) it is apparent that when Mr Ng signed the PSPA he did not have any power of attorney from D, as the power of attorney purportedly made in his favour was only dated after the execution of the PSPA; and

 (v) in the circumstances, the estate agent not only allowed Mr Ng to sign as the vendor on the PSPA but also then purportedly gave initial instruction on D’s behalf to the Solicitors to handle the transaction.’

3.3   The Judge held that the fact that the Letter is not covered by a proper affidavit does not on its own render the letter inadmissible for opposing an application for summary judgment because Order 86, rule 4(1) of the RHC provides that the defendant may show cause against an application under rule 1 by affidavit or otherwise to the satisfaction of the Court.  The defendant had also given reasons as to why he could not come to Hong Kong to make an affirmation.  The Judge held that looking as a whole of the unusual and suspicious features in the sale of the Property, there is some collateral support of the defendant’s assertion of duress.

3.4   In addition to the suspicious features stated in paragraph 18 of the judgment, the Judge held that that unusual features mentioned in paragraph 22 also provide foundation for the contention that the estate agent had constructive knowledge of the alleged impropriety in the sale of the Property which warrants further examination.  In the circumstances of this case, he held that the defendant has by a narrow margin managed to raise a triable issue as to whether the plaintiff has constructive knowledge that the sale of the Property was tainted with impropriety.

3.5   There is also a triable issue whether the defendant had voluntarily ratified the sale by signing the Agreement.

3.6   The Judge found that it would be sufficient for the defendant to show that the plaintiff ought to have been aware of a risk of some kind of wrongdoing in general which may vitiate the transaction.

IV.  Grounds of appeal

4.  In the draft notice of appeal annexed to the summons for leave to appeal, the plaintiff stated five grounds of appeal (which are the same grounds raised in the leave application made to the court below).  Essentially, there are four main reasons as summarized below :

1)  The Judge erred in law in holding that the defendant could rely on the Letter to show cause against the summary judgment application.

2)  The Judge erred in giving any weight to the Letter when there were ample opportunities for the defendant to make an affidavit verifying the contents of the Letter but he failed to do so.

3)  The Judge erred in holding that the plaintiff had ‘imputed knowledge’ of the ‘constructive notice’ by the estate agent of the alleged undue influence and the lack of authority of Mr Ng to effect sale of the property. 

4)  The Judge erred in holding that the estate agent had constructive notice of the misconduct of Mr Sze.

V.  Our view

1) The Letter

5.1   The first two grounds can be dealt with together. 

5.2   Under Order 86, rule 4(1) of the RHC a defendant may show cause by affidavit or otherwise.  In the usual situation, an application for summary judgment is lodged before the defendant filed his defence.  But in this case, the plaintiff chose to do so after the defendant had filed his defence which was verified by a statement of truth from the defendant and supported by Further and Better Particulars.  This really puts a different spin on the matter.  To argue in the circumstances that the Letter was inadmissible or not good enough is to take a blinkered approach.  With respect, the arguments below on how the defendant should show cause was really not properly focused.  Quite apart from the Letter, the amended defence and counterclaim is a document that the defendant can rely on to show cause. 

2)  Knowledge of the vendor through the estate agent

5.3   The plaintiff relied on Mo Ying v Brillex Development Ltd & Anor [2014] 3 HKLRD 224 and argued that in Hong Kong an estate agent is merely a broker and not an agent for either party and therefore the knowledge of the estate agent cannot be imputed to the plaintiff.  This point was not argued before the Judge at the summary judgment hearing. 

5.4   On a renewed application for leave to appeal, the Court of Appeal will not entertain new grounds of appeal not previously raised before the Court below save in very exceptional circumstances : CCMJ v SSM, HCMP 2059/2015, 7 December 2015.

5.5   No explanation was given by the plaintiff as to why this new point was not raised previously and the plaintiff has not demonstrated that there are any exception circumstances for this Court to entertain the new ground.  Thus, the new point should not be entertained in the present application. 

5.6   In any event, this point is without merits.  The case cited by the parties was the first instance decision of Deputy Judge Eugene Fung SC which was affirmed on appeal [2015] 2 HKLRD 985.  The issue under discussion only appeared in the first instance decision.  As Deputy Judge Fung pointed out at paragraph 114, given that the wife in that case relied on the notice of an estate agent, she cannot simply rely on the general principle that ‘any actual or constructive notice which an agent has ... is normally imputed to his principal’.  The wife must rely on something more to impute the notice of the estate agent to the purchaser.  In other words he did not decide that an estate agent can never be an agent for the purpose of imputing knowledge to his principal.  Whether an estate agent can impute his knowledge to the principal depends on the facts of the case.  This really is a triable issue.

3) Constructive knowledge of the estate agent

5.7   It is misconceived to argue that the Judge erred in holding that the estate agent had constructive notice of the misconduct of Mr Sze.  In fact, the Judge only found that there is a triable issue in this aspect as he said that ‘there is sufficient foundation for the contention that the estate agent had constructive knowledge of the alleged impropriety in the sale of the Property which should not be dismissed offhandedly and warrants further examination’.

4) Overview

5.8   One has to bear in mind that the plaintiff’s intended appeal is an appeal against the exercise of discretion by the Judge.  In such an appeal, this Court is not to exercise the discretion afresh and will only interfere where there is a wrong exercise of the discretion.  A plaintiff is only entitled to summary judgment in a plain and obvious case.  What the Judge said was that there were suspicious circumstances in the transaction which merited a full trial but only on the condition that the defendant paid into Court $2.12 million which was the amount of the deposits said to have been paid by the plaintiff and not been repaid.  Where conditional leave to defend is given, the Court of Appeal will not interfere with the discretion of the Judge unless there has been some error of principle or misapprehension of facts or unless undue weight has been given to a particular aspect of the facts (Paragraph 14/4/48 Hong Kong Civil Procedure 2017, (second last paragraph)).  We do not see any reasonably arguable grounds of appeal against the Judge’s decision or that the intended appeal has any reasonable prospect of success. 

VI. Disposition

6.1   The plaintiff’s leave to appeal application is dismissed with costs to the defendant. 

6.2   Since this application is totally unmeritorious, we will order under Order 59, rule 2A(8) of the RHC that no party may under rule 2A(7) request the determination to be reconsidered at an oral hearing.