CHEUNG HING v. WONG CHOR CHEUNG AND ANOTHER

CACV 97/2011 & CACV 141/2011

CACV 97/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 97 OF 2011

(ON APPEAL FROM HCA NO. 336 OF 2008)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Tang VP:

Introduction

1.  Cheung Hing (the Plaintiff) ("Cheung") and Wong Chor Cheung (1^st Defendant) ("Wong") are equal shareholders in Wah Fung Forest Resources Ltd (2^nd Defendant) ("Wah Fung"), each holding 6,000 of the 12,000 issued shares.  Wah Fung is the registered owner of the property known as 3^rd Floor and a portion of Garage Space B1 on the Ground Floor of No.23 Plantation Road, Hong Kong ("the Property").

2.  In HCA 336/2008, Cheung claimed against the 1^st and 2^nd Defendants in respect of the Property, inter alia, for

"(1) A declaration that the 2^nd Defendant has been holding 50% share in the Properties on trust, or as constructive trustee, for the Plaintiff;

(2) A declaration that the Plaintiff is the beneficial owners in respect of 50% share in the Properties;"

as well as an account of all rentals, profits, sales, proceeds, other incomes, etc.

3.  The claim was registered as a lis pendens on 5 March 2008. 

4.  Cheung claimed that he was the beneficial owner of a 50% share in the Property.  That was denied by the Wong.  It appears that Wah Fung had filed no defence and took no active part in HCA 336/2008 until about May 2010.

The Consent Order

5.  The trial of HCA 336/2008 took place before Yam J on 24 March 2010.  Both Cheung and Wong were unrepresented.  A Consent Order in Chinese was made on 24 March 2010 ("the Consent Order").  As translated it reads:

"AND WHEREAS the Plaintiff and the 1^st Defendant agreed that the order set out below be made by the Court in full and final settlement of this action and all claims (if any) in respect of 3^rd Floor and a portion of Garage Space B1 (otherwise described as Garage Space B) on the Ground Floor of No. 23 Plantation Road, Hong Kong ('the Property')

BY CONSENT it is ordered that:-

(1)   The Plaintiff and the 1^st Defendant agreed that the 2^nd Defendant shall forthwith sell the Property.  After deducting the expenses incurred in the sale of property, the proceeds of sale shall be paid into Court.  In order to enable the sale of the Property, the lis pendens in this action shall be vacated;

(2)   The 2^nd Defendant shall prepare an account in respect of the Property.  Further, the Plaintiff and the 1^st Defendant shall within 60 days from the date of this Order file to the Court and serve on the other party an account of all income and expenses of the 2^nd Defendant as at the date of the account or as at the date of the completion of the sale of the Property;

(3)   There by liberty to apply;"

6.  By summons dated 5 May 2010, Cheung applied, inter alia, for the following orders:

"1. The 2^nd Defendant do sell the property situate at 3^rd Floor and a portion of Garage Space B1 (otherwise described as Garage Space B) on the Ground Floor of No.23 Plantation Road, Hong Kong (collectively 'the Properties') within 3 months or within such other time as the Plaintiff may consent, failing which the Plaintiff be nominated the empowered by this Court to sign and execute all such provisional agreement(s), formal agreement(s), Assignment, Deeds, authorisations to existing mortgagee bank for release of title deeds and documents for the Properties and the amount for redemption of the existing mortgage and such other documents necessary for and incidental to the sale of the Properties;

2. the Properties be sold at market value and on such terms and conditions with the prior consent of the Plaintiff;"

7.  The return day of the summons was 3 June 2010.  However, Wong filed an affirmation on 1 June 2010 saying that:

"3. … the 2^nd Defendant had on 28^th May 2010 entered into a Sale and Purchase Agreement with Best Century Holdings Ltd. at the agreed price of HK$15,000,000.00 together with the option that the 2^nd Defendant do have a right to buy back 30% shares of the legal and equitable rights of the said property at its original purchase price within 6 months after the expiration of the existing Tenancy Agreement which should expire on 31^st August 2011. …"

8.  As a result, by summons dated 2 June 2010, Cheung applied to set aside the Provisional Sale and Purchase Agreement ("the Provisional Agreement") made between Wah Fung and a purchaser, latterly Best Century Holdings Ltd ("Best Century"). 

9.  On 3 June 2010, Yam J adjourned the 5 May 2010 and 2 June 2010 summonses for argument.  He also gave directions for the filing of evidence.

10.  On 22 June 2010, Cheung commenced HCA 925/2010 against the 1^st and 2^nd Defendants as well as Best Century.  There, Cheung claimed, inter alia, an order that the sale to Best Century be rescinded as well as an injunction restraining the 1^st and 2^nd Defendants from proceeding with the sale and purchase.

11.  We have been supplied with the transcript of the hearing before Yam J on 11 February 2011 which bears the title of four actions, namely, HCA 336/2008, HCA 814/2010, HCA 829/2010 and HCA 925/2010.  It appears from Yam J's decision of 18 March 2011 that on 11 February 2011 there was:

"2. … an overall CMC (Case Management Conference) of all the cases involving basically between Mr 'Wong' Chor Cheung, the 1^st defendant, and Mr 'Cheung' Hing, the plaintiff, and other parties in respect of the … Property …"

12.  Mr Wilson Hui was instructed by Messrs Michael Li & Co. to appear for Best Century (the 2^nd Defendant in HCA 925/2010) on 11 February 2011 in the Case Management Conference ("CMC"). 

The 1^st Order

13.  A formal order made by Yam J on 11 February 2011 in HCA 336/2008 ("the 1^st Order") recited that it was made upon the application by Cheung by summons filed on 5 May 2010 and 2 June 2010 and upon hearing counsel for Cheung and the solicitors for Wong and Wah Fung. We have not been told what other order, if any, Yam J might have made on that day in relation to the other proceedings.  Nor do we know anything about HCA 814/2010 and HCA 829/2010

14.  The 1^st Order, where relevant, reads:

"2. An estate agent as nominated jointly by the Plaintiff and the 1^st Defendant and failing written agreement made between them within 7 days to be decided by this Court on paper application by the party or parties shall be retained to market the sale of the Property whether by private treaty or by public auction and the sale price shall not be below the current market value of the Property decided by the surveyor.  The sale shall take place within 42 days from the date of this Order and be completed within 4 months of this Order.

……

5. The Plaintiff and the 1^st Defendant be jointly authorized to execute all documents required for effecting the sale of the Property for the 2^nd Defendant and if one party fails or refuses to sign that the other party is fully authorized to do so for the 2^nd Defendant."

15.  The 1^st Order prompted Best Century to apply by summons dated 16 March 2011 to intervene in HCA 336/2008.  That application was dismissed by Yam J on 18 March 2011.  That has led to CACV 97/2011.  Leave to appeal from the Order was granted by Hartmann JA on 26 May 2011, after leave to appeal had been refused by Yam J on 14 April 2011. 

The 2^nd Order

16.  On 18 March 2011, Yam J also made an order ("the 2^nd Order") pursuant to an oral application by Cheung

"7. The Plaintiff and the 1^st Defendant be authorized to proceed and complete the sale of the Property in accordance with this Order notwithstanding the making of the purported Provisional Sale and Purchase Agreement ('the PSP') made with Best Century Holdings Limited ('Best Century') on the purported sale of the Property dated 28^th May 2010 which was registered against the Property on 3^rd June 2010;

……

10. For the avoidance of doubt, and without prejudice to Best Century Holdings Limited's rights and interests in HCA No. 925 of 2010, the PSP was not made pursuant to the Consent Order dated 24^th March 2010 and as such, the sale pursuant to the Consent Order shall take free of any interest of Best Century Holdings Limited which may subsist in the Property by reason of the PSP but the aforesaid order is made without prejudice to Best Century's claim in the proceeds of the aforesaid sale in high Court Action 925/2010;

11. It is directed that the registration of the Best Century Purported Provisional Agreement be vacated forthwith from the Land Registry;"

17.  There is a decision of Yam J dated 18 March 2011 ("the Decision") where Yam J explained, for example, why he made the 2^nd Order and why he refused leave to Best Century to be joined as a party to HCA 336/2008.

st and 2^nd Orders.  Leave to appeal was granted by Cheung and Chu JJA on 20 July 2011.  The reasons for judgment was handed down on 27 July 2011.  This Court (Cheung and Chu JJA) said:

"19. In our view, the intended appeals have satisfied the threshold for granting leave.  In particular, we note that the combined effect of the two Orders is to sanction a sale of the Property in disregard of the Provisional Agreement.  Paragraph 10 of the Further Order declares that the purchaser shall take free of Best Century’s interest in the Property under the Provisional Agreement while paragraph 11 directs the vacating of the registration of the Provisional Agreement.  It is, to say the least, highly arguable that the two Orders have shut out any proprietary claim by Best Century in the Property and have effectively determined the dispute between the parties in HCA925/2010 when the trial in the action is pending.  It will be most unsatisfactory if, after the trial in HCA925/2010, the Provisional Agreement were upheld. 

20. We note further that there are serious disputes between the parties as to the fides of the sale to Best Century, including whether the sale is at undervalue.  We doubt whether these factual disputes should be resolved on conflicting affidavit evidence alone.

21. The plain consequence of the Sale Order and the Further Order is that Best Century’s claim or rights in the Property are limited to damages.  Mr Li justifies this on the basis that the Provisional Agreement is subject to the lis pendens that Cheung had registered against the Property.  However, the lis between Cheung and Wong and Wah Fung had been finally disposed of by the Consent Order, which also ordered that the registration of the lis pendens be vacated.  Moreover, given that the Consent Order provided for a sale of the Property in full and final settlement of the action and all claims in the Property, it is difficult to see on what basis can the registration of the lis pendens be sustained."

The Appeals

19.  On 28 July 2011, I directed that CACV 97/2011 and CACV 141/2011 be heard at the same time.  They were heard by us on 22 November 2011.  At the end of the hearing we allowed both appeals with costs.

20.  In the Decision, Yam J said:

"6. In the first place the 1^st defendant has not complied with paragraph 2 of (the Consent Order).  But more importantly it is quite clear, from paragraph 1, that both Cheung and Wong agreed that the Company should sell the said Property, in that, the Company, in selling the Property, would not be at the sole idea, initiation and/or intention of Wong.  In other words, the Order did not say that Wong could, on his own, sell the Property without relating the matter to Cheung, the other 50% shareholder.  Cheung and Wong together should sell the Property in the name of the Company."

21.  Yam J also said (at para. 9) he took judicial notice that the sale of the Property to Best Century at a price of $15,000,000 in May 2010 was too good to be true. 

22.  Mr. C. Y. Li, for Cheung, submitted:

"… However, it is important to note that notwithstanding the reservations expressed by the judge on the genuineness of the purported sale by [Wong Chor Cheung] to [Best Century], he did not make any ruling that the transaction was a sham."  see para. 5.3 of his skeleton submission.

23.  Indeed, Yam J said:

"29. … The intention is clearly that I am not declaring, as suggesting by Miss Lo, that Best Century has no interest but Best Century’s registration should not affect the proposed sale. …"

24.  Yam J also said:

"17. In fact, on the other hand, Best Century’s position is well secured, if it proves to be right.  The proceeds of any sale in future are directed to be paid into court.  It is, at least, opened to Best Century to claim damages against Wong for breach of warranty of authority if Ko and Cheung both proved to be right."

25.  But, with respect, since the validity of the Provisional Agreement must await determination, it is difficult to see how the 1^st and 2^nd Orders which "sanction a sale of the Property in disregard of the Provisional Agreement" (per Cheung and Chu JJA quoted in para. 18 above) can be supported. 

26.  Mr Li submitted that the 1^st and 2^nd Orders could be supported because the Provisional Agreement is subject to the registration of Cheung's claim in HCA 336/2008 as a lis pendens.  Mr Li submitted that Cheung's claim in HCA 336/2008 has merged in the Consent Order.  Thus, the sale to Best Century was subject to the Consent Order. 

27.  But as the Consent Order provided for sale of the Property by Wah Fung, the Consent Order is no impediment to a sale by Wah Fung.

28.  Mr C Y Li then submitted that because Cheung had claimed in HCA 336/2008 that he had a 50% beneficial interest in the Property, the Consent Order, when read in the context of the transcript of the proceedings before Yam J of 24 March 2010, showed that Yam J had upheld Cheung's claim that he had a beneficial interest in half of the Property which was held in trust for him by Wah Fung.  Mr C Y Li also submitted, I think, that that being the case, Wah Fung could not sell the Property, at least not all of it, as beneficial owner which Wah Fung had purported to do by the Provisional Agreement.

29.  I doubt whether, when construing the Consent Order, one should even look at the transcript of the proceedings before Yam J.  I certainly do not believe what a judge might have said in the course of a hearing could be regarded as a finding by him.  Anyway, I can see nothing in the transcript to suggest any finding by Yam J that Wah Fung had in fact held 50% of the Property as trustee for Cheung.  Nor is the language of para. 1 of the Consent Order consistent with any such suggestion.  There is no suggestion in para. 1 of the Consent Order that Wah Fung should sell the Property (in part or at all) as a trustee for Cheung. 

30.  Mr Li then submitted that Yam J's 1^st and 2^nd Orders were made under the liberty to apply provision in the Consent Order.  Even so, I do not believe the court could thereby override Best Century's interest in the Property arising out of the Provisional Agreement. 

31.  Understandably, Yam J took the view that the sale to Best Century could be successfully challenged in due course.  But as Mr Li has accepted, the learned Judge had not purported to decide the matter.  That remains the subject matter of HCA 925/2010. 

32.  When Yam J dealt with his dismissal of Best Century's application for leave to be joined as a party in HCA 336/2008, he said:

"33. There is no need to include Best Century as an intervener in this Action HCA336/2008.  The more convenient way is to consider consolidating the two Actions, HCA336/2008 and HCA925/2010, in which Best Century is the 2^nd defendant, upon its application.  Accordingly the application by summons of Best Century Holdings Limited, dated 16 March 2011, is dismissed with costs to be paid by it to the plaintiff in any event to be taxed by summary assessment on papers.  It is further directed that any application from any party herein, which may affect Best Century Holdings Limited, the applicant shall duly notify the solicitors for Best Century."

33.  With respect, I do not agree.  Best Century was entitled to be heard, and should have been joined as a party.  Indeed, because it was not joined as a party, some of the documents in HCA 336/2008 were unavailable to Best Century.  The fact that Best Century is a party in HCA 925/2010 and the learned Judge said he would consider consolidation of HCA 925/2010 with HCA 336/2008, is of no comfort to Best Century.  Indeed, after the making of the 1^st and 2^nd Orders little of relevance is left in HCA 336/2008.

34.  For the above reasons, I have allowed both appeals with costs against Cheung in this Court as well as below.

Hon Fok JA:

35.  I agree with the Reasons for Judgment of Tang VP.