XCHRX CHAN KWAI KWUN v. MAN CHUNG LAP

HCA 8862/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8862 OF 1999

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REASONS FOR DECISION

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Introduction

1. At the hearing on 27 April, 2 of the 3 applications before me were opposed (the third was unopposed): the plaintiff's application for an extension of time to lodge an appeal against the Master's order dated 19 December 2000 and his Notice of Appeal against the said order. I dismissed both applications. These are the reasons.

The Action and the Counterclaim

2. The plaintiff brings this action against the defendant alleging the following. The plaintiff and other third parties are the registered owners (or head tenants) of different lots of land in San Tin, Yuen Long. These third parties include "Man Shui Tong Wui" (文水塘會), "Man Sha Lok Wui" (文沙洛會) and Man Se Hing also known as Man Yat Kwai (文泗慶又名文日葵). In mid-1989, the plaintiff embarked on a business venture to convert these lots of land into a container trailers park and/or open storage site.

3. A verbal agreement was reached by late 1989 between the plaintiff and defendant whereby:-

(a) the plaintiff would procure a third party to cease fish farming at 4 adjoining fish ponds and hand over them to the plaintiff;

(b) the defendant would obtain leases of certain lots of land so that they could be combined with other lots to form a single land parcel for the plaintiff's business venture;

(c) the plaintiff would obtain leases of other lots of land for the same purpose as (b) above;

(d) the plaintiff would convert the said lots of land into a container trailers park and/or open storage site;

(e) the plaintiff would provide his own lot of land for use as the vehicular access of the said site to and from Castle Peak Road;

(f) the defendant was to pay $260,000 to the plaintiff. Subject to this, the plaintiff would make financial arrangements for carrying out the conversion work. The estimated value of the work was over $3 million for a total area of about 400,000 square feet;

(g) the plaintiff would have the sole and exclusive power of managing and letting out parts of the container trailers park and/or open storage site including collecting rents from user(s)/tenant(s) of the site, paying rents to the owners (or head tenants, as the case may be) of the various lots of land and all other necessary or reasonable expenses.

4. It was also part of the agreement that the plaintiff was to pay the defendant (representing the interest of his family) one-third of the rental income after deducting all capital and other expenses referred to above.

5. A similar agreement was reached between the plaintiff and Man Se Hing also known as Man Yat Kwai.

6. At para. 8 of the Amended Statement of Claim, the plaintiff pleads:-

"The Plaintiff contends that in the light of the said verbal agreements under the foregoing circumstances, the Plaintiff is and was at all material times the sole proprietor of the Plaintiff's Business Venture".

7. This is repeated in para. 13A thereof. By repeating the said para. 13A in answer to para. 15(6) of the (original) Defence and Counterclaim (filed on 13 July 1999), this plea is in effect reiterated at para. 20 of the Defence to Counterclaim (no Reply has been filed). Moreover, the plaintiff confirmed the business was his in his affirmation: see, for example, para. 6 and 16 to 19 of his 1st affirmation herein.

8. The plaintiff's case is that in November 1993, the converted lots of land were let to a Kafield Hong Kong Limited ("Kafield"). Kafield in turn sub-let them to a Everfly Properties Limited ("Everfly") (on the western side) and a Dragon Container Park ("Dragon") (on the eastern side). The plaintiff alleges that the defendant breached the agreement by:-

(1) letting parts of the converted lots to a Chan Chun Wah. In late December 1998, Chan Chun Wah threatened to evict Everfly;

(2) commencing legal action against Everfly and its licensee, one Ocean First (Hong Kong) Limited ("Ocean First") to recovery possession of parts of the converted lots and for related relief;

(3) purporting to revoke the letter of authority given to the plaintiff earlier;

(4) purporting to serve a notice to quit on Kafield;

(5) purporting to let certain parts of the converted lots to Man Kam Po and Dragon.

9. The plaintiff asks in essence for the specific performance of the agreement between him and the defendant.

10. For the purpose of this "Reasons for Decision", the defendant's case as stated in the Re-Amended Defence and Counterclaim can be summarized as follows. By a written memorandum dated 1 November 1991, the plaintiff, defendant and other third parties expressed their intention to cooperate in the conversion of lots of land for other use. It was intended that the plaintiff would be the defendant's agent and/or business partner for converting the said lots into container yards (see para. 6(2) and (3) thereof). The plaintiff and defendant were to contribute lots of land for the said purpose (para. 6(8) thereof). Since the defendant has to pay rent to the registered owner of some of the lots, that payment would be part of the partnership's expenses. Accordingly, part of the rental income of the partnership was to be paid to the defendant to enable him to pay rent to the registered owner (para. 6(11) thereof). The defendant's family is entitled to one-half (and not one-third) share of the income of the partnership (para. 6(12) thereof).

11. Further, the plaintiff has no authority to let the part(s) of the converted land (over which the defendant has superior title) to Kafield and that Kafield has no right to occupy the said part(s) of the land (para. 13 and 14 thereof). The defendant also asserts that although the plaintiff made quarterly payments to him since November 1993, in breach of the partnership agreement, the plaintiff has failed to pay him since May 1998 (para. 16(1) to (3) thereof). Moreover, despite indicating that he would settle the partnership's accounts with the defendant, the plaintiff has failed to do so. The defendant alleges that the plaintiff clearly intended to put the partnership to an end and this was accepted by the defendant (para. 16(3) thereof).

12. The defendant's case is further that he (mistakenly stated as the plaintiff at para. 16(4)) was entitled to, and did, let parts of the developed land to Chan Chun Wah in about December 1998.

13. The defendant pleads that Kafield has admitted rent has been paid to the plaintiff at all times (para. 16(6) thereof) and the plaintiff wrongfully failed or refused to account for the same or to render a true or full account (para. 24 and 25 thereof). The defendant also asks for an indemnity from the plaintiff in relation to the legal action commenced against the defendant by Kafield.

The Defendant's Ord. 14 Application

14. On 28 June 2000, the defendant took out a summons asking for various relief, including the following pursuant to RHC Ord. 14:-

(1) an order for possession of the land referred to in the Re-Amended Counterclaim and for arrears of rent and mesne profits (para. 1 thereof);

(2) an account be taken of all moneys coming into the plaintiff's hands to which the defendant is entitled, including all rents collected, and an order for the payment of sums found due on the taking of such account (para. 3 thereof);

(3) judgment for damages to be assessed in respect of the conversion of the defendant's money (para. 4 thereof);

(4) a declaration that the partnership has ended and the defendant was not the plaintiff's trustee in respect of parts of the converted land.

15. After hearing the parties, on 19 December 2000, the Master gave the plaintiff conditional leave to the plaintiff to defend the Re-Amended Counterclaim. The relevant part of her Order reads:-

"... Leave for the Plaintiff to defend on [sic] the Counterclaim on condition that the Plaintiff within 28 days from the date hereof pays into court one-third of the rental received from Kafield Hong Kong Limited for the period from July 1998 to the date hereof (after giving credit to the rental paid to Man Sha Lok Wui during within [sic] same period ...

Costs of this application be reserved with certificate for 2 counsels [sic]".

The other paragraphs of the defendant's summons were dismissed.

16. The Master's Order will be further discussed in the paragraphs below under the heading "The Master's Order dated 19 December 2000".

The Application for Time Extension

17. On 17 January 2001 (slightly less than one month after the Master's Order), the plaintiff took out an application asking in effect for a time extension to file and serve a notice of appeal against the Order of 19 December 2000.

18. The factors which the court may consider when deciding whether to extend the time for appealing do not appear to be disputed. These matters include:-

(1) the length of the delay;

(2) the reason for the delay;

(3) the chances of the appeal being successful if the application is granted;

(4) the degree of prejudice.

See Hong Kong Civil Procedure 2001, para. 58/1/4 citing Chiu-sin Chung v. Yu Yan-yan, Angela [1993] 1 HKLR 225, 228; Norwich & Peterborough Building Society v. Steed [1991] 1 WLR 449; Wong Kam Hong (t/a Continental Knitting Factory) v. Triangle Motors Ltd. [1998] 2 HKLRD 330, 336; Chiu Butt-york v. Chiu Kwok-lim [1980] HKLR 459; Luk Shau Chun v. Kwong Hon Wah [1980] 1 HKC 593; Tong Yi Sang v. Fung Law & Ng [1993] 2 HKC 665.

19. The length of the delay has been stated above. The plaintiff's explanation for the delay is in summary that he did not understand the legal advice given by his former solicitors (orally (in Chinese) on 20 December 2000 and in writing on 23 December). I do not find this to be a reasonable or satisfactory explanation. Because of the conclusion reached (below) in relation to the merits of the intended appeal, it is unnecessary to decide whether this application ought to be refused simply for want of a valid reason for the delay.

20. For the reasons given below, I find that the chances of the appeal being successful are low if this application were granted.

21. Plaintiff's counsel originally relies on set-off as the only defence to the defendant's application for summary judgment: see para. 5.4 and 5.6 of the plaintiff's skeleton argument. In the course of the hearing, plaintiff's counsel indicated that the following additional line of defence would be relied upon. It is the defendant's case that the plaintiff has paid the defendant until about May 1998: para. 16(1) and (2) of the Re-Amended Defence and Counterclaim. It is the plaintiff's case that the defendant has been paid by the plaintiff up to June 1998: para. 15 (especially 15.2 and 15.3), 16 and 25 of the Defence to Counterclaim. It is undisputed that the plaintiff did not pay the defendant from then onwards. The plaintiff contends that it was agreed between him and Kafield that the plaintiff was to collect rent directly from the sub-tenants. This would be treated as Kafield's partial payment of rent and, accordingly, Kafield only needed to pay the outstanding balance. The plaintiff did not pay the defendant because one of the sub-tenants, Dragon, did not pay rent to him. These 2 lines of defence will be discussed in turn below.

Defence (1): Set-Off

22. This defence is set out in para. 7 of Wong Kam Sing's affirmation:-

"... in or about June 1998 the Defendant approached Dragon and persuaded it to pay rent to him directly instead of the Plaintiff from July 1998 onwards ... " (emphasis supplied)

(Mr. Wong is and was a director of Kafield, the tenant of part of the suit property).

23. The first thing to note is that this line of defence was not expressly mentioned at any time before this application. This action was commenced in June 1999. The Defence and Counterclaim (in which the defendant claims inter alia for his share of the alleged partnership's income) was filed and served in July 1999 and its Re-Amended version was filed and served in June 2000. Further, at the hearing of the Ord. 14 application before the learned Master, the plaintiff was represented by leading counsel. No adjournment was sought to enable detailed evidence (besides that referred to below) to be filed regarding this matter.

24. The part of the plaintiff's affirmation where there is a hint of such matter is:-

"... I am informed by the members of the Wui [presumably referring to the "Man Sha Lok Wui"] ... and verily believe that [the defendant] has [sic] failed to pay any rent to the Wui in respect of the Wui's Land since about February, 1999 while he himself was and still is letting the Wui's Land to third parties and receiving from time to time rents derived from such letting. I have been approached by various members of the Wui who, having knowledge of my Business Venture, asked me for rent in respect of the Wui's Land. Eventually, I myself have paid rent to the members of the Wui with about 70% of the shareholding in the Wui ... " (emphasis supplied) (para. 21 thereof).

25. Quite different from what Mr. Wong Kam Sing stated in his affirmation herein (see above), at para. 37 of his affirmation filed in HCA No. 2392 of 1999, he said:-

"... since January 1999 [the defendant] has wrongfully collected monthly rental from Dragon direct in respect of Dragon's Lands. As a result, Dragon has refused to pay rent to Kafield ... " (emphasis supplied).

26. This difference was explained in Mr. Wong's affirmation herein as follows:-

"I wish to apologize to this Honourable Court that the date of Dragon paying rent direct to the Defendant referred to in my said Affirmation was mis-stated as January, 1999 which was an error due to my oversight" (emphasis supplied).

27. It appears Mr. Wong came to know of the defendant's alleged wrongful collection of rent from the plaintiff. At para. 7 of his affirmation herein he said:-

"... When the Plaintiff informed me about Dragon's deal with the Defendant, I was shock and angry. I told the Plaintiff that he should solve the problem on his own and that Kafield would only pay the balance of the rental to the Plaintiff as before ... ".

28. On the other hand, the plaintiff seems to rely on Mr. Wong as his source of information regarding this matter. In his 2nd affirmation he said:-

"... the fact that the Defendant's collection of rental from Dragon is also verified by Mr. Wong Kam Sing who was and is a director of Kafield in his Affirmation dated 16th January 2001 and filed herein" (para. 9 thereof).

29. As will be stated below, it is strange that no legal action has been taken by the plaintiff against Kafield for the monthly rent up to now. Kafield appears to be cooperative with the plaintiff in this action. In these circumstances, the impartiality of Mr. Wong is questionable.

30. Apart from exhibiting receipts which the plaintiff contends evidence payment to 70% of the Wui's members (see exhibit "CKK-5" to his 1st affirmation), there is no document to support the allegation that rent has been paid by Dragon to the defendant. Plaintiff's counsel explained that there was difficulty in obtaining such documents. I find this explanation unsatisfactory. Dragon is, according to the plaintiff, Kafield's sub-tenant. The plaintiff used to collect rent from Dragon. There is no apparent reason why either the plaintiff or Kafield could not demand Dragon to produce documents evidencing the payment of rent to the defendant. Defence counsel does not accept the authenticity of exhibit "CKK-5". Furthermore, I agree with his submission that payment to members of the Wui is (at least arguably) not the same as payment to the Wui itself.

31. The plaintiff has not explained why this line of defence was not expressly raised earlier. In his 2nd affirmation the plaintiff said:-

"I was surprised why the Master had not taken into account the rental from Dragon ... and which were wrongfully received by the Defendant since about July, 1998 ... ".

32. There is no basis for such statement. I understand from defence counsel that the point was raised (under protest) by leading counsel for the plaintiff at the hearing before the Master. There is no reason to think that the Master has not considered this point.

33. In view of the way in which the matter was raised before her at that time, she was entitled to give leave to defend conditionally. By reason of the matters set out above, I conclude that despite the further materials, the intended appeal (insofar as it relies on this line of defence) against the Master's Order giving conditional leave to defend is unlikely to succeed.

Defence (2): Non-Payment of Rent by Sub-tenant

34. As stated above (see the passages quoted in the paragraphs under the heading "The Action and the Counterclaim"), the plaintiff's stance, both in his pleadings and in his 1st affirmation filed herein, is that he is the sole proprietor of the container trailers park/open storage site business. Such being the case, it is difficult to see what is the relevance of the part of his case about non-payment of rent by one of the sub-tenants.

35. First, the primary obligation to pay rent to the plaintiff rests with the tenant, Kafield, under the tenancy agreement. The arrangement that the plaintiff was to collect rent from the sub-tenants and only to ask for the outstanding balance from Kafield has not been put forward as a legally binding arrangement or one which was to displace the said primary contractual obligation on Kafield's part. It is likely to be an arrangement of convenience. When the plaintiff encountered difficulties in collecting rent from Dragon, he could have asked Kafield to pay rent pursuant to the tenancy agreement. For some unknown reason, this apparently did not happen. Mr. Wong of Kafield said in his affirmation (see above) that:-

"... I told the Plaintiff that he should solve the problem on his own and that Kafield would only pay the balance of the rental to the Plaintiff as before ... ".

The plaintiff, again for unknown reason, appears to accept such position and has not taken any action to recover rent from Kafield since about July 1998 up to now.

36. More importantly, if, as the plaintiff contends, he is the sole proprietor, he should be entitled to the whole benefit of the business. On the other hand, unless there are specific provisions to the contrary (none has been put forth), the plaintiff would have to shoulder any burden or risk related to this business. Thus, whether the plaintiff is able to collect rent from the tenant/sub-tenant would appear to be of no concern to the individuals from whom he obtained the lots of land for use in his business (including the defendant).

37. At the hearing of this application, plaintiff's counsel submitted that the relationship between the plaintiff and the defendant was in the nature of a partnership. There is no evidential basis for such submission but ample evidence from the plaintiff (see above) to the contrary.

38. In these circumstances, the learned Master was entitled to conclude that in relation to this line of defence, leave to defend ought to be given only conditionally. The intended appeal regarding this matter is also unlikely to succeed.

Conclusion

39. The application for time extension should thus be refused.

The Notice of Appeal

40. Insofar as it may be necessary to do so, because the application for time extension to file and serve a Notice of Appeal has been refused, the Notice itself ought to be dismissed as well.

The Master's Order dated 19 December 2000

41. There are 3 matters regarding the learned Master's Order which warrant further consideration:-

(a) it does not appear to follow or adopt the usual form of order giving conditional leave to defend: for example, Chitty & Jacob's Queen's Bench Forms (1986) 21st Ed., pp. 125 to 126, Forms 130 to 132;

(b) more importantly, the condition is not expressed in a way which would readily enable one to know if it has been complied with;

(c) further to (b) above, the Order does not provide what the consequence(s) should be if there is non-compliance with the condition.

42. This is the second occasion when I came across Masters' orders giving conditional leave to defend which have been drawn up in a similar way (see also the Judgments dated 7 July 2000 and 26 April 2001 in Dorera Ltd. v. Lam Kam Ming and anor., HCA No. 4099 of 1999).

43. The parties did not dispute that I have the jurisdiction to vary the Master's Order. In any event, it appears that there is inherent jurisdiction to do so: see Hong Kong Civil Practice 2001, para. 20/11/1 and 20/11/2 citing (among other decisions) Evans v. Main Colliery Ltd. (1915) 31 TLR 127 by way of example. The matter could have been remitted to the Master but, in the circumstances of this case, it is more appropriate and expedient for it to be dealt with at the hearing before me.

44. In relation to point (b) above, neither party herein would be able to know what the Master's Order intends the plaintiff should do. In view of the differences between the parties regarding how much rent has been received by the plaintiff and whether any expenses have been incurred by him, the only way to find out would probably be for the matter to be re-heard again. This is unsatisfactory. Defence counsel informed me that defence solicitors had actually submitted a schedule (annexed hereto as Annexure 1) to the draft order for the learned Master to consider. The schedule was however not incorporated in the drawn-up order.

45. Annexure 1 sets out the amount of rent receivable by the plaintiff during the period referred to in the Master's Order and the amount of rent which the plaintiff said he had paid to members of the Man Sha Lok Wui during the same period. While the defendant does not accept the said payment has in fact been made, or, if it had been, such is a valid payment, defence counsel accepts for the purpose of drawing up a "workable" order that such payment can be regarded as falling within the phrase "... the rental paid to Man Sha Lok Wui during within [sic] same period" in the Master's Order.

46. It is undisputed the amount of monthly rent payable to the plaintiff by Kafield since July 1998 is $546,000: see para. 13B of the Amended Statement of Claim and para. 23 of the Re-Amended Counterclaim.

47. Plaintiff's counsel objects to the payment into court of a total of one-third of 30 months' rent contending that the Master's Order only refers to "one-third of the rental received from Kafield ... " and not "... rental receivable ... " (emphasis supplied). His instructions (which are not supported by evidence) are that rent of only about $2.28 million (for the period from July 1998 to April 1999) was received by the plaintiff from Kafield. Furthermore, in relation to the expenses paid by the plaintiff during the relevant period, plaintiff counsel's instructions (also without supportive evidence) are that about $800,000 has been incurred.

48. Even if the plaintiff were unaware of the significance of such evidence before 19 December 2000, since at least the date of the Master's Order, the importance of matters (such as how much rent has been received by the plaintiff and whether any expenses have been incurred) must have been obvious to him.

49. The plaintiff seems to accept that he is under a duty to render an account (see para. 23 of his 1st affirmation). The learned Master must have found the plaintiff's evidence regarding the amount of rent he received from Kafield less than satisfactory because the leave to defend was only given conditionally. No evidence has been filed in relation to the expenses incurred.

50. The burden is on the respondent (the plaintiff in this application) in an Ord. 14 application to show that there is a triable issue. In addition, in relation to a fiduciary who has been unjustly enriched (in the present case there is of course as yet no such finding in relation to the plaintiff herein), although he is at law permitted to be reimbursed for what he spent, the burden is on him to demonstrate whether he has used his own money: see Goff & Jones: The Law of Restitution (1998) 5th Ed., p. 36 citing Re Tilley's Will Trusts [1967] Ch 1179, 1188-1189.

51. In these circumstances, Annexure 1 ought to be adopted as part of the Master's Order. The part of the Master's Order which states:-

"...one-third of the rental received from Kafield Hong Kong Limited for the period from July 1998 to the date hereof (after giving credit to the rental paid to Man Sha Lok Wui during within [sic] same period) ..."

should be replaced by:-

"the sum of $4,846,906".

52. Plaintiff's counsel also argues that the condition requiring the payment into court of some $4.8 million would amount to entering judgment against the plaintiff because the plaintiff lacks the means to comply with such a condition. Similar to what was stated above, the plaintiff has not adduced any evidence to this effect. Since the time of the Master's Order (at the latest), the plaintiff ought reasonably have known of the need for, and/or the importance of, such evidence. In the absence of such evidence, it is not for the court to speculate whether he lacks the means to make payment-in of the said amount and, if so, what would have been the appropriate amount of payment-in (if any).

53. In relation to point (c) above, plaintiff's counsel accepted at the hearing that should the plaintiff default in complying with the condition, the defendant should be entitled to enter judgment as claimed in the Re-Amended Counterclaim. The Master's Order was accordingly varied to add a new para. 1A:-

"If the Plaintiff defaults in complying with the said condition, the defendant be at liberty to enter judgment as claimed in the Re-Amended Counterclaim with interest and costs of the Counterclaim to be taxed if not agreed".

Costs

54. The defendant asked for the costs of this application and the application before Master Jones on 15 February 2001 (an application for an extension of time to comply with the condition imposed on 19 December 2000) be to the defendant in any event. The learned Master ordered the costs to be reserved to the hearing of this application. Plaintiff's counsel (correctly) did not oppose the application for costs. There is no valid reason not to follow the usual rule that costs should follow the event.

55. The costs of the application for summary judgment (and other relief) have been reserved on 19 December 2000. Plaintiff's counsel did not oppose the defendant's application for those costs to be in the cause of the action (with certificate for 2 counsel).

56. By reason of the aforesaid, the above unopposed costs orders should be granted.

Annexure 1

PAYMENT INTO COURT