SHIH PHILIP v. LI WAI KEUNG

HCMP 2498/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2498 OF 2008

(ON AN INTENDED APPEAL FROM DCCJ NO. 2901 OF 2006)

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REASONS FOR JUDGMENT

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Hon Tang VP:

1.  We have given leave to appeal.  The facts are complicated and my narrative is a simplified version which I believe is sufficient for the present purpose.

2.  It appears that Madam Wong Wai Sum (“Wong”) and the defendant were the co-owners of the property, namely, Flat No. 208 on the 1^st floor of Block B of I-Feng Mansions, 237A To Kwa Wan Road, Kowloon.  On 2 July 2003, Wong and the defendant assigned the property to the plaintiff and the defendant as co-tenants in equal shares for $410,000.  The property was then mortgaged to Wing Lung Bank Limited for $287,000 (“the Wing Lung mortgage”).  We were told the mortgage was repayable over 10 years.

3.  This action arose out of what has been described as the Compromise.  The Compromise is an agreement in Chinese made between the plaintiff and the defendant.  It recited that Wong and the defendant were indebted to the plaintiff for $200,000 and that the plaintiff and the defendant were the co-owners of the property.  The Compromise went on to provide that if the defendant repaid $200,000 to the plaintiff within 3 years, the plaintiff would then reassign his half interest in the property to the defendant. 

4.  The first $100,000 was to be repaid by the defendant by 18 instalments between July 2003 and December 2004, in default of which the defendant would lose his 50% interest in the property.  The remaining $100,000 would be repaid by 18 instalments between January 2005 and June 2006, and upon such repayments, the plaintiff will lose his 50% interest in the property and the defendant would become 100% owner.  It may be that at the time of the Compromise the net equity in the property after the Wing Lung mortgage was approximately $200,000.  If so, that may explain why in the event of the defendant’s failure to repay the indebtedness of $200,000, it was provided in the Compromise that he should lose his entire interest in the property.

5.  The plaintiff claimed against the defendant for specific performance of the Compromise.  He asked the defendant to convey all his interest in the property to him free from any encumbrances.  After trial, District Judge Mimmie Chan found in favour of the plaintiff and ordered accordingly.

6.  At trial, the plaintiff’s claim was that the Compromise was enforceable as a sale and purchase agreement of the defendant’s half interest in the property.  On the other hand, the defendant’s case was that the sale and assignment of the half interest to the plaintiff by the assignment of 2 July 2003 was in substance a mortgage of the property.

7.  On the material before me it is not clear how much of the Wing Lung mortgage have been repaid.  The defendant told us that more than $100,000 remained unpaid at the date of the judgment below.

8.  Leave has been refused by the learned judge as well as by Cheung JA.  Although the defendant was represented by counsel on legal aid at trial, he appeared before us in person.  Without any fault on his part, I am afraid he was unable to assist us.  It may be that if leave is given to appeal, he would be provided with legal aid.  I commend to the Director of Legal Aid that legal aid be granted for the purpose of the appeal. 

9.  I will state my reasons for granting leave very briefly and stress that any views expressed are necessarily tentative.

10.  It is important to consider the plaintiff’s 50% interest in the property separately from the defendant’s 50% interest in the property.  Even if, as the learned judge has held, the sale of 50% interest to the plaintiff was a genuine sale and was not in substance a mortgage, that does not necessarily mean that the Compromise was an agreement to sell the defendant’s half interest to the plaintiff.  The learned judge has found that by the Compromise the defendant had agreed that he would lose his 50% interest in the event of his failure to repay the first $100,000 and regarded that as consistent with an agreement to sell the defendant’s half interest.  But, failure to repay a mortgage may also result in the loss of property and is equally consistent with a mortgage.  Further, although as it turned out, it appeared the defendant had failed to pay any of the instalments, the question is if the defendant had paid some but not all of the instalment, what then would be the position?  This is relevant to whether time was of the essence of the “sale agreement”, and whether the provision was penal or unconscionable.

11.  I will not go into any further detail.  In the circumstances of this case, I am satisfied that this is a proper case to grant leave to appeal.

Hon Yuen JA:

12.  I agree.