LEONG WING SUM v. NG KAI MAN

HCA 51/2018

[2018] HKCFI 1580

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 51 OF 2018

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J U D G M E N T

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A. Introduction

1.  This is the adjourned hearing of the plaintiff’s summons filed in this action on 11 January 2018 (the “Plaintiff’s Summons”), seeking an interlocutory injunction to restrain the defendant from doing the following acts: –

“…interfering the Plaintiff’s performance of an agreement dated 19^th March 2011 entered between the Plaintiff and the Defendant, including the construction of the house on Lot Nos. 812 in Demarcation District 242…”

2.  At the call-over hearing before Chow J held on 19 January 2018, the defendant gave an undertakingto the court in the following terms: –

“…the Defendant would not, … carry out or continue any construction works at Lot Nos. 812 in Demarcation District 242, … until the determination of the Summons filed on 11 January 2018...”. [emphasis added]

3.  On 10 April 2018, the plaintiff took out a summons for leave to amend the Plaintiff’s Summons (the “Plaintiff’s Amendment Summons”), by reframing the terms of the proposed interlocutory injunction along the line of the defendant’s undertaking.  This is to enable the plaintiff to continue with the said construction works in accordance with the agreement in aid of the plaintiff’s claim in the Writ and Statement of Claim for a decree of specific performance.

B.   Relevant Factual Background

4.  The following factual background is taken from the plaintiff’s Skeleton Submissions.

5.  The defendant is an indigenous villager and the registered owner of Lot 812 in Demarcation District 242 (the “Land”) in Tseung Kwan O Village (“Village”) by virtue of the New Grant dated 4 November 2010 (the “New Grant”).  The New Grant provides that the defendant shall erect a typical 3 storey village house (“the house”) thereon within 36 months.

6.  In 2011, in order to finance the construction of the house, the defendant’s father, acting on behalf of the defendant, was looking for a buyer for part of the house.  The buyer has to finance the construction of the house and upon completion, the defendant would possess all rights of the ground floor whereas the purchaser would possess all rights of the 1/F, 2/F and Roof of the house.

7.  The plaintiff is 53 years old and employed as a printing supervisor.  The plaintiff’s close friend Chan Yuk Sing (“Chan”), who was living in the Village, introduced the plaintiff to the defendant’s father.  The plaintiff only negotiated with the defendant’s father and eventually came to terms as per the Chinese agreement dated 19 March 2011, which was drafted and prepared by the solicitors Messrs C.P. Cheung (the “Agreement”).  The plaintiff only met the defendant for the very first time on 19 March 2011, when the parties went to the solicitors’ office to execute the Agreement.  

8.  The consideration for the purchase is the erection of the house at the plaintiff’s cost in compliance with the government’s requirements.  The plaintiff would build and fit the G/F of the house as specified by the defendant.  Only the defendant’s father had ever communicated to the plaintiff the requirement of the G/F and the defendant’s father was the party checking the construction on a daily basis.

9.  The house is one of the 41 houses to be built by indigenous villagers in close proximity and the 41 houses are fenced off as a single construction site (the “Site”).  The Village formed a special Committee to control the building works and to construct the site formation and common drainage for the 41 houses. Construction of the 41 houses could only commence after the site formation and drainage works have been accepted/approved by the Buildings Department.  The plaintiff paid the Committee the share of the cost relating to the Land but had no control over the progress of such site formation and drainage works. 

10.  It is stated in the New Grant that no building work could commence until the 4 corners have been ‘set out’ by the Director of Lands.  The setting out was completed on 23 September 2015. Naturally, no construction could commence before that date.  It should be noted that the New Grant also provides that the house should be developed within 36 months (“Completion Clause”), but that clause has up to now been automatically waived by the Lands Department on a payment of a fee.  The defendant’s father would pass the Government’s demand note to the plaintiff and the plaintiff would pay the fee demanded.  This continued until October 2017 when the defendant, on the plaintiff’s case, wanted to repudiate the Agreement.

11.  Construction of the house involves the building of a concrete superstructure shell followed by the ‘decoration’ stage which includes plastering, installation of electricity and water conduits, tiling, painting and installation of appliances etc.  In order to supervise construction of the house, the plaintiff moved to the Village and continued to live in rented accommodations.  Thus, the plaintiff had no reason to delay. 

12.  Chan co-ordinated 5 houses to be built by a single builder to save building costs.  Chan engaged a Chan Chiu Ming (“Ming”) as builder for the 5 houses including the house in question.  

13.  Unbeknown to the plaintiff, unless he employs a triad controlled builder, the triad stops anyone else carrying out any work on the Site. 

14.  The plaintiff started to build the house immediately after the ‘setting out’.  The defendant’s father, who also lived in the Village, gave the plaintiff the plan of the G/F to be occupied by the defendant.  Every stage of the works was under the watchful eyes of the defendant’s father; but the defendant was never there. There was no complaint of the workmanship or delay.  At all times, the plaintiff only ever communicated with the defendant’s father on the building works. 

15.  Soon after Ming’s agent entered the Site, he was threatened by the triad and he quitted.  Ming’s other worker Yung Sai Wo (“Wo”) was repeatedly threatened by triad too. Before Chinese New Year of 2016, a local builder for 12 houses within the Site was driven out after his son was beaten up by the triad when they tried to negotiate with them.  

16.  In December 2015, the triad sabotaged the houses by pouring red paint and blocking drainages and loosening screws of metal rods supporting the newly formed concrete ceiling of the house.  Triad also smeared Chan’s good name by scattering leaflets falsely alleging that he owed money. 

17.  By April 2016, when all 3 floors of the shell had already been built, the threat to Ming extended to his family and Ming decided to quit.  The defendant’s father was well aware of this triad interference.  In July 2016 when the plaintiff refused to return telephone calls from an unknown party regarding the building of the house, seven windows of the plaintiff’s rented flat were all smashed.  It was a joint decision of the plaintiff and the defendant (through the defendant’s father) to halt the works, and to wait and see what the Police could do.

18.  By September 2016, the plaintiff managed to find a local contractor who was willing to finish the stairwell hut and the roof fences.  But even before the said contractor entered the Land, the defendant’s father told the plaintiff that the triad would not allow the new contractor to start work.  The plaintiff and the defendant’s father jointly decided to wait further. 

B1.   Events in 2017

19.  In early 2017, the defendant’s father told the plaintiff that the price of landed properties had shot up a lot in the past few years and the defendant could get a better deal than the terms of the Agreement.  By then, the plaintiff had spent some $1.38 million pursuant to the Agreement, and saw no good reason to offer extra consideration to the defendant.

20.  There is evidence that the defendant’s father and the plaintiff communicated on the halting of the works as late as September 2017 when the parties decided to wait further. 

21.  On 24 October 2017, the defendant himself suddenly Whatsapped the plaintiff to ask for an exact time table when work would resume.  He also said it was the plaintiff’s job to negotiate with the triads.  The plaintiff is and was at all times willing to resume the works but not to negotiate with the triads.  Because the common facilities would be installed after the New Year, the plaintiff planned to resume works after the New Year and started to look for a new builder. 

22.  By a letter from the defendant’s solicitors dated 16 November 2017, the defendant unilaterally demanded the plaintiff to complete the works by 1 January 2018 (the “Demand Letter”).  The plaintiff says that the deadline given to the plaintiff to complete the works was wholly unreasonable and was not accepted by the plaintiff.  The plaintiff is keen to finish building the house too and he found another builder in December 2017.  It is estimated that the remaining works will require about 6 months to complete.  The plaintiff is willing to give an undertaking to exercise his best endeavours to complete the house within 6 months provided there is no interference.

23.  Totally unbeknown to the plaintiff at the time, on the very day of 16 November 2017, the defendant acted in breach of the Agreement and authorized another person, one Pang Chi Keung (“Pang”), to represent the defendant for all communications with the Sai Kung District Lands Office to handle all matters related to the building of the house.  In so doing, the defendant is preventing the plaintiff from performing the plaintiff’s obligation under the Agreement.

B2.   Events leading to the plaintiff’s application to court

24.  The plaintiff’s agent and builder (ie Wo) turned up at the Land on 27 December 2017 trying to lay down his building materials and to prepare to work.  But he was stopped by the site security who told him that the owner of the lot (ie the defendant) had already authorised another company to carry out the works.  On 28 December 2017 Wo, armed with the authorisation from the plaintiff and the Demand Letter from the defendant, tried to start work but he was again stopped.  Police arrived but refused to stop Wo.  Wo started work on the Land.  At about 3 pm on the same day, the defendant himself, the defendant’s solicitors, Pang and later the Police arrived.  The Police told Wo that the defendant had already authorized Pang to carry out the construction works.

25.  After the police left, Pang, acting as the defendant’s agent, summoned 4 men to try to dismantle Wo’s scaffold.  Parties were in confrontation and the deadlock lasted some one and a half hours before Wo left at about 5:45 pm.

26.  On 29 December 2017, Wo returned in the morning to find that his scaffolds were all dismantled and the superstructure was completely boarded up with his tools inside.  Wo was injured accidentally and was conveyed by ambulance to hospital.  When he recovered and tried to restart works on 8 January 2018, he found that another contractor/worker had erected bamboo scaffold on the Land. 

27.  Meanwhile, the defendant’s agent has tried to start work on the Land.  This led the plaintiff to make this application. 

28.  The plaintiff seeks protection of his interests.  He claims he has provided clear and cogent evidence of his intention to perform the Agreement.  As a contracting party and the beneficial owner of 1/F, 2/F and Roof of the house, his proprietary interest should be protected.

29.  The plaintiff’s case is that the Agreement is a contract relating to land and is specifically enforceable.  The defendant is clearly taking actions to prevent the plaintiff from performing his contractual obligations in order to engineer a breach of contract on the plaintiff’s part.  The court should not allow the defendant to do so just because it is more lucrative for the defendant to sell to someone else.

30.  On the other hand, the defendant filed an affirmation dated 8 February 2018 in which he alleged delay on the part of the plaintiff.  In the defendant’s Defence and Counterclaim, the defendant admits the execution of the Agreement and the prevention of the plaintiff from continuing with the construction works, but says:

(1)  The plaintiff has repudiated the Agreement by reason of his delay and the defendant has accepted the plaintiff’s repudiation.

(2)  The Agreement was void as being contrary to public policy as constituted under the “Small House Policy” of the HKSAR.

C.   Basis upon which the defendant opposes the plaintiff’s application

31.  The defendant opposes the plaintiff’s application on, inter alia, the following grounds: –

(1)  acceding to the plaintiff’s application would result in this court lending its hands to the plaintiff to enforce an agreement which is contrary to public policy;

(2)  the plaintiff is not coming to court with clean hands in seeking equitable relief;

(3)  an interlocutory injunction is not necessary for the protection of the plaintiff’s contractual rights; and

(4)  damages would provide an adequate remedy.

D.   Whether enforcing the Agreement is contrary to public policy

32.  The defendant pointed out that by his action herein, the plaintiff is seeking specific enforcement of the Agreement.

33.  By the Plaintiff’s Summons (both before and after the proposed amendment), the plaintiff is seeking to enforcethe Agreement on an interim basis.

34.  The defendant submitted that, should the Agreement be contrary to the public policy as established under the ‘Small House Policy’ since 1972, then under the established legal principle that no court of law would enforce an agreement which would be contrary to public policy, this court should dismiss the plaintiff’s application. 

35.  The defendant pointed out the following terms of the New Grant: –

(1)  That the defendant would complete a village type house at the Land within 36 months of 4 November 2010;

(2)  That the defendant would not “…part with possession of or otherwise dispose of the lot or any part thereof or any interest therein or any building or part of any building thereon or enter into any agreement so to do, whether directly or indirectly, or whether by way of…building agreement or through…trustee or otherwise howsoever”;

(3)  That should the defendant breach any terms of the New Grant, the government would be entitled to re-enter into the Land without compensation; and

(4)  That the defendant’s right to a lease of the Land is dependent upon all the General and Special Conditions of the New Grant having been complied with to the satisfaction of the District Lands Officer.

36.  On the other hand, the following are the terms of the Agreement: –

(1)  That the defendant would forthwith deliver vacant possession of the Land to the plaintiff;

(2)  That, upon completion of the village type house, the plaintiff would be entitled to all the rights and interest of and in the 1^st and 2^nd Floors and the Roof of the building inclusive of the right to let and to dispose of the same;

(3)  That, before disposing of the 1^st and 2^nd Floors and the Roof to the plaintiff, the defendant would hold the same upon trust for the plaintiff;

(4)  That the plaintiff would take steps to comply with all the terms of the New Grant, and to ensure that the defendant would not, due to the plaintiff’s negligence, suffer any loss or shoulder any legal liability; and

(5)  That time was, in all respects of the Agreement, of the essence.

37.  The defendant went on to submit that, with his eyes wide open to the risk of the government’s right of re-entry into the Land, the plaintiff agreed with the defendant to breach the express terms of the New Grant imposing upon the defendant: –

(1)  not to dispose of any interest in the Land; and

(2)  not to part with possession of any part of the Land.

38.  The defendant submitted that, upon entering into the Agreement, the plaintiff would have entered into a contractual arrangement: –

(1)  to abuse the public policy as contained in the “Small House Policy”; and

(2)  to procure a breach of the New Grant.

39.  I do not agree with the defendant’s submissions.

40.  As submitted by the plaintiff, it is clear from a number of Court of Appeal authorities that there is no illegality in this case.  At most it can be said that this is a sale and purchase of part of the small house prior to approval by the government.  The term used in such cases is “jumping the gun”. 

41.  In Li Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84, the same defence of illegality was raised in relation to an agreement for the sale and purchase of small house in breach of a government grant.  The Court of Appeal said this at page 89:

“The purpose of granting of land by the government in accordance with Chinese customary law with additional terms and conditions to New Territories male indigenous villagers is to provide some of the New Territories residents with special care. This situation differs greatly from the principles in the law of contract where the court refuses to make orders to enforce certain contracts because they are against public policy upon formation or performance. The granting of land by the government to indigenous villagers who are male descendents is a measure made under special circumstances. It has nothing to do with the principle under which by virtue of public policy, certain contracts are found illegal by the court. In our view, such measure adopted by the government in the granting of land should not be regarded as a public policy, and is quite different from the principle in common law which requires the court of law to uphold public policy.

In this case, there was insufficient evidence to show that the granting of land by the government to male indigenous villagers was a public policy. The respondent failed to produce any evidence to prove or cite any authorities to show what was the difference, if any, between the grant issued by the government to male indigenous villagers and the contract between the government and private organisations or citizens in general. A breached contract cannot be categorised as against public policy and declined attention by the court by reason of it being a contract made with the government. In our opinion, there is no difference between the granting of land by the government to male indigenous villagers and a landlord leasing his property to a tenant in the eyes of law.

Even if it was illegal for the parties to agree to proceed with a sale and purchase or completion at a later date without government approval or before paying the premium, this, in our view, does not constitute a breach of public policy. In fact, the sale and purchase or assignment of title and development entitlement of small houses similar to that in this case is also good for the public as the payment of premium brings revenue to the government. It also helps to solve the housing problem because people other than male indigenous villagers can also live in this sort of houses. However, if a male indigenous villager cannot afford to build a small house due to financial constraints but is not allowed to assign his title to somebody else, he will not be able to benefit from the policy and consequently it will not do any good to the general public. Over the years, the government has been considerably indulgent towards this sort of sale and purchase and in effect has amended the formerly so-called land grant policy. From the practical point of view, this measure has done more good than harm to the public.

As can be seen from the contract and agreement produced, the parties did not intend to breach the conditions of grant.  It can only be regarded as technically ‘jumping the gun’ ….” [emphasis supplied]

42.  This decision was followed in Lau Kwai Kiu v Bian Xintian, HCMP 344/2009, decision of Yam J dated 11/11/2010; Judgment of the Court of Appeal reported in [2012] 2 HKLRD 954.  In addition to finding that this was merely a case of “jumping the gun” and not illegal or against public policy, Yam J held that the plaintiff who had paid for the construction cost of the small house has thereby obtained the beneficial interest in the Property.  He granted a declaration to this effect.  At paragraphs 51 and 53 of his Judgment, Yam J drew a sharp distinction between cases involving the making of a false declaration to the government and cases which only involve a breach of the conditions of grant. Significantly, at paragraph 58 of his Judgment, Yam J saw fit to order specific performance of the agreement in question.

43.  Yam J’s Judgment was upheld on appeal albeit the wording of the declaration was varied.  The Court of Appeal said this at paragraph 61: –

“… even assuming there was any illegality, the plaintiff can nevertheless establish equitable proprietary interests (under a resulting trust or common intention constructive trust) by reason of her payment of the premium for the grant and the construction costs, even though those interests were acquired in the course of carrying through an illegal transaction … She does not need to establish a cause of action by reference to the illegal transaction.”

44.  The above two cases were distinguished in Chan Yau v Chan Calvin [2014] 5 HKLRD 304 (Godfrey Lam J); [2016] 1 HKC 1 (CA), which was said not to be a situation of “jumping the gun”.  It should be noted that that case involved a statutory declaration by the applicant, who was a mere nominee, that he was the “sole owner” of the land.  The court held the agreement to be unenforceable on the ground of illegality as it necessarily involved making false declaration to the government without honest belief in its truth.

45.  Importantly, the present case does not involve the making of any false declaration to the government. Indeed, at the hearing before me, the plaintiff’s counsel expressly confirmed that there is in this case no existence of any false declaration or misrepresentation by the defendant to the government.

E.   Whether plaintiff coming to court for equitable relief with “clean hands” – Procuring breach of terms of New Grant

46.  The defendant submitted that by his present application for interlocutory relief, the plaintiff is seeking equitable relief in order to continue his procuring breach of the New Grant in that: –

(1)  The plaintiff is seeking to obtain possession of the Land so that he may build (or continue to build) the village type house in breach of the New Grant; and

(2)  The plaintiff is seeking to enforce his contractual rights as beneficial owner of the 1^st and 2^nd Floors and the Roof of the village type house in breach of the New Grant.

Hence, by the Plaintiff’s Summons, the plaintiff is attempting to continue with his procurement of the breach of the New Grant on the part of the defendant.

47.  Since procuring a breach of contract is a common law tort, the defendant submitted that no court should lend its hand to assist the plaintiff to commit a common law tort. 

48.  Again, I do not accept the defendant’s argument.

49.  As pointed out in paragraph 42 above, in Lau Kwai Kiu v Bian Xintian, Supra, Yam J saw fit to grant specific performance (an equitable relief) of the agreement in question in that case, notwithstanding that it amounted to a breach of the conditions of grant. That decision was affirmed by the Court of Appeal.  Further and relevantly, at paragraph 49 of the Judgment of the Court of Appeal, it was held that: –

“… The act of inducement is not complete simply at the point of inducement; the tort [of procurement or inducement of breach of contract] is not actionable by the person induced.” [emphasis supplied]

F.   Whether the plaintiff has made out a case for interlocutory injunctive relief

F1.   A serious question to be tried

50.  I agree that from the evidence, the plaintiff has more than a good arguable case.  Whether the plaintiff or the defendant is in breach of the Agreement or whether the Agreement is void for illegality are matters for trial.

F2.   Damages not an adequate remedy

51.  The defendant is in no position to pay damages to the plaintiff.  This is an important factor when considering the balance of convenience.  Further, the plaintiff seeks the injunction to protect his proprietary interest.  It is to prevent the defendant from interfering with the plaintiff’s performance of the Agreement and acting in breach of trust in relation to the plaintiff’s beneficial interest in the 1/F, 2/F and Roof of the house which he has partially paid for with the construction cost and other expenses.  The loss of the plaintiff’s future home cannot be adequately compensated by damages.

F3.    Balance of Convenience is in favour of granting interlocutory relief

52.  I agree that the balance of convenience clearly favours the plaintiff.  Without the interlocutory injunction, the defendant’s agent will continue building the house without consulting the plaintiff, even though the plaintiff may prove to be the ultimate owner of the 1/F, 2/F and Roof of the same.

G.   Conclusion

53.  I grant leave to the plaintiff to amend the Plaintiff’s Summons in the manner sought in the Plaintiff’s Amendment Summons.  The costs of and occasioned by the Plaintiff’s Amendment Summons be to the defendant in any event.

54.  For the reasons set out above, I make an order in terms of the relief sought under paragraph 1 of the plaintiff’s Amended Summons, namely, pending trial in this action or further order of the court, the defendant, whether by himself, his agents or servants or otherwise howsoever, be restrained from carrying out or continuing any construction works at the Land, including but not limited to the liaison with Government for the purpose of carrying out or continuing such construction works.

55.  The costs of the application be paid by the defendant to the plaintiff in any event, such costs are to be taxed if not agreed (with a certificate for two counsel).

56.  The order as to costs in paragraph 55 above is nisi and shall become absolute in the absence of any application within 14 days to vary the same. 

57.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.