XCHRX APOLLO SHINE INTERNATIONAL LTD v. LUK CHIU

DCCJ18026/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 18026 OF 2001

(TRANSFERRED FROM HIGH COURT ACTION NO. 2921 OF 2001)

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Judgment

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1. This is an application by the Defendant under Order 27 rule 3 of the Rules of the District Court, Cap. 336 for judgment against the Plaintiff for HK$175,867.41 being the amount counterclaimed by the Defendant. I have dismissed the application. Here are my reasons.

2. According to the pleadings by both parties, the Plaintiff and the Defendant did have a written agreement ("The Operating Licence") dated 17 December 1999 whereby the Defendant would operate the Female Division of Utopia Sauna & Health Club ("the Club") upon payment of a monthly licence fee to the Plaintiff from 15th February 2000 to 14th June 2001. The Club was at all material times a licensed massage establishment carried on by the Plaintiff at leased premises. The massage establishment licence, however, was issued to one Mr. Wan Cho Ming.

3. On 28 May 2001, an oral agreement ("the transfer agreement") was reached between the parties whereby the Plaintiff would sub-let the premises and transfer the business of the Female Division of the Club to the Defendant for, inter alia, a premium of $500,000 payable by the Defendant to the Plaintiff. The parties were to execute a written agreement ("the formal agreement") embodying the terms of the transfer agreement. However, the Defendant subsequently refused to execute the formal agreement. The Defendant pleads that no transfer agreement was reached on 28 May 2001 as aforesaid, no formal agreement has been executed but admittedly consequent upon what happened on 28 May 2001 a large sum has been paid over by the Defendant to the Plaintiff as deposit and to cover outlays.

4. After the parties fell out on the matter of the transfer agreement, the Operating Licence terminated by effuxion of time. It is common ground that the Defendant "delivered up" the premises of the Female Division of the Club to the Plaintiff on 14th June 2001 and the Plaintiff on 15th June 2001 delivered up possession of the premises of the Female Division of the Club to the landlord. The Female Division of the Club, consequently, is no longer in existence.

5. In this action, the Plaintiff claims (1) $500,000 being premium payable by the Defendant under the transfer agreement allegedly reached on 28 May 2001 and (2) loss in terms of liability under the tenancy agreement between the Plaintiff and the landlord whereby the Plaintiff was liable to incur expenses to reinstate the premises of the Female Division of the Club to conditions immediately before those premises were let to the Plaintiff.

6. The Defendant counterclaims (1) $120,000 being the balance of monies paid over to the Plaintiff pursuant to the transfer agreement and (2) $55,867.41 being licence fee for 15 June 2001 to 30 June 2001 paid in advance by the Defendant. The Plaintiff has pleaded that credit will be given to the Defendant for these two amounts. It is on these pleaded credits that the Defendant seeks judgment on admission.

7. However, it has to be pointed out that the Defendant maintains in pleadings and in arguments before me that both the Operating Licence and the transfer agreement (if reached by the parties) were illegal for being in contravention of the Massage Establishments Ordinance, Cap. 266 and the conditions of the licence granted thereunder.

8. In my view, since it is the Defendant's position that both the Operating Licence and the transfer agreement were illegal and unenforceable, the court should not assist the Defendant to recover any money paid under or in furtherance of those illegal arrangements. During the hearing, I cited an extreme but suitably illustrative example of a case of a person entering into a contract to hire an assassin to murder a third person and paid deposits to the assassin. There is no way the court will assist that person to recover the deposits for any fancy legal excuse such as total failure of consideration or money had and received.

9. In Lee Yiu Kwan v. Ting Yin Wah DCCJ15275 of 2000, I made the following observations :-

"35. As an alternative cause of action, HKADPL also claims against Ting and Leung for the various sums so far considered as money had and received. In my view, illegal payments made under whatever pretence or arrangement are not recoverable as a matter of policy. Such policy is applicable irrespective of the cause of action. It would be absurd if the court rules that an illegal loan is irrecoverable and yet allows a plaintiff to succeed on a tortuous claim for conversion against the debtor. Thus, once the court holds that funds passed to Ting and Leung are tainted by illegality, the same are not recoverable as money had and received or under any other cause of action."

I stand by those reasons I have given and there is nothing I need to add for the purposes of the instant case.

10. Accordingly, I dismissed the Defendant's application. I do not know whether the defence of illegality would succeed, but if that defence succeeds the Plaintiff's claim is a waste of time for everybody. In the circumstances, the most suitable order for costs of the Defendant's failed application should be costs in the cause. That was the order made.