MIDLAND REALTY (SHOPS II) LTD v. RICH FIELD INTERNATIONAL DEVELOPMENT LTD

DCCJ 165/2021

[2024] HKDC 18

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 165 OF 2021

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DECISION

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A.  INTRODUCTION

1.  Two applications are before me:

1.1.  The Defendant’s appeal by a Notice of Appeal dated 7 July 2023 against the Decision of Master Ebony Ling dated 23 June 2023 (the “Master’s Decision”) by which the learned Master: (1) held that the question of law, namely whether the Supplemental Agreement dated 26 September 2018 as referred to and defined in paragraph 8(3) of the Defence (the “Supplemental Agreement”) is unenforceable for want of consideration, is answered in the affirmative; and (2) granted summary judgment to the Plaintiff on its claim for HK$500,000; and

1.2.  The Defendant’s application by a Summons dated 11 October 2023 for leave to amend its Defence as per the draft Amended Defence annexed thereto (the “Amendment Summons”), which was taken out about two weeks before the hearing of the Defendant’s appeal against the Master’s Decision.

2.  The Plaintiff opposes both the Defendant’s appeal and the Defendant’s Amendment Summons, and indicated at the hearing that if the Defendant’s Amendment Summons were allowed, then the Plaintiff would seek an adjournment in order to file evidence. At the hearing, I indicated that I would consider the proposed amendments to the Defence on a de bene esse basis.

3.  In short, the proposed amendments in the draft Amended Defence are intended to address the reason why the learned Master had entered judgment in the Plaintiff’s favour. The learned Master had done so on the basis that the Supplemental Agreement was unsupported by consideration and was therefore unenforceable, and the proposed amendments put forward a case that: (1) the Supplemental Agreement was in fact supported by consideration; and (2) it is unconscionable and/or inequitable for the Plaintiff to resile from the position taken in the Supplemental Agreement, and the Plaintiff is accordingly estopped from resiling from that position.

B.  BACKGROUND

4.  By a sale and purchase agreement dated 28 April 2018 (the “SPA”), the Plaintiff acted as the estate agent for the Defendant (as vendor) and Victory Pearl Limited (“VPL”) (as purchaser) in the sale and purchase of a property known as Lot No 908 in DD 180, Whole Block, 60-68 Chik Chuen Street, Tai Wai, New Territories, Hong Kong (the “Property”) for a total sum of HK$200,000,000.

5.  Clauses 12(a) and (b) of the SPA stipulate that each of the Defendant and VPL shall pay commission of HK$2,000,000 to the Plaintiff on a date not later than the day following the completion date, in other words no later than 1 September 2018. Thus, the Defendant was due to pay HK$2,000,000 in commission to the Plaintiff (the “Commission”) by 1 September 2018.

6.  Completion took place on 31 August 2018.

7.  On the same day, VPL’s solicitors, Messrs Wat & Co, sent to the Defendant’ solicitors, Messrs Ernest Li & Co, solicitors’ cheques for HK$180,000,000, being the balance of the agreed purchase price, and which included a solicitor’s cheque for the amount of HK$500,000 drawn in favour of Messrs Ernest Li & Co as security for compliance with two statutory notices issued by the Buildings Department under the Mandatory Buildings Inspection Scheme and the Mandatory Windows Inspection Scheme (the “Notices”).

8.  In the 2^nd Affirmation of Luk Ngai Ling Irene dated 11 October 2023 (“Luk’s 2^nd Aff”) (which was filed in support of the Defendant’s Amendment Summons) and in the draft Amended Defence, in other words materials objected to by the Plaintiff, the Defendant’s case is that the stakeholding arrangement with respect to the sum of HK$500,000 was necessitated by the Plaintiff’s mishandling of the issues surrounding the Notices prior to completion of the transaction (including the failure to inform the Defendant promptly about the Notices so as to allow the Defendant to take action earlier), which had led to the HK$500,000 stakeheld money being put out of the Defendant’s pocket in the meantime. According to the Defendant, it was extremely disappointed and had threatened to report the matter to the Estate Agency Authority (“EAA”), and the Plaintiff had repeatedly apologised to the Defendant in respect of the same.

9.  As mentioned at the outset, the Plaintiff opposes the Amendment Summons and would seek an adjournment in order to file evidence if I allowed the Defendant’s amendment application. Mr Zenith Chan for the Plaintiff informed me that he has instructions on what was or was not said between the parties (which the Plaintiff would want to place in evidence if the Amendment Summons were allowed), and also referred to the inherent improbability for an estate agent to advise on notices and to promise a certain use or non-use by a buyer of a property (with the latter further discussed at §24 below). Mr Chan accepted that the Supplemental Agreement must have been entered into for a reason, but indicated that the Plaintiff’s stance is that the Supplemental Agreement was entered into for reasons very different to what the Defendant now wishes to allege.

10.  The Defendant did not pay the Plaintiff any part of the Commission by the contractual deadline of 1 September 2018.

11.  On or about 26 September 2018, the Plaintiff and the Defendant executed the Supplemental Agreement:

“催繳佣金通知

關於台端委託敝公司為台端出售上述物業一事，根據敝公司之賬項紀錄，台端應付予敝公司之佣金（敝公司付款通知編號D180500520）港幣2,000,000.00元正。

現敝公司暫接受台端先繳付港幣1,500,000.00現正作部份佣金，而其餘之佣金港幣500,000.00元正，於買賣雙方律師辦妥協商有關托管於賣方律師HK$500,000事情後再繳付。”

12.  The Supplemental Agreement was drawn up by the Plaintiff on its letterhead, and was presented by the Plaintiff to the Defendant.

13.  Subsequent to the making of the Supplemental Agreement, the Defendant paid the Plaintiff HK$1,500,000 in partial settlement of the Commission. Thereafter, the Defendant failed to pay the Plaintiff the remaining HK$500,000 or any part thereof.

14.  On 14 January 2021, the Plaintiff commenced the present proceedings seeking payment of the outstanding HK$500,000.

C.  DISCUSSION

C1.  Amendment Summons

15.  The Defendant took out the Amendment Summons only about two weeks before the hearing of the Defendant’s appeal against the Master’s Decision. The Amendment Summons was supported by Luk’s 2^nd Aff. However, and importantly, there was no application to adduce further evidence.

16.  I accept the submission of Mr Byron Chiu for the Defendant that Order 20 rule 8 of the Rules of the District Court (“RDC”) permits amendments to pleadings at any stage for the purpose of determining the real question in controversy between the parties to any proceedings. See TTI Global Resources Hong Kong Ltd v Hongkong Myphone Technology Co Ltd & Ors [2021] HKCFI 306, §7. However, whilst I am clearly able to allow the amendments at the present stage, the question is whether I should or should not do so.

17.  Having considered the matter and the parties’ respective submissions, my view is that I should not allow the Amendment Summons.

18.  First, I agree with Mr Chan that this is a very late application, and that the explanation given by the Defendant for the lateness is wholly unsatisfactory. The Defendant has sought to explain at paragraph 11 of Luk’s 2^nd Aff that its director, Ms Irene Luk, “had previously understood that these points [in the proposed amendments] may be peripheral to the key issue of whether the Plaintiff should be held to its bargain as per the Supplemental Agreement”, but I do not find this explanation adequate at all. As Mr Chan has pointed out:

18.1.  This purported explanation reinforces the point that the matters sought to be introduced by the Defendant were known to it for a long time, and could have been advanced in the hearing below. It was a judgment call that had led to those points not having been previously advanced.

18.2.  The Defendant has been legally represented throughout these proceedings.

18.3.  The Defence was originally settled by counsel (albeit not Mr Chiu).

18.4.  The enforceability of the Supplemental Agreement for want of consideration was the sole basis of the Plaintiff’s summary judgment application and was all along disputed in the hearing below, and it must have been clear to the Defendant that the question of enforceability of the Supplemental Agreement was the crux of the case when the Master’s Decision was made. Yet more than three months elapsed after the Master’s Decision before the Amendment Summons was taken out on 11 October 2023, less than two weeks before the present hearing. The Defendant has not proffered any explanation for this three-month delay after summary judgment was entered against the Defendant.

19.  Secondly, in deciding whether amendments should be allowed, I need to consider whether the amendments raise new points and new evidence which will cause unfairness to the Plaintiff. See Chan Chi Wai v Chan Sau Wah [2019] 3 HKLRD 330, §35. Even though it is well-established that appeals from Masters’ decisions are hearings de novo, and even though I agree with Mr Chiu that new points can be taken in such appeals, I agree with Mr Chan that a major problem with the proposed amendments in the present case is that the proposed new pleas are not supported by admissible evidence.

20.  Pursuant to Order 58 rule 1(4) of the RDC, no further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal against a Master’s decision except on special grounds. It is well-established that before new evidence can be admitted in an appeal against a Master’s decision, the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 have to be satisfied. See Wang Yuexian v Xinyang Maojian Group Limited formerly known as China Zenith Chemical Group Limited [2023] HKCFI 3236, §§20-21.

21.  In the present case, not only is there no application by the Defendant to adduce further evidence, even if there were such an application I cannot see how even the first of the Ladd v Marshall conditions could be met. Very clearly, the matters now sought to be pleaded could have been obtained with reasonable diligence for use at the hearing before the Master.

22.  For completeness, I note that Mr Chiu relied on Fortis Insurance Company (Asia) Limited v Lam Hau Wah Inneo, CACV 86/2010, 28 October 2010, §18, to argue that the Ladd v Marshall conditions should be relaxed in the present case given that we are presently dealing with an interlocutory application, namely a summary judgment application, as opposed to a trial. However, given that there is no suggestion that the Defendant was under any particular time pressure in filing its evidence in opposition, and given the nature of the matters contained in Luk’s 2^nd Aff, I do not consider that the time available to the Defendant to prepare its evidence in opposition was so tight that the Court should relax the requirement of reasonable diligence. See Wang Yuexian v Xinyang Maojian Group Limited formerly known as China Zenith Chemical Group Limited, §§22-24, 26.

23.  Mr Chiu fairly accepted that there are limitations on what fresh evidence could be adduced by the Defendant in this appeal: if the Defendant were to try to apply for Luk’s 2^nd Aff to be adduced as evidence in this appeal, the Ladd v Marshall conditions would need to be considered. Mr Chiu did not suggest (in my view, entirely correctly) that the Defendant could succeed in applying for Luk’s 2^nd Aff to be adduced as evidence in the appeal. Rather, Mr Chiu suggested that I could have regard to Luk’s 2^nd Aff (even if it were not adduced as fresh evidence) in that I have already seen and considered it in deciding whether to allow the proposed amendments. However, as I indicated at the hearing, I do not consider that it is permissible for me to have regard to Luk’s 2^nd Aff other than to determine the Amendment Summons, otherwise I would be influenced by or allowing in evidence through the back door without the Ladd v Marshall conditions being satisfied.

24.  By way of example, Mr Chiu invited me to take note that Luk’s 2^nd Aff exhibited a letter dated 5 November 2018 by which the Defendant complained to the Plaintiff about the use of the Property. The Defendant complained in the letter that it had repeatedly emphasised that the purchaser of the Property needed to guarantee that the Property would not be used as an old people’s home, but had discovered that day that the Property was in fact rented out as an old people’s home. In that letter, the Defendant referred to its having considered claiming against Midland, but that as it had promised the previous week that the Plaintiff would receive its commission cheque that Tuesday, the Defendant did not want to go back on its word and thus post-dated the date of the cheque (for HK$1,500,000) to three months later, February 2019, as “punishment”. The Defendant also said that if the Plaintiff did not interfere with matters, that cheque could be cleared, but if the Plaintiff did interfere, then the Defendant would stop the cheque and sue the Plaintiff. I do not consider that I can take this letter into account given that there is no application to adduce Luk’s 2^nd Aff as evidence in this appeal against the Master’s Decision.

25.  Third, I do not accept Mr Chiu’s submission that the proposed amendments in the draft Amended Defence should be allowed as they simply provide more context to the parties’ dispute. Mr Chiu argued that the core issue, namely reliance or disallowance of the Supplemental Agreement, has always been there, but my views are as follows:

25.1.  I consider it to be correct that the core issue concerning the Supplemental Agreement has always been central to the Plaintiff’s application for summary judgment. However, I do not consider that this gives the Defendant a licence to expand its defence in the way that it is presently seeking to. As Mr Chan has pointed out, the proposed amendments do not merely add colour to the case; rather, they seek to introduce completely new pleas about consideration that did not previously exist.

25.2.  This takes me back to the second point mentioned above, which is that the proposed amendments raise new points and new evidence which would cause unfairness to the plaintiffs if those amendments were allowed.

26.  Fourthly, I have borne in mind Mr Chiu’s submission that the consequence of a decision to disallow the Amendment Summons would result in the Defendant being precluded from ventilating its full defence by reason of an interlocutory application, but I do not consider that this factor can somehow override the various problems with the Defendant’s Amendment Summons explained above.

27.  For these reasons, I dismiss the Amendment Summons. Nevertheless, for the sake of completeness, I include below a discussion of the problems with the proposed amendments to the Defence even if the amendments were allowed.

C2.  Appeal against the Master’s Decision

28.  The principles regarding summary judgment applications are well-established. See, for example, China Life Insurance (Overseas) Co Ltd v Li Xiaoming, HCA 570/2017, 11 December 2017, §47.

29.  The principles governing O 14A applications are also uncontroversial. See Rockwin Enterprises Ltd v Shui Yee Ltd & Ors [2003] 3 HKC 174, §§17-19.

30.  As the starting point, I agree with the learned Master that based on the matters pleaded in the Defence and the Affirmation of Luk Ngai Ling Irene dated 9 June 2023, the Supplemental Agreement is unenforceable for want of consideration.

30.1.  It is a well-established principle in Foakes v Beer (1884) 9 App Cas 605, 612-613, that a promise to pay a smaller sum in place of a larger sum does not afford any consideration to support a contract.

30.2.  I note, as Mr Chiu pointed out, that the present case is not exactly the same as that in Foakes v Beer in that the variation by the Supplemental Agreement did not and does not discharge the Defendant from its existing payment obligation to the Plaintiff’s benefit. Instead, the Supplemental Agreement defers payment of the outstanding balance pending the fulfilment of an event (namely that matters concerning compliance with the Notices have been dealt with between the Defendant and VPL and/or their respective solicitors).

30.3.  Nevertheless, I agree with the characterisation by Mr Chan, namely that consideration flowed from the Plaintiff to the Defendant in the form of an extension of time for the Defendant to settle the balance of the Commission, yet no consideration flowed in the opposite direction from the Defendant to the Plaintiff.

30.4.  I also note that the principle in Foakes v Beer has been applied to the effect that a promise to pay a sum which the debtor is already bound by law to pay to the promise does not afford any consideration to support the contract. See, for example, Bank of China (Hong Kong) Ltd v Cosan Ltd & Ors, CACV 331/2006, 11 May 2007, §26. I agree with Mr Chan that this is another reason why the Supplemental Agreement was unenforceable for want of consideration.

30.5.  Although Mr Chiu tried to argue that the Plaintiff obtained a practical benefit of receiving 75% of the Commission “earlier than the future agreed date”, I agree with Mr Chan that this is not correct because the so-called “future agreed date” only arose under the Supplemental Agreement because the original payment deadline had long lapsed and the entire Commission of HK$2 million was already due and owing by the time the parties signed the Supplemental Agreement.

31.  Further, even if I were to allow the Amendment Summons (contrary to my view as set out in Section C1 above), I do not consider that I can accept Mr Chiu’s submission that the Defendant provided consideration for the Supplemental Agreement, or that there is a triable issue as to whether the Defendant provided consideration, in the form of forbearance by not taking the Defendant’s complaint against the Plaintiff further vis-à-vis the EAA and claiming against the Plaintiff for the additional time and costs resulting from the Plaintiff’s alleged mishandling of the transaction, as well as the loss and damage suffered by the Defendant as a result of the stakeholding arrangement.

32.  The parties argued as follows:

32.1.  Mr Chan submitted that forbearance to sue is only good consideration if the party has a valid claim to compromise. See Foskett on Compromise, 9^th ed, §§3-11, 4-56. He argued that the Defendant’s alleged refraining of making a complaint to the EAA is not a claim of a legal nature, and is therefore not any forbearance to sue.

32.2.  On the other hand, Mr Chiu relied on Dan Simantob v Yacob Shavleyan [2019] EWCA Civ 1105, §§51, 53, to argue that the correct legal position is not whether a party has a valid claim to compromise; rather, the question is whether there has been a surrender, not of a legal right (which may or may not exist and whose existence at the time of the compromise remains untested) but of the claim to such a right. Mr Chiu also pointed out, relying on §50 of Dan Simantob v Yacob Shavleyan, that public policy is in favour of holding people to their commercial bargains.

33.  Although Mr Chan contended that because the Defendant’s alleged intended complaint to the EAA is not a claim of a legal nature, and is therefore not any forbearance to sue, I do not consider that proposition to be supported by the authorities citied to me.

33.1.  As explained in Formation and Variation of Contracts, 3^rd ed, Cartwright, §8-29, forbearance to take some particular action may constitute good consideration as long as it has value by way of benefit to the promisor and/or detriment to the promisee. The fact that the defendant asked the plaintiff not to do something that he might otherwise have wished to do, and thereby to restrict his freedom of action, is generally sufficient to persuade a court that the forbearance in accordance with the request is valuable to the defendant. Moreover, given that the plaintiff by agreeing to restrict his freedom can be said to have undertaken some detriment to himself, the normal requirements of consideration can be satisfied. If, however, it is clear that the plaintiff would in any event not have done the thing that he has promised not to do, or could not do it, or was promising not to do something that he had no right to do, he is not in fact limiting his own action and the courts may hold that his promise to forbear is neither of benefit to the defendant nor to the detriment of the plaintiff and is therefore not sufficient consideration.

33.2.  In the premises, it seems to me possible that the refraining of making a complaint to the EAA could potentially constitute good consideration.

34.  In any event, whilst parties’ oral submissions focused on whether the Defendant not making a complaint to the EAA could constitute consideration for the Supplemental Agreement, I note that at §8(3)(a) of the draft Amended Defence, the alleged consideration for the Supplemental Agreement is said by the Defendant to not only be in the form of not taking the Defendant’s complaint further vis-à-vis the EAA, but also includes the Defendant not claiming against the Plaintiff for the additional time and costs incurred as a result of the Plaintiff’s mishandling of the matter, as well as the loss and damage suffered by the Defendant as a result of the stakeholding arrangement (which entailed the Defendant being put out of pocket of HK$500,000 when it could have, for instance, used the same to pay the outstanding Commission of HK$500,000). The Plaintiff (in my view, rightly) has not argued that the latter group of alleged claims could not, as a matter of principle, constitute consideration by way of forbearance to sue.

35.  However, as explained at §§19-23 above, a key problem for the Defendant is that its proposed pleas are not supported by admissible evidence.

36.  Whilst my view is that it is in principle possible for good consideration to arise from: (1) the refraining of making a complaint to the EAA; and (2) the refraining of claiming for the additional time and costs incurred as a result of the Plaintiff’s mishandling of the matter, as well as the loss and damage suffered by the Defendant as a result of the stakeholding arrangement, whether these matters would in fact constitute good consideration depends on whether, inter alia, the Defendant had any right to make such complaints or claims in the first place.

37.  By way of example, a promise by a son not to complain about his father’s distribution of his property when the father was entitled to make whatever distribution of his property he liked did not constitute sufficient consideration. See White v Bluett (1853) LJ Ex 36, 37, cited at fn 195 of Cartwright, §8-29.

38.  Thus, evidence is crucial for the Defendant to show that there is a triable issue arising from the consideration that it alleges existed, yet I do not consider that the evidence before me in the appeal against the Master’s Decision shows that the Defendant had the right, or reasonably believed that it had the right, to make the complaints or claims that it alleges it refrained from making as consideration for the Supplemental Agreement. Whilst Mr Chiu urged me to accept that the Defendant reasonably believed that there were grounds for complaints to the EAA and its various intended claims, the difficulty is that I cannot see whether that is the case from the evidence before me in the appeal. Nor has the Plaintiff had the opportunity to file evidence to address such matters.

39.  By way of example, one of the points which Mr Chiu invited me to consider was that Ms Irene Luk of the Defendant had continued to engage the Plaintiff as estate agent in respect of her other property and/or leasing transactions (through other companies she owns). Mr Chiu argued that this context lends credibility to the proposition that the Plaintiff had entered into the Supplemental Agreement with the Defendant in order to pacify the Defendant. However, the problem is that the evidence relating to this point is only in Luk’s 2^nd Aff, which is not before me in the appeal against the Master’s Decision.

40.  Whilst Mr Chiu has sought to rely on the Whatsapp correspondence between Mr Victor Tang (acting for and on behalf of the Plaintiff) and Ms Irene Luk (acting for and on behalf of the Defendant), which is evidence that is before me in the appeal, I do not consider that those Whatsapp messages assist the Defendant’s case on consideration. I accept that the messages show that the Defendant wanted to defer payment of the Commission until compliance with the Notices had been dealt with, but that is simply in line with what the Supplemental Agreement states. The Whatsapp messages do not go further to explain any element of consideration for the Supplemental Agreement as is now suggested by the Defendant. In particular, there is no discussion in the Whatsapp messages about the Plaintiff agreeing to accept deferral of payment of the Commission in exchange for the Defendant not making a complaint to the EAA and/or refraining from making other claims against the Plaintiff.

41.  For completeness, I note Mr Chiu’s argument that there can be situations where, even on the pleading, the Court takes the view that a triable issue has been raised, and that the present case is one such situation. As I indicated at the hearing however, it seems to me that pleas need to be supported by evidence (unless the relevant pleas are not disputed) in order to raise triable issues. Mr Chiu did not seek to argue otherwise. However, therein lies a major problem for the Defendant, because there is no evidence supporting the proposed amendments in evidence before me, nor is there any application to adduce such evidence.

42.  As to the proposed plea of estoppel in the draft Amended Defence, that relies on the same factual matrix as the proposed new case of the Defendant on consideration. The same problems thus apply.

D.  CONCLUSION

43.  In the premises, I dismiss both the Defendant’s Amendment Summons as well as the Defendant’s appeal against the Master’s Decision, with costs to the Plaintiff. I will summarily assess the Plaintiff’s costs on paper. For this purpose, the Plaintiff should file and serve a statement of costs within 7 days from the date of this decision and the Defendant should file and serve its statement of objections (if any) within 7 days thereafter.