LAM SO LEI v. CHAN CHIT

HCA2397/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2397 OF 2007

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JUDGMENT

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The application

1. By its summons dated 3 December 2007, the defendant applies to strike out the statement of claim under O.18; r.19 RHC and under the inherent jurisdiction of the Court.

2. In the alternative, the defendant applies for an order that the action be stayed on the ground of forum non conveniens as it would be more appropriately or conveniently tried by the courts of the People’s Republic of China (“the PRC”).  This alternative application does not arise if the application to strike out the statement of claim succeeds.

3. Mr Yin, for the defendant, submitted that the grounds for striking out the statement of claim are that it disclosed no reasonable cause of action as against the defendant or that it was frivolous or vexatious or that it was otherwise an abuse of the process of the court.

The causes of action

4. The plaintiff’s causes of action are in contract, on a dishonoured cheque and for money had and received to the use of the plaintiff.

The statement of claim

5. As is pleaded in the statement of claim (“the SC”) the plaintiff is the wife of Chu Man-fai (“Chu”) who is and was a merchant at all material times.  Chu was mistakenly arrested and detained in the PRC by the authorities there for allegedly importing prohibited items into the PRC (paragraphs 1-3).

6. The plaintiff sought advice from the defendant’s sister in early November 2006 and asked the defendant to introduce a lawyer in the PRC to assist the plaintiff to deal with the case.  As the defendant did not further approach the plaintiff, she engaged a PRC lawyer on or about 6 November 2006 at a fee of RMB30,000.00 to handle the case (paragraphs 4-5).

7. On or about 8 November 2006 the defendant approached the plaintiff and made representations to her as pleaded in paragraph 6 of the SC.  These were :

(1)	that the lawyer engaged by the plaintiff could not assist in the case;
(2)	that the defendant was a Commissar of Shenzhen, PRC and also the Honorary President of the Federation of Beauty Industry, Hong Kong;
(3)	that the defendant was a reputable businessman who owned a major group of companies in Hong Kong; and
(4)	that the plaintiff should engage the defendant to handle the case.

8. Paragraph 7 pleads that the plaintiff then in reliance on the representations entered into an oral agreement with the defendant (“the 1^st agreement”) whereby it was agreed as follows:

“	(1)	the Defendant would stand surety for and secure the release of Chu within 3 to 4 weeks’ time;
	(2)	the Plaintiff would pay the Defendant a consideration in the total sum of HK$1,600,000.00 in the manner as follows: HK$600,000.00 upfront and the balance of HK$1,000,000.00 after the release of Chu;
	(3)	should Chu not be released within 4 weeks from the date of the 1st Agreement, the Defendant would make full refund of the sums paid by the Plaintiff;”

9. Pursuant to the 1^st agreement the plaintiff terminated the services of the PRC lawyer on or about 9 November 2006.  She also on or about 10 November 2006 deposited RMB600,000.00 into a bank account as directed by the defendant (paragraph 8).

10. Under the 1^st agreement the defendant was to stand surety for and also to secure the release of Chu within 3 to 4 weeks.  Should Chu not be released within 4 weeks the defendant would make full refund of the sums paid by the plaintiff.

11. By 8 December 2006, which was 4 weeks from 10 November 2006, Chu was not released by the PRC authorities.

12. It is pleaded that the defendant was in breach of the 1^st agreement.  By failing and refusing to refund the RMB600,000.00 to the plaintiff, the defendant was in further breach of the 1^st agreement (paragraphs 10-12).

13. By paragraph 14 the plaintiff pleads that on or about 5 February 2007 a second oral agreement (“the 2^nd agreement”) was entered into between the plaintiff and the defendant.  It was agreed that :

“	(1)	the consideration to be paid by the Plaintiff to the Defendant be increased from HK$1,600,000.00 to HK$2,200,000.00, i.e. an additional amount of RMB600,000.00;
	(2)	a further upfront payment in the amount of RMB700,000.00 be paid forthwith;
	(3)	the Defendant would stand surety for and secure the release of Chu on or before 15th February 2007, i.e. 2 days before Lunar New Year;
	(4)	should Chu not be released by 15th February 2007, the Defendant would make full refund of the sums paid by the Plaintiff, i.e. RMB1,300,000.00.”

14. Pursuant to the 2^nd agreement the plaintiff paid the defendant a further sum of RMB700,000.00 on or about 6 February 2007.

15. Under the 2^nd agreement the consideration to be paid by the plaintiff was increased from HK$1,600,000.00 to HK$2,200,000.00.  A further upfront payment of RMB700,000.00 was to be paid forthwith.  The defendant was to stand surety for and also to secure the release of Chu on or before 15 February 2007.  Should Chu not be released by 15 February 2007 the defendant would make full refund of the sums paid by the plaintiff namely, RMB1,300,000.00.

16. At the request of the defendant the plaintiff paid the remaining sum of HK$900,000.00 to the defendant on or about 7 February 2007 (paragraph 16).

17. By 15 February 2007 Chu was still not released by the PRC authorities and the defendant was in breach of the 2^nd agreement.

18. The defendant failed to repay the RMB1,300,000.00 and the HK$900,000.00 paid by the plaintiff.  The plaintiff has suffered loss and damage in the said sums (paragraphs 18-22).

19. By paragraph 24 it is pleaded that on or about 16 February 2007 under the duress and threats of the defendant the plaintiff entered into an agreement with the defendant (“the 3^rd agreement”).  It was agreed that:

“	(1)	if Chu was not released on or before 11th March 2007, the Plaintiff would accept from the Defendant a refund of  HK$600,000.00 instead of a full refund of RMB1,300,000.00 and HK$900,000.00;
	(2)	the Defendant would give the Plaintiff a cheque dated 11th March, 2007 drawn in favour of the Plaintiff in the sum of HK$600,000.00;
	(3)	If Chu was released on or before 11th March 2007, the said cheque would not be presented for payment;
	(4)	If Chu was not released on or before 11th March 2007, the Plaintiff was at liberty to present the said cheque for payment.”

20. Pursuant to the 3^rd agreement the defendant gave the plaintiff a cheque no. 657488 in the sum of HK$600,000.00 dated 11 March 2007 drawn on the Bank of China (Hong Kong ) Ltd (“the cheque”) (paragraph 25).

21. The plaintiff’s case is that the 3^rd agreement is voidable by reason of the duress and threats pleaded at paragraph 26.  By paragraph 27 the plaintiff pleads that by the issuance of the writ the plaintiff rescinds the 3^rd agreement.

22. She pleads further or in the alternative that there is no consideration on the part of the defendant to support the 3^rd agreement.

23. The plaintiff further pleads at paragraph 29 that pursuant to the 2^nd agreement the defendant was required to refund to the plaintiff the sum of RMB1,300,000.00 and HK$900,000.00 and that the plaintiff was entitled to present the cheque for payment in partial satisfaction of the said refund.  

24. However, as is clear from the SC the cheque was given only on 16 February 2007 and this was given pursuant to the 3^rd agreement and not the 2^nd agreement.  It was given pursuant to the 3^rd agreement which, according to the plaintiff’s pleaded case, was rescinded.

25. The cheque was presented for payment on 21 March 2007 but it was dishonoured upon presentation.  Notice of dishonour was given to the defendant (paragraphs 30 and 31).

26. Chu was released by the PRC authorities on or about 13 April 2007 and the case against him was dismissed (paragraph 33).

27. The plaintiff also pleads at paragraph 34 that further or alternatively, the consideration for the payment of RMB1,300,000.00 and HK$900,000.00 has wholly failed and that the defendant has had and received the said sums to the use of the plaintiff.

28. Thus the plaintiff claims damage in the sums of RMB1,300,000.00 and HK$900,000.00 for breach of the 2^nd agreement, HK$600,000.00 being the amount payable under the cheque and further or alternatively, the said sums of RMB1,300,000.00 and HK$900,000.00 as money had and received by the defendant to the use of the plaintiff.

Public Policy

29. From the pleaded case of the plaintiff there can be no doubt that the plaintiff and the defendant entered into the 1^st, 2^nd and 3^rd agreements whereby for the sums agreed to be paid to the defendant, the defendant was to stand surety for and to secure the release of Chu from detention by the authorities in the PRC by a certain date.

30. Mr Yin, for the defendant, submitted that on the plaintiff’s pleaded case the plaintiff has clearly been a party to an illegal or immoral contract and that by reason of public policy the Court should refuse to entertain a claim arising out of or in respect of such a contract.

31. Mr Hon, for the plaintiff, submitted that the pleaded agreements are not illegal.  He pointed out that Section 9F (1) of the Criminal Procedure Ordinance Cap. 221 provides that any agreement

“	indemnifying or purporting to indemnify any person against any liability which he may incur as a surety to secure the surrender or custody of a person admitted to bail shall be void.”

32. By subsection (2) any person who enters into such an agreement commits an offence.  

33. Mr Hon submitted that the agreements pleaded in the SC were not agreements “indemnifying or purporting to indemnify” the defendant.  The monies paid, he submitted, were an outright payment for securing the release of Chu.  As such there was no criminal offence committed.

34. I accept that the agreements pleaded do not fall foul of the provisions of section 9F of the Criminal Procedure Ordinance.  There was no agreement to provide an indemnity to the defendant for standing as surety for Chu.  However, under the agreements the defendant was not only to stand surety for Chu but he also had to secure the release of Chu from his detention by the authorities in the PRC by a certain time.  The monies paid were payments to the defendant who on the pleaded case was an influential businessman to secure the release of Chu.

35. As is set out in Chitty on Contracts 23^rd Edn Vol 1 at paragraph 16-039:

“	Any contract which tends to abuse, prevent or impede the due course of justice is against public policy.”

36. It is also stated in Treitel’s The Law of Contract 12^th Edn at paragraph 11-041:

“	A contract may also (even though it does not amount to a criminal conspiracy) be illegal if its object is to interfere with the course of public justice.”

37. It seems to me that even though a contract may not fall foul of the criminal law it does not mean that the contract is not illegal.

38. In Parkinson v College of Ambulance, Ltd and another [1925] 2 KB 1 it was held that if a contract which is illegal as being contrary to public policy has any element of turpitude in it the parties to the contract are in pari delicto, and if one of the parties to the contract has been defrauded, no action for damages can be maintained by the party defrauded, even though the contract is not of a criminal nature.

39. In that case the secretary of a charity fraudulently represented to the plaintiff that he or the charity was in a position to undertake that the plaintiff would receive a knighthood if the plaintiff made a large donation to the funds of the charity and undertook that the title would be conferred if the donation was made.  Relying on the representation the plaintiff made a large donation to the charity.  He did not receive the knighthood.  He brought an action to recover back the money paid as money had and received or as damages for deceit or breach of contract.  It was held that the contract for the purchase of a title, however the money is to be expended is an improper and illegal contract as being against public policy and that as the plaintiff knew that he was entering into an improper and illegal contract he could not recover the money he had paid from the charity as money had and received nor recover damages from the charity or its secretary.

40. Lush J considered the question whether the contract was against public policy and therefore illegal.

41. He said at page 13:

“

I come, then, to the main questions in the case, and the first that I will deal with is the question whether the contract was against public policy and therefore illegal.  In spite of Mr. Merriman’s able argument I cannot feel any doubt that a contract to guarantee or undertake that an honour will be conferred by the Sovereign if a certain contribution is made to a public charity, or if some other service is rendered, is against public policy, and, therefore, an unlawful contract to make.  Apart from being derogatory to the dignity of the Sovereign who bestows the honour, it would produce, or might produce, most mischievous consequences.  It would tend to induce the person who was to procure the title to use improper means to obtain it, because he had his own interests to consider.  It would tend to make him conceal facts as to the fitness of the proposed recipient.  Moreover, if the contract was lawful, an action could be brought if the stipulated title was not obtained or if the money was not paid.  A person in the position of this plaintiff could claim and be awarded damages for the loss of a title or for obtaining one of a less degree than that for which he had bargained; a person in the position of these defendants could claim and be awarded damages for not receiving the promised contribution, although the title had been obtained.  No Court could try such an action and allow such damages to be awarded with any propriety or decency.

The contract, in my opinion, is one that could not be sanctioned or recognized in a Court of justice.  Such a contract as that which the plaintiff and Harrison made is, in my judgment, an illegal and improper contract to enter into.  I do not, of course, say that it involves the same degree of moral turpitude that an actually immoral contract involves; still less a contract to commit a crime;………………….”

42. It matters not if no crime is committed.  Lush J said at page 14:

“

……………….I am of opinion that if the contract has any element of turpitude in it the parties are in pari delicto and no action for damages can be maintained by the party defrauded.  It is not correct to say, as was contended before me, that it is only if the contract is of a criminal nature that the plaintiff is precluded from recovering.  The case of Taylor v Chester is an authority against this proposition.  No criminal offence was committed there.”

43. In Taylor v Chester LR 4 QB 309 Mellor J said at page 313:

“

The maxim that “in pari delicto potior est condition possidentis,” is as thoroughly settled as any proposition of law can be.  It is a maxim of law, established, not for the benefit of plaintiffs or defendants, but is founded on the principles of public policy, which will not assist a plaintiff who has paid over money or handed over property in pursuance of an illegal or immoral contract, to recover it back, “for the courts will not assist an illegal transaction in any respect:” per Lord Ellenborough in Edgar v Fowler (1); Collins v. Blantern (2); Lord Mansfield in Holman v. Johnson. (3)

The true test for determining whether or not the plaintiff and the defendant were in pari delicto, is by considering whether the plaintiff could make out his case otherwise than through the medium and by the aid of the illegal transaction to which he was himself a party : Simpson v. Bloss (4), Fivaz v. Nicholls. (5)”

44. In my judgment the agreements which provided for payments to the defendant to secure the release of Chu from detention by the authorities in the PRC by a certain time are against public policy and therefore unlawful agreements to make.  The agreements provided for an improper payment to the defendant with the object of interfering with the due course of justice.  It is clearly against public policy to allow the plaintiff to sue on such an agreement. 

45. Mr Hon further submitted that even if the agreements were illegal that does not mean that the plaintiff cannot recover the monies she paid to the defendant.  He relied on Tinsley v Milligan [1994] AC 340.

46. In my judgement Tinsley does not assist the plaintiff.  

47. In Tinsley the plaintiff and defendant, two single women formed a joint business venture to run lodging houses.  Using funds from the business they purchased a house where they lived together.  The house was in the sole name of the plaintiff but on the understanding that they were joint beneficial owners of the property.  The purpose of the arrangement was to assist in the perpetration of frauds on the Department of Social Security.  Over a number of years the defendant made false benefit claims.  The plaintiff did likewise.  The money obtained helped the parties meet their bills but did not represent a substantial part of their income and contributed only in a small way to their acquisition of the equity in the house.  Subsequently the defendant repented of the frauds and disclosed them to the Department of Social Security.  The parties quarrelled and this led to the plaintiff moving out of the house.  The plaintiff then served notice to quit on the defendant and brought proceedings for possession and asserting sole ownership of the house.  The defendant counterclaimed for an order for sale and for a declaration that the house was held by the plaintiff on trust for the parties in equal shares.

48. It was held by a majority in the House of Lords that a claimant to an interest in property, whether based on a legal or equitable title, was entitled to recover if he was not forced to plead or rely on an illegality, even although it transpired that the title on which he relied was acquired in the course of carrying through an illegal transaction; that, in the circumstances, by showing that she had contributed to the purchase price of the house and that there was a common understanding between the parties that they owned the property equally the defendant had established a resulting trust; that there was no necessity to prove the reason for the conveyance into the sole name of the plaintiff, which was irrelevant to the defendant’s claim, and that since there was no evidence to rebut the presumption of a resulting trust the defendant was entitled to succeed on her counterclaim.

49. Tinsley is clearly distinguishable from this case.  The plaintiff’s case is founded on a breach of the illegal agreement.  She relies on it to claim damages for breach.  It can make no difference that there is another cause of action for money had and received.  There is no presumption of a resulting trust arising in this case.  Mr Hon in his oral submissions made it plain that he was not relying on any presumption of resulting trust.

50. It seems to me that the SC clearly pleads that the monies paid over to the defendant were monies paid under the illegal 1^st and 2^nd agreements.  Not only are the illegal agreements expressly pleaded but it seems to me that the plaintiff does need to rely on them to found the causes of action for breach of contract and for money had and received.  That being so, as was the case in Parkinson, in my judgment the plaintiff cannot recover for damages for breach of the 2^nd agreement or for money had and received.

51. As regards the cause of action on the cheque, on the plaintiff’s case the cheque was given pursuant to the 3^rd agreement.  However, the 3^rd agreement was on the plaintiff’s case rescinded.  Hence, on the plaintiff’s own case no consideration was given for the cheque.  I fail to see how the plaintiff can succeed on the claim on the cheque.

52. Paragraph 1 of the summons asks for an order that the SC be struck out.  In my judgment the SC should be struck out as the plaintiff’s claims are unsustainable.  I so order.

53. The alternative application for stay of the action on the ground of forum non conveniens does not arise.

54. I also make an order nisi that the costs of the application be costs to the defendant.