PATRICK HUNG HING YUE v. HO YIN MAN AND OTHERS

HCA92/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 92 OF 2007

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R U L I N G

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1.     This is an application by the 2^nd and 4^th defendants to strike out the plaintiff’s claim against them respectively.

2.     The grounds relied on by the 2^nd defendant are firstly, that there is no reasonable cause of action against the 2^nd defendant, and, secondly the plaintiff’s claim is frivolous and vexatious.

3.     The 4^th defendant is content to rely only on the ground that there is no reasonable cause of action against him.

Plaintiff’s pleaded case

4.     The pleaded case of the plaintiff can be summarized as follows.

5.     Sometime in 1986, the plaintiff approached the 1^st defendant to explore the possibility of redeveloping Nos. 1, 2 and 3 Leung Fai Terrace together with No. 46 Caine Road in a joint redevelopment.

6.     No. 1 Leung Fai Terrace was, at the time controlled by the Chan family.

7.     No. 2 Leung Fai Terrace was owned by the plaintiff’s family, specifically three uncles of the plaintiff and the estate of the plaintiff’s deceased father.

8.     No. 3 Leung Fai Terrace was owned by the 3^rd defendant, a wholly owned subsidiary of the Chow Tai Fook Enterprises Ltd which was the major shareholder of the New World Development Co. Ltd.

9.     No. 46 Caine Road was controlled by the Leung family.

10.     The 1^st defendant (who was brought in primarily as a financier for the intended redevelopment) agreed to the plaintiff’s proposal, assigned the 4^th defendant to assist the plaintiff in the preliminary work and provided funds and office support.  Such preliminary work continued up to 1990 and 1991.

11.     It was planned for the Chow Tai Fook group to act as developer for the redevelopment and that each of the respective owners or families to have a share of the units in the planned redevelopment.  The redevelopment was considered to be viable only if all four individual plots of land were amalgamated into one building lot to be redeveloped.

12.     In 1991 the plaintiff agreed with the 1^st defendant to obtain and secure the agreement of the respective owners of the four plots of land to a joint redevelopment of same.  It was also agreed between the plaintiff and the 1^st defendant that they would seek a consultancy fee for all the preliminary work done and to be done up to the signing of the joint venture agreement for the redevelopment.  The plaintiff would secure the agreement of the respective owners and the consultancy fee would be split one third to the plaintiff and two thirds to the 1^st defendant.  Such agreement between the plaintiff and the 1^st defendant was known to the 4^th defendant.  (See paragraph 6 of Statement of Claim.)

13.     It was also agreed between the plaintiff and the 1^st defendant (acting on behalf of himself and the 2^nd defendant) that the 1^st defendant would receive the entitlement on behalf of the 2^nd defendant, the 1^st defendant being the director and major shareholder of the 2^nd defendant.  (See paragraph 7 of Statement of Claim.)

14.     Through the efforts of the plaintiff and pursuant to the 1991 agreement between the plaintiff and 1^st defendant, by letter dated 9 July 1991, the 3^rd defendant (as the developer) appointed the 2^nd defendant to act as consultant to negotiate with the other respective owners in the proposed redevelopment and to procure the approval of the Building Authority for the construction of a new building on the Land with not less than 101,000 square feet total floor area.  The 2^nd defendant was to receive 5,000 square feet of the buildable floor area of the new building as consultant fee.  (See paragraph 8 of Statement of Claim.)

15.     Thereafter, the plaintiff obtained the agreement of the respective owners for the redevelopment.  The 1^st and 2^nd defendants obtained the approval of the owners for the proposed building and a Joint Development Agreement was entered into by all the respective owners on 7 December 1992.

16.     It was therefore the common intention between the plaintiff and the 1^st and 2^nd defendants that the 2^nd defendant was to hold one third of the consultancy fee on trust for the plaintiff.

17.     The Joint Development Agreement provided for the 3^rd defendant to act as the developer to demolish the existing building on the Land and to erect a new building with the parties thereto being entitled to certain units in the new building when completed.

18.     Pursuant thereto the existing buildings were demolished and a new building named Scenic Rise was erected on the Land.

19.     In 1994, the 1^st and 2^nd defendants agreed with the 3^rd defendant that the consultancy fee was to be satisfied by:

(a)  the 3^rd defendant paying the 2^nd defendant $12,543,440 partly in cash and partly to discharge a mortgage loan of another property mortgaged to Chow Tai Fook Jewellery Co. Ltd, such sum to represent 3,583.84 square feet of the consultancy fee;

(b)  the 3^rd defendant assigning to the 2^nd defendant Flats A and B on the 36^th floor of Scenic Rise when completed, representing 1,416.16 of the consultancy fee.

20.     Subsequently it was further agreed between the 1^st, 2^nd and 3^rd defendants that Flat D on the 36^th floor be substituted instead for Flat B as being partial satisfaction of the consultancy fee.

21.     It is therefore the plaintiff’s case that since the 1^st and 2^nd defendants having received and applied their share of the consultancy fee (in the form of the $12,543,440 partly in cash and partly to discharge the mortgage loan as pleaded), any and all the interest that the 2^nd defendant had in Flats A and D on the 36^th floor of Scenic Rise (hereinafter referred to as “Flats A and D”) was held on trust for the plaintiff.

22.     Scenic Rise was completed in early 1999 and the occupation permit was issued on 24 March 1999.

23.     It is also the pleaded case of the plaintiff that in March 1999 the present 4^th defendant had issued a Writ in HCA 3890 of 1999 against inter alia the present 1^st and 3^rd defendants alleging that the present 2^nd defendantwas a mere agent of the present 4^th defendant in relation to the consultancy fee and held the benefit of same on trust for the present 4^th defendant.

24.     After the proceedings in HCA 3890 of 1999 were issued, the plaintiff was assured by the present 1^st and 2^nd defendants (acting through the 1^st defendant) as well as the present 4^th defendant that notwithstanding the allegations in that action, once that dispute between them had been resolved, the plaintiff would receive his share of the consultancy fee.

25.     Unknown to the plaintiff until towards the end of 2006, the parties in HCA 3890 of 1999 had settled the action in March 2006 by a Tomlin Order whereby Flats A and D were to be sold and the proceeds divided between them.  That agreement excluded or did not take account of the plaintiff’s interests in the consultancy fee.

26.     In those circumstances, the 1^st and 2^nd defendants were in breach of trust against the plaintiff.  The 4^th defendant is also accountable to the plaintiff as a constructive trustee.

27.     The reliefs claimed by the plaintiff is for :

(a)   a declaration that the 1^st and 2^nd defendants hold all their interests in Flats A and D on trust for the plaintiff;

(b)   a declaration that the 4^th defendant has no interests in Flats A and D;

(c)   an order that the 1^st and 2^nd defendants procure an assignment of Flats A and D to the plaintiff or his order.

Present status of Flats A and D

28.     It is common ground between the parties that at all times the 3^rd defendant was and still is still the registered owner of Flats A and D. 

29.     While the stance of the 3^rd defendant is that it is prepared to assign Flats A and D to whoever may be entitled to them, the 3^rd defendant claims to have a lien upon Flats A and D in respect of construction costs relating to both units and that such construction costs will have to be paid over to the 3^rd defendant before the 3^rd defendant is prepared to assign over Flats A and D to whoever may be entitled to them upon the resolution of the dispute as to consultancy fee between the plaintiff, the 1^st , 2^nd and 4^th defendants.

Striking out contention — no reasonable cause of action

30.     A number of points have been taken by the 2^nd and 4^th defendants in their submissions that the plaintiff has no reasonable cause of action against them.

31.     Firstly, that the type of trust has not been specified by the plaintiff in his pleadings.

32.     Secondly, that the only possible basis for the plaintiff’s claim is the 1991 agreement between the plaintiff and the 1^st defendant contained in paragraph 6 of the Statement of Claim.

33.     That 1991 agreement as pleaded was for consultancy fee at a future date.  That agreement contemplated only a money payment as the consultancy fee, at a time when Flats A and D did not even exist.  Such consultancy fee agreed between the plaintiff and the 1^st defendant was therefore a mere expectancy on their part and incapable of forming the subject of a trust, a fortiori, a trust of Flats A and D.

34.     Thirdly, it was submitted that not only was the plaintiff not a party to the agreement arrived at in July 1991 between the 2^nd and 3^rd defendants whereby the 2^nd defendant was appointed a consultant, and the 3^rd defendant, as the developer, would pay a consultancy fee to the 2^nd defendant.  Furthermore, that agreement (as per the letter dated 9 July 1991) contemplated that the consultancy fee would be ‘equivalent’ to 5,000 square feet of the buildable floor area of the new building.  Even then, the manner in which the consultancy fee was to be paid was to be in money terms, and not by way of property.

35.     Moreover, when the actual agreement was reached between the 2^nd and 3^rd defendants in 1994 as to how the consultancy fee was to be satisfied, partly in cash and partly by Flats A and B (later changed to Flat D instead of B) on the 36^th floor of the new building, once again, the plaintiff was not a party to such agreement.

36.     In the circumstances, it was submitted that the consultancy fee contemplated in the agreement between the 2^nd and 3^rd defendants was different from that originally contemplated between the plaintiff and the 1^st defendant and different scope of work was to be covered.

37.     It was also submitted that the arithmetic approach used by the plaintiff in reaching his one-third share of the consultancy fee is flawed in that Flats A and D represent less than the one-third of the consultancy fee which the plaintiff now claims to be entitled to.

38.     Fourthly, it was submitted that no declaration of trust over Flats A and D have been pleaded.  Flats A and D have at all times been registered in the name of the 3^rd defendant.  In those circumstances, the plaintiff cannot have a claim against either the 2^nd or 4^th defendants on the basis that they hold Flats A and D on trust for the plaintiff.  In this respect, it was also submitted that even if the 2^nd and 4^th defendants have a beneficial interest over Flats A and D, that beneficial interest cannot be the subject of a trust in favour of the plaintiff.  Therefore the plaintiff’s claim is bad.

39.     Lastly, it was submitted that at best the plaintiff, on his pleadings, will only be entitled to claim for a monetary debt in contract, being his one third share of the consultancy fee agreed between the plaintiff and the 1^st defendant but that such a claim cannot succeed because the limitation period of 6 years in respect of contract have run out when this writ was issued by the plaintiff.  It was because of this difficulty suffered by the plaintiff that he has brought this claim on the basis of a trust to overcome the difficulty with the limitation period.

Frivolous and Vexatious

40.     It was further contended by the 2^nd defendant alone that the plaintiff’s claim lacks bona fides, and that the ulterior motive of the plaintiff in bringing this claim is to prevent the sale of Flats A and D.

41. In that respect it is said that the claim was frivolous and vexatious.

Decision

42.     In a striking out application, particularly where it is alleged that there is no reasonable cause of action, the courts look at the pleaded case of the plaintiff, and where there are disputed facts, such disputed facts are taken in favour of the party sought to be struck out.

43.     It cannot be disputed that on the pleaded case of the plaintiff, the plaintiff’s claim was based on the 1991 agreement between the plaintiff and the 1^st defendant whereby they agreed to share the consultancy fee between them one third to the plaintiff and two thirds to the 1^st defendant.

44.     However, it is also the pleaded case of the plaintiff that the 2^nd defendant was brought into this re-development project as the nominee or agent of the 1^st defendant.  Likewise the 4^th defendant was assigned by the 1^st defendant to carry out the preliminary and or preparatory work.

45.     In those circumstances, when after the 3^rd defendant, as the developer, agreed with the 2^nd defendant to pay to the 2^nd defendant the consultancy fee, it would follow that on the pleaded case of the plaintiff, the 2^nd defendant was receiving the consultancy fee on behalf of the plaintiff and the 1^st defendant as nominee.  To that extent, the case of the plaintiff is that the 2^nd defendant holds the consultancy fee, or at least the plaintiff’s share of it, on trust for the plaintiff.

46.     Therefore, although the plaintiff was not a party to the agreement between the 2^nd and 3^rd defendant as to the manner in which the consultancy fee was to be paid, that matters not the least in so far as the plaintiff’s claim is concerned.  It remains the plaintiff’s case that whatever consultancy fee was paid over to or was received by the 2^nd defendant, that would be held by the 2^nd defendant as a nominee on trust for the plaintiff and the 1^st defendant.

47.     It would appear therefore that the plaintiff is relying on a constructive trust albeit such has not been expressly pleaded by the plaintiff in his pleadings.  The failure to plead a constructive trust is not fatal to the plaintiff’s claim as long as all the relevant facts giving rise to same has been pleaded and relied upon by the plaintiff.

48.     As for the submission on the point of law that a mere beneficial entitlement cannot be held on trust for another, that is not a good point of law and is clearly refuted by footnote 8 to paragraph 19-02 in Snell’s Principles of Equity which states:

“It is not always the case that the trustee has the legal interest in the property.  The interest of the trustee may be (and often is) equitable only, as where a beneficiary under a settlement makes a settlement of his interest while the legal ownership is still in the hands of the trustees of the former settlement, or for some other reason the legal estate is outstanding.  See e.g.  Gilbert v Overton (1864) 2 H&M 110”.

49.     The fact that the registered owner of Flats A and D has at all times been the 3^rd defendant can have no adverse impact on the plaintiff’s claim.  Indeed it must be for this reason that the 3^rd defendant is a party to the action since no actual or substantive relief is claimed against the 3^rd defendant by the plaintiff.  The 3^rd defendant is a necessary and proper party to the plaintiff’s claim since the legal estate of Flats A and D is vested in the 3^rd defendant.

50.     As for the fact that the 2^nd and 4^th defendants do not and never did have the legal title to Flats A and D, that does not prevent the plaintiff from claiming against them in the way that the plaintiff has.  What the plaintiff is claiming against the 2^nd and 4^th defendants is their interest or their claimed interests in Flats A and D.  It is therefore quite wrong for the 2^nd and 4^th defendants to base their submission upon the plaintiff’s claim being founded on the 2^nd and/or the 4^th defendants holding Flats A and D on trust for the plaintiff.

51.     In the case of the 2^nd defendant its interest in Flats A and D arises from the agreement between the 2^nd and 3^rd defendant for the consultancy fee to be paid over to the 2^nd defendant in the way such consultancy fee has been calculated. 

52.     In the case of the 4^th defendant his interest in Flats A and D arises from his claim to the consultancy fee or that part of it as represented by Flats A and D under the Tomlin Order in HCA 3890 of 1999.

53.     In so far as the submission that the arithmetic approach adopted by the plaintiff being flawed in that Flats A and D together represent less than one third of the total consultancy fee, that is really a matter of assessment and apportionment at the end of the day.  It does not affect the plaintiff having a reasonable cause of action.

54.     Likewise, the fact that the 3^rd defendant has claimed a lien on Flats A and D in respect of construction costs relating to those units, that is a matter for the 3^rd defendant to raise either by way of defence or by way of a counterclaim.  It cannot affect the plaintiff having a reasonable cause of action.

55.     The submission that the consultancy fee agreed between the plaintiff and the 1^st defendant is different from the consultancy fee agreed between the 2^nd and 3^rd defendants, that is not the case of the plaintiff and that point can only be taken to be disputed fact in so far as the plaintiff’s case goes.  As such it has to be taken in favour of the plaintiff in a striking out application.

56.     It is only in clear cases that an action will be struck out as having no reasonable cause of action.  This is far from such a clear case.

57.     For the reasons given above, I have come to the conclusion that the striking out application on the first ground must be refused.  The plaintiff has shown that he has a reasonable cause of action against both the 2^nd and 4^th defendants.

58.     Having ruled that the plaintiff has a reasonable cause of action in the matter, the second limb taken in the application by the 2^nd defendant that the claim is frivolous or vexatious cannot stand on its own.

59.     I shall now hear the parties on costs.