CHAN MAN TIN MICHAEL v. CHENG LEEKY

HCA 670/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 670 OF 2006

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J U D G M E N T

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1.  The primary application before me is that I strike out the counterclaim of the defendant under the various grounds referred to in O.18 r.19 RHC or by exercise of the inherent jurisdiction of the court.  Alternative to that is a ruling on a preliminary issue; namely, whether an “oral agreement” pleaded in the counterclaim at paragraph 14 is not enforceable on one or other of stipulated grounds.  These are pursued under O.33 rs. 3 and 4(2).

Background

2.  In the introductory paragraphs of his statement of claim the plaintiff, Michael Chan, pleaded that he and the defendant, Ms Leeky Cheng, were friends, as a result of which they engaged in a commercial relationship.  With the parties no longer together, he has brought this action variously to recover money advanced to her and to have vested in him sole interest in properties they purchased together, and in one case where the property was sold, the sale proceeds thereof.  Ms Cheng denies liability.  Her pleaded case is that they were more than friends; that Mr Chan courted her.  For a while they lived together in an intimate relationship, and that relationship was an integral feature of the various transactions that they shared in.  In consideration for her submitting to that relationship Mr Chan had agreed to provide support.  Her counterclaim is for losses suffered as a result of his failure to continue with that support following his decision to leave her and live in the US.

3.  In his reply, Mr Chan said they were no more than good friends; in any event that the nature of that friendship is irrelevant.  There was no agreement to provide support.

4.  To the extent that it is or maybe relevant, I am bound to rule on these applications as if Ms Cheng’s version is correct; see the White Book at 18/19/4. 

5.  On her pleading, Ms Cheng took the place of Mr Chan’s former girlfriend called Ling Ah Sung who left him in 2002 upon payment of a separation fee to her of $800,000, on the following agreed terms:

“(c)   The Defendant avers that, upon the Defendant agreeing to be his female companion to step in the shoe of Ms Ling, the Plaintiff agreed orally with the Defendant that, inter alia, the Defendant would be his female intimate companion and he would provided her residence, income and share of any joint investments, regular monthly household expenses and gift for special occasion such as anniversary, birthday, Easter and Christmas, Mid Autumn festival, New Year red pockets (laisee) for the family and her son, holiday expenses for the Defendant and her son and her mother, and an amount of sum of money of HK$800,000 same treatment as given to Ms Ling if he ever wishes to separate from the Defendant or forsake her.  The Defendant will finish all documents and receipt of such financial support from the Plaintiff in support of her defence in the course of trial; …”

6.  The relationship, during the course of which the advances were made and property transactions entered into, lasted until about mid-2006 when Mr Chan emigrated to the US.  Ms Cheng said he did in the meantime fulfil his commitment to her and her immediate family whilst they were together.  But when they parted he did not as promised pay her the same separation fee that Ms Ling received or indeed anything at all; this gave rise to her counterclaim.

7.  Meanwhile, I shall summarize Mr Chan’s claim. 

8.  In 2002 and 2003 he advanced to Ms Cheng amounts of $300,000 and $800,000, repayable on demand.

9.  In 2004 the parties in joint names purchased the following properties:

(a)    a flat in Sky Tower, in Sung Wong Toi Road;

(b)   a flat in Pacifica, in Sham Shing Road.  (This flat has been subsequently sold);

(c)    a flat in Richland Gardens, at Wong Kwong Road;

(d)   flat 8A in Whampoa Garden.

At the same time as flat 8A was bought, flat 8B adjoining was also bought in the sole name of Ms Cheng.  Then the two flats were combined into one.  Ms Cheng presently lives at this address, having done so since the purchase.

10.  Aside from the cash advances that he made, repayable on demand, it is Mr Chan’s case as pleaded that he paid for the properties out of his own resources; Ms Cheng had no money and contributed nothing.  Her interest in them was as trustee for him.  In respect of the flat in Pacifica which was sold, she wrongfully misappropriated the sale proceeds.

11.  His prayer includes a declaration that the properties remaining vest in him, with an enquiry into the accounting thereof, repayment of the loans of $1.1 million and repayment of the misappropriated sale proceeds of the Pacifica flat.

12.  Ms Cheng having pleaded the special circumstances which led to their intimacy claimed the joint investments were all part of a long term commitment by Mr Chan by way of gift and, in the event of his prior demise, devise by survivorship subject only to her “loyalty of chastity to him”.  The sums of money he paid her were gifts not advances.  All of his claims she denies.

13.  And so to the counterclaim.

14.  Paragraph 14 is the particular paragraph in which Mr Chan through his counsel Mr Lau focuses on.  This refers to an alleged commitment by which Mr Chan purported to provide ongoing support for Ms Cheng and her child (which is not his child) and mother:

“14. It was orally agreed between the Plaintiff and the Defendant and in consideration of the plain loyalty and chastity of the Defendant towards the Plaintiff during courtship and in consideration of the Plaintiff would cohabit with the Defendant and live happily together, the Plaintiff would maintain and did maintain the Defendant and the family after the two adjoining flats were unified into one larger unit since November 2005 and continuing until his leave for U.S.A. in or about July 2006.”

But since his departure there has been no support, giving rise to the next three paragraphs:

“15. In breach of his agreement of keeping to pay monthly mortgage payment of other properties as alleged and listed in the Schedule of the Amended Indorsement of Claim, the Plaintiff has failed to pay and or has failed continue to utilize the rental income for such payment for all properties under joint tenancy since 1^st July, 2006.

16.  Further and or in the alternative, the Plaintiff also has failed to keep up the maintenance of the Defendant and the family and has also failed to pay mortgage payment of their home, namely ‘the A and B Whampao Properties’ and for the maintenance of the Defenant.

17.  By the reasons as aforesaid, the Defendant has suffered loss and damage.”

Then that loss is particularized, as follows:

“Particulars

a)   maintenance of the Defendant and the family;

b)   loss and damage of the invested properties under joint tenancy other than Flat A on 8^th Floor of Block 6, 7 Shung King Street Whampao Garden, Site 4 Kowloon Hong Kong which was/is for self use;

c)   mortgage payment on Flat H on 23^rd Floor of Tower 2 Sky Tower No.38 Sung Wong Toi Road, Kowloon, Hong Kong or otherwise failing to apply the monthly rental income for monthly mortgage payment now being outstanding;

d)   mortgage payment on Unit C on 15^th Floor of Block 6 Richland Garden No. 80 Wong Kwong Road, Kowloon, Hong Kong or otherwise failing to apply the monthly rental income for monthly mortgage payment now being outstanding;

e)   monthly maintenance for the Defendant and the family for HK$20,000 per month for food and household expenses and maintenance of the Defendant’s mother of HK$3,000 per month;

f) other money gift and benefit in kind as stated in her Defence above;

g)   costs and any other relief as the Honourable Court deems fit and just;

h)   interest thereat.”

The Summons

15.  The strike out application read as follows:

“1. …

(a)   The Defendant’s Counterclaim be struck out on that ground that it discloses no reasonable cause of action and/or that it is scandalous, frivolous or vexatious and/or that it is a hopeless proceedings;

(b)   The Defendant’s Counterclaim against the Plaintiff be dismissed with costs including costs of this application, to be taxed if not agreed and be paid by the Defendant to the Plaintiff.”

16.  I shall not rehearse the circumstances in which a court is entitled to exercise its discretion and bring to an end a claim (or counterclaim) by this means.  They are well settled and there is a full commentary in the White Book under Order 18, pages 346 to 354.

17.  Suffice to repeat part of the first paragraph at 18/19/4:

“It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading under this rule.  There should be no trial upon affidavit.  Disputed facts were to be taken in favour of the party sought to be struck out.  Nor should the court decide difficult points of law in striking out proceedings.  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out …”

18.  In the alternative are the preliminary questions or issues as follows:

“2.  …

   (a)   …

(i)  Under paragraph 14 of the Counterclaim, whether the oral agreement is not enforceable on the ground that the pleaded consideration of ‘plain loyalty and chastity of the Defendant towards the Plaintiff during the courtship’ does not amount to valid and sufficient consideration.

(ii)  Under paragraph 14 of the Counterclaim, whether the oral agreement is not enforceable on the ground that the pleaded consideration of ‘ the Plaintiff would cohabit with the Defendant and live happily together’ does not amount to valid and sufficient consideration.

(iii) Under paragraphs 14 to 17, whether the oral agreement and loss and damage as pleaded under the Counterclaim is not enforceable on the ground of lack of certainty or clarity and/or being against public policy.”

19.  Mr Lau submitted that whether the court is minded to deal with the application as a strike out or by answering the preliminary question, the issues are identical and the result rests in the answers to the preliminary questions.  Certainly that is how Mr Chan’s case was argued, and I adopt that course as appropriate.

Discussion

20.  Plain loyalty and chastity of the defendant towards the plaintiff — can that amount to good consideration?

21.  I begin with the trite proposition — that the doctrine of consideration is based on the idea of reciprocity; that “something of value in the eye of law” must be given for a promise in order to make it enforceable as a contract.  That of course rules out as binding a gratuitous promise, but it also rules out something of value that the law refuses to recognize as such; see for commentary Chitty, 29^th edition at 3.002 and 3.003.

22.  It is difficult to understand precisely what is meant by the pleaded consideration “plain loyalty and chastity” of the defendant.  But assuming this amounts to her remaining in cohabitation with Mr Chan, providing no sexual favours to any other person, this has been held to be contra bonos mores and unenforceable.  Agreements in consideration of future illicit cohabitation have been held to be unenforceable; see Chitty at 16.067. 

23.  Extra-marital cohabitation is however an area of the law where values have become increasingly more liberal, and it is more and more common that unmarried couples in relatively stable relationships have wanted to make binding arrangements.

24.  A comparatively recent authority on the point was brought to my attention by Mr Ho, representing Mr Chan, where the question of illegality of consideration could but was not raised: the case is Tanner v Tanner [1975] 1 WLR 1346.  That was a case about a married man who fathered twins by his mistress.  He provided her and the children with a house.  When they fell out and he attempted to evict her, the court held that there was an implied contract between the parties that the mistress could live in the house, the consideration given by the mistress being the relinquishment of a rent-controlled flat.  Although the implied contract undoubtedly included the consideration of the continuation of an intimate relationship outside of marriage, that was not entertained as rendering the contract unenforceable.

25.  But commentary subsequently written indicates that the decision in Tanner was reconcilable with earlier cases on the topic because there was other lawful consideration to support the implied contract; see Chitty at 16-068.

26.  Tanner was mentioned in the judgment of Megaw LJ in the case of Horrocks v Foray [1976] 1 WLR 230.  In that case the defendant was the mistress of a Mr Sanford and they had a daughter.  Mr Sanford bought a house and told his solicitor that he was buying it for the mistress and the daughter.  He was later killed in an accident.  His widow and the executors of Mr Sanford’s estate did not know of the association between the defendant and Mr Sanford.  They brought an action to recover the property and were successful.  The mistress appealed.  Megaw LJ delivering the head judgment, referred to the submissions of counsel for the mistress, a Mr Goldblatt, during the course of which he argued there was an implied contract.  On the topic he had this to say, at p.238:

  “The judge, in substance, as I see it, was saying that on the facts of this case, as contrasted with the facts that emerged in Tanner v. Tanner [1975] 1 W.L.R. 1346, he was unable to hold that there were shown any events or facts from which the inference could fairly be drawn, on the balance of probability, that there was a contract such as is suggested giving this defendant a legal right to remain in possession of the house for any of the periods suggested.

  Mr. Goldblatt in this court summarised his submission to the contrary to this way.  He submitted that, on the facts, over a period of years the defendant was, at the request and the instance of the late Mr. Sanford, subordinating her mode of life, or her ‘life-style,’ and her choice of residence to his directions on the ‘understanding’ that he, Mr. Sanford, would generously maintain the defendant and her family in the meanwhile and would, when circumstances permitted, provide her with a permanent home.  Then Mr. Goldblatt, as I understand it, submitted that the contract was made long before the purchase of 7, Farm Place, but soon after the birth of the daughter.  But, said Mr. Goldblatt, that contract, made earlier and being in existence earlier, was varied when 7, Farm Place was bought, and was varied so that the home that was to be given to the defendant on these terms was now no longer left uncertain, but was now defined as being 7, Farm Place.  The ‘understanding’ which is referred to in that summary of the position was amplified by Mr. Goldblatt as involving that a promise — a contractually binding promise — had been given by the late Mr. Sanford, and that it related to the occupation of 7, Farm Place. 

   With great respect to Mr. Goldblatt’s argument, I am quite unable to see, on the facts and circumstances of this case, that there was here any conceivable basis for an implication that any such binding promise had been made by Mr. Sanford as is suggested.  The fact that he had it in mind to seek to provide some security for the defendant in the event of his death certainly does not go anything like far enough to bring into existence what is necessary to show a binding contract of this nature.  There was here, in my judgment, simply nothing on the evidence that would have entitled the judge to come to the conclusion that there was any such contractual licence.  I say that without going on to consider what I think might well be an extremely difficult further barrier in the way of the defendant.  Supposing that she had established something which otherwise could be regarded as being a contract, where is the consideration for that contract to be found?  In Tanner v. Tanner [1975] 1 W.L.R. 1346 the consideration was perfectly clear: the lady had given up her rent-controlled flat as a part of the bargain that she would move into the other accommodation.  There is no such consideration here.  However, I do not wish to decide this case, as far as I am concerned, on any question relating to absence of consideration.  But I am satisfied that the judge was completely right in his view that the defendant had wholly failed to show the existence of a contractual licence.  I would accordingly dismiss the appeal.”

27.  There is in this case no pleaded consideration of the sort that assisted the mistress in Tanner, the absence of which was fatal to the chances of the mistress in Horrocks.  The pleaded consideration of the “plain loyalty and chastity” of the defendant towards the plaintiff is not good consideration and discloses no reasonable cause of action.

28.  The plaintiff would cohabit with the defendant and live happily together — is that good consideration? 

29.  Again it is difficult to ascertain what is meant by these words.  Giving them their most liberal interpretation I take them to mean a commitment by Mr Chan to live together with Ms Cheng in a stable relationship, as if man and wife.

30.  The primary difficulty about this amounting to good consideration is that in its form as pleaded the commitment or promise comes from Mr Chan.  But that offends the basic premise that for a promise to be enforceable the consideration in respect of it must move from the promisee; see Chitty at 3.036.

31.  A proposition from the Bench that the defence might want to consider amending the pleading was not taken up by Mr Ho; indeed he said it had been considered but the decision had been made not to do so.  That inevitably leads to only one answer to the question posed, which is “No”. 

32.  In any event, I have strong doubts that the repair envisaged would assist; I do not believe the consideration had it derived from Ms Cheng would have fared any better than that posed in the first question for the same reasons.

33.  As a result of my findings there is no need to consider the third question, which is as to whether the claim for loss and damage as pleaded is unenforceable for lack of certainty or clarity and/or for being against public policy.  For the sake of completeness, I have to say that were I to have to do so I would have found on the primary ground that the contract so pleaded would not have been enforceable for want of clarity and certainty.  Even at their highest the terms “loyalty” and “chastity” are abstract.  So is “live happily together”.

34.  Further, the loss said to have been suffered at paragraph 17 is vague and unclear.

The Result

35.  In exercise of my discretion under O.18 r.19(1)(a) I strike out the defendant’s counterclaim upon the ground that it disclosed no reasonable cause of action, and thus dismiss the counterclaim. 

36.  Costs, nisi, on the counterclaim are to the plaintiff in any event.