CHAN WENDY KA MAN v. POWER TRIPOD LTD

HCA 2063/2023

[2024] HKCFI 3667

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 2063 OF 2023

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BETWEEN

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D E C I S I O N

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INTRODUCTION

1.  This is an appeal by the defendant (“D”) from the Order of Master KW Wong (“the Master”) dated 13 May 2024 in which the Master entered judgment in favour of the plaintiff (“P”).

2.  In his judgment, the Master directs that D shall pay to P the sum of HK$3,333,783.90 (this being the Master’s final decision on P’s claim for interest), with leave to D to defend the remainder of P 's claim, as well as for the D to pay 80% of the P’s costs of the summary judgment application with certificate of counsel summarily assessed at $192,000.00 payable forthwith (“the Partial Summary Judgment”).

3.  In bringing its appeal, D seeks directions for a trial, as well as a dismissal of the Partial Summary Judgment.

BACKGROUND

4.  This is a rare land conveyancing matter in Hong Kong where, in the Master’s words, P chanced upon a “once in a lifetime windfall”.

5.  P and D entered into a sales transaction with respect to a property that at the time had not been completed. In light of that, the parties structured their transaction in such a way that would require P to pay the full purchase price upfront. P would then be allowed to take possession of the property shortly thereafter, but the sale would only be completed once D would receive the completion certificate. To allow P to take possession of the property until then, the parties entered into a licence agreement. Given the transaction structure, the parties agreed that if D would not be in a position to complete by the specified date, P would have the right to rescind the transaction and to claim interest.

6.  D had not completed by the specified completion date, nor at any time thereafter. P resided in the property for approximately 6 years waiting for the completion, until 2023, when she decided to rescind and claim interest.

7.  D returned the purchase price to P at her rescission notice, but D is contesting P’s interest entitlement. To justify its challenge to P’s interest entitlement, D relies on the legal constructs of common assumption/intention and estoppel by convention, with an alternative argument that, should I not find D’s main defence credible enough to allow the appeal, in that case P owes D mesne profits and reinstatement costs.

8.  In essence, D argues that while the parties entered into an agreement for the sale of property (as defined in §11 and §13 below) and P had paid the full purchase price with a right to rescind and claim interest should D not complete by the intended date, according to D, the parties had intended for the sale agreement to somehow operate as a rental agreement instead in case of P’s rescission.

9.  As P puts it, there is no dispute as between the parties as to the interpretation of the terms of the sale agreement, but rather, the dispute is whether P is allowed to rely on the agreement in claiming interest in light of D’s arguments that the parties have allegedly intended for the sales to operate as rental, as D suggests.

10.  Be it as it may, in the alternative, D is seeking to set off against P’s interest if I find that such interest is due, mesne profits and various amounts for the reinstatement of the Property.

11.  P is a purchaser of a property known as ‘Flat B, 4^th Floor, Phase 1, One Kowloon Park, Tsuen Wan Town Lot No. 352, New Territories’ (“the Property”).

12.  D is the developer and the vendor of the Property. The Property is a flat in a luxury development that was slated for completion on 31 December 2016 or thereafter (“the Phase”).

13.  On 18 February 2015, D and P entered into the Sale and Purchase Agreement for the Property (“the Agreement”) with an anticipated completion on 31 December 2016, at which point D would assign its title to the Property to P.[1]

14.  The Phase completion was anticipated to take place on 31 December 2016 or thereafter. As is characteristic of conveyancing transactions in Hong Kong, time was of the essence. P and D agreed that should D not complete by the intended completion date or by an extended completion date as the case may be, P would be entitled to rescind and to claim interest as per the terms of the Agreement,

15.  The Agreement referred to P and D as to the “purchaser” and the “vendor”, respectively, with clause 2 providing, in relevant parts, that “the Vendor shall sell and the Purchaser shall purchase the Property … .” Schedule 5 to the Agreement set out the purchase price for the Property to be $10,605,700.

16.  Clause 4(1)(a)-(c) of the Agreement provides that the Vendor shall “continue the construction of the Development, … and complete the Phase in all respects in compliance with the conditions of the Government Grant in so far as they relate to the Phase and the building plans (if any) on or before the 31^st December 2016 subject to such extensions of time as may be granted.”

17.  Clause 4(2)(a) of the Agreement provides, in relevant parts, that “if the Vendor fails to complete the Phase by the date specified in Clause 4(1)(c) as extended by any extensions of time … , the Purchaser is at liberty, in addition to any other remedy that the Purchaser may have, by notice in writing to the Vendor to rescind this Agreement and upon service of such notice, this Agreement is rescinded, and the Vendor shall, within 7 days after the rescission, repay to the Purchaser all amounts paid by the Purchaser under this Agreement together with interest on those amounts at the rate of 2% per annum above the prime rate specified by The Hongkong and Shanghai banking Corporation Limited from time to time from the date or dates on which such amounts were paid up to the date of repayment, the repayment of such amounts and interest to be in full and final settlement of all claims by the Purchaser against the Vendor under this Agreement.”

18.  Clause 4(1)(b) of the Agreement provided that “if the Purchaser does not rescind this Agreement under the sub-clause (2)(a) within 28 days after the date specified in sub-clause (1)(c) or any extended date …, the Purchaser is deemed, without prejudice to the Purchaser’s rights under sub-clause (2)(c). to have elected to wait for completion of the Phase. In such event the Vendor shall pay to the Purchaser interest at the rate of 2% per annum above the prime rate specified by The Hongkong and Shanghai banking Corporation Limited from time to time on all amounts paid under this Agreement from the date following the date specified in sub-clause (1)(c) or any extended date … up to the date of completion of the Phase. Such interest shall be paid or allowed as a credit to the Purchaser in respect of the purchase price on completion of the sale and purchase.”

19.  Clause 6(1) provided for the Vendor’s obligation to notify the Purchaser of the issue of the Certificate of Completion and thus if its right to validly assign the Property to the Purchaser. The completion was to take place at the offices of the Vendor’s solicitors within 14 days after the date of the notification.

20.  The remainder of the Agreement terms are those of a standard conveyancing transaction in the anticipation of D being in a position to assign a valid title to the P. Notably, Clause 16 of the Agreement provides that “time is in every respect of the essence of this Agreement.”

21.  On 24 August 2015, the parties entered into a License Agreement under which P undertook to pay the management fees to the D on the Property, as well as to pay the government rent and rates and to maintain the property by purchasing insurance (“the Licence Agreement”).

22.  P moved into the Property shortly thereafter. During the time that followed, P had not complained about the late completion and D had not charged P for any rent or anything beyond the management fees and other such payments as provided for under the Licence Agreement.

23.  In short, it is not in dispute that:

(i) P had paid the purchase price for the Property;

(ii) P moved in and resided in the Property until 22 August 2023;

(iii) D had not completed the Phase before 31 December 2016, or at any stage thereafter; and

(iv) D had not charged P any rent during P’s occupancy.

24.  It is also not in dispute that D had paid the full purchase price back to the P at her requests to rescind that were first issued on 18 March 2023, and followed up with calls and notices throughout March 2023.[2]

25.  The dispute that is before me on appeal is over the interest on the amounts to which P believes herself entitled under the Agreement.

26.  This would have been largely a contract interpretation matter pertaining to the relevant clauses of the Agreement but for the nature of D’s defence arguments.

27.  Here, as the P has put it, D does not dispute the terms of the Agreement. Rather, the D argues that the P should not be allowed to rely on the terms of the Agreement because it is estopped from doing so by its alleged “common intent” that the parties had not intended for the Agreement to operate as it says on the face of it that it should.

Reasoning of the Master

28.  Having heard the parties, the Master found as follows:

“I do not think that the common assumption ground can stand … I do not think that there is a common assumption that there is a loss of right under the agreement to rescind, and that right will not be lost if she occupied there for short, but gradually lost when she stayed there longer. I don’t think that there is such common intention as such. I do not think that existed at all. So the common intention – assumption agreement simply fails.

And for the implied term to pay rental if she at the end of the day rescinded the contract, I do not think there is such implied term because money has been mentioned in the license agreement. If the parties see fit to have that, that’s very important terms. So if the parties have addressed the issue of money or rental when they entered into the license agreement, and if they failed to have that addressed I don’t think there is – you can read into that there is common intention that the contract is rescinded that, well , they have to pay rental.

And I agree with Mr Chan’s submissions that since Ms Chan is the equitable owner of the property the developer simply cannot rent out the property to other third parties without her consent. And so any money that will be chargeable will be returned – will have to be returned to Ms Chan. So I don’t think there is such an implied term to pay rent at all, right?

And for the construction of the payment of interest, yes, if not for the concession I will also rule against you, Mr Chan. I think interest accrued on the outstanding principal. Once outstanding principal has been paid, interest stops to run. That’s – I think I will apply this common sense to the construction of that provision of the agreement. So you cannot charge the interest. So page 40-469, for that interest there, that is incorrect. I accept Mr Cheung’s submission I should adopt the 470 figure as the figure that the defendant is liable to pay.

And of the construction – sorry – restoration costs, I think, that’s the only point that I have to consider today. I will accept that since, number 1, the plaintiff is liable to pay restoration, the question is how much. They have put a figure of 2.4 – around 2.4 right? 2.47 million as the restoration charges. On the face of it, it appears to be not very reasonable, but this is an area which requires expert evidence to a total survey of the property and to have experts to do the assessment.

Then I think I will today enter judgment for the plaintiff to – for the amount of the figure of 5,803,083.08 minus the 2.74 dollar. How much? I come to a figure of 3 million – 3,333,783.90. So Order 14 judgement for the plaintiff in this amount and unconditional leave granted to the defendant to defend the remainder of the plaintiff’s claim, So Order 14 judgment entered against the defendant for the plaintiff for the amount of … $3,333,783.90, with leave to the defendant to defend the remainder of the plaintiff’s claim.”

29.  D is now appealing the Master’s Partial Summary Judgment and asking for directions for a trial. In opposition to D’s appeal, P is seeking a full dismissal of D’s application with costs.

Issues before the Court to determine at the appeal

30.  The issues before me are centred around the standards for appeal from a master’s decision and are, largely, as follows:

(i) what is the standard for appealing a summary judgment by a master to the judge in chambers;

(ii) has D met the standard, specifically, are there triable issues and credible defences, or any other reasons that would warrant a trial; and

(iii) in considering the arguments under (ii) above, the court is required to decide whether there indeed have been a common intention as between the parties for the Agreement to be essentially a rental agreement under which rent would be due retrospectively in case of rescission, and whether there is now an estoppel by convention, and in the alternative, whether P remains responsible to pay D the mesne profits and reinstatement expenses.

31.  On 19 September 2024, the parties lodged their respective skeleton submissions, and on 2 October 2024, P issued its Supplemental Skeleton Arguments. The following is a brief summary of the parties’ submissions, albeit not exhaustive.

Summary Judgment

32.  D argues that for its appeal to succeed, it only needs to show that there is a triable issue or question or that for some other reason there ought to be a trial; Hong Kong Civil Procedure 2024 (“HKCP 2024”), §14/4/9B.

33.  P disagrees and argues that, to the contrary, it is not good enough for the D to merely put forward a defence that may be arguable. P argues that the Court should not take the defence at face value and should test the defence against contemporaneous documents or matters that cannot be or are not disputed.[3] There, the P cites DHCJ H. Au-Yeung (as he then was), in his judgment in China Construction Bank (Asia) Corporation Limited v Wong Sai Chung [2022] HKCFI 2579.

34.  D further argues that there is a bona fide defence and a triable issue as regards the following:

(i) First, this is a clear case of estoppel by convention, and P is estopped from purporting to exercise its contractual right of rescission under the Agreement; and

(ii) Secondly, only in the alternative, even if the court does not recognize the existence of the estoppel by convention, P remains responsible to pay D the mesne profits and reinstatement expenses.[4]

35.  On its first point, D argues that by allowing P to reside within the Property as if she were the true owner, ie without paying rent or a licence fee of any sort, D was essentially relinquishing its strict legal right to rent out the Property at market rent. Thus, D suffered a detriment as a result of entering into the Agreement under such circumstances. It would therefore be unconscionable for P to now resile or depart from the shared assumption and demand D to pay damages [A/62/§4; A/65/§17].[5] D concludes that in light of that, P is estopped from claiming rescission remedies [A/62/§41].[6]

36.  In its submissions, D makes extensive references to a plethora of legal authorities on estoppel by convention, largely, submitting that for an estoppel by convention to arise, the following elements must be established:

(i) the parties must have acted on a common assumption with respect to a contract between them;

(ii) the common assumption must have been expressly or impliedly communicated as between the parties;

(iii) the common assumption must be that a given state of facts or law is true; and

(iv) a party had acted to its detriment in relying on the common assumption.

37.  According to D, estoppel by convention, once arisen, operates to estop a party from insisting upon a particular legal right which is inconsistent with the parties' common assumption.^[7]

38.  D’s main argument is therefore that P is estopped from relying on the Agreement in its claim for interest by operation of estoppel by convention.

39.  D argues that had P operated on a normal conventional basis in a sale and purchase of properties, time would be of the essence for the formal completion in the true sense, and concludes that because P did not rescind at 31 December 2016, that should mean that the Agreement, largely, was not a sales agreement but rather a rental and that was the parties’ common intention. [8]

40.  D then also makes extensive references to the various elements of the common intention and estoppel by convention tests, and seeks to exclude the various correspondence on the basis that those were privileged.[9]

41.  Should I find against D on its estoppel by convention argument, D comes forward with an “alternative defence” in arguing that P owes D mesne profits and reinstatement costs that should be set off against its liability to pay interest.[10] D then spends significant time and effort in substantiating the alternative defence.[11]

42.  In the context of its alternative defence, D argues that the Master’s findings on the interest quantum are res judicata,[12] and that the daily interest cannot be calculated with references to the Agreement as P suggests, but suggests that interest that had accrued up till 26/4/2023 would be no more than $5,803,083.09 according to D’s calculation (without admitting liability) [B2/294].[13]

43.  P disputes D’s submissions and D’s alternative submissions. According to P, estoppel by convention could not have arisen in this case. While largely, there is no disagreement on the law of estoppel by convention, amongst its other rebuttals, P argues that were D’s defence accepted, P would be left with no recourse, which could not have been the parties’ intention, and that allowing D’s argument would meant that the alleged common intent only bars P from invoking the rescission clause under the Agreement, in other words, it only estops P and not D, which could not have been the parties’ intention behind of the Agreement.[14]

44.  P also argues that D has failed to condescend into particulars whether in respect to the factual matrix that gives rise to the common assumption/intent or the basis by which D claims that P is liable to pay D the sum in excess of HK$6.3 million being the total sum of "mesne profit" and reinstatement costs.[15]

45.  P points out that neither of D’s defence grounds featured in any of the correspondence between the parties prior to these proceedings.[16]

46.  P does, however, accept that the interest rate exhibited by the D at [B2/294] to be correct.

DISCUSSION

Standard for appeal from a master’s decision

47.  The court is ably assisted by counsel in reviewing the legal principles governing appeals from master’s orders to a judge in chambers, and thanks the counsel for the extensive submissions.

48.  It is trite law that for a successful appeal from a master’s order, D must show that he has a real or bona fide defence, that there are triable issues, or that there ought, for some reason, to be a trial of the D’s case. There is no tension as between the parties on the legal principles.

Has D satisfied the standard, ie is there common intention and estoppel by convention, and if so, are those triable issues and bona fide defences?

49.  Considering the parties’ arguments on appeal, the crux of my consideration is whether I accept – or can accept as a triable issue and bona fide defence - that an alleged common intention exists as between the parties that the Agreement and the Licence Agreement would not operate as a property sales transaction but rather, that they would operate as a rental arrangement under which it is implied that rent is due by P to the D in case of rescission. My second consideration is whether I accept as a credible defence D’s alternative argument.

50.  Here, I need not find whether in fact there has been a common intention or estoppel by convention, but rather, I only need to find whether it is credibly arguable that there has been one, and whether that warrants a trial to elucidate further evidence that may lead to a conclusion different from the Master’s.

51.  I have reviewed the parties’ lengthy references to the law on common intention and estoppel by convention. I regret to conclude that while in itself of interest, the length and detail of those citations do not advance my reasoning as all these citations are made at best tangentially relevant by the rather straightforward wording of the Agreement and by the uncontested underlying factual matrix. Neither of what has been cited to me dislodges the wording of the Agreement.

52.  P as a layperson seeking to purchase property in Hong Kong, in my view, is highly unlikely to have intended to enter into a convoluted rental transaction when concluding a standard purchase agreement for the Property, as D suggests, somehow guided by the complex notions of common intention and estoppel by convention that took over a hundred pages of skeleton arguments by skilled counsel to elucidate.

53.  Before even reviewing the test for estoppel by convention, I cannot help but find that in order to dislodge the clear, uncontested, unambiguous wording of the Agreement, an exemplary high threshold must be reached by the D to credibly argue that the Agreement is not what it reads to be. Nothing before me, even what is alleged to be privileged correspondence, reaches that standard.

54.  Unruh v Seerberger (2007) 10 HKCFAR 31 that D relies on is not even tangentially instructive here because there, the court was concerned with the interpretation of a bonus provision in a complex memorandum of understanding. Nowhere does Unruh v Seerberger (2007) 10 HKCFAR 31 allow me to requalify sales into rent in dislodging the clear terms of the Agreement to assume that it was not an agreement for the sale of property in Hong Kong, and that there was an implied term to pay rent at recission requests.

55.  Neither does First Laser v Fujian (2012) 15 HKCFAR 569 allow me to conclude that in the case before me, a purchaser and a developer while entering into a straightforward sales transaction only complicated by the fact that the Phase had not yet been commissioned, in fact impliedly intended to enter into a rental transaction of property.

56.  At no stage was such an alleged common intention verbally or otherwise communicated as between the parties, on the evidence before me or before the Master, and none was brought up by D in the correspondence with P leading to the present proceedings.

57.  In other words, D’s argument in its complexity is defeated by the terms of the Agreement, by the contemporaneous correspondence between the parties, and if I may say, by common sense.

58.  Neither does D’s alternative argument assist. Here, first, the nature of the defence (in the alternative) defeats the test of the credible bona fide defence that is required for the appeal to be allowed. That is not to say that in appealing from a master’s order, an alternative defence is inherently unsuccessful, but if one does accept that the main defence is likely to fail to the point that an alternative must be constructed, the alternative itself sounds less credible.

59.  On the substance of the alternative defence, I equally do not see how P must “pay for the occupation” of the premises it had purchased and paid for, as if the premises were rented, because P had decided to engage the terms of the Agreement.

Findings of this Court

60.  Having heard the parties and studied the evidence before me, I see no reason to disagree with the Master’s decision in his Partial Summary Judgment.

61.  D’s defence that there had existed a common intention as between the parties that the terms of the Agreement would not be enforced but rather, that P would occupy the premises it had purchased as a tenant and pay rentals to the D should it decide to enforce the Agreement against the D, does not only fail as a triable issue, but it fails altogether. D’s alternative defence that no agreement exists as between the parties and P thus owes rent to D by virtue of occupying the Property also appears lacking in credibility.

62.  There is thus no triable issue or bona fide defence that would warrant a disagreement or a trial. I dismiss D’s appeal for the reasons set in this decision.

CONCLUSION

63.  For the reasons set out above, I agree with the Master’s Partial Summary Judgment and with his reasons.

64.  For the costs of and occasioned by the appeal from the Master’s order of 13 May 2024, including the hearings before the Master and the hearing before me, costs should follow the event of this appeal.

65.  With that, I will make an order nisi that D should bear the above costs pertaining to the appeal and such costs will be summarily assessed by the court on paper.