CHEUNG KOON SHING v. DAT MING INVESTMENT CO. LTD. AND OTHERS

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

BETWEEN

__________

JUDGMENT

__________

1. This action is the outcome of a dispute between the Plaintiff and his eldest son, Lawrence, who is the 3rd Defendant. It relates primarily to the land upon which the Carlton Hotel in Kowloon stands ("the property"). The Plaintiff bought the land in 1955 and 1956, and he built the hotel the following year, 1957. Of the Plaintiff's 7 children by his 1st wife (4 daughters and 3 sons), only Lawrence had anything to do with the hotel. He managed it under the supervision of the Plaintiff between 1959 and 1967, when he left for Canada with his family at the time of the riots. He returned to Hong Kong after a year, but went his own way. The Plaintiff's lst wife died in June 1975 and it was in the immediate aftermath of that traumatic event that the major source of the dispute arose.

2. The hotel was not the Plaintiff's only asset or business. He was a successful land developer and had interests in buildings and in at least one other hotel, and in a restaurant and nightclub, and in several companies through which those interests were held. One of these was the 1st Defendant ("Dat Ming"), a private company formed and originally held as a shell for possible future use in land development ventures. It is not disputed that originally, while it was a shell, of the only 20 shares issued, the Plaintiff held 10 and Lawrence held the other 10. The 2nd Defendant ("Hon Nin") is a private limited company owned and controlled by Lawrence and his wife and children.

3. Of the Plaintiff's 3 sons by his 1st wife, I have already mentioned Lawrence, the 1st Defendant. The 2nd son is Frank, who is a solicitor practising in Hong Kong; and the 3rd, Alex, who is a doctor in America.

4. In his Statement of Claim, the Plaintiff says there was a partly oral, and partly written agreement made in August 1975 between him and Dat Ming. The oral part, he says, was contained in conversations between him and Lawrence for and on behalf of Dat Ming; and the written part, in a document dated the 12th August 1975 signed by him and Lawrence as chairman and managing director, respectively of Dat Ming. That document came to be referred to as "the guarantee", an appellation it is con-venient to adopt. By the agreement he claims, he agreed to sell the property to Dat Ming for $3 million subject to the following express conditions:

He goes on to say that pursuant to the agreement he executed an assignment of the property on the l4th August 1975, but that Dat Ming refused to pay the $3 million within 30 calendar months or at all. He asks for return of the property. That is the first part of his claim.

5. The second part of his claim relates to shares in Dat Ming. He says that until 14th August 1975, he and Lawrence owned 10 shares each of the issued share capital of Dat Ming which then consisted of 20 shares of $100 each. He says Lawrence well knew that his wish was for his 3 sons to have equal shares in Dat Ming, but that wrongfully and without his consent, Lawrence on 14th August 1975 filed a return of allotment of 2980 shares in Dat Ming purporting to have been issued in the following way:

He says Lawrence also caused to be filed a return purporting to show that the Plaintiff had transferred his 10 shares to Hon Nin, whereas he, the Plaintiff, had neither agreed to that nor executed any transfer of those shares. He asks that the allotment of the 1510 shares to Hon Nin be set aside (but it should be noted, he makes no such application as to the other shares alloted to Frank and Alex). He also asks for an injunction to restrain Dat Ming and Hon Nin from disposing of the 1520 shares.

6. The foregoing relief is all sought against Dat Ming and Hon Nin. Nonetheless serious allegations are made against Lawrence, and it is not disputed that he has been properly joined as a party.

7. It is Lawrence who spearheads the defence of all 3 Defendants, his defence being reflected by those of the other 2 Defendants. In substance he denies the partly oral partly written agreement and says that he did not sign the document dated 12th August 1975. He adds that if it is held that he is obliged to pay the Plaintiff the $3 million, then he will say that such obligation is released by a deed of release signed by the Plaintiff and by Lawrence and Frank. As to the shares in Dat Ming, Lawrence refers to Dat Ming directors' resolutions, minutes, returns of allotment, a sold note, and an instrument of transfer all signed by the Plaintiff as showing that the Plaintiff agreed to and authorised the transfer and allotments of which he now complains.

8. In his reply to the defences of the 3 Defendants, the Plaintiff says that the deed of release was executed in escrow, and that it was cancelled by agreement between him, Lawrence and Frank. As to the Dat Ming resolutions, minutes and other documents, he says he signed in blank documents represented by Lawrence as being a formal character and that these were falsely and fraudulently completed without his authority.

9. In their respective defences the Defendants in addition pleaded that the Plaintiff was estopped from denying that he had received the purchase price of $3 million, from alleging that the allotment of Dat Ming shares was improper or without his consent, and from alleging that the transfer of his 10 shares in Dat Ming was wrongful or improper. However, following a highly critical analysis of that plea by Mr. Ching for the Plaintiff in his opening address, the plea was not pursued on behalf of any of the Defendants.

10. It can thus be seen that the dispute between the parties resolves itself primarily into issues of fact. I will begin first with the Plaintiff's evidence. He says that prior to the death of his 1st wife, relations between him and Lawrence were not particularly warm. However they then improved and Lawrence came to see him many times. The Plaintiff's testimony is that in the context of his wife's death, Lawrence pointed out that there could be estate duty problems about the property which the Plaintiff held solely in his own name, problems that could be avoided by transferring it to a family company. Eventually, the Plaintiff says he agreed to the property being transferred to Dat Ming and asked Lawrence to take the necessary action. He found reassurance in his belief that after all he would still have his shares in Dat Ming. It is common ground that Lawrence went to see him several times during that period. The Plaintiff claims that on more than one occasion Lawrence gave him blank and partly completed documents to sign as being formal documents for the conduct of business, and that he signed them. On the 14th August 1975 he went to the offices of P.C. Woo & Co., his solicitors. Lawrence had telephoned him and told him to go and to take along with him the title deeds for the purpose of the transfer of the property to Dat Ming. Lawrence and Frank were already there when he arrived. He went into the office of one of the solicitors, Roland Chow. Mr. Chow told him the property was to be transferred to Dat Ming for $3 million and also that he would have to pay $22,500 to Dat Ming as the monthly rental for the property. That he says upset him and he graphically described how he stormed out taking the title deeds with him. But Frank, he says, followed him and explained that it would merely be money passing from the right hand to the left; that Lawrence would pass the money back to him; and that he should return and sign. So he returned and signed.

11. It is not disputed that the deed in question is an absolute assignment of the property to Dat Ming and that it contains both an acknowledgement of payment and a specific receipt clause for the $3 million. Equally it is not disputed that the $3 million was not paid.

12. Now the Plaintiff testified that Frank was neutral and would not help either him or Lawrence, because, as he put it, Frank "is clear about the law" and he relied upon Frank as a blind man did upon his stick. Frank, who was called by the Defendants, gave a very different version of that episode. He confirmed that he, the Plaintiff and Lawrence met at the offices of P.C. Woo to complete the transfer of the property to Dat Ming. But he says that after the execution of the assignment a discussion arose as to the possible liability of Dat Ming for the purchase price of $3 million should the Plaintiff die and his estate decide to pursue it. Mr. Chow suggested a release to meet that possibility. As a result of the discussion, the deed of release was prepared and executed. There was some discussion about the stamp duty it would attract and the matter was left for Mr. Chow to resolve. While Mr. Chow was preparing the document there was some mention of rent. But he categorically denied that the Plaintiff stormed out or, that he followed him, pacified him and brought him back to sign.

13. Mr. Chow was called by the Plaintiff and his evidence was yet a further variation of the episode. He said it was not he but a managing clerk who handled the assignment of the property to Dat Ming. He himself merely saw the Plaintiff, Lawrence and Frank waiting and invited them to his room as a matter of courtesy. While awaiting the deed of assignment, the question of estate duty arose and the Plaintiff enquired whether such duties upon the property could be avoided. Mr. Chow said he suggested a scheme whereby Lawrence and Frank would request the Plaintiff to assign the property to Dat Ming, the family company; they would assume the responsibility to pay, and the Plaintiff would give them the price rather than the property. The Plaintiff said he would like to have the document prepared and signed and then to think for a day or two about whether it should take effect. Mr. Chow said that could be done by executing the deed in escrow explaining what that meant. So he, Mr.Chow, then and there prepared the deed of release and retained it after it was signed by the Plaintiff, Lawrence and Frank, though it was neither dated nor attested. Later that same day Lawrence telephoned to say the Plaintiff did not want the deed and shortly after, the Plaintiff himself telephoned confirming that. A few days later Mr. Chow says he also confirmed with Frank that the deed was no longer required and having done so marked the deed "cancelled''. He himself had no recollection of the Plaintiff storming out, though he could not rule out that possibility.

14. Frank denied that he had agreed to cancel the deed but thought the explanation of the conflict between his and Mr. Chow's versions might lie in his telling Mr. Chow "forget it", meaning forget the stamp duty which Lawrence preferred not to pay despite the possibility of a larger penalty if it became necessary to rely upon the releases.

15. As to Lawrence's version, it is common ground that in 1969 the Plaintiff had caused to be prepared a conveyance of the property to the 3 sons in equal shares. The Plaintiff regarded it as a sort of will to take effect on his death. Lawrence says he refused to sign it as he felt he was entitled to a larger share in recognition of all the work he had put in for 10 years towards the development of the Hotel. After his mothers death in June 1975, he and his father were going through the names in the funeral attendance book and got talking. His father said he did not feel like continuing his involvement in the business any more and suggested the 3 sons should accept the property for their children's education. Lawrence says he told his father that the latter should know his, Lawrence's feelings towards the property.

16. His father then grabbed a portion of a used envelope lying on the desk and wrote upon it 51%, 34% and 15%. Lawrence says he said it would be very awkward and difficult to explain to     Alex who was not in Hong Kong why he should have so small a share. But to cut a long story short, in pursuance of his father's wish, Lawrence put in train various Dat Ming resolutions and notices of allotment and other necessary documents all of which the Plaintiff knowingly authorised and signed.

17. Also he caused to be prepared by the Plaintiff's own solicitors the indenture of assignment of the property. It was explained to his father in the P.C. Woo office, by Mr. Chow he thought, and he and his father signed it. He denied that his father stormed out and was brought back by Frank.

18. I cannot say that I was impressed by Lawrence as a witness, or that I accept the truth of all his evidence. But his was a difficult position i.e. to be in dispute over property with his oven father in the courts, moreover a father who as he did not seek to deny, had been very generous to him even after the dispute in the present action had arisen, and who had at least in the past evidenced a desire to leave the property to his 3 sons in equal shares. As will be seen, I do not need to say more.

19. The one witness who did impress me as an honest and reliable witness was Roland Chow, the solicitor who prepared the release. As to Frank's evidence, the Plaintiff, as I have said, himself testified that Frank was neutral between him and Lawrence. But there were at least two significant conflicts between Frank's evidence and that of Mr. Chow. Firstly in the object of the release, which Frank claimed was to meet any possible claim by the Plaintiff's estate for the purchase price of the property, but which Mr. Chow convincingly and positively testified was his own scheme to avoid estate duty. Secondly, Frank denied that he agreed to the release being cancelled, and I do not find convincing his explanation that he told Mr. Chow to "forget it" meaning the stamp duty issue as opposed to the release. I have no hesitation in preferring Mr. Chow's evidence.

20. The Plaintiff himself agreed that he had signed the release but was not sure why or when, and as to cancellation said that he left it all to Mr. Chow when the latter telephoned him to ask.

21. I turn then to the resolutions, returns of allotment and other Dat Ming documents upon which it is common ground the Plaintiff's signature is to be found. The documents include directors' resolutions for the purchase of the property for $3 million, the transfer of the 10 shares from the Plaintiff to Hon Nin, the allotment of 1510, 1020, and 450 shares to Hon Nin, Frank and Alex respectively, the approval of the transfer of 20 shares to Hon Nin, the appointment of Frank as director, minutes of meetings and company returns recording some of the foregoing matters including the allotment of shares, a sold note for the sale of 10 shares from the Plaintiff to Hon Nin, and an instrument of transfer for the same. All of these documents it is admitted by the Plaintiff bear his signature or initials. Indeed several of them bear both the Plaintiff's signature and initials in different places. From the positions of those initials and signatures, it is patently most improbable that the typed matter could have been added later, or indeed that the Plaintiff would have placed his signatures and initials in what would have been extraordinarily curious positions if the papers upon which they were placed were then blank.

22. On the other hand if the Plaintiff could not understand the contents of the documents, it is possible to argue that the matter should be viewed in a different light. There was some suggestion initially that the Plaintiff's English was not good enough to understand the company and other documents including accounts. The Plaintiff gave evidence in Cantonese in which there can be no doubt he is more comfortable and much more fluent. But it soon became clear that his English was quite adequate to read and understand the general nature of the documents. He answered many questions before they were interpreted to him, and seemed quite able to read and understand passages in English; a postcard he had written many years ago to a grand-daughter is entirely in English, albeit basic. In his long and successful business career he has had to cope with accounts and documents in English. He had successfully undertaken the development of land and the erection and sale of large multi-storey buildings, been the managing director of Miramar Hotel in Kowloon, the promoter of a nightclub and restaurant and been involved in many business ventures. Plainly he would have understood the nature of those documents, but to be fair he did not seek to deny that, his con-tention being that they were blank when he signed them. The difficulty of reconciling these conflicting considerations and claims gravely reflects upon the reliability of the Plaintiff's evidence. Moreover, it is equally difficult to imagine that Lawrence would have slipped in so many documents that would have destroyed his position had his father spotted them; and, of course, it is most likely that the Plaintiff would have realised what the documents were about had he looked at them.

23. I proceed then to the crucial factual issue in dispute i.e. the authenticity of the guarantee (the written agreement of the 12th August upon which the Plaintiff relies as the written part of the agreement, to reassign the property unconditionally if the $3 million was not paid within 30 months). The Plaintiff says that Lawrence produced the guarantee already signed by him, about the 12th August 1975 and that he then signed. The Plaintiff said that he kept it in his safe, but later in his evidence added that it was in his files in a cabinet, shortly thereafter correcting himself (as an afterthought, say the Defendants) by stating that the files were in his safe from that time until he produced the document to his solicitor in 1978. Upon any view that was a crucial document. Yet a letter written to Lawrence by his solicitors on 30th June 1978, for an explanation for the transfer of the shares to Hon Nin, Frank and Alex, makes no mention of the guarantee whatsoever, notwithstanding that the 30-month payment period had already expired several months earlier. Nor was there any mention of the guarantee in subsequent correspondence from the Plaintiff's solicitors in particular a letter of the 23rd October 1978. The latter specifically called attention to an item of the Dat Ming accounts which referred to a long term loran of $2,700,000, and stating that the Plaintiff had no particulars whatsoever nor did he know who was the creditor of such loan. Obviously the Plaintiff's solicitors could not even by then have been told of the existence of the guarantee or they would certainly have mentioned it.

24. It was suggested on the Defendants' behalf that in 1978 it must have become obvious to the Plaintiff that he could not succeed against Dat Ming and that he at that point decided to proceed against Lawrence and therefore had the guarantee procured. In refuting that suggestion heavy reliance was placed on the Plaintiff's behalf upon the time of printing of the letter-head paper upon which the guarantee was typed. This was in 1975 and the Plaintiff's contention was that such paper was provided in the hotel and very rapidly consumed so that it could not have been available in 1978. That argument has only to be stated to reveal its weakness. A pad or some sheets could obviously have been left unused in some corner or desk. I find it quite unconvincing and reliance upon it discredits the Plaintiff's case if anything.

25. As I have already noted, Lawrence by his pleadings denies that he signed the guarantee and contends that it is a forgery. Both sides arranged for handwriting experts to examine the signature purporting to be that of Lawrence upon the guarantee. In the event the only expert evidence forthcoming was that given on the Defendants' behalf by Mr. Tsui Cho Keung, a document examiner in the Forensic Division of the Hong Kong Government Laboratory. He compared the questioned signature with contemporaneous genuine signatures and concluded that enough of its features were outside the range of variation in the genuine signatures to regard it as a forgery. He was cross-examined by Mr. Ching and willingly admitted that hypothetically a signature may be affected and variations caused by factors like the importance of the occasion, the mood of the writer, whether he was tired, the quality of the paper, what was underneath i.e. a hard or soft backing, whether the writer was standing or sitting, and the amount of room the writer had. He also willingly conceded that there were numerous variations in the genuine signatures. Notwithstanding all that he remained of the opinion that upon the basis of 9 differences, which he thought significant, between the genuine signatures and the questioned signature, the latter was a forgery and also was not made by the author of the genuine signatures. His evidence was of course disputed and challenged, but only lightly tested and in my view certainly not discredited. At the very least it creates a clear probability that the questioned signature is a forgery.

26. And so I finally return to the question of credibility of the Plaintiff's evidence, although I have for obvious reasons already made some observations upon it. Appropriate allowance must be made for the Plaintiff's age and the time that has elapsed since the events to which he had to testify. The Plaintiff is now about 79 years of age and the matters to which he has had to testify in some detail occurred about 12 years and more ago. He himself admits that his memory is now not that good.

27. There were important matters he could not remember. He testified to other matters which on the probabilities never occurred e.g. his storming out of solicitor Chow's office. He contradicted averments in his own pleadings e.g. having pleaded that he and Lawrence each held 10 of the 20 shares issued, in evidence he contended that he was the majority shareholder in Dat Ming. He also contradicted his own evidence given in affidavits previously sworn by him. I do not need to elaborate further the unsatisfactory nature of his evidence. Not altogether without justification, Mr. Litton claimed that seldom has veracity been so completely demolished. I do not find it necessary to go so far as to bring the Defendant's veracity into question, nor in the particular circumstances of this case do I wish to. I simply record my finding that the Plaintiff's evidence is so unsatisfactory that I am altogether unable to rely upon it. The Plaintiff's allegation that Lawrence gave him the signed guarantee, indeed that that is a genuine document, accordingly fails. Upon that matter there is in any case the probability arising from the evidence of Mr. Tsui, the handwriting expert, that Lawrence was not the author of the questioned signature. The claim for assignment of the property must accordingly fail.

28. I also reject the Plaintiff's evidence and allegations as to how signatures and initials written by him came to be on the Dat Ming share transfer documents and returns of allotment and with it his plea of non est factum. It follows that his claim for an order to set aside the allotment of 1510 Dat Ming shares to Hon Nin likewise fails. There are other obstacles to his succeeding upon this claim, primarily of a technical nature. I do not consider it necessary to deal with them.

29. There remains the Plaintiff's claim for a declaration that he is entitled to a lien on the property for the purchase price of $3 million and interest. In addition Mr. Ching submitted that if reassignment of the property was refused that then Hon Nin ought to be ordered to pay the purchase price of $3 million, interest and rent to the Plaintiff. The receipt clause is, of course, not conclusive end it is common ground that the $3 million was never paid. Mr. Bokhary for Dat Ming submits that these claims are founded entirely upon the agreement pleaded and must fail with it. He points to the Plaintiff's averment in paragraph 4 of his Statement of Claim that the assignment of the property to Dat Ming was executed pursuant to the agreement.

30. The alleged terms and conditions of payment within 30 months and reassignment in default emerge only from the guarantee and fail with it. But although denying the agreement in general terms, Lawrence in his defence expressly admitted the Plaintiff's averment that it was an express term and condition of the agreement that the Plaintiff would execute an assignment of the property to Dat Ming. Dat Ming in relation to that says Lawrence had no authority to act in its behalf in relation to such matters; it goes on to deny the agreement and says that the Plaintiff was party to a Dat Ming resolution that the Dat Ming would purchase the property for $3 million; it adds that it followed from that, that the Plaintiff would execute the assignment in favour of Dat Ming.

31. Neither Lawrence nor Dat Ming in their defences denied that the purchase price of $3 million was payable, but both rely upon the instrument of release, which presupposes an obligation to make such payment. Furthermore, on the evidence there was in fact a resolution that Dat Ming would purchase the property for $3 million. And finally the receipt clause in the indenture of assignment itself carries an implication that a purchase price of $3 million was payable.

32. From the foregoing matters, and quite independently of the written part of the agreement (i.e. the guarantee) the overwhelming probability is that it was agreed that a purchase price of $3 million was to be paid for assignment of the property, and also that such agreement was reached in conversations between the Plaintiff and Lawrence. In the particular circumstances, it is difficult to see how else the agreement would have been reached. Upon that basis (which does not involve reliance upon the Plaintiff's evidence) I find that it was so agreed between the Plaintiff and Lawrence on behalf of Dat Ming that a purchase price of $3 million would be paid for the property. In this regard, I should add that the Plaintiff's re-amended particulars state that whereas the obligation to pay in 30 months and to reassign the property in default was contained in the guarantee, all the matters were agreed in the conversations.

33. Before I proceed to the defence of release, I must deal with the submission that payment of the $3 million was not expressly claimed in the present action, and indeed that it was abandoned by the Plaintiff, payment having been expressly claimed in a previous action which was discontinued on the very day that this action was instituted. I reject that submission. In focussing upon other reliefs particularly the larger remedy of reassignment (the property being worth very much more than $3 million) I do not think the Plaintiff abandoned his claim to repayment. Nor do I accept that it is an abuse of the process of the court to renew the claim in this action. Moreover that claim, in my view clearly comes within the general claim for further or other relief as the court may deem just. Needless to say I do not consider that there has been so radical a departure from his pleaded case as to disentitle the Plaintiff to succeed upon the claim for payment. I accept, of course, the general proposition that was advanced by Mr. Bokhary, that legal actions must be decided in accordance with the pleadings; consequently I see no need to review the authorities he cited in support.

34. As to the claims for interest and for rent for the property, I can find no evidence of or support for these in the evidence and considerations upon which I have found that a purchase price of $3 million was to be paid. In the particular circumstances I would be slow to draw an inference that interest was to be paid. In my judgment the Plaintiff has failed to establish any entitlement to rent or interest.

35. I turn then to the defence of release pleaded by Lawrence and Dat Ming. It can be disposed of quite shortly. To start with, it purports in express terms to release only Lawrence and Frank, and not Dat Ming upon which the obligation rests. Furthermore as I have already noted, I am satisfied upon Mr. Roland Chow's evidence that it was executed in escrow, and was cancelled with the agreement of the Plaintiff, Lawrence and Frank.

36. I would therefore give judgment in favour of the Plaintiff for payment of the sum of $3 million, but not for rent, nor for interest prior to judgment.

37. I proceed to the Plaintiff's claim for a declaration that he is entitled to a lien on the property for the purchase price of $3 million. I have already found on the probabilities that a purchase price of $3 million was to be paid for the property. It is not disputed that that sum has not been paid. The Plaintiff as a vendor of land who has conveyed it without receiving the purchase price is entitled to a lien upon the property for the purchase price, and in my judgment therefore entitled to the declaration.

38. To review the Plaintiff's claims, those for specific performance of the agreement, for an order for assignment of the property, and for a declaration that Dat Ming holds the property in trust fail. Those for a declaration that the Plaintiff is entitled to a lien on the property against Dat Ming for the purchase price of $3 million, and for payment of the $3 million succeed. That for an injunction to restrain Dat Ming from selling or disposing of the property seems to me unnecessary and I therefore do not propose to grant it.

39. As to the shares, since the Plaintiff has totally failed to establish his case in that regard, his relevant remaining claims that he has not abandoned i.e. that the allotment of 1510 shares to Hon Nin be set aside, and for an injunction to restrain dealing in the 1520 shares, also fail.

40. There will be judgment accordingly, subject to any submission upon interest from the filing of the writ to judgment, for which purpose there will be liberty to restore. I will now hear counsel upon costs.