MURRAY ALASTAIR ELLIOT v. HEALTHY LIVING PRODUCTS INTERNATIONAL LTD AND OTHERS

HCA3202/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3202 OF 2003

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R U L I N G

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1. This is an application for summary judgment against the 1st defendant for specific performance of a sale and purchase agreement dated 26 June 2003 ("the Agreement") whereby the 1st defendant agreed to sell to the plaintiff the property known as Lot No.215 in D.D. No.219, Sai Kung ("the Property"). The plaintiff also seeks a declaration that the 2nd defendant has no beneficial interest in the Property or alternatively that the conveyance of the Property to the plaintiff is not affected by notice of any beneficial interest which the 2nd defendant may have.

2. The 1st and 2nd defendants are companies incorporated in Hong Kong, and the 1st defendant is the registered owner of the Property. The 3rd defendant was a director of both companies.

3. The plaintiff and the 1st defendant entered into a provisional sale and purchase agreement dated 14 June 2003, whereby the plaintiff agreed to purchase and the defendant agreed to sell the Property at a price of $8,883,000.00. The plaintiff paid an initial deposit of $500,000.00. The 3rd defendant signed the provisional agreement on behalf of the 1st defendant. Pursuant to the provisional agreement the parties entered into the Agreement and the plaintiff on 26 June 2003 paid a further deposit of $383,000.00.

4. The plaintiff says that he has been willing and able all along to complete the purchase and sale agreement. However, the 1st defendant's case is that the 1st defendant was unable to convey the Property because the 2nd defendant owns the beneficial interest in it under a resulting trust. When the Property was bought in the name of the 1st defendant, the 2nd defendant paid part of the purchase price and has paid the instalments of interest and capital under the mortgage as they fell due. Therefore there is a resulting trust in favour of the 2nd defendant. The 1st defendant further says that the Agreement was a conditional agreement made upon the condition precedent of the 1st defendant's obtaining the consent of the 2nd defendant. In the alternative it relies on Clause 35 of the Agreement which, it says, only entitles the plaintiff to the return of his deposits and to damages.

5. The 2nd defendant likewise relies on the trustee and beneficiary relationship between itself and the 1st defendant and argues that this is a triable issue which cannot be resolved at this stage. It is also argued for the 2nd defendant, and this is not denied by the plaintiff, that if there is such a relationship, the plaintiff has notice of it and even if he can enforce the Agreement so as to complete the purchase he will only take the Property subject to the interest of the 2nd defendant.

Principles

6. I do not propose to set out all the authorities on the principles to be applied in deciding an application for summary judgment under Order 14 or Order 86 of the Rules of the High Court, which are well known and not in dispute. Suffice it to say that a defendant must show that there are triable issues, if he is to be allowed to defend. The court will test the credibility of an affidavit asserting a triable issue against the conduct of the defendant and contemporary documents. See Murjani v. Bank of India [1990] 1 HKLR 586. The court must decide whether the defendant's allegations are believable, rather than whether they are to be believed; but in deciding whether they are believable, regard must be had to the factual background. Per Bokhary JA in Re Safe Rich Industries Limited, Civil Appeal No.81 of 1994, unreported, 3 November 1994 :

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute."

Evidence

7. While in Order 14 proceedings there is not to be a trial on affidavits, it is necessary to set out the parties' evidence before deciding whether, when viewed against the background of undisputed or indisputable facts, it is believable. In brief the plaintiff's evidence is as follows. He decided to buy a house and his wife engaged an estate agent, Serrine Lau, to find one. On 13 June 2003, the agent told the plaintiff's wife that the Property was for sale for $8.8 to $9 million. The plaintiff decided to make an offer.

8. In the early evening of 14 June 2003, the agent came to the plaintiff's home, where he agreed a price of $8.8 million, signed the provisional agreement, and wrote a cheque for $500,000.00 payable to Messrs Jesse H.Y. Kwok & Co.

9. Later the same evening the agent telephoned the plaintiff's wife in his presence and said that she was with the only directors of the 1st defendant. The plaintiff and his wife were given to understand that the directors said they had been offered $8.8 million, and wanted him to match that. There were further negotiations and a price of $8.83 million was agreed.

10. At about 10:30 p.m. on the same evening the agent came to the plaintiff's house with the provisional agreement and asked him to initial the alterations to the price on it. He was given a copy, which was signed by two signatories for the 1st defendant, Chan Yu San Zarrina and Khan Jawid Iqbal, the 3rd defendant.

11. At about 10:00 p.m. the next night, i.e. 15 June 2003, the 3rd defendant came to the plaintiff's home with a young woman, later known to be Lam Hoi Yan, Amanda ("Amanda Lam"). The 3rd defendant said that it was his mother who wanted to sell the Property and that it should be worth more than $8.83 million. He asked the plaintiff to agree to cancel the provisional agreement and offered to pay the plaintiff's share of the agency commission. In the course of the meeting the plaintiff went to see to his child, who had woken up but his wife later told him that she had refused the 3rd defendant's request.

12. A few days later the 3rd defendant and Amanda Lam, came to the plaintiff's house where they met the plaintiff in his wife's absence. The 3rd defendant repeated his request to cancel the provisional agreement and offered compensation of $20,000.00 in addition to payment of the agency commission. The plaintiff said he would consult his wife. In fact she did not agree. The plaintiff however did not contact the 3rd defendant.

13. On 26 June 2003, the plaintiff's solicitors told his wife that the Agreement had been executed by the 1st defendant and was registered with the Land Registry. The plaintiff paid the further deposit of $383,000.00 by cheque made out to Weir & Associates. I note that the Agreement was signed on behalf of the 1st defendant by its director, Chan Yu San Zarrina.

14. On 4 July 2003, the plaintiff's wife got a message to telephone a Mrs Khan. She did so and spoke to Amanda Lam. The latter told her that when she and the 3rd defendant had spoken to the plaintiff the second time, in his wife's absence, he had agreed to cancel the provisional agreement. This the wife denied. She said that she and the plaintiff intended to go ahead with completion.

15. On 21 July 2003 the plaintiff's solicitors received a letter from Weir & Associates disclosing certain illegal structures on the Property. The plaintiff's solicitors reserved their position until the title deeds had been inspected. On 1 August 2003, the plaintiff's solicitors were informed that Jesse H.Y. Kwok & Co. were now acting for the vendor. On 6 August 2003, the latter firm wrote to the plaintiff's solicitors alleging that the Property was subject to the third party interest of the 2nd defendant. This was the first that the plaintiff heard of any such third party interest.

16. The 3rd defendant's evidence is as follows. He was at all material times a director of the 1st defendant and one Nu Life International Ltd ("Nu Life"). By an assignment dated 1 April 1997 Nu Life bought the Property which was registered in the name of the 1st defendant. Nu Life paid the down payment, the stamp duty and mortgage instalments. At the end of 1999 Nu Life restructured. The 2nd defendant took over part of its business, including its beneficial interest in the Property. Thereafter the 2nd defendant took over payment of the mortgage repayments. The 1st defendant itself never put any money into the Property. In fact the Property was used for the accommodation from time to time of overseas managers of Nu Life and the 2nd defendant when they stayed in Hong Kong.

17. In 2000 the 2nd defendant instructed the 1st defendant to put the Property on the market to see what it was worth. On 14 June, the agent Serrine Lau approached the 3rd defendant's mother who was also a director and shareholder of the 1st defendant and persuaded her to sign the provisional agreement, contrary to the instructions of the 3rd defendant that the agent's instructions were to come only from him. He told the agent that the company documents authorising the sale were not ready but she assured him that there would be no problem; and so he also signed the provisional agreement. The price was already marked on it.

18. The next day, on 15 June 2003, being afraid that the agent might not have told the plaintiff that the company authorisation documents were not ready, the 3rd defendant went to see the plaintiff and his wife, along with Amanda Lam. The plaintiff and his wife showed understanding but asked him to sort out the matters.

19. After that, however, he realised that the 2nd defendant would probably not consent to the sale, because the Property was needed for some overseas managers' accommodation. So on 21 June, he and Amanda Lam went back to the plaintiff to tell him that the 1st defendant could not sell. The plaintiff said that he understood and agreed to cancel the sale, though his wife would be disappointed.

20. The 3rd defendant then proposed that he would try again to obtain the right for the 1st defendant to sell, but if he could not, the sale should be treated as cancelled; and to this the plaintiff agreed.

21. The Agreement was duly executed on 26 June, and the plaintiff paid the further deposit. It should have been clear to the plaintiff from Clause 35 thereof (which I will set out below) that there was a third party interest. However in early July the plaintiff's wife told Amanda Lam that the plaintiff insisted to complete the purchase, and denied that the plaintiff had made any promise to cancel the sale.

22. Amanda Lam's evidence of the meetings on 15 and 21 June and the telephone conversation of early July confirms that of the 3rd defendant.

23. There is also evidence from one Kwong Lam Sang, a director of the 2nd defendant and Nu Life who says that the latter put up all the money for the purchase of the Property in 1997. In his first affirmation he said that the down payment and the stamp duty were paid by Nu Life with the balance of the purchase price by way of mortgage. He exhibits a copy of a cheque issued by Nu Life in payment of stamp duty of $505,450.00. He lists a number of monthly payments out of Nu Life's bank account between January 1998 and December 1999 which he says are for mortgage repayments. These are for odd figures as high as $88,676.57 and as low as $79,866.18. He exhibits the bank statements in support but there is no evidence of the identity of the payee or payees.

24. Mr Kwong confirms that the 2nd defendant took over Nu Life's interest in 2000 and exhibits an accountant's letter dated 3 December 2003 in support. The letter is addressed to the directors of the 2nd defendant and reads :

"Nu Life International Ltd. (Formerly Wealthy Holder Limited) was incorporated on 28th May 1991 and carried on multi-level marketing business, trading of health products and investment in properties. On 2 January 2000, Nu Life International Ltd ceased to carry on multi-level marketing business and commenced to lease its properties, equipment and fixtures to a related company, Nu Life International (Hong Kong) Ltd. (formerly Galleon Trading Ltd.). Further, Nu life International Ltd sold all its trading stocks to Nu Life International (Hong Kong) Ltd. at cost."

25. Mr Kwong says that after it took over the business of Nu Life the 2nd defendant paid the mortgage repayments from February 2000 to May 2000. After that, he says, for convenience the money was first transferred to the 3rd defendant's account so that he could pay the mortgage and other expenses, or alternatively to the 1st defendant's account. The 2nd defendant's bank statements show monthly transfers to the 3rd defendant of round figures of anything from $50,000.00 to $220,000.00 from June 2000 to October 2001 and in March 2002 and March 2003. In other months, transfers to the 1st defendant appear, usually for $100,000.00.

26. Mr Kwong confirms that the 1st defendant was told to ascertain the market value of the Property; that the Property was used for accommodation from time to time of overseas managers; and that when in mid-1993 the 3rd defendant told him that he had an interested buyer for the Property, that the 2nd defendant told the 3rd defendant that it would not sell.

27. In a second affirmation Mr Kwong exhibits the bank statements of Nu Life for 1997 which show, as well as the payment of stamp duty, a payment out of $700,000.00 which he says is a part of the deposit and payments which he says were mortgage instalments. He also exhibits internal applications for cheque payments of Nu Life corresponding to six of the entries. They show that they payments are to First Pacific Bank Ltd or in one case the 1st defendant. Under the heading "purpose" in four cases the entry "Javid's a/c" appears; in one case it is "Mortgage" (Javid's a/c) and in one it is "Deposit to First Pacific Bank's Loan a/c".

The Agreement

28. The relevant clauses of the Agreement, for the purpose of this application are as follows :

"22. In the event of the Vendor failing to complete the sale of the Property in accordance with the terms hereof, all deposits and further deposits paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be returned to the Purchaser who shall also be entitled to recover from the Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution.

23. Nothing in this Agreement shall be so construed as to prevent either the Vendor or the Purchaser from bringing an action and obtaining a decree for specific performance of this Agreement either in lieu of the aforesaid damages or in addition to such damages as the party bringing such action may have sustained by reason of the breach by the other party to this Agreement and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution before bringing such action for specific performance.

...

31. This Agreement sets out the full agreement between the parties hereto and supersedes any other commitments, agreements, warranties or understandings, written or verbal, that the parties hereto may have had with respect to the subject matter of this Agreement. Without prejudice to the generality of the foregoing and the warranted made or given in this Agreement, no warranties or representations express or implied of any kind other than shoes set out above (if any) are or have been made or given by the Vendor or by anybody on his behalf and if any such warranties or representations express or implied has been made, the same is withdrawn or deemed to have been withdrawn immediately before the execution of this Agreement.

35. The Vendor hereby declares and confirms that no third party (whether related or otherwise) has any right or interest whatsoever, whether legal or equitable, in the Property. The Vendor hereby further declares and confirms that the Vendor has the absolute right and interest in the Property and the Property was purchased with the Vendor's own monies. In the event of any third party claim to the Property whether legal or equitable, on or before completion, the vendor shall forthwith return the deposit paid herein to the Purchaser and without prejudice to the Purchaser's right to claim against the Vendor for all losses and damages sustained by the Purchaser by reason of the Vendor's failure and or inability to complete the sale in accordance with terms hereof and it shall not be necessary for the Purchaser to tender an Assignment to the Vendor for execution."

Conditional agreement

29. It is noted that in neither of the Defences filed by the 1st and 3rd defendants is there any specific pleading of a conditional agreement. They both plead that the provisional agreement and the Agreement were executed under the mistaken assumption that the 2nd defendant might consent to the sale.

30. It was argued for the 1st defendant that the Agreement was entered into on the basis, agreed by the plaintiff and the 3rd defendant, that the latter would try to obtain the consent of the 2nd defendant to the sale, and if he failed, the sale would be treated as cancelled. This oral agreement was made on 21 June 2003. Following that, the parties executed the Agreement, and the plaintiff paid the further deposit on 26 June. It seems to me quite unbelievable that if such an agreement had been made on 21 June, the question of whether or not the 2nd defendant would agree could not have been sorted out before 26 June. It is also incredible that the parties, both having the benefit of legal advice, would have gone ahead with the execution of the Agreement. This is particularly so in the case of the plaintiff. There would be no reason for him to sign an agreement which might be set at nought by some third party and especially no reason for him to put up another $383,000.00. Further, there is no explanation why this matter was not mentioned in the letter of Weir and Associates of 21 July 2003, or at all in correspondence until 6 August 2003.

31. In my view, when looked at against the background of the undisputed or indisputable facts the allegations of a conditional agreement are unbelievable. But even if this is not so, it will not avail the defendants. Clause 31 is clear. The import of it is that any Agreement is the full agreement and anything else prior to it is superseded. So even if there had been some kind of conditional agreement the defendants could not rely on it.

Clause 35

32. The defendants rely on this clause as providing that if any third party claim is made the contract is at an end and the purchaser will have his deposits returned and retain the right to claim damages, but will not have the right to sue for specific performance. In interpreting a contract it must be read as a whole. In the words of Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] WLR 896 at 912 :

"Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."

33. Clause 22 provides that in the situation where the vendor fails to complete, the purchaser is repaid his deposits, and retains the right to sue for damages. Clause 23 provides that nothing in the Agreement is to be construed as preventing either party from suing for or obtaining specific performance either in lieu of "the aforesaid damages", i.e. those mentioned in Clause 22 or in addition to "such damages as the party bringing such action may have sustained by reason of the breach by the other party". That certainly appears to allow for specific performance in any situation where either party breaches the contract.

34. It is noted that the 1st defendant in Clause 35 specifically declares and confirms that no third party has any right or interest whatsoever, whether legal or equitable, in the Property and that the vendor has the absolute right and interest in the Property which was purchased with the vendor's own monies. It would follow that any third party claim would, as far as the 1st defendant is concerned, be invalid. It seems unreasonable to interpret Clause 35 as meaning that there is no third party who can claim, but if some third party puts forward an invalid claim, the contract is at an end. That would not make sense and no reasonable person would take that meaning from it. It is difficult to see, therefore that the 1st defendant can place any reliance on this clause as bringing the contract to an end or as precluding the plaintiff's right to claim for specific performance.

Resulting trust

35. The defendants' case is that in the beginning Nu Life put up all the money for the property. It paid the down payment, and the stamp duty and the mortgage repayments. If that is right, a resulting trust would be presumed in favour of Nu Life at least for what it paid directly. It seems that the presumption of resulting trust will not arise in favour of a person not named as legal owner on mere proof that he has contributed to mortgage repayments; Calverley v. Green, (1984) 155 CLR 242. But it could be said that a common intention constructive trust or an equitable proprietary estoppel would arise from the agreement between the 1st defendant and Nu Life that Nu Life would pay the mortgage instalments, if such agreement could be proved. For the 2nd defendant to rely on the trust in favour of Nu Life it would have to show that in some way it had acquired Nu Life's equitable proprietary interest in the property. In respect of its own payment of mortgage instalments it could rely on a constructive trust arising from agreement if agreement could be proved.

36. The plaintiff relies heavily on the following dictum of Ackner LJ in Banque de Paris v. Costa de Naray [1984] 1 Lloyd's Rep.21 at 23 :

"It is of course trite law that O. 14 proceedings are not decided by weighing the two affidavits. It is also trite that the mere assertion in an affidavit of a given situation which is to be the basis of a defence does not, ipso facto, provide leave to defend; the Court must look at the whole situation and ask itself whether the defendant has satisfied the court that there is a fair or reasonable probability of the defendant having a real or bona fide defence."

37. The plaintiff attacks the defendants' evidence of payment of or contribution to the down payment, on the basis that there are no documents which directly support it, except for a cheque which bears to show that Nu Life actually paid the stamp duty on the transaction in the sum of $505,450.00. He points to the fact that while there is documentary evidence that money went out of the accounts of Nu Life and the 2nd defendant there is no real evidence of where it went, apart from the assertions of the 3rd defendant and Mr Kwong. Mr Yin for the plaintiff points in particular to correspondence in which the plaintiff's solicitors asked the 1st defendant's solicitors for discovery of the audited accounts of the 1st defendant from 1997 to date and the mortgage instalment statement of the Property from 1 April 1997 to date, and also asked the 2nd defendant's solicitors for the audited accounts of Nu Life from 1997 to date, the copy cheque showing the down payment, copy cheques showing the payee of the alleged instalment payments and also the mortgage instalment statement. No discovery was forthcoming. Though the request was made only a week before the hearing, there has been no explanation as to why it was not forthcoming. The 1st defendant's solicitors only replied that the documents requested from them were not relevant.

38. This part of the defence is certainly lacking in support, except for the one document which appears to show that Nu Life paid the stamp duty, which, if it did, would provide a presumption of a resulting trust in favour of Nu Life for that amount. The evidence of payments by Nu Life and then the 2nd defendant of the mortgage instalments would not provide any presumption, following Calverley v. Green. If they were made pursuant to an agreement there would be a constructive trust; but there is nothing but assertion as to the agreement. It is noted that we are dealing with companies, not individuals. If there were any agreement that Nu Life and then the 2nd defendant was to be the beneficial owner of the property held in the name of the 1st defendant one would expect to see board resolutions and entries in the accounts relating to the property held as an asset and any payments in respect of it. However, the defendants have simply refused to make such documents available. This I think calls into question the defendants' bona fides.

39. The contemporaneous documents and circumstances do not directly support the assertions of a third party beneficial interest. At the same time they do not directly contradict them. I do not think that I can say, in the words of Mortimer JA in Manciple Ltd v. Chan On Man [1995] 3 HKC 459 at 466D that the assertions :

"... are so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that [the] defence is a sham."

40. The defence is certainly shadowy and there is a question as to the bona fides of the defendants. Conditional leave is appropriate. The 1st and 3rd defendants will have leave to continue their defence and 2nd defendant will have leave to file its defence, on condition of payment into court of the deposits totalling $883,000.00 within 14 days of the order to be made herein. The costs of the summons will be in the cause.