HUANG YU HUI v. ZHENG SHIZHI (ALSO KNOWN AS ZHENG SHIZHI)

HCA 646/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 646 OF 2015

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JUDGMENT

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INTRODUCTION

1.  This is the appeal by the defendant (“D”) against the order of Master Chow made on 24 August 2016 giving summary judgment in favour of the plaintiff (“P”) for specific performance and striking out D’s counterclaim against P.[1]

2.  Shortly stated, D was the sole owner of a residential property on Pokfulam Road (“Property”).[2]  The case is about the alleged sale of the Property by D to P at the price of $21.2 million.  P paid a total of $2.12 million as the initial and further deposits respectively upon the execution of the Preliminary Sale and Purchase Agreement (PSPA)[3] and the formal Sale and Purchase Agreement (SPA).[4]  However, D then failed to complete the transaction or to return the deposits.

3.  As a result, P took out proceedings against D for specific performance of the transaction and also damages.[5]  D responded by filing a defence[6] asserting that he had been forced to sign documents on the Mainland under threats of personal safety by a Mr Sze with whom he had a commercial dispute.  D said that he had not engaged any estate agent or solicitors and had not received any of the deposits paid by P,[7] those monies being first paid to a firm of solicitors purporting to be acting for D (“the Solicitors”) and then to a Mr Ng who was said to be a business partner of Mr Sze and a relative of P.  D alleges that Mr Ng (on Mr Sze’s instruction) had without D’s authority and consent sold the Property to P.  D claims that the transaction was voidable because of P’s knowledge of the relevant improper and unlawful acts.  D also counterclaims for declaration, damages and other reliefs.

4.  D replied to P’s request for further and better particulars of the defence.[8] After that, P took out a summons pursuant to O 86, Rules of the High Court (“RHC”) for specific performance and striking out of D’s counterclaim.[9]  The orders sought were granted by the master[10] and D filed a notice of appeal against the master’s decision.[11]

ISSUES

5.  In view of the submissions from both sides, the major issues for the present purpose are as follows:

(i) whether the letter by D,[12] which does not comply with O 41 r 5(2), RHC, is admissible for the purpose of opposing P’s application for summary judgment;

(ii) if so, whether D has raised any substantial question of fact which ought to be tried; and

(iii) if so, whether what D says could amount to an arguable defence in law.

GENERAL LEGAL PRINCIPLES

6.  It is well‑established that the present appeal is by way of an actual rehearing of the plaintiff’s application and I should treat the matter as though it came before me for the first time.  I will give the weight it deserves to the previous decision of the master but I am in no way fettered by the previous exercise of her discretion: see §58/1/2, Hong Kong Civil Procedure 2017 (“HKCP”).

7.  It is also trite that summary judgment under O 86 should only be given where it is a plain case and ought therefore not to be tried: see Au Wing Cheung v Roseric Ltd.[13]  While the scope of application of O 86 and O 14 are different, the legal principles applicable to an application for summary judgment under both Orders are the same: see generally §86/4/1, HKCP.

8.  Where facts are in dispute, the court will not embark upon a mini‑trial on affidavit evidence and will only be satisfied that there is no issue or question in dispute which ought to be tried if it can be demonstrated that the defendant’s assertions are incredible or that even if what the defendant says is true, it gives rise to no defence as a matter of law.  In assessing the credibility of the defendant’s factual case, the question to ask is whether such case is capable of being believed, not whether it is to be believed: see Ng Shou Chun v Hung Chun San.[14]  The burden on the defendant in an O 14 application is not to disprove the plaintiff’s claim or to prove a ground of defence, set‑off, cross claim or counterclaim but only to satisfy the court that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial: see Ho Kuen Fai v Chun Wo Construction & Engineering Co Ltd.[15] If an element of the defence is based on a matter of inference, the court should not attempt to determine whether the inference should be drawn.  Instead the court should ask itself whether the evidence put forward by the defendant raise a sufficiently credible foundation on which the inference may (not must) be drawn at trial: see generally §14/4/9, HKCP.

CONSIDERATION

9.  I am grateful for the helpful written submissions from Mr Tang (acting for P) and Mr Alex Lai (acting for D), which are supplemented by their respective oral submissions in court, all of which I have carefully considered.

As to (i): Admissibility of D’s letter

10.  In the present case, D’s defence is that he has been subject to the continuing threats and monitoring of Mr Sze on the Mainland, that the Property was arranged to be sold without his authority and that his signed on the PSPA and SPA under duress.  In his letter, D purports to confirm the truthfulness of his allegations as contained in his pleadings and his answers to P’s request for further and better particulars.  He further explains that he is having a lawsuit with Mr Sze on the Mainland and therefore is not free to come to Hong Kong to make an affidavit.  He says that he authorises his elder brother, Mr Cheng, to deal with the present case for him in Hong Kong.

11.  There is no dispute that Mr Cheng, who produced D’s letter as an exhibit to his affirmation, has no personal knowledge of the subject matter in dispute.  He has not verified the contents of D’s letter. He has not even affirmed his belief that what was said in D’s letter is true. He has only deposed that he is D’s elder brother and that he has been authorised by the latter to make the affirmation.

12.  In view of the aforesaid, Mr Tang submitted that Mr Cheng’s affirmation is not in conformity with the requirements of O 41 r 5, RHC and therefore D’s letter is not admissible.  It follows, so the argument goes, that D has failed to discharge his burden to show cause against P’s summons by affidavit.  Reliance was also placed on Commissioner of Police v Lin Xin Nian,[16] a case about proceedings under O 115, RHC,[17] where it was said that documents annexed to a deponent’s affirmation were not evidence in their own right.  Furthermore, it was submitted that even assuming that D was not able to come to Hong Kong to make an affirmation, he could have made an affirmation before a notary public on the Mainland and in which case the affirmation could be used in Hong Kong.  That, D had not done.  In short, the above submissions are mainly concerned with the formal requirements of affidavit evidence.

13.  With respect, I am unable to accept the above submissions.  My reasons are as follows:

(i) I agree with Mr Lai that the fact that D’s letter is not covered by a proper affidavit does not on its own render the letter inadmissible for the purpose of opposing an application for summary judgment. It is because O 86 r 4(1), RHC provides that:

“A defendant may show cause against an application under rule 1 by affidavit or otherwise to the satisfaction of the Court.” (Emphasis supplied)

A corresponding provision is found in O 14 r 4(1), RHC where the phrase “or otherwise” also appears.  I note the remarks at §14/4/3, HKCP that the use of the term “or otherwise” is not intended to open wide the door for giving leave to a defendant who has no real defence and that in exceptional and obvious cases a letter from a defendant raising a genuine issue may be sufficient.  In other words, the phrase “or otherwise” allows the court to look at the substance of the materials relied upon by a defendant in case they are not covered by a proper affidavit.

(ii) The above is to contrast with the evidential requirement imposed on an applicant under O 86 r 2(1) where it is stipulated that an application for summary judgment shall be made by summons supported by an affidavit verifying the facts on which the cause of action is based and stating that in the deponent’s belief there is no defence to the action.  There is a similar provision in O 14 r 2(1).  Therefore, it is necessary for an applicant to have affidavit evidence in support of his application for summary judgment.

(iii) The above difference in evidential requirements between a plaintiff and a defendant is consistent with the nature of application, as the court considering the application of this type is concerned with whether or not there are any triable issues raised by the defence.  In other words, the focus is not so much on what D is able to show now by evidence but whether he may have a defence if there is a trial.  Bearing that in mind, there is no valid reason why the court should be precluded from having regard to materials placed before it which may shed light on that issue simply because of the absence of a proper covering affidavit from the defence.

(iv) Mr Tang submits that if D is allowed to rely on his letter instead of a proper affidavit, then even if D deliberately lied in what he said in the letter, he could not be caught for perjury, as the letter was not made under oath.  That may be correct.  However, if D1 deliberately caused a document to be placed before the court for the purpose of court proceedings which he knew contain false information, then there would remain a possibility of charging him with the offence of doing an act tending and intended to pervert the course of public justice.

(v) As regards the case of Commissioner of Police v Lin Xin Nian, there the issue before the court was whether the affirmation filed and relied upon by the prosecution in confiscation proceedings could contain hearsay, ie evidence of belief rather than evidence only of the deponent’s own knowledge.[18] McMahon J held that the effect of O 115 r 29(2) or O 41 r 5(2), RHC which permits evidence to be provided to a court expressed in the form of a belief based on disclosed grounds or sources must envisage the deponent providing what would otherwise be hearsay evidence to the court.  That must be a deliberate decision of the legislature based upon usually apparent reasons.[19]  It was in that context that McMahon J held that documents annexed to an affirmation are not evidence in their own right but they simply demonstrated the source of the deponent’s belief so that they could be examined to test what weight should be attached to the deponent’s statement of fact which was based upon them.[20]  It has to be noted that Lin Xin Nian’s case concerns the affirmation of a police officer filed in support of an application for forfeiture.  Therefore, there were obvious reasons why the affirmation should comply with stringent evidential requirements before a forfeiture could be ordered to extinguish the proprietary rights of other people.  Here, we are talking about whether the defendant has raised a triable issue so that he can be allowed to have his day in court, not that he will necessarily succeed in the action.  Therefore, in my humble view the ratio of Lin Xin Nian’s case, which is based on another Order of RHC with differently provisions dealing with proceedings of very differently nature, is not pertinent to the issue now under consideration.

14.  Mr Tang went on to submit that before the defendant can rely on the words “or otherwise” in O 86 r 4(1), RHC, there has to be affidavit evidence showing the existence of exceptional circumstances justifying D’s reliance on just his letter instead of a proper affidavit.

15.  I am unable to accept Mr Tang’s submission above.  With respect, that is to put a stricture on the provision which is not supported by its wording.  It is also to put the cart before the horse, as D would not rely on a letter if he could adduce affidavit evidence. The absence of a proper affidavit from a defendant, in my view, goes only to the question of weight.  That said, depending on the nature and contents of the materials in question, the absence of a proper covering affidavit may cause the court not to attach any weight to them.  Whether or not that is the case is a fact‑specific question.  In the present case, the document in question is D’s own letter which contains what he is supposed to give evidence about.  D had also given some reasons as to why he could not come to Hong Kong to make an affirmation.  In the circumstances, I simply cannot see why D should not be allowed to rely on the contents of that letter, simply because the letter is not a proper covering affidavit.  Of course, if D would not come to Hong Kong to give evidence in case of a trial, then the situation would be different.

16.  Based on the above, I am satisfied that the court can have regard to what is said in D’s letter in order to decide whether or not there are any triable issues. 

As to (ii): Factual basis of D’s assertions

17.  There are two sub‑issues here: (a) whether there is a sufficient factual basis to raise the issue of duress; and (b) if so, whether there is a sufficient factual basis to raise the issue about P’s knowledge (actual or constructive) of the alleged duress. 

18.  As to (a), Mr Lai pointed to a number of features in the sale of the Property which, he submitted, were unusual and suspicious and could provide support to D’s case of duress:

(i) the land search record[21] shows that there was an attempt by Mr Sze to register an encumbrance against the Property which indicates a financial dispute between he and D involving $100 million;

(ii) there is some evidence, in the form of a Whatsapp message from the estate agent to P,[22] saying that the asking price of the Property was, to the knowledge of the estate agent, substantially below the market value;

(iii) the PSAP was first signed by Mr Ng as the vendor, apparently without any power of attorney;[23]

(iv) contrary to the usual practice, it was provided in the PSPA that P would pay all the commissions (2%) to the estate agent and the vendor was not required to pay any commission;[24]

(v) neither the estate agent nor the Solicitors was engaged personally by D;

(vi) the initial deposit and the further deposit did not go to D but went eventually to the bank account of Mr Ng who, D said, was a stranger to him;

(vii) the signature of Mr Ng on the PSPA was subsequently crossed out and replaced by D’s signature.  As regards the SPA, although the execution of it was said to have been witnessed by a clerk of the Solicitors, it was not executed at the office of the Solicitors in Hong Kong.  The SPA was taken by the clerk to the Mainland for D’s signature there.  I note that it is D’s pleaded case is that he was made to sign certain documents on the Mainland by Mr Sze; and

(viii) shortly after the SPA was signed and before the present action was taken out by P, D had already written to the Solicitors raising queries about the transaction.[25]

19.  I have considered Mr Tang’s submission that there can be innocent explanations for each and every one of the above so that the circumstances of the transaction were neither unusual nor suspicious. However, in my view the above matters should be looked at as a whole rather than individually.  Having done that, I am of the view that there is some collateral support of D’s assertion of duress.

20.  I have not lost sight of Mr Tang’s criticisms about the credibility of D’s account as listed at §27‑29 of his written submissions, including (but not limited to) the fact that D’s account has not been supported on oath, that D has given various and different descriptions of P’s relationship with Mr Ng and none of them is supported by independent objective evidence and that there have been delays at various stages in the conduct of D’s defence.  It would not be appropriate for me to deal with the criticisms in detail now.  It suffices for me to say that I have considered all of them.  However, having considered everything as a whole, I am of the view that D’s assertion of being subject to duress by Mr Sze is not so incredible as to render it incapable of being believed.  Having applied the relevant legal principles discussed above, in my view there is a triable issue here which ought to be tried.

21.  As to (b), bearing in mind that specific performance is an equitable remedy and equity must come with “clean hands”, P’s purchase of the Property may be tainted if he is affixed with either actual or constructive knowledge of the alleged duress.  Mr Lai admitted that D’s case of P having actual knowledge is apparently a bit thin.  Had D’s case been based solely on P having actual knowledge, I would have no hesitation to grant summary judgment. 

22.  However, it is Mr Lai’s contention that D is also relying on P having constructive notice of the alleged duress through the estate agent.  Mr Lai submitted that there is a triable issue as to whether the estate agent had at least constructive knowledge of the alleged improper conducts on the part of Mr Sze and Mr Ng, if not also actual knowledge.  Apart from the features of the transaction referred to above, Mr Lai also pointed to the following:

(i) the estate agent was apparently not personally engaged by D;

(ii) it is reasonable to expect that the estate agent would have done a land search soon after he had received instruction to promote the Property and in any event before the signing of the PSPA and he would have known that Mr Ng was not the registered owner of the Property;

(iii) the estate agent should have required Mr Ng to produce evidence that he had D’s authority to sign the PSPA.  However, it is apparent that the agent estate had not done that; otherwise, there should be an indication on the PSPA showing that Mr Ng was signing in a representative capacity;

(iv) it is apparent that when Mr Ng signed the PSPA he did not have any power of attorney from D, as the power of attorney purportedly made in his favour was only dated after the execution of the PSPA; and

(v) in the circumstances, the estate agent not only allowed Mr Ng to sign as the vendor on the PSPA but also then purportedly gave initial instruction on D’s behalf to the Solicitors to handle the transaction.

23.  Again, looking at all the circumstances as a whole, I agree that there is just sufficient foundation for the contention that the estate agent had constructive knowledge of the alleged impropriety in the sale of the Property which in my view should not be dismissed offhandedly and warrants further examination.

24.  Mr Tang then submitted that even assuming that the estate agent had knowledge of any alleged impropriety in the transaction, his knowledge should not be attributed to P because of the “fraud exception”, as the estate agent would then be acting in breach of his duty by procuring P to enter into the transaction: Bilta (UK) Ltd (in liquidation) & Ors v Nazir & Ors.[26]

25.  For a concise statement of the law on the “fraud exception”, see Bowstead & Reynolds on Agency, 20^th ed, at §8‑207.  In my view, Mr Tang’s submission may carry a greater force in case the estate agent had actual knowledge of the alleged duress or had otherwise acted dishonestly.  However, it is difficult to see how it can be said that P was a victim of “fraud or wrongdoing” by the estate agent of the latter had only constructive knowledge of the alleged duress.  Moreover, P is not suing the estate agent and uses the fraud exception to counter a defence by the latter.  P is seeking to take advantage of the estate agent’s action (by asking D to specifically perform the contact which D said was procured by duress) whilst disowning the estate agent’s knowledge.  In other words, P is seeking to have the best of both worlds.  As discussed at §8‑213 of Bowstead,[27] there can hardly any justification for the application of the fraud exception in a situation like this.  Based on the above, Bilta (UK) Ltd (in liquidation) & Ors v Nazir & Ors is clearly distinguishable.

26.  Mr Tang then submitted that the effect of any constructive knowledge attributed to P would have become inoperative, as P would be entitled to rely on the execution of the SPA by D which amounts to a ratification of any unauthorised act of Mr Ng in the sale of the Property.

27.  With respect, whether D had in fact ratified the sale is a question of mixed fact and law.  D’s pleaded case, which is repeated in his letter, is that he was forced to sign even the SPA, albeit in the presence of the clerk of the Solicitors on the Mainland.  As discussed above, I am of the view that there is a triable issue as to whether D had acted under duress.  It follows that there is also a triable issue whether D had voluntarily ratified the sale by signing the SPA.

28.  Lastly, Mr Tang submitted that D should not be allowed to reply on the contention of constructive knowledge, the same not having been pleaded in D’s Defence and Counterclaim or in his answer to the request for further and better particulars.  All that has been alleged is that P is some sort of a relative of Mr Ng.  It was further submitted D should not be allowed to ambush P arguing constructive knowledge through the estate agent which was raised for the first time in counsel’s submission after P had already taken out the application for summary judgment.

29.  In these regards, I note that D has pleaded a case of P having knowledge of the duress without specifying whether the knowledge was actual or constructive and if the latter, by what means it was attributed to him.  No such particulars were sought by P’s request and none was given.  As far as D’s pleadings are concerned, he had just listed out the circumstances which he said were suspicious and then asserted that P had knowledge of the alleged duress.

30.  Based on the way in which D has framed his Defence and Counterclaim, I am of the view that the allegation of constructive knowledge is capable of being covered by and is thus implicit in D’s pleadings.  Although there is no expressed reference in D’s pleadings to any allegation of P having acquired constructive knowledge through the estate agent, that contention is not inconsistent with D’s pleaded case.  Besides, the factual foundation for such a contention has already been provided there.  It is well‑established that what has to be pleaded are facts and not evidence: see for example Tiong King Sing v Sam Boon Peng Yee.[28]  Therefore, I do not agree that the defence would be precluded from raising that issue at the trial, should there be one.

31.  As to whether it would be unfair for D to rely on the contention of “constructive knowledge obtained through agent” given that there is no explicit reference to it in D’s pleadings, I note that the contention was first expressed in the defence skeleton argument filed prior to the hearing before the master.  Therefore, the situation was not that P had never been made aware of it.  Prior to the hearing before the master, P could have either withdrawn the application or sought an adjournment and leave to file further affidavit.  However, P chose to do none of them and just go ahead with his application.  In the circumstances, I do not think that it would be unfair to allow D to rely on the contention for the present purpose.

32.  To conclude, I am of the view that D has by a narrow margin managed to raise a triable issue as to whether P has constructive knowledge that the sale of the Property was tainted with impropriety.

As to (iii): Arguable defence in law

33.  On the basis of the rulings above, I go on to consider whether it is necessary in law for D to show that P ought to have been aware of the risk of duress in particular or whether it would be sufficient for D to show that P ought to have been aware of a risk of some kind of wrongdoing in general which may vitiate the transaction.  In this regards, Mr Lai relied on Barclays Bank Plc v O’Brien[29] and contended for the latter.

34.  With respect, I agree with Mr Lai’s submission.  This is because of the nature of constructive notice which is about the existences of certain circumstances which would put a contracting party to enquiry.

CONCLUSION

35.  Having pondered over the respective submissions of both sides, I respectfully beg to differ from the view of the master.  I am of the view that D has just managed to raise triable issues in his Defence and Counterclaim and should therefore be allowed his day in court. 

36.  Lastly, I have considered whether D should be given leave to defence with or without condition.  I am alive to the comments at §86/4/1, HKCP that in claims for specific performance, as distinct from claims for damages, it is unusual for condition leave to defend to be given.  However, no case authorities have been provided for that proposition. In any event, the factual issues raised by the defence in the present case are also unusual.

37.  In considering whether and what conditions should be imposed on the defendant for his leave to defend, I have taken into account that the principles stated at §14/4/16, HKCP including the following:

(i) the fact that D’s case at present appears to be “shadowy” and that it is almost one in which summary judgment should be given.  I emphasis “at present”, as the state of the affairs may change and the trial judge will make his or her own findings;

(ii) D’s track record of meeting time requirements regarding the conduct of his defence has not been impressive.  This can be seen from the Chronology of Events prepared by Mr Tang;

(iii) on the face of it, P has already paid out $2.12 million as deposits and such sums have not been returned; and

(iv) the court should not shut out a triable case by the conditions it imposes on a defendant.

38.  Having considered all the relevant factors, I am of the view that justice would be best served by requiring D to pay $2.12 million into court without 28 days of this judgment as a condition for his leave to defend.  I am given to understand by Mr Lai that D is able to meet this condition.

39.  Therefore, I order that:

(i) the master’s order made on 24 August 2016 be set aside; and

(ii) leave be granted to D to defend on the condition that he pay $2.12 million into court within 28 days of this judgment.

COSTS

40.  Both parties agree that costs should follow the event.  Statements of costs have been filed by both sides and I have considered those.  Besides, I have looked at the written submissions used by both sides at the hearing before the master.  The written submissions the parties used then are very similar to the ones they used before me.  As such, some deduction should be made from the sum of $186,800 claimed by D.

41.  By way of summary assessment, I make an order nisi that P shall pay D a sum of $160,000 in total for the hearings before the master and this court.