Civil Action1991

LEE YUN SAU v. D.H. SHUTTLECOCKS LTD.

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38494-EN-2002-05-21

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HCA001459C/1991

HCA 1459/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1459 OF 1991

________

BETWEEN
	LEE YUN SAU	Plaintiff

	AND

	D.H. SHUTTLECOCKS LIMITED	Defendant

________

Coram: Deputy High Court Judge Lam in Court

Dates of Hearing:

9-31 October 2001, 1 November 2001, 11 December 2001, 18-22, 25 & 26 February 2002, 2-3 May 2002

Date of Handing down Judgment: 21 May 2002

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J U D G M E N T

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Background and the dispute

1. The Plaintiff in this action was and is a well known figure in Sai Kung. He has been a Justice of Peace for a long time. He was the chairman of the Sai Kung Rural Committee and he is still serving as a consultant to the Rural Committee. He had also been a member of the Heung Yee Kuk. Obviously, although he would not admit it, he had much influence in Sai Kung. He claimed to be beneficially entitled to two pieces of land at Tsam Chuk Wan, Sai Kung. They are Lot Nos. 376 RP and 645 at Demarcation District 257 ["the Properties"]. On Lot No. 376 RP, there was a semi-detached three-storey small house known as House No. 33, Surf Villa. On Lot No. 645, a detached three-storey house was erected and it was known as House No. 34, Surf Villa. At an earlier stage, they were known as Houses Nos. 14 and 18 respectively. The Plaintiff was the developer of the Properties. As in a lot of cases of small house development in the New Territories, the lands were held in the name of indigenous villagers in order to take advantage under the Small House Policy of the Government whilst development thereof was actually undertaken by another person. Insofar as the developer purported to acquire or retain a secret interest in the properties without the approval of the Government, the arrangement between the developer and the indigenous villagers would be in breach of the conditions of the Government Grant or the conditions of building licence granted by the Government to the indigenous villager. As such, it might be tainted with illegality (see Madam Chung Mui Teck v. Hang Tak Buddhist Hall, CACV 20 of 2001, 22.5.2001; Best Sheen Development Ltd. v. The Official Receiver, HCMP 7250 of 1999, Yuen J., 24.4.2001). The Building Licence granted to the indigenous villager under the Small House Policy invariably contained a provision against alienation without payment of premium within 5 years from the date of a letter of compliance issued by the District Lands Officer. The Building Licences regarding the Properties were issued on 7 February 1980. They contained similar restriction against alienation in condition 6(b). Further, in respect of Lot 645, it was formerly known as Lot Nos. 374 and 375. In 1983, there was a surrender and regrant in favour of the indigenous villager due to inconsistencies of the occupational boundaries with the original grant plan. The Conditions of Exchange dated 13 October 1983 contained a similar restriction against alienation in Special Condition 6(b). The Letters of Compliance for the Properties were issued on 20 and 21 January 1984 respectively. Applications were made for the transfer of ownership to the Plaintiff after that. A premium was assessed by the Government. The Plaintiff was not willing to pay such premium and the Properties continued to be registered under the names of the indigenous villagers. I shall come back to the issue of illegality later.

2. The Defendant became the registered owner of the Properties in March 1990. It derived title from two Assignments dated 19 March 1990 ["the Assignments"]. By then, the 5 years period had lapsed. Although a number of issues have been raised in the pleadings, the central issue can be summarized as follow. The Defendant did not dispute that the Plaintiff had been the developer of the Properties. However, the Defendant's case was that the Plaintiff agreed to transfer his interest in the Properties to the Defendant as settlement of certain debts due from the Plaintiff to Chau Hau Tung ["Chau"], the person having the control of the Defendant. As a result, the Plaintiff procured the then registered owners of the Properties to execute the Assignments in favour of the Defendant. The Defendant said that such agreement was partly evidenced by two Chinese Nominations signed by the Plaintiff in February 1990.

3. The terms of the Chinese Nominations were very clear. It recorded the Plaintiff's nomination of the Defendant to take up all his interest in the Properties and directed the then registered owners to assign the Properties in favour of the Defendant. On the face of the Nominations, the Plaintiff acknowledged that he ceased to have any interest whatsoever in the Properties as from the date of the Nominations.

4. The Plaintiff denied that there was such an arrangement. The Plaintiff further said that the two Chinese Nominations were forgeries in the sense that he himself did not sign the Nominations as such. He said he had put down his signatures on some pieces of blank papers. The Plaintiff said the villagers assigned the Properties to the Defendant without his knowledge nor consent.

5. The Plaintiff has been in possession of the Properties. The Defendant's case is that the Plaintiff was allowed to do so because way back in 1990, the Defendant did not have immediate use of the Properties. By a letter of 20 February 1991, the Defendant through its then solicitors demanded possession of the Properties within 7 days. On 27 February 1991, the Plaintiff commenced the present action seeking a declaration that the Defendant held the Properties on trust for the Plaintiff. For reasons that have not been made known to me, the Statement of Claim was not filed until 6 August 1996. By the Defence and Counterclaim filed on 23 August 1996, the Defendant counterclaimed for possession of the Properties and mesne profits from March 1991.

6. This seems to be a relatively straightforward dispute. Unfortunately, the action has a chequered history. As mentioned, it took quite some time for the Statement of Claim to be filed. There have been several amendments of the pleadings. The latest version of the Statement of Claim was filed on 9 September 1999. A number of issues were raised in the pleadings which unfortunately served to complicate the action. To some extent, those issues have clouded the real dispute. Hence, when the trial was opened before me in October 2001, counsel for the Plaintiff took some time to identify the real issues in the case. The situation was exacerbated by changes of counsel on the part of the Plaintiff. After some efforts by way of case management, some unnecessary and irrelevant issues were disposed of either by rulings made by the court or by concessions made by counsel for the Plaintiff. I set out some of the concessions in my Rulings dated 1 November 2001 and 21 December 2001. Paragraph 6(3) of the Re-amended Reply was struck out on 21 December 2001. In addition, Mr Choi (counsel appearing for the Plaintiff between 29 October 2001 and 11 December 2001) abandoned the stamp duty point pleaded in Paragraph 13 of the Re-Amended Statement of Claim on 29 October 2001 and the lack of writing point pleaded in Paragraph 6(1) of the Re-Amended Reply on 31 October 2001. Hence, by the time when the trial resumed before me on 18 February 2002, the parties were able to focus on the main issue as summarized in Paragraphs 2 to 4 above.

7. By the time of final submissions, Mr Horace Wong, counsel for the Defendant summarized the live issues in the action as follows,

(a) whether the Plaintiff had any beneficial interest, which interest was valid and lawful for him to assert, in the Properties;
(b) even assuming that the Plaintiff did have such a lawful and valid beneficial interest, whether the said interest has already been extinguished or released in favour of the Defendant by his executing the 2 Nominations dated 21 February 1990.

I have reviewed the pleadings after the trial and I agree with Mr Wong that these are the outstanding issues. The first issue concerns primarily (though not purely) points of law and the second issue is a question of fact.

Dealings between the Plaintiff and Chau prior to the Chinese Nominations

8. On 9 August 1988, a Writ was issued in High Court Action No. A5519 of 1988 by one Wong Koon against the Plaintiff in the present action for the sum of $610,819.72. Default judgment was entered on 19 September 1988. Bankruptcy Notice was issued by Wong Koon on 6 October 1988. The Plaintiff was therefore under tremendous financial pressure to satisfy that judgment debt. At that time, the Plaintiff engaged Mr Allen Chan ["Chan"], a partner of Messrs Lo, Chan, Chan & Leung to act for him in those proceedings. Chan was subpoenaed by the Defendant to give evidence before me. He acted for the Plaintiff between July 1988 and October 1990 in respect of a number of transactions. His evidence was well supported by documents produced before me and I accept Chan as a truthful and reliable witness. Before coming to that conclusion, I have taken into account of the fact that Chan was a friend of Chau and it was Chan who introduced Chau to the Plaintiff. I am also aware that there was dispute between the Plaintiff and Chan as to legal fees. Despite these, and despite lengthy cross-examination of Chan by counsel for the Plaintiff, I find him to be an honest witness.

9. The Plaintiff also gave evidence in the witness box. Although he adopted his witness statements (which had been translated into Chinese and put forward as his affirmations filed on 23 January 2002) as his evidence in chief, he said (both before he gave evidence in the witness box and under cross-examination) that he could not remember the matters set out in the witness statements because they happened a long time ago. On the other hand, he said when he made the witness statements he could remember the events. I do not find that to be truthful. I find the Plaintiff highly selective in his "memory". He was able to testify to matters in favour of him but conveniently said he could not recall things when questioned about matters he could not explain satisfactorily. He was able to say adamantly that he did not sign the documents produced as Exhibits D-8, D-10 and D-11 and accused Chan forging these documents. Yet he said he could not remember about the bills issued by Chan at the request of Messrs P C Woo & Co. When pressed further, he said Messrs P C Woo & Co. did not advise him about the same despite clear evidence to the contrary. The Plaintiff also testified that he could not remember a Deed of 25 April 1990 and resorted to his lapse of memory when questioned by Mr Wong, counsel for the Defendant, about the inconsistency of this Deed with his case. Likewise, he could not recall why he issued two cheques in favour of Messrs Tai, Tang & Chong, which were also inexplicable on his evidence. It is clear to me that the Plaintiff is only using lapse of memory as a means to avoid questions which he could not answer satisfactorily. He was evasive and on a number of occasions, he chose to side step the issue by giving totally irrelevant answers.

10. In a number of areas, the Plaintiff was obviously lying when he gave evidence in the witness box. He said he did not know Wong Koon and had no dealings with him. He denied knowledge about the claim by Wong Koon, the judgment entered against him, the bankruptcy notice issued by Wong Koon and the consent summons settling the matter. He denied that Chan was acting for him in those matters. This is a highly implausible story. He said he had no reason to make any payments to Messrs Tai, Tang & Chong, solicitors acting for Wong Koon. When he was confronted with a written Chinese instructions signed by him regarding settlement, he said he had no recollection of signing the same and suggested that the document was a forgery. If what the Plaintiff said was true, there was no reason why he would issue two cheques each in the sum of $40,000 in favour Messrs Tai, Tang & Chong apparently as instalment payments under the terms of settlement. As I said, he resorted to his lapse of memory when asked about these cheques. Moreover, the litigation with Wong Koon and the use of funds to make payments pursuant to the settlement were clearly set out in bills sent by Chan to Messrs P C Woo & Co. in October 1990. Messrs P C Woo & Co. must have advised the Plaintiff regarding those bills because in a letter dated 24 October 1990, Messrs P C Woo & Co. said that they had advised the Plaintiff to withhold payment of those bills and the Plaintiff did so accordingly. If the Plaintiff had not instructed Chan regarding his litigation with Wong Koon, one would expect the Plaintiff to have refuted the same immediately and that would no doubt be set out in the letter of Messrs P C Woo & Co. Yet not a word was mentioned in that letter about the lack of authority on the part of Chan to deal with the Wong Koon action on behalf of the Plaintiff. Hence, the Plaintiff had to deny any advice given by Messrs P C Woo & Co. about the bills in the witness box. The transactions with Wong Koon set the background for the loan from Chau to the Plaintiff secured by the Tai Nam Woo properties. As explained below, they are important for identifying the date of the loan on which there is a dispute between the Plaintiff and the Defendant. For this reason, the dealings between the Plaintiff and Wong Koon are relevant.

11. Although the Plaintiff tried to retract his denial about the dealings with Wong Koon after the closing submissions of counsel for the Defendant, I regard such retraction as a desperate attempt by the Plaintiff to salvage his credibility after realizing over the night the damage he had done to himself by telling an obvious lie which had been exposed. He was quite categorical when he gave evidence in the witness box and despite being cross-examined on this issue a number of times together with documents being put to him, he maintained in his testimony that he did not know Wong Koon. In such circumstances, his retraction serves to confirm to me that he was lying when he gave evidence in the witness box.

12. The Plaintiff denied knowledge about the discharge of the Tai Nam Woo Legal Charge until one year after the date of discharge. He said categorically that that was after he executed the Deed of Compromise of February 1991. He said it was sometime in March 1991 that he learnt of the discharge. However, on 25 April 1990, he executed another Deed in which he agreed to use the Tai Nam Woo properties as security against certain obligations undertaken by one Tang Yeuk Fan. This showed clearly that by April 1990, if not earlier, he knew that Chau had released the properties from the Tai Nam Woo Legal Charge. On the defence case, Chau released the charge over the Tai Nam Woo properties in consideration of the assignment of the Properties to the Defendant in March 1990. The Plaintiff denied knowledge of this. Hence, this is a crucial issue in this action.

13. Although the Plaintiff's evidence in the witness statement about the possibility of Chan using of a blank piece of paper signed by the Plaintiff in advance to forge Exhibits D-10 and D-11 were excluded by agreement between counsel on 19 February 2002, he gave evidence to similar effect in the course of cross-examination. Mr Wong said the Plaintiff was not entitled to rely on those evidence since the matter has not been pleaded. Bearing in mind that the Plaintiff has denied the authenticity of these documents in the pleadings and that such evidence has been set out in the witness statements of the Plaintiff for quite some time before the trial, I do not think the Defendant was taken by surprise. Further, I regard these as matter of evidence rather than material facts and as such, there was no need to plead the same specifically. Hence, I think I should take the evidence of the Plaintiff in this regard into account. The Plaintiff told the court that he was requested by his solicitors to sign blank pieces of papers to facilitate transactions conducted by his solicitors on his behalf. He said he had done so for other solicitors apart from Chan. I find this to be incredible. Moreover, if he had given such papers to Chan, bearing in mind the unpleasant circumstances under which he terminated the retainer of Chan in 1990, the first thing he would have done was to demand the return of such papers. He had not done so and there was no reference to such papers in the letter written on his behalf by his new solicitors, Messrs P C Woo & Co.

14. It is plain from what I have said that the Plaintiff is not a reliable witness. Although he tried to give the court an impression that he was a frail old man being oppressed by the Defendant, I find him to be crafty and devious. He lied whenever it suited him and resorted to his lapse of memory whenever it was convenient. I do not believe him. I have no hesitation in rejecting his evidence.

15. Based on all the evidence before me including the oral testimonies of Chau and Chan (which I accept to be truthful), I make the following finding of facts as to the dealings in 1988 and 1989. Regarding the claim of Wong Koon, the Plaintiff had acknowledged his liability to Chan and he instructed Chan that he needed time to sell his properties to pay the debt. After the issue of the Bankruptcy Notice, Chan negotiated a settlement on behalf of the Plaintiff. That settlement was embodied in a Consent Summons dated 26 October 1988 filed in High Court Action No. A5519 of 1998. The Plaintiff had signed a written document in Chinese evidencing his consent to those terms (see Bundle H 1093). The consent order was made on 31 October 1988. Under the terms of the Consent Order, $300,000 had to be paid on the signing of the Consent Summons and the balance of the judgment debt would be paid by monthly instalments of $40,000 each.

16. To assist the Plaintiff to obtain finance for making those payments, Chan introduced the Plaintiff to Chau. Chau was a friend of Chan. After a site inspection, Chau agreed to lend to the Plaintiff a sum of $800,000 on the security of a Legal Charge in respect of several pieces of land in Sai Kung. Counsel referred to those properties as the Tai Nam Woo properties. Chan prepared the Legal Charge ["the Tai Nam Woo Legal Charge"] and it was executed by the Plaintiff on 22 October 1988. Interest was charged at 2% per month. On the same day, Chau paid the sum of $800,000 to Messrs Lo, Chan, Chan & Leung as solicitors for the Plaintiff as mortgage money under the Tai Nam Woo Legal Charge.

17. From the accounts produced by Chan, I am satisfied that the Plaintiff had the benefit and use of that $800,000. Part of that sum was used to discharge the liability of the Plaintiff towards Wong Koon. $450,000 was released by Messrs Lo, Chan, Chan & Leung to the Plaintiff.

18. Apart from this transaction, Chau had also advanced a loan to the Plaintiff secured by a Second Mortgage dated 2 September 1988 over the property known as the Surf Hotel. The Second Mortgage was the subject matter of High Court Miscellaneous Proceedings No. 3010 of 1990. That matter was subsequently settled by a Deed of Compromise dated on 13 February 1991. Although the Plaintiff tried to argue that the Deed of Compromise covered loans other than the Surf Hotel loan, it was conceded by Mr Choi, then counsel for the Plaintiff, that the terms of the Deed did not support the argument. Further, as will become apparent, the evidence clearly showed that those other loans were settled by the Assignments well before the Deed of February 1991.

19. The Plaintiff was not timely in paying the $40,000 monthly instalments under the Consent Order made in High Court Action No. A5519 of 1998. He was still in financial difficulties. At the same time, the Plaintiff did nothing to service the Tai Nam Woo loan and the Surf Hotel loan. Chau had discussions with the Plaintiff. The Plaintiff agreed to sell some of his other properties in an orderly fashion to make repayments. Chan also took part in some of the discussions. In February 1989, the Plaintiff through his secretary gave instructions to Chan as to the particulars of eight properties, seven of which were subject to mortgages. The instructions were set out in a document produced as Exhibit D-7 at the trial. The Properties were included in the eight properties and they were identified as Houses 14 and 18 respectively. By a fax of 22 February 1989 (at Bundle G, p.466), Messrs Lo, Chan, Chan & Leung passed on such information to Chau and the Defendant. The locations of these properties were identified on a plan used by Chan during the discussions. Chan also recorded down the agreed target sale prices and the bottom lines set by the Plaintiff regarding the sale of these properties on stickers attached to the plan. The bottom lines added up to $10 million which subsequently became the price set out in a Chinese Agreement. The original plan with stickers attached were produced as Exhibit D-5. The bottom lines set for House 14 was $1.5 million whilst that for House 18 was $1.7 million. The total value of the Properties agreed upon at that stage by the Plaintiff and Chau was $3.2 million. The Plaintiff, Chan and Chau went to visit the eight properties. Further instructions taken by Chan were noted down in Exhibit D-6. Exhibits D-5, D-6 and D-7 were retrieved from files kept by Messrs Lo, Chan, Chan & Leung. Those files were produced to the court on subpoena during the trial on 1 November 2001 as Exhibit D-1.

20. Since Chau is not enforcing this agreement, I would not go into too much detail as to the terms of the agreement reached between the Plaintiff and Chau at that stage. Based on instructions of the parties, Chan had prepared a Chinese Agreement dated 15 March 1989. It was signed by the Plaintiff and Chau. In form, it was an agreement for the sale of the 8 properties by the Plaintiff to Chau at the price of $10 million. However, it was envisaged that Chau could sub-sell the properties to some third parties at higher prices and the Plaintiff could share 60% of the profit made by Chau upon payment of interest on the deposit paid by Chau. Chau perceived it as a joint venture agreement and that was how he described it in his evidence. Chan said the original of this Chinese Agreement was in the files he produced to the court on 1 November 2001 as Exhibit D-1. This was supported by a list of those files kept by him and such list was produced subsequently (on 20 February 2002) as Exhibit D-10. Unfortunately, parties could not locate the original of this Chinese Agreement. What happened was that after D-1 were produced as Exhibit, the files were released to solicitors for the Defendant on usual undertaking as to safe custody. The files were brought to the solicitors for the Plaintiff for photocopying in the presence of the solicitor for the Defendant. When the trial resumed in February 2002, counsel for the Defendant informed the court that they could not locate this document. In the course of his evidence, Chan was adamant that the original was in D-1. He was able to produce a photocopy thereof made by him before he attended court on 1 November 2001. The photocopy of that document was produced as Exhibit D-8.

21. Of course, this is not a very satisfactory state of affair bearing in mind that the Plaintiff disputed the authenticity of the Chinese Agreement. However, I have to do the best I can in the light of the evidence tendered before me. Chan said in evidence that the Chinese Agreement was prepared by him and signed by the Plaintiff and Chau in his presence after they confirmed their agreement to its contents. The file cover of File A11 (File No.AC/CV/8517/89) kept by Messrs Lo, Chan, Chan & Leung (which was part of D-1) also referred to "Chinese Agreement 15.3.1989" in the caption. The documents in that file, including D-5, D-6 and D-7, tend to support the terms of D-8. Chan was able to explain to the court in great details as to how these documents and the apparently incomprehensible notes written thereon related to the discussions between the parties and the terms in D-8. These are typical working notes which on their face were inexplicable unless the person who made them took part in the discussions. Works were done by Chan pursuant to the Chinese Agreement in terms of making enquiries with mortgagees for outstanding amounts and title deeds were asked for. There were also some working records in the files as to approval of title regarding these properties. Some of these works could not be undertaken without instructions from the Plaintiff. The Plaintiff said that Chan was just being nosy and he might be was doing so for Chau. But some of these properties were not registered under the name of the Plaintiff. Without the involvement of the Plaintiff, it is difficult to see how Chan would know that they were his properties. It would also be impossible for Chan to know that Lai Man was a mortgagee in respect of some properties. Further, if Chan and Chau were to plot together against the Plaintiff, D-8 seems to be a very cumbersome means to achieve that. D-5, D-6 and D-7 appeared to be contemporaneous documents which simply would not exist if D-8 was just a forgery. On the balance of probabilities, I find that the Chinese Agreement did exist and D-8 was a true copy thereof.

22. In the present action, the Chinese Agreement evidenced by Exhibit D-8 is more than mere background as to the dealings between Chau and the Plaintiff. It evidenced the payment of $700,000 by Chau to the Plaintiff as deposit under that Agreement. This was acknowledged by the Plaintiff in the Chinese Agreement. Of that $700,000, $200,000 was paid on 31 January 1989 whilst $500,000 was paid on 15 March 1989, the date when the Chinese Agreement was signed. The latter payment was secured by a cheque of the same date in the same amount issued by the Plaintiff in favour of Chau (at Bundle E, p.166). This showed that although the Chinese Agreement was a sale and purchase in form, in substance it was more in the nature of a loan. In this connection, Chau explained in his testimony that the prime purpose of this agreement was to facilitate him to sell the properties to repay the debts due to him as the Plaintiff was not progressing satisfactorily in that direction. The Plaintiff alleged that the $500,000 was secured by the Tai Nam Woo Legal Charge and denied the existence of the $800,000 loan and the Chinese Agreement. I am satisfied that the two loans were made by Chau on different occasions. The accounting statements produced by Chan clearly shown that the $800,000 was advanced in October 1988 (partly used by the Plaintiff to discharge his liabilities towards Wong Koon) whilst the Chinese Agreement and the cheque showed that $500,000 was advanced in March 1989. In fact, the Tai Nam Woo Legal Charge clearly recorded that it was to secure the sum of $800,000 advanced at the time when the Legal Charge was executed. I further find that the Plaintiff received $500,000 in March 1989 instead of receiving only $100,000 from Allen Chan as alleged by him. I do not believe that the Plaintiff would sign the acknowledgment in the Chinese Agreement and gave the cheque of $500,000 to Chau if he only received $100,000. Nor would he continue to engage Chan as his lawyer if Chan had wrongfully retained the $400,000. The files produced by Chan as Exhibit D-1 clearly shown that Chan continued to act as solicitor for the Plaintiff after March 1989 and did substantial works for him. I also reject the suggestion of the Plaintiff that the loans after March 1989 were secured by the Tai Nam Woo Legal Charge. As I have said, they were separate transactions.

23. Chan wrote letters to the mortgagees in respect of these eight properties to enquire about the outstanding amounts. Lai Man, the mortgagee in respect of two of the properties, disputed the amounts outstanding under the mortgage. It seems that there could not be any formal mortgage in favour of Lai Man since the legal title did not vest with the Plaintiff. According to my understanding, that was more in the nature of a charge created by deposit of title deeds with Lai Man. Be that as it may, I shall continue to refer to this as a mortgage for the sake of convenience. Further, the purchase prices attributable to the properties mortgaged to the Hongkong and Shanghai Banking Corporation were insufficient to discharge that mortgage. The outstanding mortgage was $4.1 million (see letter dated 25 April 1989 from solicitors for the bank at Bundle G p.447). The total price attributable to those properties under the Chinese Agreement was only $2.7 million. Likewise, the amount due to another mortgagee, the Standard Chartered Bank, also exceeded the total of the sale prices ($2,991,735.50 outstanding mortgage, see Bundle G page 453, as compared with $2.3 million under the Chinese Agreement). The Chinese Agreement therefore could not be proceeded with in the manner as envisaged by its terms. However, the Plaintiff got the $700,000 from Chau.

24. In the meantime, the Plaintiff continued to lag behind in meeting his obligation as to instalment payments towards Wong Koon. On some occasions, Chan made such payments on behalf of the Plaintiff to be reimbursed later. On 2 May 1989, the Plaintiff borrowed another sum of $100,000 from Chau. The purpose was to enable the Plaintiff to make instalment payments to Wong Koon and the money was paid through Messrs Lo, Chan, Chan & Leung. Apart from the oral testimonies of Chan and Chau, this loan was supported by a receipt issued by that firm in favour of Chau dated 2 May 1989 and the statement of account produced by that firm showing that the Plaintiff did have the benefit and use of the said $100,000 (at Bundle G, pages 225 and 230 respectively). The loan was secured by a cheque issued by the Plaintiff in favour of Chau dated 1 May 1989 in the sum of $100,000 (at Bundle E page 167). This loan was admitted by the Plaintiff in Paragraph 18(iii) of his Supplemental witness statement dated 10 February 2001.

25. In addition, after May 1989, Chau made a number of undocumented loans to the Plaintiff. Chan was not involved in those transactions. Chau estimated the total amount of such loans to be around $900,000. The Plaintiff admitted that there were such loans although he said the total amount should not exceed $900,000 when added to the $500,000 and $100,000 loans in March and May 1989 (See Paragraph 18(iv) of his Supplemental witness statement and Paragraph 18(iv) of his Second Affirmation in Chinese made on 23 January 2002). Hence, the total amount of loans advanced after May 1989, according to the Plaintiff, was less than $300,000.

26. Regarding the post May 1989 loans, the Defendant relied on admission thereof made by the Plaintiff in an affirmation dated 10 October 1990 in High Court Action No. A6864 of 1990. In Paragraph 13 of that affirmation, the Plaintiff said as follows. For reason which will become apparent, I shall divide this paragraph into 2 parts.

"In the meantime, and because of the June 4 incidents I had fallen into financial difficulties on several occasions. I discussed these problems with [Chau] who offered me loans of over $1 million, at interest of about 2 % per month. My memory on the exact number of loans is not clear because of the lapse of time, however there were at least 4 or 5 different loans of about $200,000 to $300,000 each within a space of a few months."

Pausing here, I will call the above the first part of this paragraph. The Plaintiff continued,

"When I defaulted in making payment of the interest of such loans, I assigned 2 properties, with an assumed value of $1.9 million each, to [Chau] to repay the loans outstanding. Again I cannot remember the dates clearly but the assignments should have taken place in about June this [year]. In all therefore, I assigned $3.8 million in kind to satisfy my debts to [Chau]."

27. Although in his Fourth Affirmation filed herein on 13 May 1997, in Paragraph 30 of his Supplemental Statement and Paragraph 16 of his Supplemental Witness Statement, the Plaintiff referred to mistake made by his then solicitor in the preparation of that paragraph, the only mistake he mentioned was mistake as to the second part as identified above. In fact, the Plaintiff confirmed the accuracy of the first part in Paragraph 7 of his Fourth Affirmation filed herein. Up to the end of the trial, the Plaintiff offered no explanation as to this admission which is apparently inconsistent with his present case.

28. On the evidence before me, I am satisfied on the balance of probabilities that the Plaintiff borrowed more than $300,000 from Chau after May 1989. Although the exact figures of these post May 1989 loans could not be ascertained, I accept the evidence of Chau that the sum was around $900,000.

29. Hence, by February 1990, apart from the loan in respect of the Surf Hotel, the Plaintiff had borrowed a total sum of about $2.5 million from Chau and he also owed Chau interest on those loans. Regarding those loans, Chau held the following securities, the Tai Nam Woo Legal Charge, the Chinese Agreement (which gave him equitable interest in the eight properties as purchaser) and 2 cheques issued by the Plaintiff (in the sums of $500,000 and $100,000 respectively). As mentioned, the prices attributable to the two Properties under the Chinese Agreement were $1.5 million and $1.7 million respectively. These set the scene for the events in February and March 1990.

The Chinese Nominations and the Assignments in favour of the Defendant

30. Chan and Chau gave evidence as to what happened in 1990. Again I accept their evidence to be truthful. I also reject the Plaintiff's evidence insofar it is inconsistent with the evidence of Chan and Chau. I set out below what I find to have happened in 1990 up to the execution of the Assignments in favour of the Defendant.

31. Around Chinese New Year, the Plaintiff telephoned Chan and told him that he had worked out a solution with Chau as well as Lai Man. Of the eight properties in the Chinese Agreement, it was obvious that nothing much could be done with regard to the properties mortgaged to the two banks due to the large amounts outstanding. The Plaintiff proposed to assign one property, House 13 viz. Lot No. 376 Section A in Demarcation District No. 257, to Lai Man in consideration for his discharge of the mortgage in respect of House 14, viz. Lot No. 376 Remaining Portion in Demarcation District No. 257. Then the Plaintiff would settle his liabilities to Chau (apart from the loan relating to the Surf Hotel) by assigning the Properties to Chau. At that time the title deeds of Houses 13 and 14 were with Lai Man. He refused to hand over the title deeds until he had some assurance from the Plaintiff. In respect of the third property which was unencumbered, viz. House 18 at Lot 645 in Demarcation District 257, the Plaintiff had supplied the title deeds to Chan.

32. Chau agreed to the proposal. He went to the office of Chan together with the Plaintiff on 21 February 1990. At the office, after Chan explained to them that he could not prepare the assignments at that stage because of the lack of title deeds, Chan prepared Chinese nominations to be signed by the Plaintiff as evidence of his sincerity. Chau asked for the nominations to be made in favour of the Defendant. Chan drafted the Chinese nominations accordingly. He also drafted one in favour of Lai Man in respect of House 13. This was necessary because without sight of that, Lai Man would not hand over the title deeds. When the three Nominations were ready, Chan read the same in the presence of the Plaintiff and Chau and then the Plaintiff signed.

33. Chan subsequently got the title deeds from Lai Man in exchange for the Nomination signed by the Plaintiff in his favour. After several weeks, the Plaintiff phoned Chan and told him that Messrs Yaddy Cheung & Co. represented the assignors, viz. the villagers who were the registered owners of the properties. Chan contacted Yaddy Cheung and he was told that the Plaintiff had promised to pay $150,000 for the assignment of each house. The Plaintiff confirmed that to be the case but said he would not pay for the same. Chau and Lai Man agreed to make those payments. Chau paid $150,000 for the assignment regarding Lot No. 376 Remaining Portion in Demarcation District No. 257 and $143,000 for the assignment of Lot 645 in Demarcation District 257. Lot 645 was in fact adjacent to a small piece of garden land Lot 372 in Demarcation District 257 which was assigned on the same date on payment of $7,000, hence altogether making up $150,000 for House 18. I should mention here that although some issues were taken by the Plaintiff in his Second Supplemental Witness Statement regarding the assignment of Lot 372, the Plaintiff did not seek to amend the claim in the present action to encompass this lot despite repeated observations made about such omission and adjournment being granted to Plaintiff's counsel to specifically considered the same. On 20 November 2001, counsel for the Plaintiff informed the court categorically that the Plaintiff would not amend the claim to encompass Lot 372 although he sought leave to make other amendments. In those circumstances, I do not need to be concerned with the assignment of Lot 372 to the Defendant.

34. After Chan had instructed his staff to prepare the relevant assignments, he had second thoughts on the matter. Since he acted for the Plaintiff in these transactions, he considered that it would not be appropriate for him to act for the assignees as well. He therefore introduced Chau and Lai Man to another firm of solicitors, Messrs Hermes Lui & Co. Since the matter proceeded by way of Nominations, Chan did not think it was necessary for the Plaintiff to be a party to the Assignments. Completion took place within one or two days after the case was transferred to Messrs Hermes Lui & Co.

35. To give effect to the settlement, Chau executed a Receipt on Discharge in respect of the Tai Nam Woo Legal Charge. The Receipt was dated 19 March 1990, the same date as the Assignments. The two cheques of $500,000 and $100,000 issued by the Plaintiff and held by Chau as security were cancelled. If there was no settlement, it is difficult to explain why Chau would execute the Receipt on Discharge and agree to cancel these cheques.

36. The Plaintiff's case is simply that he had no knowledge and had never consented to the Assignments. He said he only learnt of the same when he received the notice to quit. He said that the Nominations were forgeries and suggested that Chan misused blank papers signed by him to make up those documents. He said the sums paid by Chau to the original registered owners were bribery given to them to induce them to execute the Assignments. He put forward a theory that Chau approached Lai Man and convinced the latter to deliver up the title deeds relating to the Properties and to give him information about the identities of the indigenous villagers.

37. It is obvious that in respect of some of these allegations, the Plaintiff did not have any evidence to support his case. The allegations about the bribery of the indigenous villagers and the approach by Chau to Lai Man are at best surmises. Given the position and influence of the Plaintiff at Sai Kung, it is unlikely that the villagers could be induced to act against his interest. Further, I reject his allegations that the Nominations were forged documents and he did not have any knowledge about the Assignments. These are serious allegations against Chan and Chau and there is no credible evidence to support the same. I have already explained why I do not believe the Plaintiff. The Deed of 25 April 1990 clearly exposed the Plaintiff's evidence as to lack of knowledge of the Discharge of Tai Nam Woo Legal Charge as a lie.

38. In this connection, it is noteworthy that the title deeds in respect of House 18, viz. Lot Nos. 372 and 645 of Demarcation District 257, were, according to the evidence of Chan, given to Chan by the Plaintiff. Although the Plaintiff said otherwise in his witness statement (his case was that the title deeds were delivered by Lai Man to Chau), the contemporaneous documents showed that the title deeds of House 18 had not been held by Lai Man. In a letter dated 11 March 1989, Messrs Lo, Chan, Chan & Leung wrote to Messrs Hastings as solicitors for Lai Man to ask for title deeds held by them on behalf of Lai Man. That enquiry was confined to Houses 13 and 14. This is corroborated by Exhibit D-7 which showed that only Houses 13 and 14 were held by Lai Man as security. I find as a fact that the title deeds regarding House 18 were handed by the Plaintiff to Chan after the signing of the Chinese Agreement in March 1989. Hence, if there was no agreement as to the assignment of House 18 to discharge his debts towards Chau, I fail to see the reason why the Plaintiff did not take any step to ask for the return of title deeds when he terminated the retainer of Chan. In my judgment, the explanation was that he was well aware of the Assignments and had indeed consented thereto in terms of the Nominations.

39. The Plaintiff also said that he had not asked for assignments from the indigenous villagers even after the lapse of the 5 years period because the matter escaped his attention and he was pre-occupied with other matters. The Chinese Agreement in March 1989 clearly showed otherwise. The three properties were included in that agreement and they had not escaped his attention. In my judgment, the Plaintiff did not ask for assignments to be executed in his favour because he had reached agreement with Chau as to the disposition of these properties.

40. I have already referred to Paragraph 13 of the Plaintiff's affirmation dated 10 October 1990 filed in High Court Action No. A6864 of 1990. The second part of that paragraph was said to be a mistake by the Plaintiff. I find the explanation by the Plaintiff as to how such mistake come about very tenuous. He suggested that his former lawyer misunderstood him and confused the Tai Nam Woo Legal Charge with the assignments in 1990. However, the Tai Nam Woo Legal Charge was created at a much earlier stage in 1988 and the charge was in respect of different properties. The charge was in respect of more than 2 pieces of land and the security was not effected by way of assignment. The loans concerned were also different. The loan secured by the Tai Nam Woo Legal Charge was made in October 1988 whereas the loans referred to in Paragraph 13 of the said affirmation were advanced after 4 June 1989. Moreover, the Tai Nam Woo Legal Charge was only a security and could not possibly be described as assignments to repay outstanding loans. The explanation of the Plaintiff is not credible and I reject the same. The values ascribed to the two properties by the Plaintiff in the said affirmation were $1.9 million each. Although these are not exactly the same as the valuations of the Properties by the surveyors, whose evidence I shall deal with later, they are rather close to such valuations. I accept the submission of the Defendant that in that paragraph, the Plaintiff was referring to the Assignments. The Plaintiff was therefore fully aware of the same and there is no doubt in my mind that the Plaintiff did consent to the same as evidenced by the Nominations.

41. Valuation evidence was adduced by both parties at the trial concerning the market values of the Properties on the date of the Assignments, viz.19 March 1990. The primary issue I have to decide is whether the Plaintiff agreed to the Assignments in consideration of the settlement of his liabilities to Chau. If that agreement existed, it matters not as to what the market values of the Properties were at the time of that agreement. Parties could form their own views as to the values of the properties and such views might be different from the fair market values as assessed by the experts. Moreover, parties might come to the agreement having regard to matters other than the market values of the Properties. In the present context, I have to bear in mind the fact that there was in existence an earlier agreement regarding the Properties. As I mentioned, under the March 1989 Agreement, the Properties were given price tags of $1.5 million and $1.7 million respectively. Although that agreement could not be completed in the manner as envisaged, Chau was entitled to purchase the Properties at these prices without completing the purchase as to the other properties under Clause 4 of that agreement. That must have been taken into account in any discussion between the Plaintiff and Chau as to the values of the Properties in February 1990.

42. Thus, the valuation evidence is only of secondary importance. Of course, if the fair market values of the Properties exceeded the amounts due from the Plaintiff to Chau by a very large margin, I would have to ask whether it is credible that the Plaintiff would settle the liabilities towards Chau by agreeing to the Assignments. Even so, that would only be one of the factors to be taken in account together with other evidence available. Further, if the margin is not that significant or if there were good explanation for the same, bearing in mind the earlier prices agreed between the parties as to the Properties, I do not consider the valuation evidence to be of much assistance in the resolution of the factual disputes.

43. The values of the Properties assessed by the Plaintiff's expert were the same for each property, viz. $2,536,000. On the other hand, the Defendant's expert assessed the values to be $2,110,000 for Lot No. 645 and $2,100,000 for Lot No.376 RP. Having heard the evidence of both experts, I have no hesitation in rejecting the evidence of the Plaintiff's expert. I find his evidence to be highly unsatisfactory and unreliable. Although comparables were attached to his reports, it is obvious that he did not arrive at his conclusion by making adjustments to the comparables. At first, he gave an impression that he had actually made adjustments in the process of preparation of his reports although such adjustments were not set out in the reports. He explained that it was not his practice to include such material in reports. When he was further cross-examined in respect of his comparables and adjustments made by him, it was quite obvious to me that he was performing the task for the first time in the witness box and he had to work out the figures by means of a calculator. Worse still, he had to correct himself on several occasions when he found out that the answers he had given earlier did not match his conclusions in the reports. He eventually admitted that he did not undertake that exercise when he prepared the reports. He said he only looked at the comparables and then generally arrived at the figures set out in his reports. That was, to say the least, irresponsible. His approach in assessing the comparables in the witness box was also highly questionable. He said that there was no difference between the unit price for the sale of a property as a whole and the unit price for the sale of each storey independently. No adjustment was necessary, according to him, due to difference in size. He further said that there was no need to make adjustment as to difference in age of the property as long as the difference was less than 10 years. For reasons best known to him, the unit rates of all his comparables were "adjusted" to $13,000 per square metre. He called this process "intentional adjustment ("有意識地作調整"). In the light of all these, I have grave reservations as to his competence as an expert.

44. As to the valuations of the expert of the Defendant, under cross-examination, he agreed that for terrace house (as compared with detached house), an adjustment of 5% is more appropriate instead of 3% made in his reports in considering the comparables. With those revisions, the value for Lot 645 became $2,122,000 and the value for Lot 376 RP became $2,050,000.

45. According to my findings, the Plaintiff owed Chau a total sum of $2.5 million plus interest thereon in February 1990. The total amount due to Chau was calculated to be about $3.18 million in February 1990. On top of that, Chau had to pay $300,000 to the indigenous villagers for the Assignments and legal costs and stamp duties. That was more than the agreed values of the Properties in March 1989, viz.$3.2 million. The Plaintiff himself ascribed a total value of $3.8 million to the Properties in his affirmation of 10 October 1990. Although the Defendant's expert gave an opinion of assessing the market values of the Properties to be $4,172,000, that was not known to the parties in February 1990. There is no suggestion that professional valuations had been obtained prior to the February 1990 agreement. On the evidence before me, it seems that the Plaintiff might have under-estimated the market values of the Properties in March 1989 and October 1990. Hence, it is equally probable that he under-estimated the values of the Properties in February 1990. Hence, in assessing the credibility of the Defence case as to the settlement agreement in February 1990, it is in my judgment more pertinent to have to regard to the parties' perceived values of the Properties.

46. Looking at the matter in the light of that and having regard to what I have said regarding the relevance of valuation evidence in the present context, although there is some difference between the expert evidence as to the market values of the Properties and the amount which was due from the Plaintiff to Chau in February 1990, I do not consider that difference as sufficient to cast doubt on the direct evidence given by Chan and Chau, which were corroborated by documentary evidence, as to the agreement for settlement in February 1990. I am satisfied that on balance of probabilities, the Nominations were executed by the Plaintiff pursuant to that agreement for the discharge of his liabilities to Chau and I find as a fact that the Plaintiff did consent to the Assignments.

Legal consequences

47. Having reached these conclusions on the facts of the case, the Plaintiff could not succeed in his claim in any event. Even if he had any valid and enforceable beneficial interest in the Properties, he had relinquished the same in favour of the Defendant. His claim must be dismissed and he has no answer to the Counterclaim of the Defendant for possession of the Properties and mesne profits. In the letter of 20 February 1991, the Plaintiff was given 7 days to yield up possession. The Plaintiff did not adduce any evidence as to why 7 days was not a reasonable period. In view of the reference dates in the valuation evidence, I hold that the Plaintiff would be entitled to mesne profit from 19 March 1991 to date of actual possession. Based on the valuation evidence of the Defendant's expert (which had not been challenged by the expert called by the Plaintiff), I assessed such mesne profit up to 18 May 2002 to be $3,476,000 for Lot No. 376RP and thereafter at the rate of $22,500 per month. Regarding Lot No. 645, the mesne profit up to 18 May 2002 is $3,575,000 and thereafter at the rate of $23,500 per month. The total is therefore $7,051,000 up to 18 May 2002, thereafter at $46,000 per month.

48. In view of my conclusions on the facts of the case, it is not absolutely necessary for me to decide the case on the points of law raised by Mr Wong. However, for the sake of completeness, I will also deal with these points briefly.

49. Turning to the legal issues, Mr Wong raised two arguments as to why the Plaintiff in any event did not have any valid and lawful beneficial interest in the Properties. The first point is based on the Land Registration Ordinance and the non-registration of the two Chinese Memoranda dated 11 April 1980 (regarding Lot 376 RP) and 17 July 1979 (in respect of Lot Nos. 374 and 375, which were subsequently surrendered and regrant as Lot No. 645) respectively. Under those memoranda, the Plaintiff agreed to purchase the Properties from the indigenous villagers. By reason of Section 3 of the Land Registration Ordinance, they are absolutely null and void for all intents and purposes against subsequent bona fide purchaser for valuable consideration. Further section 4 provides that notice of prior unregistered instrument would not affect priority of a duly registered instrument. The Assignments of 19 March 1990 in favour of the Defendant were duly registered. Although the Plaintiff also relied on the costs incurred by him in the development of the Properties to sustain his beneficial interest, in my judgment, it is plain that his interest stemmed entirely from the Chinese Memoranda. The Plaintiff incurred the costs of development because of the agreement embodied in the Chinese Memoranda. Hence the costs of development could not give rise to an independent unwritten beneficial interest for the purposes of the Land Registration Ordinance.

50. The only question is whether the Defendant was a bona fide purchaser for valuable consideration. It was accepted by Mr Wong that if the Defendant was implicated with fraud, it would not be a bona fide purchaser. On the facts as found by me, there was no fraud on the part of Chau, Chan or the Defendant. I find the Defendant to be a bona fide purchaser for valuation consideration. Thus, even if the interest of the Plaintiff had not been effectively divested to the Defendant (for reasons which have not been canvassed before me), such interest will be null and void by reason of the Land Registration Ordinance.

51. The second legal issue is slightly more complicated. Not only were the Chinese Memoranda not registered, they were also entered into between the Plaintiff and the indigenous villagers in contravention of the Conditions of the Building Licences issued by the Government to the indigenous villagers. I have referred to the restrictions against alienation at the beginning of this judgment. In Lee Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84, the Court of Appeal held that the breach of the condition is just a matter of breach of contract and there was insufficient evidence that the restriction was a matter of public policy. Hence, it was held that the agreement before the court was not unenforceable. It should be noted that on the facts of that case, the parties to the agreement envisaged that premium would be paid to the Government and the court therefore concluded that the parties were only "technically jumping the gun".

52. In the more recent Court of Appeal decision in Madam Chung Mui Teck v Hang Tak Buddhist Hall, CACV 20 of 2001, 22.5.2001, it was held that because a scheme of joint development taking advantage of the Small House Policy involved the making of false declarations to the Government and making of misrepresentation, the scheme was illegal and unenforceable. An earlier decision to the same effect by Yuen J (as she then was) in Best Sheen Development v. Official Receiver [2001] 3 HKC 79 was endorsed by the Court of Appeal. Le Pichon JA said in the Court of Appeal,

"Under the Deed, an applicant will inevitably be making a representation in his application as to the legal and beneficial ownership of the section or lot in respect of which the application is made and which is untrue. Although the tort of misrepresentation is not committed until an application is made, in effect the Deed is an agreement to procure villagers to make applications which necessarily involve misrepresenting to the Government the beneficial ownership of the section or lot in question. That being so, I agree this is a further reason why the Deed cannot be performed without the commission of a civil wrong. In my judgment, it is an additional reason rendering the Deed unlawful and unenforceable under common law."

53. In the present case, the point of illegality has not been pleaded by the Defendant. However, if the Plaintiff cannot establish his claim without any reference to an illegal transaction, the court is bound to look into the same. As I have said, the Plaintiff had to refer to his interest under the 1980 Memoranda to establish his interest. They were in fact pleaded in Paragraphs 1 and 2 of the Re-Amended Statement of Claim. Hence I have to consider the issue of illegality.

54. The evidence before me is not clear as to whether any false declarations had been given by the indigenous villagers at the time when they applied for the Building Licences. The Chinese memorandum regarding Lot No.376 RP was entered into after the grant of the Building Licences (but not the one regarding Lot Nos. 374 and 375). Thus, as Mr Wong fairly pointed out, it might be that at the time when the application regarding Lot No. 376RP was made, the villager did not make any false declaration. However, after the making of the memoranda, applications were made in the name of the villagers to the Government for Conditions of Exchange regarding Lot No. 645, for extension of time for completing construction, for modifications regarding building specifications and finally for Letters of Compliance. Although for reasons given below, I do not propose to decide this case on this point, I must say that it was arguable that there were misrepresentations by conduct as to the beneficial ownership of the Properties on the part of the villagers with the connivance of the Plaintiff in the course of those applications. Further, although I am bound by the decision of Lee Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84, it seems that the Court of Appeal in that case did not have the benefit of considering the argument that the procurement or inducement of a breach of contract is a tort, hence as much a civil wrong as the tort of misrepresentation. Moreover, the present case is also distinguishable from Lee Pui Wan v Wong Mei Yin on the facts. The Plaintiff himself said in the witness box that the reason why the Memoranda were not registered was to avoid the payment of premium. Later on, after construction of the houses was completed, applications for approval for transfer of ownership to the Plaintiff were made by the villagers in 1984. However, because the Plaintiff was unwilling to pay the assessed premium, the transfer was not effected. Thus, the Plaintiff was not merely jumping the gun, he was clearly taking improper advantage of the Small House Policy.

55. Notwithstanding the above observations, I prefer not to rest my decision on illegality. On the facts as found by me, the Plaintiff's claim must fail even without this point. Although Mr Wong has given me helpful assistance and has also been very fair to the Plaintiff, I am still mindful of the fact that by the time this point was argued, the Plaintiff acted in person. Whilst I had raised the point in October 2001 when the Plaintiff was represented by lawyers, I am not sure whether that was taken on board with full understanding as to its implications. In the absence of legal submissions on behalf of the Plaintiff, I would not express a final view on the point. In these circumstances, I would only decide the case on the facts and the Land Registration Ordinance point.

Conclusion

56. For these reasons, I dismiss the claims of the Plaintiff. On the Counterclaim of the Defendant, I give judgment to the Defendant for possession of the Properties and mesne profits as assessed in Paragraph 47 above up to date of actual possession. Mr Wong has not addressed me as to interest. Since the mesne profit is in respect of a period of time, I will award interest on the sum $7,051,000 at half judgment rate up to date of judgment. Thereafter, interest will be calculated on the basis of judgment rate. I also make an order nisi that the Plaintiff bears the Defendant's costs of the action, such costs to be taxed if not agreed.

	(M H Lam)
	Deputy High Court Judge

Representation:

Mr Chris Choi, instructed by Messrs Jackie Cheung & Co., for the Plaintiff (on 29-31 October 2001, 1 November 2001 & 11 December 2001)

Mr Edward Fan, instructed by Messrs Jackie Cheung & Co., for the Plaintiff (on 18-22, 25 & 26 February 2002)

Plaintiff, Lee Yun Sau, in person (on 2-3 May 2002)

Mr Horace Wong, instructed by Messrs L H Kwan & Co., for the Defendant

20248-EN-2001-12-21

LEE YUN SAU v. D.H. SHUTTLECOCKS LTD.

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HCA001459B/1991

HCA 1459/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1459 OF 1991

____________

BETWEEN
	LEE YUN SAU	Plaintiff

	AND

	D.H. SHUTTLECOCKS LIMITED	Defendant

____________

Coram: Deputy High Court Judge Lam in Court

Date of Hearing: 11 December 2001

Date of Handing Down Decision: 21 December 2001

_______________

D E C I S I O N

_______________

1. This is an application for the following preliminary issue to be decided,

"Whether the Plaintiff, having entered into the Deed of Compromise dated 13th February 1991 with, inter alia, Mr Chau Hau Tung ("Mr Chau"), is estopped, or is otherwise not entitled to, reopen, raise, or make the allegation in the present action that the various loans alleged or pleaded in paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim were made by Mr Chau as an unlicensed money lender."

2. That issue arises by virtue of a plea in Paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim. Before I refer to that paragraph, I should say something about the respective case of the parties in this action. The Plaintiff claimed to be the purchaser of two pieces of land in Demarcation District No. 257, viz. the Remaining Portion of Lot No. 376 and Lot No. 645 ["the Properties"]. Despite payment of the purchase price by the Plaintiff, the Properties were assigned by the vendors to the Defendant on 15th March 1990. The Plaintiff also pleaded that he had entered into possession of the Properties and incurred substantial monies on the Properties by constructing buildings thereon. The Plaintiff said that the Defendant held the Properties on trust for the Plaintiff. The Defendant admitted that the Plaintiff had been the equitable owner of the Properties up to 1990 whilst the vendors held the legal title. Its case was that the Plaintiff had owed substantial amounts to one Chau Hau Tung ['Chau"] in respect of a number of advances made by Chau to the Plaintiff between 1988 and 1989. In about February 1990, Chau agreed with the Plaintiff to settle their mutual dealings with each other. One of the term of settlement was that the Plaintiff would cause and direct the vendors to assign the Properties to Chau or his nominee in full and final settlement of the loans. It was pursuant to that agreement that the vendors assigned the Properties to the Defendant, which was a company owned and controlled by Chau.

3. In response, the Plaintiff pleaded in Paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim that the alleged agreement and the alleged transfer were all tainted with illegality in that the Defendant was an unlicensed money-lender and the said loans were all unlicensed loans. I think the reference to the Defendant as the money-lender was intended to be a reference to Mr Chau. Two other points were raised in that paragraph: lack of privity on the part of the Defendant to the alleged agreement and absence of memorandum in writing. However, Mr Choi, who appeared on behalf of the Plaintiff, had indicated to me on 31 October 2001 that the Plaintiff abandoned those other points.

4. The basis on which the Defendant made the present application is that the Plaintiff is estopped by a Deed of Compromise of 13 February 1991 made between the Plaintiff and Chau from asserting that Chau was an unlicensed money-lender. This is pleaded in Paragraphs 9 and 9A of the Amended Rejoinder. In answer, the Plaintiff averred in the Surrejoinder filed on 31 October 2001 that apart from the loan in the sum of $17,000,000, the Deed of Compromise had nothing to do with the other loans referred to in the pleadings. Hence, the Plaintiff argued that it was entitled to raise the plea of illegality regarding those other loans. I should mention that the $17,000,000 loan was also referred to in the pleadings in the present action.

5. The Deed of Compromise came into existence in the context of, inter alia, two actions between Chau and the Plaintiff. Both actions concerned a mortgage dated 2 September 1988 under which the Plaintiff assigned to Chau Lot No. 1780 in Demarcation District No. 221 to secure all sums from time to time advanced by Chau to the Plaintiff. In HCMP No. 3010 of 1990, Chau claimed against the Plaintiff payment of monies due ($27,279,567 as at 24 August 1990) and possession of the mortgaged property. In HCA No. A6864 of 1990, the Plaintiff claimed against Chau for a declaration that the mortgage was void for illegality by reason of breach of the Money-lenders Ordinance. Under the Deed of Compromise, the Plaintiff agreed to settle the actions with Chau by paying a sum of $23,000,000 to Chau. It was further agreed that HCA No. A6864 of 1990 be dismissed with no order as to costs whilst HCMP No. 3010 of 1990 was to be withdrawn. Although the Consent order was not included in the bundle, parties accepted before me that HCA No. A6864 of 1990 was dismissed subsequently.

6. Mr Wong (who appeared on behalf of the Defendant) submitted that by the Deed of Compromise, the dispute as to whether Chau was an unlicensed money-lender had been settled once and for all. He referred me specifically to Paragraphs 22 to 23 of the Affirmation of the Plaintiff filed in HCA No. A6864 of 1990 on 10 October 1990. Those paragraphs set out clearly the allegations of the Plaintiff in that case that Chau was an unlicensed money-lender. He also pointed out that that affirmation was made when all the loans referred to in the present action had been advanced and there were in fact reference to those "other loans" in Paragraph 13 of the same affirmation. Mr Wong submitted that it does not matter that the settlement was only made in the context of the two actions. The pertinent question is, he submitted, what was the dispute that was settled. By reference to the relevant material, the issue was whether Chau was an unlicensed money-lender which was a question of fact. He said that was the issue settled by the Deed of Compromise and once that had been settled, it was not open to the Plaintiff to reopen the same in the context of the present action. He also emphasized that the Deed was executed by the Plaintiff with the benefit of legal advice and the settlement was a bona fide one. He also submitted that no material distinction can be drawn regarding the $17,000,000 loan and the other loans. Either Chau was an unlicensed money-lender or he was not and on the Plaintiff's case, that was an allegation applied equally with regard to the $17,000,000 loan and the other loans.

7. Mr Wong relied principally on Binder v. Alachouzos [1972] 2 QB 151. It was held by the English Court of Appeal that once there was a bona fide compromise of question of fact as to whether the loans were unlawful moneylending transactions, it was not open to the defendant to reopen the issue in a subsequent action brought by the plaintiff on that agreement. Lord Denning MR in that case cited with approval the dicta of Kennedy LJ in In re Campbell, Ex parte Seal [1911] 2 KB 992 at 998-9,

"The defendant, in order to make good a plea of illegality, would have to show by evidence that the lender was a 'moneylender' within the Act. ... If the borrower in such an action as the present does not choose to fight the disputable point, he cannot be entitled afterwards to reopen the judgment against him by alleging that he might successfully have relied upon a defence of illegality if he had adduced certain evidence to prove ... the case..."

Roskill LJ also inclined to accept that dicta (at p.160 F) although he did not find it necessary to decide the case on that basis. The rationale of Roskill LJ can be found at p.160B to C,

"In my judgment it is the law of this country, as Lord Denning MR has said, where there is a bona fide compromise of an existing dispute and that compromise includes a compromise of what ... is basically an issue of fact, namely, whether or not there had in fact been unlawful moneylending, especially where the compromise has been reached under the advice of counsel and solicitors, that that compromise is enforceable against the party seeking subsequently to repudiate it. Any other course would cause very great difficulty in the administration of justice."

On the facts of Binder, the plaintiff was enforcing the terms of the compromise by seeking payment thereunder, the defendant having defaulted in making instalment payments in accordance with the terms of the compromise.

8. Binder has subsequently been applied in Colchester Borough Council v. Smith [1992] Ch 421. In that case, the plaintiff's cause of action was not based on the compromise. Rather the plaintiff relied on the term of the compromise to defeat a defence of adverse possession raised by the defendant to resist the proceedings for possession. At first instance, Ferris J. decided the point on the basis of estoppel by contract or estoppel by convention by reference to the terms of the compromise. In the Court of Appeal, Binder was applied by analogy and Dillon LJ said, at p.435B,

"In my judgment this was a bona fide compromise of a dispute and Mr Tillson, who had the advice of his solicitors and signed the agreement through them, is estopped by the terms of the agreement he made from going behind it and litigating the antecedent dispute. That is as the judge held, and whether it be labelled estoppel by agreement or estoppel by convention is a matter of indifference." (my emphasis)

Butler-Sloss LJ said at p.435 D to F,

"Where parties to a dispute reach a compromise which brings that dispute to an end and avoids the need for litigation or further litigation, such a compromise is a valuable part of the resolution of disputes within the machinery of the administration of justice. The compromise has to be genuine, entered into freely by all parties to it without concealment or essential information or undue advantage taken by one party of another party, and preferably with the assistance of lawyers. Consequently, an agreement to compromise an action or a dispute which may lead to litigation is binding and is enforceable against the party seeking subsequently to repudiate it."

9. The principle was applied by the Court of Appeal in ING Bank NV v. Tsui Tsin Tong [2000] HKCU 170 (see in particular the judgment of Keith JA at p.25).

10. Mr Choi submitted that these cases did not apply to the facts of the present case. He drew my attention to specific provisions in compromise in those cases where parties agreed specifically that it would not be open to the defendants to raise the same defence in the future. (see Binder at p.157 E; Colchester Council at p.426 D to E and ING Bank at p.7) Mr Wong however submitted that the principle is not confined to cases where there was specific provision for waiver of defence in the compromise. In this connection, he cited the case of Norfolk Finance v. Newton, English Court of Appeal, unreported, 15 October 1998. In that case, the compromise was not embodied in a written agreement. Rather, the compromise was established by a payment made by one of the party subsequent to a series of correspondence. The payment was made by a cheque as demanded but it was sent without any covering letter. The English Court of Appeal held that the principle set out in Binder and Colchester Council is equally applicable. The court held that the dispute as disclosed in the correspondence was subsequently compromised when payment was made without any reservation of right or protest. The compromise was binding.

11. In principle, I see no reason why the doctrine is only applicable when there is specific waiver of defence in the compromise. The rationale of the rule is to achieve finality in settlement of dispute. That rationale applies equally no matter how the compromise is established. Once the court is satisfied that there was a settlement of the dispute, the principle comes into play. I therefore hold against Mr Choi on this point.

12. Mr Choi further submitted that the subject matters of the compromise were the subject matters of the two High Court actions referred to in the Deed of Compromise. They did not cover the loans other than the $17 million loan. I do not agree that one should confine the effect of the estoppel in this manner. Bearing in mind the rationale behind the principle, I agree with the submission of Mr Wong that one should examine what was the dispute that had been settled under the Deed of Compromise. I agree that the proper test was set out by Diplock LJ (as he then was) in the case of Mills v. Cooper [1967] 2 QB 459 at p.468F,

"a party to civil proceedings is not entitled to make, as against the other party, an assertion, whether of fact or of the legal consequences of facts, the correctness of which is an essential element of his cause of action or defence, if the same assertion was an essential element in his previous cause of action or defence in previous civil proceedings between the same parties or their predecessors in title and was found by a court of competent jurisdiction in such previous civil proceedings to be incorrect."

I see no material distinction as to whether the conclusion of the previous proceedings were achieved by way of a compromise or by way of a judgment of the court obtained after trial (see Johnson v. Gore Wood [2001] 2 WLR 72 at p.91 H to 92A, cited below).

13. Applying that test, for the reasons given in Paragraph 6 above, I am of the view that the issue as to whether Chau was a money-lender was one of the issue settled. This conclusion is reinforced by the fact that the claim for declaration by the Plaintiff in HCA No. A6864 of 1990 was dismissed.

14. The only point which caused me some concern at the hearing is whether the Defendant can rely on this principle given the fact that it was not a party to the Deed of Compromise nor a party to the two previous High Court actions. If the principle is regarded as estoppel by agreement, it may be circumscribed by the doctrine of privity. In Colchester Council, it was also put on the alternative basis of estoppel by convention. Even so, the estoppel could not be relied upon by a party which is not privy to the previous transaction. However, I am of the view that the principle can be founded on a wider base. In my judgment, the principle has a close affinity with the principle of Henderson v. Henderson (1843) 3 Hare 100 which has recently been subject to a comprehensive review by the House of Lords in Johnson v. Gore Wood [2001] 2 WLR 72. The rationale of both doctrines is to serve the objective of finality in litigation. After reviewing the relevant authorities, Lord Bingham (who delivered the leading judgment and Lord Goff, Lord Cooke and Lord Hutton expressed their full agreement with Lord Bingham regarding Henderson v. Henderson abuse of process) identified the principle at p.90 as follows,

"But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice."

Lord Millett also adverted to the common objectives of the various related principles at p.118A to B,

"But these various defences are all designed to serve the same purpose: to bring finality to litigation and avoid the oppression of subjecting a defendant unnecessarily to successive actions. While the exact relationship between the principle expounded by Sir James Wigram V-C and the defences of res judicata and cause of action and issue estoppel may be obscure, I am inclined to regard it as primarily an ancillary and salutary principle necessary to protect the integrity of those defences and prevent them from being deliberately or inadvertently circumvented."

15. The House of Lords held that the doctrine of Henderson v. Henderson (1843) 3 Hare 100 was applicable to a compromise. At p.91H to 92A, Lord Bingham said,

"The second subsidiary argument was that the rule in Henderson v Henderson 3 Hare 100 did not apply to Mr Johnson since the first action against GW had culminated in a compromise and not a judgment. This argument also was rightly rejected. An important purpose of the rule is to protect a defendant against the harassment necessarily involved in repeated actions concerning the same subject matter. A second action is not the less harassing because the defendant has been driven or thought it prudent to settle the first; often, indeed, that outcome would make a second action the more harassing."

16. It is clear from the judgment of the House of Lords that the rule is applicable to the privy of a party to an earlier proceedings. At p.91C to G, Lord Bingham said,

"Two subsidiary arguments were advanced by Mr ter Haar in the courts below and rejected by each. The first was that the rule in Henderson v Henderson 3 Hare 100 did not apply to Mr Johnson since he had not been the plaintiff in the first action against GW. In my judgment this argument was rightly rejected. A formulaic approach to application of the rule would be mistaken. WWH was the corporate embodiment of Mr Johnson. He made decisions and gave instructions on its behalf. If he had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so. The correct approach is that formulated by Sir Robert Megarry V-C in Gleeson v J Wippell & Co Ltd [1977] 1 WLR 510 where he said, at p 515:

"Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest.'"

Lord Millett said at p.119C to D,

"Particular care, however, needs to be taken where the plaintiff in the second action is not the same as the plaintiff in the first, but his privy. Such situations are many and various, and it would be unwise to lay down any general rule. The principle is, no doubt, capable in theory of applying to a privy; but it is likely in practice to be easier for him to rebut the charge that his proceedings are oppressive or constitute an abuse of process than it would be for the original plaintiff to do so."

17. Coming back to the present case, given the fact that the Plaintiff's action for declaration that Chau was an unlicensed money-lender has been dismissed in HCA No. A6864 of 1990, it is more a case of issue estoppel than abuse of process. To permit the Plaintiff to re-litigate the matter in the present action would allow him to mount a collateral attack to the order for dismissal of the action in HCA No. A6864 of 1990. Although the Defendant was not a party to that action, I am of the view that the approach of Lord Bingham set out by me in Paragraph 16 above should be applied in the present context given the close affinity of the doctrines. I am satisfied that the Defendant was the corporate embodiment of Chau for the purpose of this aspect of the case and they have a privity of interest in relation to the dispute as to whether Chau was an unlicensed money-lender.

18. Hence, the Defendant was entitled to the benefit of the settlement of the dispute and it would not be right to allow the Plaintiff to re-open the same issue in the present action. As I said, this is not a Henderson v. Henderson type of situation because the very issue now sought to be raised by the Plaintiff had already been disposed of in the previous action. Hence, it would not be necessary for the Defendant to show any abuse other than it is a re-litigation of a settled dispute. However, if I am wrong on that, I also find that it is an unjust harrassment by the Plaintiff of Chau and his privy. The plea of illegal money-lending was first raised by the Plaintiff in the Amended Reply and Defence to Counterclaim dated 21 October 1997, more than 6 years after the issue had been settled under the Deed of Compromise. The Plaintiff had entered into that Deed with the benefit of legal advice. The Plaintiff is relying on the same allegations in HCA No. A6864 of 1990 to mount his attack (see Paragraph 15 of his witness statement of 4 September 1999 and Paragraph 19 of his supplemental witness statement of 10 February 2001). If the Plaintiff were allowed to pursue the money-lender defence, Chau would have to give evidence to answer a serious allegation (with possible criminal implications) regarding events which took place long ago and in respect of a dispute which he was justified in regarding as settled by the Deed. No explanation has been offered on behalf of the Plaintiff as to why the re-litigation of a settled issue against such circumstances should not be regarded as an abuse. In my judgment, Chau and the Defendant as his privy should not be harrassed by a second action on a dispute which had long been regarded as settled between them.

19. For these reasons, I hold that the Plaintiff is not entitled to, reopen, raise, or make the allegation in the present action that the various loans alleged or pleaded in paragraph 6(3) of the Re-Amended Reply and Defence to Counterclaim were made by Mr Chau as an unlicensed money lender. In view of that and the concession of Mr Choi as stated in Paragraph 3 above, I also order that Paragraph 6(3) of the re-Amended Reply and Defence to Counterclaim be struck out. I also make an order nisi that the Plaintiff should pay the Defendant's costs of this application, such costs to be taxed if not agreed.

	(M H Lam)
	Deputy High Court Judge

Representation:

Mr Chris Choi, instructed by Messrs Jackie Cheung & Co., for the Plaintiff

Mr Horace Wong, instructed by Messrs L.H. Kwan & Co., for the Defendant

20247-EN-2001-11-01

LEE YUN SAU v. D.H. SHUTTLECOCKS LTD.

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HCA1459/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

ACTION NO. 1459 OF 1991

BETWEEN
	LEE YUN SAU	Plaintiff

	AND

	D.H. SHUTTLECOCKS LIMITED	Defendant

Coram: Deputy High Court Judge Lam in Court

Date of Hearing: 30 October 2001

Date of Ruling: 1 November 20001

____________

Ruling

____________

1. By a summons of 29 October 2001, the Plaintiff sought leave to amend his Re-amended Reply and Defence to Counterclaim. The proposed amendments were in Paragraphs 5(3) and 6(IV) of the document. After hearing arguments from counsel for the Defendant on 30 October 2001, Mr.Choi (who appeared on behalf of the Plaintiff) abandoned the application in respect of Paragraph 5(3). I therefore only need to decide the application in respect of Paragraph 6(IV).

2. The application was opposed by Mr.Wong who appeared on behalf of the Defendant. The proposed amendment was to plead an oral agreement between the Plaintiff and Mr.Chau Hau Tung made several days before 13 February 1991. The background to that agreement was that there were several pieces of litigation between the two parties and they were desirous of settling the same by a Deed of Compromise. The alleged effect of the oral agreement was that Mr.Chau would release the Plaintiff from all obligation to repay all or any part of any loans which were outstanding at the time of the agreement even though such loans were not covered by the Deed of Compromise provided that the Plaintiff would execute the Deed without request for amendment of the Deed.

3. The Plaintiff wished to rely on this alleged oral agreement to aver that there was no outstanding obligation from the Plaintiff to the Defendant in respect of loans, including those pleaded in Paragraph 4(5) of the Re-Amended Defence and Counterclaim. As the pleadings stand, the Plaintiff relied on the Deed of Compromise to achieve the same. However, at the hearing before me, Mr.Choi conceded on behalf of the Plaintiff that the Deed of Compromise did not refer to those loans. Hence the original plea could not be sustained and the compromise point depends wholly on this new plea of oral agreement.

4. Before I consider the submissions of the parties, I should point out that it is not very clear to me as to how an agreement in 1991 could have anything to do with transactions which were completed by Assignments in 1990. In the counterclaim, the Defendant did not seek repayment of any loans. In fact, the defence case was that the loans pleaded in Paragraph 4(5) of the Re-Amended Defence and Counterclaim had been settled in February 1990 by, inter alia, the Assignments from the Li brothers to the Defendant.

5. Mr.Wong opposed the amendment on the basis that the plea was bad in law. He submitted that because of the "entire agreement clause" in the Deed of Compromise of 13 February 1991, the Defendant could not set up a collateral oral agreement as a matter of law. He relied on Clause 20 of the Deed. In support of his contention, he referred me to the case of Inntrepreneur Pub Co. v. East Crown Ltd. [2000] 3 EGLR 31. In that case, Lightman J. held as follows,

"The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding, in the course of negotiations, some (chance) remark or statement (often long-forgotten or difficult to recall or explain) upon which to found a claim, such as the present, to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search, and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that, accordingly, any promises or assurances made in the course of the negotiations (which, in the absence of such a clause, might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence, as is suggested in Chitty on Contract (28th ed) vol 1 para 12-102; it is to denude what would otherwise constitute a collateral warranty of legal effect.

Mr.Wong submitted that the decision of Barnett J. in Michael Sofaer v. Arral Pacific Management [1995] HKCU 1 should be read subject to this later authority. Barnett J. held in that case that the precise effect of an entire agreement clause still remained to be established and refused to disallow an amendment on the strength of such a clause.

6. Mr.Choi did not dispute the law as contended by Mr.Wong. His submission was that the oral agreement had a separate life on its own and he relied on Para.12-101 of Chitty on Contracts, 28th Edn. Since the loans in Paragraph 4(5) (which he called "smaller loans") were not covered by the Deed of Compromise, the subject matters of the Deed and the oral agreement were different.

7. Clause 20 of the Deed reads,

"This deed constitutes the entire agreement of the parties hereto with respect to matters hereof and shall supersede any prior expression of intent, understanding or representation made in respect of any of the matters herein."

8. Notwithstanding its superficial appeal by reference to the wordings of Clause 20, I am satisfied that Mr.Choi's argument was wrong. What the Deed intended to achieve was to settle disputes between the Plaintiff and Mr.Chau. The Deed contained detail provisions which set out the respective obligations of the parties under the settlement. The nexus between the Deed and the alleged oral agreement was part of the Plaintiff's case in the proposed amendment. It is averred that provided that the Plaintiff executed the Deed in its existing form, Mr.Chau would release the Plaintiff from all outstanding loans including those not referred to in the Deed. Such oral agreement was said to be reached several days before the execution of the Deed. In effect, what the Plaintiff wishes to put forward is that apart from the considerations set out in the Deed, a further benefit to the Plaintiff under the settlement was the agreement for release by Mr.Chau. This is plainly an attempt to add something to the settlement which was not recorded in the Deed. Upon analysis, it is therefore clear that the Plaintiff is not alleging two independent transactions. The subject matter of the Deed was the settlement and by alleging an oral agreement, the Plaintiff is seeking to add some further consideration in his favour for the settlement. In my judgment, this is not permissible as a matter of law and the observations by Lightman J. are applicable.

9. For these reasons, the proposed plea is not arguable as a matter of law and I should not allow such amendment. I therefore dismiss the Plaintiff's summons of 29 October 2001.

(M H Lam)
Deputy Judge of the High Court

Representation:

Mr Chris M L Choi instructed by Messrs Jackie Cheung & Co. for the Plaintiff

Mr Horace Wong instructed by Messrs L.H. Kwan & Co. for the Defendant

42882-EN-1997-09-09

LEE YUN SAU v. D. H. SHUTTLECOCKS LTD.

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HCA001459/1991

1991 No. A1459

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

______________

BETWEEN
	LEE YUN SAU	Plaintiff

	AND

	D. H. SHUTTLECOCKS LIMITED	Defendant

______________

Coram: The Hon. Mr. Justice Keith in Chambers

Date of Hearing: 9 September 1997

Date of Delivery of Judgment: 9 September 1997

_______________

J U D G M E N T

_______________

1. I have decided to grant the Plaintiff unconditional leave to defend the Defendant's counterclaim. Since the counterclaim will be going to trial unless it is compromised in the meantime, the less I say about the merits of the counterclaim the better, though I must, of course, explain why I think that the Plaintiff's defence to the counterclaim has an arguable chance of success.

2. The Defendant's counterclaim seeks possession of the two suit properties and mesne profits. The Plaintiff's defence is that the Defendant has not acquired title to the properties. That is because the Plaintiff himself claims to be the beneficial owner of them. The initial difficulty for the Plaintiff is that the agreements written in Chinese on which he primarily relies, and by which he claims to have acquired the properties in the first place, were not registered, whereas the deeds of assignment on which the Defendant relies, and by which it claims to have acquired the properties, were registered. Mr. Andrew Cheung for the Plaintiff realistically accepts, therefore, that the effect of section 3 of the Land Registration Ordinance (Cap.128) (subject to a point which he takes about valuable consideration) is to prevent the Plaintiff from relying on the agreements in Chinese to establish the Plaintiff's continuing interest in the properties.

3. However, a proper investigation of the facts at the trial of the action may show that the Plaintiff has acquired rights in the two properties by the operation of the doctrine of proprietary estoppel. The Plaintiff asserts that, in the years after the agreements in Chinese were signed, and in the belief that he was the beneficial owner of the properties, he spent about $1.75m. building two low-rise houses on the properties. There is some evidence that the registered owners of the properties, Li Wai Man and Li Chung Hi ("the vendors"), who had purported to sell the properties to the Plaintiff in the first place, knew what the Plaintiff was doing, and that they therefore acquiesced in, or even encouraged, the "improvements" which the Plaintiff was making and which must have significantly increased the value of the properties.

4. The fact of the matter is that I cannot rule out the possibility that the evidence at trial will be sufficient to found a proprietary estoppel, and that the vendors will be precluded from denying the existence of the Plaintiff's interest in the properties. That estoppel would operate against the Defendant, because where the circumstances are such as to give rise to the estoppel, the estoppel is equally available against the registered owners and any third parties who claim to have subsequently obtained title to the land from the registered owners. It is arguable that, being first in time and non-registerable, such interest in the properties which the Plaintiff may have acquired by the operation of the doctrine of proprietary estoppel would take priority over the Defendant's interest based on the subsequent deeds of assignment.

5. Even if all this is correct, though, the Defendant's case is that such interest which the Plaintiff had in the properties did not survive the assignment of the properties by the vendors to the Defendant, because it is said that the Plaintiff agreed to the assignment of the properties to the Defendant in order to repay the debts which he owed to the Managing Director of the Defendant, who is its majority shareholder. I do not think that the Defendant can rely on that allegation to obtain summary judgment on its counterclaim. The facts upon which the Defendant relies are disputed, and the nature of the dispute is not one which I could confidently resolve on the affirmations. I suspect that the judge at trial may be a little sceptical about the explanation given by the Plaintiff in his 4th affirmation as to how he came to affirm para. 13 of the affirmation he made in other proceedings in October 1990, and which is inconsistent with his present case. But to adopt what Godfrey J.A. said in his telling observation in Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 at p.15 8G, that argument goes to whether the Plaintiff's assertions are to be believed, and not to whether they are believable.

6. For these reasons, I grant the Plaintiff unconditional leave to defend the Defendant's counterclaim, and I shall hear from the parties as to costs and as to whether there are any directions I should give for the further conduct of the action.

	(Brian Keith)
	Judge of the Court of First Instance

Representation:

Mr. Andrew K. N. Cheung, instructed by Messrs. Wai & Co., for the Plaintiff

Mr. B.K. Ho, instructed by Messrs. L.H. Kwan & Co., for the Defendant