LIN MAN YUAN v. KIN MING HOLDINGS INTERNATIONAL LTD AND ANOTHER

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 216 OF 2008

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DECISIONS ON COSTS AND TERMS OF THE INJUNCTION

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1. This is a dispute arising out of a contract to develop a piece of land in the city of Xiamen, the Fujian Province in the Mainland.

2. The background of this case has been set out in my Judgment handed down on 3 June 2015 (“the Judgment”), and I do not want to repeat the same here.  For the purpose of these Decisions on Costs and Terms of the Injunction, I would adopt the same abbreviations that I had used in the Judgment.

3. After 17 days of trial, I dismissed the claim by Madam Lin against Kin Ming in the Main Action.  I also granted judgment for Mr Kho against Madam Lin and Mr Huang Rui-fu (“the Couple”) in the Counterclaim for harassment and intimidation and awarded exemplary and aggravated damages in the sum of $450,000 and ordered a permanent injunction against them in terms to be determined by the court.

4. For the costs, I made an order nisi (“the Costs Order Nisi”) that:

(i) Madam Lin do pay to Kin Ming the costs of the Main Action;

(ii) the Couple do pay to Mr Kho 60% of the costs of the Counterclaim;

(iii) there be no order as to costs between Kin Ming and the Couple in respect of the Counterclaim; and

(iv) there be certificate for 2 counsel for both the Main Action and the Counterclaim.

5. After the handing down of the Judgment, both sides have filed summonses to vary the Costs Order Nisi.

6. Kin Ming and Mr Kho invite the court:

(i) to order costs in respect of the Main Action and the Counterclaim (as regards the award of 60% of Mr Kho’s costs therein) to be taxed on indemnity or common fund basis; and

(ii) to grant certificate for 3 counsel for both the Main Action and the Counterclaim.

7. On the other hand, the Couple invite the court to vary part of the Costs Order Nisi in respect of the Counterclaim only.  As between Kin Ming and the Couple, they ask that the costs of the Counterclaim be paid by Kin Ming up to 12 August 2013 (i.e. the last day when Kin Ming could have accepted their sanctioned payment without leave of the court) on a party-and-party basis, and thereafter on an indemnity basis together with interest on costs at a rate not exceeding 10% above the judgment rate.  As between Mr Kho and the Couple, they ask Mr Kho to pay the Couple: (i) their costs of the Counterclaim for his loss of business opportunities claim from its inception and on an indemnity basis; and (ii) their costs of the Counterclaim from 12 August 2013 onwards on an indemnity basis together with interest on costs at a rate not exceeding 10% above judgment rate.  As an alternative, Mr Kho should be deprived of 70% (as opposed to 40% as the Costs Order Nisi now provides) of his costs in the Counterclaim, or there should be no order as to costs in the Counterclaim between Mr Kho and the Couple.

Costs of the Main Action

8. I first deal with the costs of the Main Action. Costs should follow the event and Kin Ming should get its costs against Madam Lin.  The only issue is whether the court should order the costs to be taxed on a higher basis.

9. Kin Ming asks for the costs to be taxed on a higher basis by reason of the following 3 grounds:

(i) the whole of the claim in the Main Action was based on a lie relating to the existence of the Oral Revival Term, the evidence of which had been expressly rejected by the court;

(ii) the Couple condoned in, or at least turned a blind eye to, their agents’ acts of intimidation and harassment on Mr Kho to deter him from defending the on-going litigation and to pressurize him into settlement, thereby conducted the litigation in an improper and oppressive manner; and

(iii) the conduct of Madam Lin in bringing the Main Action amounted to forum shopping, when she deliberately avoided setting aside the Default Judgment and instead initiated a fresh claim against Kin Ming in the Mainland on the basis of the Written Contact, and having lost there she then sought to vex Kin Ming with a bogus Oral Revival Term in Hong Kong by way of the present proceedings.

10. In support of the application, Mr Neoh, SC, counsel for Kin Ming, refers me to the principles relating to the granting of indemnity costs as laid down in Town Planning Board v Society for Protection of Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at §§16-18, Re Hyundai Engineering & Construction Co Ltd [2002] 2 HKLRD 71 at §§6-7 and O 62 r 5 of RHC.

11. Having carefully considered the principles set out in the said authorities, I do not accept that the dismissal of Madam Lin’s claim would justify an award of costs on a higher basis.  Although the court rejected the evidence of Madam Lin and her witnesses, it does not mean that Madam Lin had pursued the claim with an ulterior motive or for an improper purpose, or there was some deception or underhand conduct in the conduct of the proceedings.  On the contrary, I can understand her grievances for being left out in the Project.  Though this contractual dispute was not resolved in Madam Lin’s favour, I agree with Mr Fung, SC, counsel for Madam Lin, that this was a normal hostile litigation with no exceptional elements that justify a higher basis of costs.

12. For the harassment and intimidation, they were not directly related to the conduct of the proceedings.  Further, the Couple had been ordered by the court to pay damages to Mr Kho as a result of the wrongful acts, and so the court should penalise them again by ordering them to pay costs on a higher basis.

13. I also do not accept Kin Ming’s suggestion that Madam Lin had deliberately engaged the tactic of forum shopping.  The allegation that it was “Madam Lin’s deliberate litigation tactic not to answer to the default judgment obtained by Kin Ming against her” is simply far-fetched and not supported by any finding.  In fact, Kin Ming had already run that argument in its earlier application to strike out the Main Action, which was rejected by DHCJ L Chan (as he then was) in the decision dated 26 August 2009.  DHCJ L Chan’s decision was upheld by the Court of Appeal.

14. For the above reasons, Madam Lin will continue to pay Kin Ming the costs of the Main Action on a party-and-party basis.

Costs of the Counterclaim

15. Kin Ming, as a corporate entity, did not succeed in the Counterclaim.  Costs follow the event, and so Kin Ming should, in principle, pay to the Couple the costs of the Counterclaim.  I therefore so order.  For the reasons given in the later part of these Decisions, there is also no reason for the costs to be paid other than the party-and-party basis even after the making of the sanctioned payment (see: §17 below).

16. For the costs between Mr Kho and the Couple in respect of the Counterclaim, I am given to understand that the Couple had made a sanctioned payment of $800,000 into court on 15 July 2013.  After trial, I only awarded damages in the sum of $450,000 to Mr Kho.  As the sum awarded by the court is less than the amount of the sanctioned payment, the Couple argue that they should get the costs of the Counterclaim after 12 August 2013, which was the latest day by which Kin Ming and Mr Kho could have accepted the sanctioned payment without the leave of the court.  After such date, under O 22 r 23, Kin Ming and Mr Kho should pay the costs of the Counterclaim on an indemnity basis with enhanced interest on the costs.

17. On the other hand, Mr Kho argues that he had done better than the sanctioned payment.  Mr Kho had obtained a permanent injunction against the Couple which had all long been resisted by them in these proceedings.  In such circumstances, Mr Kho was justified in not accepting the sanctioned payment.  Moreover, the sanctioned payment was made in settlement of the whole of the Counterclaim of both Kin Ming and Mr Kho.  No separate sanctioned payment was made against Kin Ming and Mr Kho individually.  It would create the difficulty that none of them was provided with an opportunity to accept an offer and withdraw from the litigation leaving the other plaintiff in the Counterclaim free to pursue his claim (see the dicta of Judge Withers in Fennell & Ors v Aherne (No 2) [2005] SASC 364 at §11). In fact, it would not even have been open to Kin Ming to accept the sanctioned payment leaving Mr Kho to continue with the Counterclaim on his own, given: (i) the sanctioned payment was expressly stated to be made in settlement of the whole Counterclaim of both Kin Ming and Mr Kho, in other words, the sanctioned payment was not intended to pay off only one of Kin Ming and Mr Kho; and (ii) the Couple could not have conceivably intended to have made the sanctioned payment only to get rid of Kin Ming but they nevertheless had to continue to litigate with Mr Kho in the Counterclaim arising out of the exact same facts.

18. In reply to such argument, the Couple argue that it is not right for Mr Kho to say that, by obtaining the injunctive relief, he had done better than the sanctioned payment.  Under the old O 22 r 1, payment into court could only be made in satisfaction of actions for a debt and damages but not of other claims.  If it was made in respect of actions where debts and damages were sought together with other relief, payment into court could only be made in respect of the monetary claim (see: Associated Engineers Ltd v Lo Chee Pui [2003] 2 HKLRD 76, per Cheung JA at §§9-17).  The position should remain the same after the CJR (see: Hong Kong Civil Procedure 2013 §22.2.3).  In other words, it was open to Mr Kho to accept the sanctioned payment, thus disposing of the question of damages, and left the question of his entitlement to permanent injunctive relief to be litigated.  Yet he had not done so.

19. I do not agree.  Unlike the pre-CJR O 22 where an offer could only be made in respect of monetary claim, an offer, either in the form of sanctioned offer or sanctioned payment, can now be made under the new rule to settle in respect of both monetary and non-monetary claims (see: Hong Kong Civil Procedure 2016, vol. 1, §22/2/A at note 2).  But under the new rule, a defendant is required to state in the notice of sanctioned payment (or notice of sanctioned offer as the case may be) whether the payment relates to the whole claim or part of the claim or to an issue arising from it and if so to which part or issue it relates (see: O 22, r 8(2)(b)).  According to O 22 r 1(2)(a), whole claim is to be construed as a reference to all the claims in their entirety.  Hence under the new rule, it is open to the defendant to make a sanctioned payment with a view to settle all the claims of a plaintiff including both the monetary and non-monetary claims.  The offer would depend on the wording in the notice of sanctioned payment.

20. Since the Couple (i.e. the Defendants in the Counterclaim) stated in the notice that the sum of $800,000 was paid into court in settlement of “the whole of the Counterclaim” (instead of “part of the claim”), Kin Ming and Mr Kho would be barred from pursuing the injunctive relief if they had accepted the sanctioned payment.  That was the term of the offer made by the Couple as specified in the notice.

21. Apparently, the question of injunction became an obstacle in the negotiation for the settlement of the Counterclaim.  In the without prejudice save as to costs letter dated 16 January 2014, Kin Ming and Mr Kho made a sanctioned offer to settle the Counterclaim by accepting a sum of $2 million and a permanent injunction against the Couple.  In another without prejudice save as to costs letter dated 4 July 2014, Kin Ming and Mr Kho made another sanctioned offer to settle the Counterclaim on terms of the payment of $800,000 and the making of a permanent injunction.  In the reply letter dated 8 July 2014, the Couple queried the legal basis for the making of another sanctioned offer without the leave the court.  Moreover, they disputed that Kin Ming and Mr Kho were entitled to any permanent injunction against them.

22. Taking into account the history of this case, I can see the reason as to why Mr Kho had insisted to have a permanent injunction against the Couple.  There was a real risk that the Couple might resort to the same tactics in trying to resolve the dispute with Mr Kho.  As the Couple refused to accept an injunction against them, at least Mr Kho was entitled to pursue the Counterclaim at the trial.

23. On the other hand, substantial time and effort were spent by the parties on the loss of business opportunities claim, which caused a significant increase in the length and the costs of the proceedings. Multiple expert reports were filed.  Substantial documentation was produced. Both sides had devoted substantial time in the submissions relating to such claim. A number of factual witnesses gave evidence and were questioned on the related issues.

24. Mr Kho had hopelessly lost the claim for loss of business opportunities.  In §§253-258 of the Judgment,  I had made a remark that the evidence in support of such claim was far from satisfactory, and the claim was “fanciful and illusory, or at the very least, unsubstantiated with concrete evidence”.  I agree that the sum claimed for the Counterclaim, i.e. US$1,100 million, was grossly exaggerated.

25. On the other hand, the signing of the Powers of Attorney and the Zhuang Agreement were admitted by the Couple right from the start.  It was also admitted that Mr Kho was visited by the purported agents of the Couple.  The actual disputes were whether Mr Kho was really threatened to the extent as alleged by him and whether it caused him the alleged mental suffering so that he was unable to make business decisions as claimed by him. I agree with Mr Fung that, if Mr Kho had not unreasonably raised this extensive and elaborate loss of business opportunities claim, the Counterclaim would have been much more focused and required much less time to adjudicate.

26. Hence, although Mr Kho succeeded in part of the Counterclaim, he should be regarded as a loser in the other substantial part of the Counterclaim which related to the claim for loss of business opportunities.  Following the issue-based approach as set out in In Re Elgindata (No 2) [1992] 1 WLR 1207, I agree that Mr Kho had unreasonably made the claim for loss of business opportunities.  As he failed in such claim, he should pay the costs of the Couple in dealing with such claim.

27. As mentioned above, substantial time and costs had been spent in the Counterclaim in dealing with the loss of business opportunities claim.  The time and costs spent might even be more than those involved in the other parts of the Counterclaim.  Adopting a broad brush approach, I am of the view that the fair costs order in respect of the Counterclaim between Mr Kho and the Couple should be one of no order as to costs.  I therefore so order. 

Certificate for 3 counsel

28. It is trite that a certificate for 3 counsel is exceptional (see: Fu Kor Kuen Patrick v HKSAR, FACC 4/2011 (27 August 2012) at §5, per Bokhary PJ, recently applied by Court of Final Appeal again in HKSAR v Pang Hung Fai, FACC 8/2013 (16 January 2015) at §§11-15). A certificate for 3 counsel will only be justified in the most difficult cases.  It is not justified even if there is “a good deal of work” and “the issues were not simple” (see: Secretary for Justice v Ocean Technology Ltd & Ors, HCA 70/2008 (13 March 2008) at §32, per Hartmann J).

29. I do not accept that this case warrants the engagement of 3 counsel.  Although the trial lasted for 17 days and the amount of the claim was substantial, most of the issues at the trial related to factual disputes which did not involve difficult points of law.  Further, the factual disputes were not particularly complicated and so there was no need to engage 3 counsel to conduct the trial of this case.  I therefore only certify the engagement of 2 counsel.

30. For the above reasons, the Costs Order Nisi is now replaced by the following costs order:

(i) Madam Lin do pay to Kin Ming the costs of the Main Action on a party-and-party basis;

(ii) Kin Ming do pay to the Couple the costs of the Counterclaim on a party-and-party basis;

(iii) there be no order as to the costs of the Counterclaim as between Mr Kho and the Couple; and

(iv) there be certificate for 2 counsel for both the Main Action and the Counterclaim.

Terms of the permanent injunction

31. There is one more outstanding matter.  The arguments on the final wording of the permanent injunction had been done on papers and so I have to give my ruling on such issue.

32. The court has to ensure that the terms of the injunction should not be too wide.  However, the terms must also be effective to prevent the Couple from trying again to resolve the dispute by unlawful means.  Furthermore, since Kin Ming has lost on the Counterclaim, the permanent injunction should only cover the claim by Mr Kho.

33. Having considered the submissions of the parties, I grant a permanent injunction in the following terms:

“There be a permanent injunction restraining each of Madam Lin and Mr Huang Rui-fu, whether by themselves or their servants or agents or any of them, or otherwise howsoever, from carrying out the following acts or any of them, namely:

(a)causing or permitting harassment or intimidation whether directly or indirectly, and whether by personal contact or by telephone, facsimile, email, short message service, social networking tools or otherwise howsoever to Mr Kho or any of his family members;

(b)entering or remaining at the premises of Mr Kho at Room 1818, 18^th Floor, Hutchison House, 10 Harcourt Road, Hong Kong; and

(c) approaching or contacting (other than through their solicitors) Mr Kho or any of his family members, whether directly or indirectly, and whether by personal contact or by telephone, facsimile, email, short message service, social networking tools or otherwise howsoever.”

34. As agreed by the parties, I also provide for liberty to apply in case that there is any change of circumstances such as the relocation of the office of Mr Kho.  I refuse to grant a general injunction to prevent any persons from resorting or accessing Mr Kho’s office, as I consider it a relief more for the protection of the business interest of Kin Ming and not Mr Kho.  I also refuse to make an order for substituted service of the penal notice at this stage.  If the need arises, Mr Kho should make a proper application for substituted service with the filing of supporting affirmation.

35. The parties are able to agree on the terms relating to the award of interest.  As agreed by them, I order that:

(i) interest on aggravated damages ($300,000) at 2% p.a. from the date of the joinder of Mr Kho as the 2^nd Plaintiff by Counterclaim (15 June 2012) until the date of judgment, with the quantum agreed at $17,819.18;

(ii) there be no pre-judgment interest on exemplary damages ($150,000); and

(iii) for both aggravated damages and exemplary damages, there be interest at judgment rate from the date of judgment until payment.

36. I take the view that Kin Ming and Mr Kho have lost their summons to vary the Costs Order Nisi and so I order them to pay the costs of their variation application to the Couple.  For the Couple’s application to vary the Costs Order Nisi and the paper application relating to the terms of the injunction, neither sides can be regarded as the winner and so I order that there be no order as to costs of these applications.

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 216 OF 2008

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JUDGMENT
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1. This is a dispute arising out of a contract to develop a piece of land in the city of Xiamen, the Fujian Province in the Mainland.

2. At the material time, the 1^st Defendant in the Main Action, Kin Ming Holdings International Limited (建明集團國際有限公司)(“Kin Ming”) was entitled to develop a certain area in a piece of land in Xiamen.  On 16 April 2004, the Plaintiff in the Main Action, Madam Lin Man Yuan (林满园)(“Madam Lin”), entered into a contract with Kin Ming (“the Contract”) whereby the latter agreed to sell the right to develop that particular area in the land to Madam Lin.

3. After the making of the Contract, the Municipal Government of Xiamen (“the Xiamen Government”) changed the term of the land grant and altered the area entitled to be developed by Kin Ming.  It is the case of Kin Ming that the Contract ceased to have effect after the land exchange and the Contract did not apply to the new piece of land re-granted by the Xiamen Government.  Madam Lin disputes that and claims that the Contract would still be binding on the parties irrespective of such land exchange.

4. By reason of such dispute, Madam Lin commenced the present proceedings against Kin Ming to claim for a sum of RMB 2.42 billion, which she claims is the amount of profit that should have been earned by her if she was allowed to develop the land under the Contract.  Kin Ming claims that the quantum of the claim is a gross exaggeration because, inter alia, even if Kin Ming was in breach of the Contract, Madam Lin has not taken into account the substantial amount of tax that would have to be paid by the developer of the land to the Government in assessing the damages.

5. After the commencement of the Main Action, Madam Lin and her husband, Mr Huang Rui-fu (黄瑞福) who is the 2^nd Defendant in the Counterclaim, appointed someone to negotiate the dispute with Kin Ming on their behalf.  One of the directors of Kin Ming, Mr Jose Kho (許明宏, formerly known as 許明良)(“Mr Kho), who is the 2^nd Defendant in the Main Action and the 2^nd Plaintiff in the Counterclaim, alleges that he had been intimidated and harassed by these agents appointed by Madam Lin and Mr Huang Rui-fu, to the extent that he suffered serious mental distress, causing Kin Ming and him to lose various business opportunities.  Kin Ming and Mr Kho therefore counterclaim against Madam Lin and Mr Huang Rui-fu for damages totalling US$1,100 million.

6. Prior to the trial, the parties have agreed that I only need to deal with the issue of liability in the Main Action in this trial.  As the determination of the quantum of the claim in the Main Action will be a complicated process involving discovery of voluminous documents and arguments on Mainland laws, the parties agree that, in the event liability is established in the Main Action, there would be a separate hearing on assessment of damages.  For the Counterclaim, I have to resolve both the issues of liability and quantum in this trial.

BACKGROUND AND THE MAIN FACTUAL DISPUTES

(i)   Events leading to the making of the Contract

7. The background of this case is as follows.

8. On 9 May 1998, a company known as “香港昌明國際投資有限公司” (“Chang Ming (HK)”) entered into a contract[1] (“the 1998 Strait City Land Contract”) with the Xiamen Government to acquire the land use right over a piece of land in 前埔片區 (Qianpu-pain District) in Xiamen with a total lot area of about 888,000 square metres[2] (“the Land”) and with a plot ratio of no more than 1.6[3] at a price of RMB 300 per square metre[4].

9. Under the 1998 Strait City Land Contract, Chang Ming (HK) had to develop the Land into a residential-commercial complex development to be named as “Strait City” (海峽城) in accordance with the planning requirements to be specified by the Town Planning Department of the Xiamen Government.

10. On 28 August 1998, the Town Planning Department approved the land use of the Land for the development of commercial and residential units.  The gross area of the Land was 872,757.273 square metres, and the land fee was therefore RMB 261,827,181.90 (872,757,273 x 300).

11. On 29 September 1998, the Xiamen Government officially approved the grant of the Land pursuant to the 1998 Strait City Land Contract.

12. On 14 October 1998, the Xiamen Government approved to change the grantee of the Land under the 1998 Strait City Land Contract from Chang Ming (HK) to “厦門昌明建設發展有限公司” (“Chang Ming (Xiamen)”).

13. As shown in the board minutes of Chang Ming (Xiamen) dated 6 July 1999, it is apparent that, back in 1998, Kin Ming owned 50% of Chang Ming (HK), and Kin Ming (Xiamen) Land Development Company (建明(厦門)房地產有限公司) (“Kin Ming (Xiamen)”), which was a subsidiary of Kin Ming in Xiamen, owned 50% of Chang Ming (Xiamen).  A director and legal representative of Chang Ming (HK) was the well-known Mr Lai Chang Xing (赖昌星) (“Mr Lai”).

14. Mr Hsu Ming Chi (許明棋)(“Mr Hsu”) is the elder brother of Mr Kho.  They were the 2 directors and shareholders of Kin Ming. From the said board minutes, it appears that Mr Kho was also a director of Chang Ming (Xiamen).

15. The Kho’s brothers are Filipino Chinese who had various business interests in the Philippines and the Mainland.  Their family had made donations to several universities in Fujian.  Mr Kho became a member of the Fujian Committee of the Chinese People’s Political Consultative Conference (“CPPCC”) since 1993, and a member of the National Committee of CPPCC since 1998.

16. One can see from the above that Strait City was a land development project involving both Mr Lai and the Kho’s brothers.  Chang Ming (HK) and Chang Ming (Xiamen) were companies controlled by Mr Lai, whereas Kin Ming and Kin Ming (Xiamen) were companies controlled by the Kho’s brothers.

17. In the summer of 1999, the Mainland Central Government and the Xiamen Government began the investigation of the well known “Yuanhua smuggling case” (遠華走私案) (“the Smuggling Case”) involving Mr Lai.

18. By reason of such investigation, the Kho’s brothers wanted to disassociate themselves from Mr Lai in respect of the development of the Strait City project.  The parties therefore agreed to divide the Land into different lots for separate development.  According to the board minutes of Chang Ming (Xiamen) dated 6 July 1999, the directors of Chang Ming (Xiamen) agreed to divide the Land into 4 lots, with Lots A1 and A4 to be developed by Kin Ming (Xiamen), and Lots A2 and A3 to be kept by Chang Ming (Xiamen). Despite such division of the Land, the planning of the whole Land had to be submitted to the Town Planning Department of the Xiamen Government for approval.

19. It is common ground that Lot A4 was a prime site fronting the sea.  Lots A1 and A2 had no sea-facing fronts.

20. On 21 July 1999, the Xiamen Government issued land title certificates for the respective Lots A1 and A4 to Kin Ming (Xiamen), endorsed with a notice to the effect that these certificates were subject to the requirements of the 1998 Strait City Land Contract. The area of Lot A4 was 209,495.10 square metres with a plot ratio of 1.6, yielding a total building area of 335,192.16 square metres.

21. On 23 July 1999, the Xiamen Government approved the change of the developer of the Land from Chang Ming (Xiamen) alone to Chang Ming (Xiamen) and Kin Ming (Xiamen).

22. On 26 July 1999, the Xiamen Government entered into a supplemental agreement to change the grantee of the Land to Chang Ming (Xiamen) and Kin Ming (Xiamen) each holding 50% of the Land.  Under the supplemental agreement, each of Chang Ming (Xiamen) and Kin Ming (Xiamen) was to share in the rights and responsibilities in the 1998 Strait City Land Contract.

23. On 10 August 1999, Kin Ming (Xiamen) and a state enterprise known as “Lianfa Group Company Limited” (the former name was “厦門聯合發展(集團)有限公司”)(“Lianfa”) entered into a joint development agreement to develop Lot A1 into a project to be named as “濱海新城” by dividing Lot A1 into 2 lots, namely Lot A1-01 for Kin Ming (Xiamen) and Lot A1-02 for Lianfa.  The formal land transfer agreement under which Kin Ming (Xiamen) assigned Lot A1-02 to Lianfa was entered on 2 September 1999.

24. Approval for the joint development of Lot A1 by Kin Ming (Xiamen) and Lianfa was granted on 11 August 1999.  A joint land ownership certificate for Lot A1, together with individual land title certificates for Lot A1-01 to Kin Ming (Xiamen) and Lot A1-02 to Lianfa, were issued on 19 August 1999.  These land title certificates were endorsed with the same notice that the terms of the 1998 Strait City Land Contract had to be observed.

25. By September 1999, Kin Ming (Xiamen) had paid in excess of RMB 85 million to the Xiamen Government as land fees for Lots A1 and A4.

26. After further investigation of the Smuggling Case, the Central Government or the Xiamen Government confiscated Lots A2 and A3 as a result of Mr Lai’s involvement in Chang Ming (Xiamen) and Chang Ming (HK).

27. Because of the investigation into the Smuggling Case, the development of Lots A1 and A4 was put on hold given that both lots were “frozen” (查控審查) by the Central Government or the Xiamen Government.

28. By reason of his business association with Mr Lai, Mr Kho was also investigated by the authorities.  Mr Kho was arrested in early 2000, and he was stripped of his positions in the National Committee and the Fujian Committee of CPPCC.  As one of his companies was alleged to have evaded tax, Mr Kho, being the person responsible for the company, was sentenced to 3 years’ imprisonment.  Mr Kho was released in early 2002.

29. Earlier on 6 August 2001, the Xiamen Government released Lots A1 and A4 back to Kin Ming (Xiamen).  Despite the various letters written by Kin Ming (Xiamen) to the Xiamen Government and the various government officials to request for the continuation of the development of Lots A1 and A4 (including the ones dated 12 September 2001, 12 November 2001, 25 February 2002, 26 March and 11 May 2003), the Xiamen Government had not issued to Kin Ming (Xiamen) the requisite notice to pay the remaining land fees for Lots A1 and A4 so as to enable it to continue with the development of these 2 lots.  Apparently, this was the result from the uncertainty and complication arising from the confiscation of the neighbouring lots, i.e. Lots A2 and A3.  In a number of letters from the Xiamen Government to Kin Ming (Xiamen), in particular the one dated 12 April 2004, the Xiamen Government stated that, by reason of the earlier partition of the Land, the planning and the building of various public facilities in the Land had remained unresolved, and as a result the Xiamen Government could not deal with the payment of the balance of the land fees or give approval for the development of Lots A1 and A4 to proceed.

30. Furthermore, the Xiamen Government had already built an exhibition centre in an adjacent piece of land.  In early 2004, there were some reports in the news that the Xiamen Government might use some area in the Land to build a conference centre or other supporting facilities for the adjacent exhibition centre.  As a result, there might be changes in the planning of the development in the Land.

(ii)  The making of the Contract on 16 April 2004

31. With such background, I turn to the making of the Contract on 16 April 2004.

32. Mr Kho considered himself innocent and so he suffered considerable mental pain for being arrested and detained because of his business association with Mr Lai.  By reason of such bitter experience, he wanted to reduce the scale of his business in the Mainland.

33. Mr Huang Wei (黄惟) was a staff employed by Kin Ming (Xiamen).  One of his duties was to explore business opportunities for Kin Ming, including finding suitable business partners or purchasers of the various business interests owned by Kin Ming and Kin Ming (Xiamen) in the Mainland. 

34. Mr Huang Rui-fu and Madam Lin, who are husband and wife, are property developers and investors in the Mainland and they run a company known as “Xiamen Fu Man Holdings Limited” (厦門福满集團有限公司)(“Fu Man”), the name of which is a combination of the one character from each of their names.

35. It is not disputed that Mr Huang Wei, through the introduction of a common friend, approached Mr Huang Rui-fu in early 2004 to discuss the prospect of business cooperation relating to the development of Strait City.  They met a couple of times.  Madam Lin were present on at least one of such occasions.  Mr Hsu testifies that he had met Mr Huang Rui-fu once in Xiamen, but Mr Huang Rui-fu maintains that he had not met any of the Kho’s brothers before the meeting on 16 April 2004.

36. There are 2 main factual disputes about the contents of the discussions between the parties at that time.

37. Firstly, it is the evidence of Kin Ming that the discussion was about Lot A4 only.  According to Mr Hsu, Fu Man was only interested to acquire the development rights in Lot A4, which was a prime site with sea-facing front.  However, Mr Huang Rui-fu claims that the parties only had a general discussion about the cooperation opportunity relating to Strait City with no specific mention of any particular area therein.  In a site visit attended by Mr Huang Rui-fu and Madam Lin, Mr Huang Wei only pointed out to them that there were 2 plots of land diagonally positioned to each other in Strait City belonging to Kin Ming.  However, Mr Huang Wei did not specify which portion of the Land was offered to Fu Man for cooperation.

38. Secondly, there is a dispute between the parties as to whether they had mentioned or agreed a purchase price of RMB 500 million in Xiamen.  According to Mr Hsu, after a few discussions, Madam Lin and Mr Huang Rui-fu agreed, at least provisionally, for a purchase price of RMB 500 million roughly based on a unit price of RMB 1,500 per square metre and about 330,000 square metres in building space.  On the other hand, Madam Lin and Mr Huang Rui-fu emphasised that, by that time, they did not know which portion of the Land was offered by Kin Ming, and so they would not have been able to agree a purchase price with Kin Ming.

39. Subsequently, Madam Lin and Mr Huang Rui-fu were invited to meet Mr Kho and Mr Hsu in the office of Kin Ming in Hong Kong on 16 April 2004 to have a further discussion on the proposed business cooperation. After lengthy  negotiation lasting for most of the day, Madam Lin signed a written contract with Kin Ming under which Kin Ming agreed to sell the development rights in Lot A4 (held by Kin Ming (Xiamen)) to Madam Lin for a total consideration of RMB 495 million (“the Written Contract”).  The Written Contract was witnessed by 2 Hong Kong solicitors, namely Mr Raymond Wu of Jesse H Y Kwok & Co for Madam Lin and Mr Simon Si of Simon Si & Co for Kin Ming.

40. There is a dispute between the parties as to whether the Written Contract contained all the terms of the contractual arrangement between the parties.  To differentiate between the two, I would use the term “the Contract” to refer to the whole Contract made between the parties on 16 April 2004 relating to the development project, and the term “the Written Contract” to refer to the specific written document signed by the parties on the same day.

41. Under the Written Contract:

(i) Madam Lin should pay Kin Ming a total of RMB 495 million, inclusive of tax and fees, by stages to acquire the development rights of Kin Ming in respect of Lot A4;

(ii) there was an exact description of Lot A4 in clause 2-1, which tallied with the particulars set out in the land title certificate for Lot A4;

(iii) Kin Ming would deal with the Xiamen Government and be responsible for the development of the project under the Written Contract (“the Project”), and in particular, Kin Ming should unconditionally coordinate with Madam Lin to develop the Project (clauses 4 and 5);

(iv) the units developed in the Project, built in accordance with the Total Building Area under clause 2-2, would ultimately be transferred to Madam Lin (clause 3-5);

(v) Madam Lin might apply to the Xiamen Government to effect planning changes and Kin Ming had to coordinate with Madam Lin for that purpose (clause 5-2(c));

(vi) it was possible to have adjustment of the Total Building Area with corresponding adjustment in the total fees payable by Madam Lin to Kin Ming, i.e. reduction in price of RMB 1,500 for every square metre of building area reduced (clause 2-2); and

(vii) apart from the above, any loss or profit in the Project would be borne by Madam Lin and had nothing to do with Kin Ming (clause 2-2).

42. By that time, there was some uncertainty with the development of the Project because the Xiamen Government did not allow Kin Ming to pay the balance of the land fees.  The Written Contract therefore provided:

(i) if by 30 June 2004, Kin Ming failed to obtain the requisite notice to pay the land fees of the Project from the Xiamen Government, Kin Ming shall within 15 working days thereafter return to Madam Lin the sum of RMB 100 million that had been paid by her to Kin Ming, and the Contract would cease to have effect (clause 6-2);

(ii) within 2 years after Kin Ming had returned Madam Lin her funds, if Kin Ming was in a position to obtain the right to develop the Project, Kin Ming had to co-operate with Madam Lin again as per the terms of the Written Contract, but Madam Lin had to refund any interest paid by Kin Ming (clause 7-1).

43. Clause 8 of the Written Contract also stated that anything which had not been completely dealt with in the Written Contract and any amendment and addition thereto should be further signed as a supplemental contract upon the parties’ negotiation.

44. There is a serious dispute between the parties as to whether the Written Contract contained all the agreed terms between the parties relating to the transaction.  It is Madam Lin’s case that near the end of the negotiation, Mr Kho told him about the possible land exchange plan, under which the Xiamen Government might exchange Lot A4 with another portion of the land within Strait City.  Because of such possibility, Madam Lin claims that the parties had agreed on an oral revival term which was not expressly stipulated in the Written Contract (“the Oral Revival Term”).  Under the Oral Revival Term, the Contract would still be binding between the parties even if there was such a land exchange.

45. The contents of the Oral Revival Term are pleaded in §8(g) of the Re-Amended Statement of Claim as follows:

“Within two years after [Kin Ming] had returned to [Madam Lin] the said funds, if Kin Ming (Xiamen) was in a position to obtain against the Development Rights over the Land, whether on the portion of the Land identified as Lot A4, or on any other portion thereon (the “re-granted lot or lots”), [Kin Ming] must co-operate with [Madam Lin] to develop the same by building commercial and/or residential units thereon to the extent of the Total Building Area in accordance with the terms of the Agreement.”

46. Madam Lin claims that she had tried to insist to include the Oral Revival Term in the Written Contract.  However, Mr Kho was unhappy with such suggestion, and instead he asked Madam Lin not to create further trouble in the execution of the Written Contract.  Madam Lin yielded to the pressure and signed the Written Contract without the inclusion of the Oral Revival Term.

47. Kin Ming seriously disputes the existence of such term.  Further, if the parties had agreed on the Oral Revival Term, it would actually be in the business interest of Kin Ming to include such term in the Written Contract.  According to Mr Kho, Madam Lin was a sophisticated businesswoman who played an important and dominating role in the negotiation of the terms of the Contract, and so no one could have pressured her to sign the Written Contract which involved a multi-million dollars transaction.

48. This is one of the main factual disputes that I have to resolve in this trial.

(iii)  The land exchange imposed by the Xiamen Government

49. After the making of the Written Contract, it is common ground that Madam Lin made the following payments to Kin Ming under the Written Contract:

(i) under clause 3-1 of the Written Contract, a deposit of RMB 5 million on 20 April 2004; and

(ii) under clause 3-2 of the Written Contract, a further sum of RMB 95 million on 28 April 2004.

50. Madam Lin claims that Kin Ming was in financial difficulty, and so Kin Ming used such money to pay for the outstanding land fees to the Xiamen Government.  Kin Ming denies that it was in financial difficulty by that time.  In fact, Kin Ming (Xiamen) had all along offered to make such payment to the Xiamen Government but all such offers were rejected.

51. On about 30 April 2004, Kin Ming (Xiamen) made a payment of RMB 41,830,135.57 to a notarial office in Xiamen as being the balance of the land fees for Lots A1 and A4.  The notarial office then issued a notice to the Xiamen Government asking the latter to accept the payment.

52. The Xiamen Government did not issue the notice for payment of land fees by 30 June 2004.

53. At around the same time, the Xiamen Government proposed to effect planning changes inside the Land.  On 16 July 2004, Kin Ming’s representatives met the officials of the Xiamen Government, and Kin Ming was informed that the planning of Lot A4 would have to be changed so as to provide supporting facilities for the exhibition centre built on the adjacent site.  According to Kin Ming, the Xiamen Government initially proposed to exchange Lot A4 with another piece of land outside Strait City.  Kin Ming (Xiamen) counter-proposed that the exchanged land should be within Strait City, which was accepted by the Xiamen Government.  Later, Kin Ming (Xiamen) was made to sign a memorandum on 21 July 2004 agreeing that there should be planning changes or land exchange within the Land.  By that time, Kin Ming only knew that the Xiamen Government would use the waterfront side of the Land to build a conference centre and associated supporting facilities.  For such purpose, Kin Ming (Xiamen) would be re-granted another lot in the Land, though not fronting the sea, with the same user, area and total building area as before.  Apart from such information, the details of the land exchange, including the exact location of the exchanged land, were unknown at that stage.

54. Mr Kho called Mr Huang Rui-fu by phone on 16 July 2004 and informed him about the land exchange proposed by the Xiamen Government.  According to Mr Huang Rui-fu, they made an agreement or reached an understanding by that time that the Contract would still be effective despite the land exchange.  It is therefore Madam Lin’s case that, if the Contract made on 16 April 2004 did not contain the Oral Revival Term, the terms of the Contract had been varied by the parties to the effect that the land referred to in the Contract would cover Lot A4 or any land to be exchanged by the Xiamen Government for Lot A4.  I refer this oral agreement as “the 1^st Variation” of the Contract.

55. According to Mr Huang Rui-fu, Mr Kho called him again on 26 July 2004, telling him that the Xiamen Government had already made a decision to exchange Lot A4 with another piece of land near to the original Lot A2.  Since the exchanged land was not fronting the sea, Mr Kho even asked Mr Huang Rui-fu whether Fu Man would request for a reduction of the contract price.  As the property market in Xiamen had risen since the making of the Contract, Mr Huang Rui-fu was happy with the then existing price and terms of the Contract, and they reached an agreement or understanding that the Contract would still be effective despite the land exchange.  I refer this oral agreement on 26 July 2004 as “the 2^nd Variation” of the Contract.

56. Apart from informing Mr Huang Rui-fu about the land exchange plan proposed by the Xiamen Government, Mr Kho denies that he had made any agreement or reached any understanding with Mr Huang Rui-fu that the Contract would still be effective after the land exchange.  Instead, Fu Man was very keen to get the prime site of Lot A4 under the Contract, and Mr Huang Rui-fu told Mr Kho that he would use his contact to persuade the Xiamen Government to allow Kin Ming to develop Lot A4 as per the original plan.

57. It is common ground that Madam Lin made a further payment of RMB 30 million to Kin Ming on 17 August 2004.  Clause 3-3 of the Written Contract stipulated that, if the Xiamen Government issued the notice for payment of land fees by 30 June 2004, Madam Lin had to make a further payment of RMB 50 million to Kin Ming on or before 30 June 2004 and pay another RMB 50 million on or before 30 July 2004.  Since the Xiamen Government had not issued the notice for payment of land fees, Madam Lin was not obliged to make further payments to Kin Ming under the terms of the Written Contract.

58. Again, there is serious dispute between the parties as to why Madam Lin made such further payment to Kin Ming.  According to Madam Lin, Mr Kho told her that Kin Ming was in need of cash, and so despite the non-issuance of the notice for payment of land fees, he requested her to make a further payment to Kin Ming under the Contract.  Madam Lin agreed and made the payment.  Madam Lin also testifies that, if the Contract did not cover the land re-granted by the Xiamen Government after the land exchange, there was simply no need for her to make such further payment to Kin Ming.

59. Mr Kho provides a different account.  He testifies that Madam Lin paid the said RMB 30 million, not as a payment under the Contract, but as gesture of sincerity so as to give more time to Madam Lin to try to persuade the Xiamen Government to keep alive the original development of Lot A4 and not to adjust the land.  By that time, Madam Lin was very keen to keep the original Lot A4 for development because of its prime location.  However, if Kin Ming did not accept the land exchange proposed by the Xiamen Government, it was certain that Kin Ming and Lianfa would not be allowed to proceed with the development of the original Lot A1.  This might delay the development plan and cause tremendous losses to Kin Ming and Lianfa.  Hence, in order to show sincerity to Kin Ming, Madam Lin made a further payment to Kin Ming.  To differentiate such additional payment with the 2 previous payments which were obliged to be made under the Written Contract, Mr Huang Wei described the payment as “合作款” in the receipt, as opposed to the words “合同[訂]金” (deposit under the contract) and “合作合同第一筆款” (1^st payment under the cooperation contract) used in the receipts for the 2 previous payments.

60. The matter dragged on without much progress.  According to Mr Huang Rui-fu, he met Mr Kho on 3 occasions in Hong Kong in the period from February to October 2005.  On each of such occasions, Mr Kho demanded Madam Lin or Fu Man to increase the contract price for the acquisition of the development rights under the Project.  Mr Huang Rui-fu refused.

61. Mr Kho agreed that he had met Mr Huang Rui-fu on some of these occasions, but he did not ask Madam Lin or Fu Man to increase the purchase price under the Contract.  On these occasions, Mr Huang Rui-fu kept on asking Kin Ming to persuade the Xiamen Government to allow it to continue with the development of the original Lot A4.  That was the reason why Kin Ming, on 3 May 2005, wrote to the Xiamen Government requesting that the planning of the Land should remain unchanged and Kin Ming should be allowed to continue with the development of the original Lot A4.

62. On 30 May 2005, the Xiamen Government replied to Kin Ming stating that the land exchange had to go ahead and that it did not recognise any agreement made between Kin Ming and any third party, i.e. Madam Lin, for the development of the Land.

63. On 2 June 2005, Kin Ming wrote again to the Xiamen Government asking for permission to develop Lot A4 in accordance with the original plan.

64. On 4 July 2005, the Xiamen Government replied to Kin Ming (Xiamen) again denying the request.  The Xiamen Government also demanded Kin Ming (Xiamen) to execute the land exchange agreement on or before 10 July 2005.

65. On 13 July 2005, Kin Ming (Xiamen) entered into an agreement with the Lands Development Company of Xiamen City relating to the land exchange.

66. On 3 November 2005, the Xiamen Government approved Kin Ming (Xiamen) to be the party responsible to remove existing structures for the development of the Land.

67. On 18 November 2005, Kin Ming (Xiamen) sought a legal opinion from Fujian Xiamen Yinghe Law Office, in which the Mainland lawyers opined that:

(i) the Contract was unenforceable because it contravened the planning laws and regulations in the Mainland;

(ii) since the Xiamen Government by administrative decision changed the planning use of Lot A4, the objective of the Contract could no longer be fulfilled and the Contract was therefore unenforceable; and

(iii) the proper course for Kin Ming (Xiamen) was to return the monies paid under the Contract to Madam Lin.

(iv) The commencement of various legal proceedings

68. According to Kin Ming, after it was apparent that the land exchange was unavoidable, it had on numerous occasions tried to return the payments made by Madam Lin but she refused to accept the refund.

69. On 22 November 2005, Kin Ming commenced HCA No 2350 of 2005 against Madam Lin seeking declarations to the effect that the Contract was frustrated and terminated (“the Default Judgment Proceedings”). Kin Ming obtained default judgment before DHCJ L Chan (as he then was) on 27 January 2006 (“the Default Judgment”), who declared the following:

(i) the agreement dated 16 April 2004 between Kin Ming and Madam Lin was terminated but without prejudice to its possible revival pursuant to clause 7-1 therein;

(ii) subject to the above, both Kin Ming and Madam Lin were discharged from further performance of the said agreement; and

(iii) Kin Ming was at liberty to deduct from RMB 130 million (the total sum received from Madam Lin) the costs of the Default Judgment Proceedings and to refund the rest to Madam Lin.

70. Madam Lin is and was at all material times a Mainland resident.  With the papers serving on Madam Lin’s last known address in Hong Kong, Madam Lin claimed that she knew nothing about the Default Judgment Proceedings until a much later stage.

71. On 28 April 2006, Kin Ming deposited RMB 125 million, being the amount of RMB 130 million to be refunded less the sum of RMB 5 million being Kin Ming’s costs of the Default Judgment Proceedings pending taxation, with the Notary Office of the Luijiang District in Xiamen for Madam Lin’s collection.  Madam Lin eventually obtained the payment on 15 July 2011.

72. On the other hand, the Xiamen Government resumed Lots A1 and A4 from Kin Ming (Xiamen) and Lianfa and, in return, re-granted various new lots in the Land (“the New Lots”) to them.

73. For easy reference, I enclose a map showing that the original Lots A1 to A4 in Appendix 1 of this Judgment.  In Appendix 2, I enclose another map which shows the areas of the New Lots (consisting of new Lots A1, A2, B1, B2, B3, B4, C, D1, D2, E1, E2 and E3) that were ultimately re-granted to Kin Ming and Lianfa after the land exchange.  From these maps, one can readily see that the New Lots covered the bulk of the original Lot A1, the whole of the original Lot A2, and about one quarter of the original Lot A4 but without any part fronting the sea.  The size of the New Lots was bigger than that of the original Lot A4 but smaller than the total size of the original Lots A1 and A4 combined.

74. On 2 September 2006, the Xiamen Government confirmed the new land grant to Kin Ming (Xiamen) and Lianfa (“the 2006 Grant”) with the specific New Lots granted to each of them in a number of different land title certificates.

75. On 15 September 2006, the Xiamen Government entered into a new land contract with Kin Ming (Xiamen) and Lianfa to confirm the terms of the 2006 Grant with a new plot ratio of no more than 1.78.  Clause 41 of the new contract stated that the 1998 Strait City Land Contract was cancelled by the making of the said new contract.

76. With the land exchange, Kin Ming took the view that the Contract ceased to have effect and proceeded to develop the New Lots with Lianfa.

77. Despite the legal proceedings taken out by Kin Ming, Madam Lin did not apply to set aside the Default Judgment.  Instead, on 17 October 2006, Madam Lin commenced an action in the Higher People’s Court of the Fujian Province (“the Mainland Proceedings”) seeking for an order that Kin Ming and Kin Ming (Xiamen) do continue to perform the Written Contract, alleging that they were in breach of the Written Contract by demanding a high payment from Madam Lin before they would continue with the performance of their obligations under the Written Contract.

78. On 1 March 2007, Madam Lin’s said claim in the Fujian Court was dismissed.  The court held that Madam Lin was seeking to re-litigate the same subject matter which had already been decided against her in the Default Judgement Proceedings, and so the court in the Mainland should not entertain a new claim by Madam Lin.  On 10 August 2007, her appeal was dismissed by the Supreme People’s Court in the Mainland.

79. On 6 February 2008, Madam Lin issued the Writ herein against Kin Ming.  By a summons dated 28 February 2008, Kin Ming applied to strike out Madam Lin’s claim.  Kin Ming’s application was first dismissed by DHCJ L Chan on 26 August 2008.  Kin Ming’s application for leave to appeal was dismissed by the learned judge on 18 March 2010, and eventually by the Court of Appeal on 5 May 2010.

80. In this action, Madam Lin relies heavily on the fact the parties, at the time of the making of the Contract, were aware of the possible land exchange or adjustment plan proposed by the Xiamen Government. Further, according to the correspondence between the Xiamen Government and Kin Ming (Xiamen), the former had insisted that the Land had to be developed as a whole (成片開發) and under a single master development plan (统一規劃).  In such circumstances, the conduct of the parties and the contents of the Written Contract have to be looked at and interpreted against such background.

81. It is Madam Lin’s primary case that she had made an oral agreement with Kin Ming in the meeting on 16 April 2004 containing the Oral Revival Term[5]. Further, the agreement relating to the Oral Revival Term was reduced into or evidenced in writing in the form of the Written Contract[6].  Alternatively, the expression “Lot A4” or “A4 plot” in the Written Contract had an extended meaning. It was understood or was intended by the parties to mean “any portion of the Land covering a building area commensurate with the Total Building Area over which Kin Ming (Xiamen) possessed or came to possess any of the Development Rights, including any of the re-granted lot or lots” (“the Extended Meaning”)[7].  In the further alternative, there was a variation of the Contract by consent of the parties on 16 July 2004 (i.e. the 1^st Variation) or 26 July 2004 (i.e. the 2^nd Variation) that the expression “Lot A4” or “A4 plot” in the Written Contract had the said Extended Meaning[8].

82. In addition to her primary case, Madam Lin argues that, even if the Contract was not intended by the parties to cover the re-granted land in exchange for Lot A4, the circumstances of the case imposed on Kin Ming a fiduciary duty to protect Madam Lin’s interest in its dealing with the Xiamen Government with regard to the land exchange, and Kin Ming was in breach of such duty.

83. Kin Ming filed the Defence on 2 November 2009 which was further amended on 27 July 2010.  It is Kin Ming’s case that:

(i) the Written Contract contained all the material terms of the agreement between the parties;

(ii) the parties had not agreed on the Oral Revival Term;

(iii) the expression “Lot A4” or “A4 plot” in the Written Contract did not carry the Extended Meaning as contended for by Madam Lin;

(iv) if the Oral Revival Term did exist, it was vague and unenforceable;

(v) there was no variation of the Contract whether on 16 or 26 July 2004;

(vi) Kin Ming did not owe any fiduciary duty to Madam Lin, and if such duty were to exist, there was no breach of such duty; and

(i) Madam Lin does not seek to overturn the Default Judgment and so she is bound per rem judicatem by the same.

84. Despite that there might be planning changes in the development of Strait City, it is Kin Ming’s case that Madam Lin, who was an experienced land developer, was keen to obtain the prime site of Lot A4 for development.  That was the reason why the parties had expressly stipulated Lot A4 as the subject of the Project in the Written Contract.  Further, as the parties were negotiating for a multi-million dollars deal, one would expect the parties to have put down all the material terms of the transaction in the Written Contract, and so Madam Lin’s case about the Oral Revival Term should not be believed.

(v) The dispute relating to the Counterclaim

85. As the litigation dragged on, one of the friends of Madam Lin and Mr Huang Rui-fu, Mr Lin Yu Kun (林钰锟)(“Mr Lin”), said he could offer assistance by helping the parties to reach a settlement.  On 28 July 2010, Madam Lin and Mr Huang Rui-fu signed 2 powers of attorney (“the 2 Powers of Attorney”) authorising Mr Lin’s “friends” to negotiate with Kin Ming so that Kin Ming would honour its obligation under the Contract.  When they signed these documents, the names of the agents were left in blank.  According to the express terms therein, the 2 Powers of Attorney would terminate in 3 months’ time on 28 October 2010.

86. Eventually, the persons authorised in the 2 Powers of Attorney were Mr Hung Kwok Wai (洪國偉)(“Mr Hung”) and Mr Tsoi Chun Yu (蔡振裕)(“Mr Tsoi”). According to the Madam Lin and Mr Huang Rui-fu, they did not know Mr Hung and Mr Tsoi personally and the latter were appointed solely on the strength of Mr Lin’s recommendation.

87. Mr Lin also introduced Mr Huang Rui-fu to another person known as Mr Zhuang Jin Xiang (莊金象)(“Mr Zhuang”).  By an agreement dated 28 July 2010, Mr Huang Rui-fu promised to pay Mr Zhuang a sum of RMB 60 million if he managed to get Kin Ming to transfer Lot A1, i.e. the lot subject to the joint development by Kin Ming and Lianfa, to Fu Man.

88. Starting from late July 2010, Mr Kho had kept on complaining that he had received various threatening calls demanding for Kin Ming to settle the claim by Madam Lin or Fu Man.  Mr Kho made a report to the police.  Mr Tsoi and Mr Hung also attended Kin Ming’s office in Hong Kong on a few occasions to discuss the dispute.  Despite these meetings, Mr Kho had kept on receiving threatening and intimidating telephone calls.

89. On 22 October 2010, Kin Ming applied successfully for an ex parte injunction against Madam Lin and Mr Huang Rui-fu restraining the making of further threats or intimidations.

90. On 26 October 2010, Kin Ming filed the Counterclaim against Madam Lin and Mr Huang Rui-fu claiming for, inter alia, injunctive relief and damages for harassment and intimidation.  Mr Kho was later joined as an additional plaintiff in the Counterclaim.

91. On 28 October 2010, Madam Lin and Mr Huang Rui-fu made an undertaking to the court in the same terms as per the ex parte injunction.

92. According to Madam Lin and Mr Huang Rui-fu, they contacted Mr Lin on 29 October 2010 and asked his friends to cease to have any further contacts with Kin Ming or Mr Kho.  They reaffirmed such instruction when they met Mr Lin on 3 November 2010.  They later lost contact with Mr Lin.

93. Mr Kho complains that the intimidation continued.  Mr Hung went to Kin Ming’s office 29 October 2010 and caused a lot of disturbance.  He also produced a copy of the Zhuang Agreement to Mr Kho. After that, Mr Kho continued to receive threatening and intimidating telephone calls.  On 29 November 2010, Kin Ming took out an originating summons seeking to commit Madam Lin and Mr Huang Rui-fu for contempt for breach of the terms of the undertaking.  The application was dismissed by Sakhrani J after trial on 11 September 2012 and the appeal was dismissed by the Court of Appeal on 4 October 2013.

94. Mr Kho also met Mr Lin in Manila on 6 January 2011.  Unknown to Mr Lin, the whole conversation was recorded by a staff of Kin Ming.  According to the conversation as shown in the transcript, Mr Lin denied his responsibility in harassing or intimidating Mr Kho.  He also denied knowing Mr Tsoi or Mr Hung.  Further, he said he was forced by Madam Lin and Mr Huang Rui-fu to sign the documents acknowledging that they had given instruction not to have any further contact with Mr Kho.  On the other hand, Madam Lin and Mr Huang Rui-fu claim that the meeting was a concerted and orchestrated attempt by Mr Kho and Mr Lin to discredit them.

95. Mr Kho claims that he had suffered serious mental distress as a result of the harassment and intimidation on the part of the agents of Madam Lin and Mr Huang Rui-fu.  Apart from Mr Kho’s claim for general and exemplary damages, he and Kin Ming also counterclaim substantial damages for business opportunities that were allegedly lost in the period when Mr Kho was suffering from mental distress and was unable to make business decisions relating to these opportunities.  The amount of such claim is in the region of US$1,100 million.

EVIDENCE AT THE TRIAL

96. With such background, I turn to the evidence adduced by the parties at the trial.

97. For the purpose of this Judgment, I do not think that it is necessary for me to set out the details of the evidence given by each individual witness.  In this part of the Judgment, I would just list out the witnesses giving evidence at the trial and their backgrounds.  I would also provide a general description of the nature of the evidence given by them.

98. Madam Lin and Mr Huang Rui-fu are the main witnesses in support of Madam Lin’s claim in the Main Action.  Their evidence covers the various matters listed out in the earlier part of this Judgment, including the details of the negotiation conducted in Xiamen, the making of the Contract on 16 April 2004 including the agreement on the Oral Revival Term, the alleged 1^st and 2^nd Variations of the Contract, the background leading to the payment of RMB 30 million in August 2004, the demands made by Mr Kho for the increase in the contract price in 2005 and their roles in seeking the assistance of Mr Lin’s friends in trying to resolve the dispute with Kin Ming.

99. Both Madam Lin and Mr Huang Rui-fu are Mainlanders.  According to Mr Huang Rui-fu, he came from a rural village and received very little education.  He left school when he was 11 and worked as a farmer.  He became a stonemason when he was 16, a carpenter when he was 20, and a contractor when he was 25.  Mr Huang Rui-fu and Madam Lin started their real estate development business in 1995.  They set up Fu Man to operate their business, and they were the main shareholders of Fu Man.

100. Usually, it would be Mr Huang Rui-fu who would be responsible for the negotiation of business deals, and Madam Lin would be responsible for the internal administration of Fu Man.  Between 1995 and 2004, Fu Man was involved in the development of about 5 real estate projects in the Mainland.  For these projects, Fu Man acquired the lands from the Government through negotiation and developed them into various residential or commercial and residential buildings.  As compared with the Project in Strait City, these projects were smaller in scale.

101. Mr Huang Rui-fu cannot come to Hong Kong to testify in person and so he gives his evidence through video-link facility.  Fu Man was involved in a project of building residential apartments in some “resettlement land”, which would be sold to the Government and the public upon completion. The Government alleges that the area built by Fu Man under the project exceeded the area originally allowed.  Because of the investigation carried out by the Government about such matter, Mr Huang Rui-fu is not allowed to travel outside the Mainland.

102. The Kho’s brothers are the main defence witnesses in the Main Action.

103. The younger Mr Kho received education in Fujian.  After graduating in about 1980, he became a teacher.  Because of his family connection, he then applied to emigrate to live in the Philippines.  After arriving there, he assisted his family in the operation of a few factories.  He later became the main person running the family business which also included mining and real estate businesses.

104. As a recognition for the various donations made by his family to different universities in Fujian, Mr Kho became a member of the Fujian Committee of CPPCC since 1993, and a member of the National Committee of CPPCC since 1998.  However, fate seemed to turn against him after the investigation of the Smuggling Case carried out by the Central Government.  One of his companies was accused to have evaded tax.  Being the person responsible for that company, he was detained by the Mainland authority from early 2000 to early 2002 and he was stripped of his positions in CPPCC.  Mr Kho considers himself innocent.  He even breaks down in tears when he is cross-examined about such bitter experience in the past.

105. His elder brother, Mr Hsu, also testifies at the trial.  Whilst Mr Kho would be mainly responsible for running the family business in other parts of the world, Mr Hsu was more devoted to take care of the business interests in the Mainland.  Mr Hsu is not a “hand-on” type of person, and he delegated a lot of works relating to the development project in Strait City to his staff, including liaising with the Xiamen Government for the payment of the balance of the land fees.

106. Although the major decisions of the family business had to be made by the two Kho’s brothers together, it is clear from the evidence that Mr Kho played a more dominant role in the running of the family business.  Undoubtedly, Mr Kho was the key person to negotiate the terms of the Contract with Madam Lin and Mr Huang Rui-fu on 16 April 2004.  Despite that, Mr Hsu was the main person running the family business when Mr Kho was detained in the period from 2000 to 2002, and he was also responsible for the initial negotiation of the Project conducted in Xiamen.

107. Mr Huang Wei, the business manager employed by Kin Ming (Xiamen), also testifies at the trial.  He joined Kin Ming (Xiamen) in 2003, and he was the person responsible for bringing together Fu Man and Kin Ming for the business cooperation under the Project.  He tells the court about the initial negotiation of the Project conducted in Xiamen.  He also attended the meeting on 16 April 2004, but he was not involved in the negotiation of the terms of the Contract.  On that day, he was mainly responsible for preparing tea and greeting various participants of the meeting.  During cross-examination, Mr Fung, SC, counsel for Madam Lin and Mr Huang Rui-fu, suggests to him that there was no point in flying him all the way from Xiamen just for these purposes, Mr Huang Wei explains that, being the person responsible for bringing the parties together, he need to be present at the meeting for the negotiation of the deal.  It was part of the business culture. Mr Huang Wei was also responsible for issuing the receipt for the payment of RMB 30 million by Madam Lin in August 2004.  Since such payment was not payment required to be made under the Contract, he described the payment as “合作款” (cooperation payment) in the receipt.

108. Mr Tsang Zi Yuan (曾子元)(“Mr Tsang”) is another witness in support of Kin Ming’s case.  He was a project manager employed by UAA Group Limited (“UAA”) which was owned and controlled by Mr Kho.  At the material time, he was responsible for a project of UAA in Papua New Guinea.  On 16 April 2004, he was instructed by Mr Kho to provide assistance in the preparation of a contractual document about the transfer of rights of a piece of land in the Mainland.  Because of his limited role, he was not directly involved in the negotiation of the terms of the Written Contract, but he assisted in the mechanical preparation of the various drafts of the Written Contract.

109. According to Mr Tsang, Madam Lin was actively involved in the negotiation of the terms of the Written Contract.  She did voice out different suggestions and opinions relating to the use of the wordings in the document.

110. Both parties have also arranged their respective solicitor witnessing the execution of the Written Contract, namely Mr Raymond Wu for Madam Lin and Mr Simon Si for Kin Ming, to testify at the trial.  From the outset, these witnesses had indicated to the parties that they were not in a position to give advice on Mainland law.  Since they were not involved in the negotiation process, I do not find that their evidence is helpful in resolving the various factual issues in this case.

111. Finally, Kin Ming and Mr Kho have also arranged some other witnesses to testify on various matters relating to the Counterclaim.  I will deal with their evidence in the latter part of this Judgment.

MERITS OF MADAM LIN’S CLAIM IN THE MAIN ACTION

112. The thrust of Madam Lin’s case is that the parties knew full well at the time of the making of the Contract that the Xiamen Government might effect planning changes in the development of Strait City which might involve land exchanges within the Land.  Given such background, the subject matter of the Contract must have been intended by the parties to cover any land to be exchanged for Lot A4, otherwise there was no point for Madam Lin to have entered into the Contract and made substantial part-payments under the Contract, including the payment of RMB 30 million made in August 2004.  Furthermore, if the Contract were not to cover any land to be exchanged for Lot A4, Kin Ming should have refunded the part-payments to Madam Lin after 30 June 2004 when the Xiamen Government did not issue the notice for payment of the balance of the land fees and made known its plan for land exchange in July 2004.  Yet, Kin Ming only agreed to make the refund in late 2005.  Madam Lin complains that Kin Ming was greedy and took advantage of her.  To ease its financial pressure, Kin Ming first obtained the part-payments from Madam Lin in order to pay the balance of the land fees to the Xiamen Government.  After the property market had risen in Xiamen, Kin Ming used the land exchange as an excuse to kick Madam Lin out of the Project.

113. On the other hand, Kin Ming claims that Madam Lin and Fu Man had all along been interested in acquiring Lot A4 which was a prime site with sea-facing front, and that was why the land expressly referred to in the Written Contract was “Lot A4”.  At the time of the making of the Contract, there was rumour about possible planning changes, but Madam Lin and Mr Huang Rui-fu indicated that they would try to persuade the Xiamen Government not to effect any planning changes.  Later, the Xiamen Government forced Kin Ming (Xiamen) to accept the land exchange, to which Kin Ming did not have a choice.  If such event were to occur, the Contract would cease to have effect and the parties would have to renegotiate for a new deal, otherwise there would be a lot of uncertainties which had not been discussed during the making of the Contract, in particular Kin Ming had interests in other part of the Land which would be subject to the same development plan.  After the Xiamen Government had made known its plan for the land exchange, Mr Huang Rui-fu told Mr Kho that he would try to persuade the Xiamen Government to change its mind, and he also asked Mr Kho to write to the authority requesting for the right to develop the Project as per the original plan.  That was why Madam Lin did not demand for the immediate refund of the part-payments.

114. As agreed by the parties, the merits of Madam Lin’s claim are to be determined largely on the credibility of the witnesses.

115. Having carefully considered the evidence of the various witnesses, I prefer to accept Kin Ming’s case on the balance of probabilities.  Although the reasons set out below are all inter-related, for the sake of clarification, I will try to group these reasons under various sub-headings.

(i) The Written Contract should have contained all the material terms of the transaction

116. Firstly, if the parties had agreed on the Oral Revival Term as alleged by Madam Lin and Mr Huang Rui-fu, I find it incredible that such term was not included in the Written Contract itself.

117. The parties were negotiating for the transfer of rights of a land development project involving millions of dollars.  The fact that the parties discussed the terms in great length reflects that they, who did not know and had not dealt with each other before, wanted to safeguard their rights by having a proper record of what had been discussed and agreed between them.

118. The contents of the Written Contract also indicate that the terms contained therein were the product of serious negotiation between the parties.  The inclusion and the amendment of clause 2-2 show that the parties had thought about the possibility of the reduction of building space caused by any planning changes in Lot A4.  If there was such a term to cover that eventuality, why did the parties not include a term to deal with the possible land exchange if the parties had indeed discussed the matters as alleged by Madam Lin?

119. The inclusion of clause 3-4 also shows that Madam Lin was free to include terms in the Written Contract which were favourable to her, as such clause allowed her to use Lot A4 as security to raise money to finance the transaction after making part-payment of over RMB 200 million.  As pointed out by Mr Kho himself, Kin Ming was not happy when Madam Lin raised such subject at the initial stage of the discussion. It was certainly a concession on the part of Kin Ming that Madam Lin would be allowed to mortgage Lot A4 to raise fund to finance the transaction before the full payment of the contract price.  The inclusion of such term in the Written Contract does not sit well with Madam Lin’s contention that she had been forced to sign the Written Contract under pressure.  As shown by the logic in one of Mr Kho’s answers in his oral testimony, the Written Contract involved a deal of RMB 495 million, no one could force the other side to do anything against their will.

120. It is therefore strange that Madam Lin (or indeed Mr Huang Rui-fu) did not insist to put the alleged Oral Revival Term, which was obviously a term important to her, in the Written Contract.  In particular, she was dealing with the Kho’s brothers for the first time and, according to her, Mr Kho showed reluctance to include the Oral Revival Term in the Written Contract which should have raised some suspicion about the willingness of Kin Ming to honour such term.  As admitted by Madam Lin herself in her evidence, she was taking a lot of risks in the Project, and the omission of the alleged Oral Revival Term in the Written Contract cannot be explained by a mere suggestion that it was the parties’ style of doing business.

121. The evidence shows that Madam Lin had ample opportunities to add the Oral Revival Term or to extend the meaning of “Lot A4” in the Written Contract.  The drafts of the Written Contract had been amended a number of times, and Madam Lin was clearly involved in the process when the different drafts of the Written Contract were typed out and prepared.

122. Further, if the parties had agreed on the Oral Revival Term, it was unnecessary for Mr Kho to ask Mr Huang Rui-fu on 26 July 2004 as to whether Madam Lin wished to have any reduction in contract price because the Contract would still be binding on the parties[9].  Further, it would be very difficult to explain why Mr Kho was so accommodating to Madam Lin on that occasion, and yet only a few months later, Mr Kho demanded to increase the contract price before Kin Ming would transfer the development rights to Madam Lin.  In particular, Mr Huang Rui-fu claimed that the property market in Xiamen had risen shortly after the making of the Contract in April 2004.

123. In trying to explain away the non-inclusion of the Oral Revival Term in the Written Contract, Madam Lin says that she trusted Mr Kho because of his official positions.  However, she admits that she was taking a lot of risks in the Project given Kin Ming’s suspected involvement in the Smuggling Case and the imprisonment of Mr Kho.  She also knew that Mr Kho was stripped of his official positions.  In their cross-examination, both Madam Lin and Mr Huang Rui-fu cannot give a satisfactory explanation as to why they still trusted Mr Kho under such circumstances.

124. In support of Madam Lin’s claim, Mr Fung has placed much emphasis on the phrases “成片開發” (developed as a whole) and “统一規劃” (developed under a single master development plan) which appeared in a number of documents and correspondence between Kin Ming and the Xiamen Government[10].

125. According to Mr Fung, the use of these phrases shows that the Land known as Strait City would have to be developed as a whole.  Kin Ming was not allowed to develop Lots A1 and A4 on its own and it was therefore possible to have land adjustment or land exchange within Strait City.  Given such background, the parties could not have intended the Contract to cover just Lot A4, and the phrase “Lot A4” should be interpreted to cover any land to be exchanged for Lot A4.

126. Despite the able submission of Mr Fung, I cannot accept such argument.  In 1999, the Xiamen Government approved the partition of the Land and issued land title certificates to Kin Ming in respect of Lots A1 and A4.  Even Madam Lin accepts that, in the normal course of events, the issuance of the land title certificate is proof of ownership of the land in question. In other words, Kin Ming was the owner of Lots A1 and A4, and there was nothing to suggest otherwise.  In the subsequent correspondence, the Xiamen Government indicated to Kin Ming that the Land had to be planned and developed as a whole, but that did not indicate that Kin Ming was not the owner of Lots A1 and A4. As I see it, the Xiamen Government was just using the planning requirements as an excuse to defer the development of the Land.  This is quite understandable given the uncertainties and the complications resulting from the investigation of the Smuggling Case and the problem as to how to deal with the confiscated properties. 

127. Further, I accept the submission of Mr Neoh, SC, counsel for Kin Ming and Mr Kho, that the phrases “成片開發” (developed as a whole) or “统一規劃” (developed under a single master development plan) meant no more than the Land had to be planned as a whole.  This was a natural consequence from the fact that there was one planning permission covering the development of the whole Land back in 1998.  In such circumstances, there might be changes to matters such as the building of public facilities in the various lots of land within Strait City, which might affect the area allowed to be developed in a particular lot of land.  However, it did not suggest that there would have to be land adjustment or land exchange within the development project.

128. More importantly, I accept Mr Kho’s evidence that, if the parties had agreed the Oral Revival Term or had intended the Contract to cover any land to be exchanged for Lot A4, it would have been in the business interest of Kin Ming to include the Oral Revival Term in the Written Contract, or to expressly stipulate in the Written Contract that the phrase “Lot A4” was to cover any land to be exchanged for Lot A4.

129. It is common ground that Lot A4 was the best piece of land within Strait City.  If there was any land exchange within the Land, the exchanged land had to be inferior in quality as compared with Lot A4.  Under such circumstances, it would actually be in the business interest of Kin Ming, if the parties had the possible land exchange in mind, to include the Oral Revival Term (if that was agreed by the parties) in the Written Contract, or to extend the meaning of the land covered by the Contract to include any land to be exchanged for Lot A4.  The contract price for the transfer of the development right under the Contract was negotiated in arm’s length.  The property market might rise or fall after the making of the Contract.  If the Written Contract was only to include Lot A4 and nothing else, it would provide an excuse to Madam Lin to back out from the Contract in the case of any land exchange, particularly in the case of a falling market which was a possibility facing the parties at the time of the making of the Contract.  If that occurred, it would actually harm the interests of Kin Ming.

130. Based on the same reasoning, it does not make a lot of business sense that Mr Kho raised the issue of land exchange at such a late stage of the negotiation as alleged by Madam Lin.  According to her, when Mr Huang Wei left the conference room in the afternoon to type out the Written Contract, most of the terms had already been discussed and agreed between the parties.  It was only then Mr Kho talked about the plan of the Xiamen Government to adjust the land in Strait City.  Mr Kho even told her the details of the site that might be exchanged for Lot A4, which would be a site with no sea-facing front.  Again, if Mr Kho knew so much about the land exchange plan, which I do not accept it to the case, I wonder why  Mr Kho would not have insisted to put down the Oral Revival Term in the Written Contract, in particular when he knew for certain that the exchanged land had to be inferior in quality with no sea-facing front.  Further, it would not have been sensible for Mr Kho to raise such subject near the end of the negotiation.  Such matter would have a grave impact on the contract price and Madam Lin’s interest in the participation of the Project, and it would be desirable for the parties to reach consensus on such important issue before investing further time in the negotiation.

131. Mr Fung also submits that it is unbelievable Kin Ming had done nothing to find out the details of the planning changes when there was rumour about such plan prior to the making of the Contract, given that Lot A4 was a prime lot in Strait City.  Further, it could not have been the case that the Xiamen Government just implemented the land exchange plan suddenly in July 2004 without giving some prior notification or warning to Kin Ming.

132. Despite the able submission of Mr Fung, one has to understand the position facing Kin Ming at the relevant time.  The Xiamen Government had repeatedly refused Kin Ming’s request to pay the balance of the land fees with the effect of putting the development of Lots A1 and A4 on hold.  Kin Ming was in a very passive position, and one cannot therefore expect Kin Ming to do much in the circumstances.  Further, the evidence suggests that the Xiamen Government had not made the final decision about the land exchange in July 2004.  The Xiamen Government did not demand Kin Ming (Xiamen) to execute the land exchange documents until nearly a year later.

133. In trying to establish that the Written Contract had not been intended by the parties to include all the agreed terms, Madam Lin also relies on Kin Ming’s own pleaded case in the Default Judgment Proceedings. In the pleadings filed in that action, Kin Ming claimed that there was a collateral agreement contemporaneous with the Written Contract that both Madam Lin and Kin Ming would attempt to lobby the Xiamen Government to ensure that the future planning status of Lot A4 would revert back to that stated in the original planning permission[11]. According to Mr Fung, even Kin Ming itself acknowledged that the Written Contract did not contain all the agreed terms between the parties.

134. It is not just that Madam Lin is relying on something pleaded in earlier legal proceedings to discredit Kin Ming’s case, Kin Ming is seeking to do the same against Madam Lin.  According to the legal documents filed in the Mainland Proceedings, Madam Lin was making a claim against Kin Ming based on the terms of the Written Contract alone.  The claim did not contain any reference to the Oral Revival Term or any kind of oral agreement between the parties.

135. For myself, I would not attach a lot of weight to these arguments.  The averments made by the parties in the earlier proceedings were actually “lawyers’ pleas”.  In making decisions as to the contents of the pleas, the legal advisers would naturally focus on the objective of the legal proceedings in hand.  They might not have considered all the other aspects of the case, and they did not have first-hand knowledge about the whole facts leading to the making of the Contract.  In such circumstances, it would be dangerous for the court to rely on these “lawyers’ pleas” in considering the merits of the case.

136. Furthermore, the “oral agreement” pleaded by Kin Ming in the Default Judgment Proceedings is something quite different.  As stated by Mr Kho in his testimony, the “oral agreement” was no more than a mutual understanding between the parties at that time that they would work together to lobby the Xiamen Government so that Kin Ming could develop Lot A4 as per the original plan.  Quite naturally, the parties might decide not to record the mutual understanding in writing, in particular the parties did not know for certain whether the Xiamen Government was going to alter the plan for the development of Lot A4.  On the other hand, if Madam Lin’s account were to be believed, the Oral Revival Term was most important to the parties at the material time, and yet the Written Contract had expressly referred to the development right of Lot A4 only.  If the parties had intended the Written Contract to be binding on them even if the Xiamen Government were to exchange another piece of land with Lot A4, they should have included such an important term in the Written Contract.

137. For the above reasons, I reject the evidence of Madam Lin and Mr Huang Rui-fu about the existence of the Oral Revival Term.

(ii)  Uncertainties arising from the implementation of the Oral Revival Term

138. Secondly, the implementation of the Oral Revival Term might create considerable uncertainties, and I do not accept that experienced developers like Kin Ming and Fu Man would have agreed to such kind of term.

139. Even assuming that Kin Ming were to know about the land exchange plan of the Xiamen Government at the time of the making of the Contract, it was unclear by that time as to how the Xiamen Government would propose to execute the land exchange plan.  There was no certainty that the total building area claimed to be entitled by Madam Lin would fit in a particular portion or portions of the re-granted lot.  There were also the interests of the third party, i.e. Lianfa, involved in the re-granted land.  It made no commercial sense for any party, in particular Madam Lin, to blindly agree to get the aggregate total building area, however such building area was to be scattered across different parts or corners of the re-granted land.

140. At the time of the making of the Contract, no one could have predicted with any certainty as to how any land adjustment might be made in the future, and whether any party’s interest would be involved in the re-granted land.  As shown by the facts of the present case, the interests of Kin Ming and Lianfa were interlocked under the 2006 Grant.  In view of such uncertainties, no sensible party with any commercial sense would have committed itself in the development regardless of how Lot A4 was to be adjusted in the future, and got stuck with the same contract price of RMB 495 million.

141. In the course of giving evidence, Madam Lin herself takes the view that, in a hypothetical scenario, if the Xiamen Government were to confiscate Lot A4 and to re-grant another piece of land but with additional premium, Kin Ming would be solely responsible for the payment of such additional premium.  However, there is no basis to support such observation, in particular such payment was not within the contemplation of the parties at the time of the making of the Contract and they had not discussed the issue beforehand.  In my judgement, such uncertainty further highlights the problems that might be faced by the parties.  Hence, I do not believe the parties had intended the Contract to be binding irrespective of any land exchange imposed by the Xiamen Government.

142. The uncertainty and the unreasonableness of the Oral Revival Term can also be demonstrated by one of the contentions made by Madam Lin herself.  In paragraphs 13 and 14 of Madam Lin’s witness statement dated 28 September 2011, Madam Lin mentioned that she and Mr Kho had agreed that, in the case of any land adjustment or land exchange, Kin Ming had to transfer the development rights of 335,192.16 square metres of building space in the Land to her.  Since the building areas enjoyed by Madam Lin and Kin Ming would be more or less the same, Madam Lin and Kin Ming would each be responsible for paying half of the costs in building the public facilities in the Land, and each of them would contribute half of the area for the construction of such public facilities.

143. This alleged oral term to equally share the costs for constructing public facilities is not compatible with or even conflicts with the other terms of the oral agreement mentioned in paragraph 14.  Since Kin Ming had to give Madam Lin a fixed total building area of 335,192.16 square metres and no more, it was possible that if the re-granted land was less than 666,000 square metres, Kin Ming’s land might be less than that of Madam Lin.  It was obviously against commercial sense and therefore not possible that Kin Ming would have agreed to contribute half of the building area and half of the building costs required by the Xiamen Government for the public facilities.  In an extreme scenario, if the re-granted lot was less than 335,192.16 square metres, that means Kin Ming had to contribute half of the costs for the public facilities and was liable for breach of failing to contribute half of building area for the public facilities while Madam Lin was still entitled to the reduction in price of RMB 1,500 per square metre.  This simply cannot be right.  Since both parties were developers of some experience, I do not accept that they would have agreed the Oral Revival Term in view of all these uncertainties.

144. In trying to reduce the uncertainties, Madam Lin explains for the first time at the trial that Mr Kho told her, near the end of the negotiation, that even if there was any land adjustment, the difference in area of Lots A1, A2, A3 and A4 would not be too great.  However, there was no guarantee that it would be the case, in particular the evidence suggests that Kin Ming would not be in a strong position to influence the decision of the Xiamen Government.  Furthermore, the fact that such allegation has not appeared in any of the previous pleadings or witness statements of Madam Lin certainty undermines the credibility of such allegation.

(iii)  Unlikelihood of Madam Lin’s version of the events as to what happened prior to the meeting on 16 April 2004

145. Thirdly, it is very difficult for me to accept the evidence of Madam Lin and Mr Huang Rui-fu that, prior to coming to Hong Kong for the meeting on 16 April 2004, they did not even know roughly which portion of the Land that Kin Ming was offering to co-operate with Fu Man. Obviously, Madam Lin and Mr Huang Rui-fu are trying to rely on such evidence to support their case that the Contract was not intended to cover Lot A4 only.

146. I do not accept Madam Lin’s account as to what actually happened before the making of the Contract on 16 April 2004.  In my judgment, it is most incredible that an experienced developer like Fu Man, or indeed any developers, would not try to find out precisely which piece of land was being offered for co-operation or ask for more details of the land from the land owner, or from the Xiamen Government, when Madam Lin claims that she was friendly with the government officials and knew them well over the years, and if she wanted any information in respect of any piece of land that Fu Man intended to develop she would be able to get the necessary information from them.  Obviously, these were natural enquires which would have been made in order to assess whether the potential deal was commercially viable or feasible.

147. What is more surprising is that Fu Man was nevertheless still able to make its own assessment and decided that the price they would be prepared to offer for the unidentified land in Strait City was RMB 2,000 per square metre, despite claiming not to know the size or precise location of the land that was put on offer, when Mr Huang Rui-fu at the same time admits that the position of the land was most important for the assessment of the purchase price, and the market price for a piece of land would depend on the particular angle or aspect of the land.  A sea-fronting lot (like Lot A4) plainly commanded a higher value than an inland lot, yet Mr Huang Rui-fu insists that Fu Man could work out the price to offer for each square metre of the building area without knowing the actual location of the land, its lot size or plot ratio.  This is wholly unbelievable.

148. To me, Kin Ming’s account makes much more sense.  By the time when Madam Lin and Mr Huang Rui-fu came to Hong Kong to discuss the matter with Kin Ming on 16 April 2004, the land on offer by Kin Ming was made known to Madam Lin and Mr Huang Rui-fu as Lot A4, and the price was provisionally agreed at RMB 500 million in Xiamen.  Mr Huang Rui-fu wanted Lot A4 because he took the view that the market price of the apartments built thereon would be higher, given Lot A4 was fronting the sea.

149. I also do not accept that there is any inconsistency in the evidence between Mr Hsu and Mr Huang Wei about the agreement of the purchase price of RMB 500 million in Xiamen before 16 April 2004. Obviously, there was no final agreement on the purchase price by that time.  It was only an assessment based on the purchase price of RMB 1,500 per square metre.  The parties went on to have further negotiation on the price, which was eventually reduced to RMB 495 million at the meeting.  To suggest that the parties did not have a rough idea or any discussion about the purchase price before Madam Lin and Mr Huang Rui-fu came to Hong Kong to finalise the deal is, in my judgment, against ordinary business sense.

150. Mr Fung submits that there could not have been any agreement on the purchase price in Xiamen.  Given the dominant role played by Mr Kho in the operation of the family business, Mr Hsu could not have agreed the purchase price with Mr Huang Rui-fu in Xiamen without first obtaining the consent of his brother.

151. Again I do not accept such argument.  One must realise that the parties use the term “agreement” on a very loose sense.  If the parties had made a binding agreement on the price in Xiamen, Madam Lin would not have been able to negotiate for a reduction of the contract price from RMB 500 million to RMB 495 million in the meeting.  In other words, the parties only had a general understanding on the approximate price subject to further negotiation in the face-to-face meeting in Hong Kong.

152. On the other hand, if Madam Lin and Mr Huang Rui-fu were to be believed, they knew very little about the exact subject matter of the Project prior to the meeting, and yet they were able to agree everything, including the important term about the purchase price, with Kin Ming in one single meeting on 16 April 2004.  Given that the parties were entering into a multi-million dollars deal, it is very difficult for me to accept the story of Madam Lin.

(iv)  Payment of RMB 30 million in August 2004

153. Fourthly, there was good reason, or at least it was not unreasonable, for Madam Lin to make a further payment of RMB 30 million to Kin Ming in August 2004 notwithstanding that the subject matter of the Project was only Lot A4.

154. I do not want to repeat Mr Kho’s evidence about the circumstances leading to the making of such payment.  Given that the development of Lot A1 had been held up because of the refusal or reluctance on the part of Kin Ming (Xiamen) to execute the land exchange documents, which adversely affected the interests of Kin Ming and Lianfa, it would have been sensible for Madam Lin to pay a further sum of sincerity money to Kin Ming, so as to buy time to persuade the Xiamen Government to change its mind about the development plan of Strait City.  With the making of such payment, it was also natural that Mr Kho felt he was under some kind of moral obligation to continue the Project despite that the Contract was only to cover Lot A4 and the Xiamen Government had not issued the notice for payment of land fees by 30 June 2004.

155. Further, there is evidence to suggest that such payment was not part-payment under the terms of the Contract.  Firstly, if Kin Ming was in financial difficulty, it could have asked for the next instalment under the Written Contract in the sum of RMB 50 million, and yet the payment made by Madam Lin was of a smaller amount.  Secondly, the payment of RMB 30 million was described as “合作款” (cooperation payment) in the receipt dated 17 August 2004, whereas the earlier part-payments were described as “合同[訂]金” (deposit under the contract) and “合作合同第一筆款” (1^st payment under the cooperation contract) in the 2 receipts issued in April 2004.  In my judgment, it was not mere coincidence that there was no reference to the Contract in the August receipt, and I accept the evidence of Mr Hsu and Mr Huang Wei that omission of the reference to the Contract in the August receipt was a deliberate attempt by Kin Ming to differentiate the August payment with the earlier payments.

156. There are also material inconsistencies in the evidence of Madam Lin and Mr Huang Rui-fu as to who and to whom the demand for the additional payment of RMB 30 million was made.  In paragraph 27 of Madam Lin’s statement dated 28 September 2011 (such account is confirmed by her oral testimony at trial), the demand was made by Mr Kho to her.  In paragraph 13 of Madam Lin’s affirmation filed on 29 March 2008 to oppose Kin Ming’s striking out application, Madam Lin said the demand was made by Mr Hsu to her.  At the trial, Madam Lin cannot offer a satisfactory explanation for such inconsistency.  On the other hand, Mr Huang Rui-fu stated in paragraph 13 of his witness statement dated 28 September 2011 that the demand was made by Mr Kho to him.  These obvious inconsistencies certainly throw doubt as to whether such a demand was in fact made by Kin Ming.

157. There is also a related issue as to whether Kin Ming was in financial difficulty when the Contract was made in April 2004.  According to Mr Huang Rui-fu, which he confirms was his “feeling” only, Kin Ming was eager to obtain the deposit of RMB 100 million from Madam Lin in order to pay the balance of the land fees to the Xiamen Government.  The fact that Kin Ming only made the payment of about RMB 41 million to the notarial office in the end of April 2004 for collection by the Xiamen Government could not, says Madam Lin, have been a coincidence.

158. I accept the evidence of Mr Kho that Kin Ming was not in financial difficulty by that time.  In fact, Kin Ming had been making offer to pay the balance of the land fees as early as 2001.  I agree with Mr Kho that such offer could not have been made lightly.  If the Xiamen Government accepted the offer, Kin Ming had to make the payment immediately.  Hence, Kin Ming could not have been in financial difficulty by that time.  Neither is there any evidence to suggest the Xiamen Government was pressing Kin Ming to pay the balance of the land fees.  In fact, the evidence suggests that the Xiamen Government was trying to delay such payment.  In such circumstances, there was no financial pressure on Kin Ming to obtain the payments from Madam Lin.

159. In fact, despite the previous refusals of the Xiamen Government to accept the balance of the land fees, Kin Ming made serious attempt in paying the land fees through the notarial office in the end of April 2004.  In my judgment, such conduct on its part shows that Kin Ming had been trying very hard to honour its obligations under the Contract.  The Contract might cease to have effect if the Xiamen Government did not issue the notice for payment of land fees by 30 June 2004, and so by making the attempt for payment through the notarial office, Kin Ming was putting pressure on the Xiamen Government to issue the notice as soon as possible, which would only facilitate the continuation of the Project under the Contract.

(v) Kin Ming’s effort to persuade the Xiamen Government to allow the development of Lot A4 as per the original plan

160. At the trial, Madam Lin suggests that it would actually be in the interest of Kin Ming to have a land exchange with the Xiamen Government.  As the property market in Xiamen had soared, Kin Ming, in the case of a land exchange, could use it as an excuse to justify the termination of the Contract and to get back the development rights of the land under the Project. Madam Lin even seems to suggest that Kin Ming had engineered the land exchange, or at least it did nothing to protect her interests under the Contract.

161. In my judgment, there is simply no evidence to show that Kin Ming had engineered the land exchange to get rid of Madam Lin so that it could develop the re-granted land by itself.  Although there was a mention of a report submitted by Kin Ming (Xiamen) in the letter by the Xiamen Government dated 26 July 2004 (“the Report”), which seemed to suggest that it was Kin Ming who initiated the land exchange, I accept the evidence of the Kho’s brothers that it was the original plan of the Xiamen Government to exchange Lot A4 with another piece of land outside Strait City.  It was only upon the counter-proposal made by Kin Ming, which might be made together with the submission of the Report, that the Xiamen Government agreed to use another portion of land inside Strait City to exchange for Lot A4.

162. Mr Fung makes a point about the non-disclosure of the Report on the part of Kin Ming.  Mr Fung makes a request for the discovery of the Report only at the trial but not before.  In reply, Kin Ming claims that it cannot locate the Report.

163. In my judgment, I do not accept that this is a deliberate attempt by Kin Ming to conceal the evidence.  The request for discovery is only made at the trial.  If the Report is such an important piece of document, I wonder why Madam Lin has not made the application earlier.  If she has done so, Kin Ming may have been able to obtain the Report from the Xiamen Government.  Further, given the close working relationship between Fu Man and the Xiamen Government, Fu Man may be able to obtain the Report or the related information directly from the Xiamen Government.  Hence, there is no point for Kin Ming to conceal such document.

164. Undoubtedly, Lot A4 was a prime site and it was the best piece of land in Kin Ming’s land reserve.  It simply defines any logic for Kin Ming to ask the Xiamen Government to effect any land exchange that might end up swapping Kin Ming’s best piece of land with another unknown piece of land which might be of inferior quality, and with its location unknown. With “Lot A4” expressly stipulated as the subject matter in the Written Contract, it would provide ample excuse for Madam Lin to back out from the Contract in the case of a land exchange, which would mean that Kin Ming was stuck with a possible inferior re-granted land.

165. To me, the evidence is clear that the Xiamen Government had engineered the land exchange, and it exerted pressure on Kin Ming to accept the land exchange so that it could obtain the best portion of the Land which was facing the sea.  As accepted by both parties at the trial, there was very little that a land developer could do facing such kind of pressure from the Government.

166. Further, it is also clear that Kin Ming had written at least twice to the Xiamen Government in May and June 2005 persuading the latter not to effect any land exchange, mentioning that Kin Ming had entered into a development contract with a third party, obviously referring to Madam Lin.  On both occasions, the Xiamen Government rejected Kin Ming’s request.  The Xiamen Government made it clear that it did not recognise any development contract made between Kin Ming and any third party, and it even demanded Kin Ming (through Kin Ming (Xiamen)) to proceed to sign the land exchange documents.  Without any concrete or even circumstantial evidence, it is not open for Madam Lin to argue that there was a concerted effort by Kin Ming and the Xiamen Government to put up a show with a view to kick Madam Lin out of the Project.  It is not suggested that there was anything Kin Ming could do to salvage Lot A4, and refusing to sign the land exchange documents would not change the outcome.

167. Again, the fact that Kin Ming had written twice to the Xiamen Government to change its mind does not sit well with the allegation of Mr Huang Rui-fu about the making of 3 separate demands by Kin Ming for increase in contract price in the period from February to October 2005. It makes no sense for Mr Kho to renege on his contractual promise and greedily demanded for additional sums to be paid by Fu Man, and yet on the other hand wrote twice to the Xiamen Government not to take back Lot A4 so as not to disrupt its contract with Madam Lin.  Hence, I do not accept the suggestion of Madam Lin that Kin Ming was greedy and used the land exchange as an excuse to kick her out of the Project.

(vi) The credibility of the witnesses

168. Based on the aforesaid analysis, the case of Kin Ming is more solid on logic and business sense, and so I prefer to accept the evidence of Kin Ming’s witnesses on the balance of probabilities and reject that of Madam Lin’s witnesses.  However, there are also some other reasons as to why I find that the evidence of Kin Ming’s witnesses is more credible.

169. Mr Kho is the key witness for Kin Ming’s case. I accept him to be a truthful and reliable witness.  Despite the vigorous cross-examination, he is able to provide straightforward answers without any evasion.  I accept that he is telling the truth.

170. I agree that Mr Kho, when he is cross-examined at the stand, has supplied the court with some new evidence which has not been disclosed before.  One of the examples is that, according to Mr Kho, due to the peculiar circumstances at that time, it was unlikely for the Xiamen Government to effect any land exchange within Strait City when the Contract was made in April 2004.

171. After the investigation of the Smuggling Case, Lots A2 and A3 (which were formerly owned by Chang Ming) were, in substance, confiscated by the Central Government.  It was possible for these 2 lots of land to be sold by the Central Government to some other third parties.  As the Xiamen Government had no control over Lots A2 and A3, it was unlikely that the Xiamen Government would use these 2 lots of land to exchange for Lots A1 and A4.  It was only in the later stage that the Xiamen Government acquired Lots A2 and A3 from the Central Government.  After that, the Xiamen Government was able to exert pressure on Kin Ming to complete the land exchange arrangement. According to Mr Kho, Madam Lin even mentioned to him that, if Kin Ming was not selling the prime Lot A4 to her, she would probably buy Lot A2 or A3 directly from the Government.

172. I accept such evidence.  According to Mr Kho, it was a well known fact that Lots A2 and A3 were in the control of the Central Government during the investigation of the Smuggling Case.  Mr Kho even invites the legal advisers of Madam Lin to verify such information themselves. As such kind of information is likely to be in the public domain, it would be very difficult for Mr Kho to make up such allegation himself.  Hence, there is some degree of truth in such evidence.

173. Another example of the “new revelation” is that, according to Mr Kho, when the relationship of the parties turned sour in September 2005, Mr Huang Rui-fu threatened him that if he did not cooperate with Fu Man and to let Fu Man to have a share in development of the re-granted land, he would make use of his contact in the Central Disciplinary Committee to create trouble for him.  He even supplies the name of that person, who according to Mr Kho, was subsequently arrested for other misconducts.  Mr Fung complains that there is no reason for Mr Kho not to mention such allegation earlier.

174. Again I do not doubt the genuineness of such allegation.  Because of the sensitive nature of the evidence, it is clear that Mr Kho has had no intention to supply such piece of information to the court. However, under the vigorous cross-examination by Mr Fung, Mr Kho has no choice but to reveal such new evidence to justify the truth of his allegation.

175. Mr Fung has all along tried to attack the credibility of the Kho’s brothers.  As they were influential and privileged people in Xiamen, they were able to make use of their authority to take advantage of Madam Lin and Mr Huang Rui-fu.

176. I reject these challenges. The evidence actually suggests the contrary.  Mr Kho was stripped of his positions in CPPCC.  Despite the repeated efforts made by Kin Ming (Xiamen), the Xiamen Government put the development plan of Strait City on hold.  Even worse, the Xiamen Government subsequently did not allow Kin Ming (Xiamen) to continue with the original plan to develop Lots A1 and A4.  This would not have been the case if the Kho’s brothers were powerful and influential people in Xiamen.

177. Because of the bitter experience of Mr Kho and the difficulty faced by Kin Ming (Xiamen) in developing Strait City, it was only natural that Kin Ming wanted to scale down its business in the Mainland.  In such case, it makes sense that Kin Ming sold the right to develop part of the land in Strait City to a third party who might be able to make use of its own contact to continue the development of the Project.

178. As I see it, the elder Mr Hsu is not an aggressive businessman.  He is not a “hand-on” type of person and he is quite happy for his staff to handle various matters for him.  For the younger Mr Kho, he has suffered considerably because of his imprisonment and the harassment and intimidation by the agents engaged by Madam Lin and Mr Huang Rui-fu.  He even breaks down in tears when he is asked to recollect his bitter experience relating to the investigation of the Smuggling Case.  In my judgment, all these observations do not sit well with Mr Fung’s suggestion that the Kho’s brothers are aggressive and greedy persons who tried to take advantage of Madam Lin and Mr Huang Rui-fu.  Even according to the evidence of Mr Huang Rui-fu, Mr Kho offered to reduce the contract price when he mentioned the land exchange plan to him in July 2004.  It does not make sense that Mr Kho suddenly changed his personality and extorted substantial sum of money from Madam Lin only a few months later, in particular according to Mr Huang Rui-fu, the property market had risen considerably soon after the making of the Contract in April 2004.

179. Further, I accept that Mr Kho is genuine when he says that he wanted to settle the claim with Madam Lin.  However, Mr Huang Rui-fu thought that Kin Ming had made huge profit with the project in Strait City, which was not the case according to Mr Kho, as Kin Ming had to pay substantial amount of tax to the Government.  Hence, I accept that it was not the greed of Kin Ming that closed the door of further cooperation between the parties.

180. I also accept the other witnesses of Kin Ming, Mr Huang Wei and Mr Tsang, to be honest and truthful witnesses.

181. Although Mr Huang Wei is still working for the Kho’s brothers.  There is nothing to suggest that he has fabricated his evidence in favour of his employer.  In particular, he has not exaggerated his role in the negotiation of the Written Contract in the meeting on 16 April 2004.  Further, I accept that it was part of the business culture in the Mainland that Mr Huang Wei, being the person bringing together the parties for the negotiation, had to be present in the meeting on 16 April 2004 as a matter of courtesy though he did not take any active part in the negotiation itself. 

182. Since Mr Tsang had left the employment of UAA, he is a more independent witness.  As he does not have anything to benefit from the outcome of the trial, I accept his evidence as the truth.  In particular, he clearly recollects that Madam Lin played an active part in the negotiation of the Written Contract.

183. In contrast to the evidence of the other witnesses, Mr Tsang testifies that Madam Lin and Mr Huang Rui-fu arrived at Kin Ming’s office in the afternoon and not the morning.  Although he may have made an immaterial mistake as to when “the Mainland guests” actually arrived at the office, that should not affect the credibility of his evidence.  In any event, he was only involved in the mechanical preparation of the Written Contract which occurred in the later part of the day.

184. In trying to attack the credibility of Kin Ming’s case, Mr Fung also relies on some inconsistencies in the evidence between Mr Huang Wei and Mr Tsang relating to the details of the mechanical preparation of the various drafts of the Written Contract.  In my judgment, one cannot expect these 2 witnesses to remember every detail such as who actually wrote on the manuscripts or who handed the manuscripts to Mr Tsang.  I do not find that such immaterial inconsistencies would affect the credibility of their evidence.

185. On the other hand, I have grave reservation about the credibility of the evidence of Madam Lin and Mr Huang Rui-fu.

186. At the trial, Mr Fung seems to portrait Madam Lin and Mr Huang Rui-fu to be simple and unsophisticated persons.  Given their humble background, Mr Fung submits that there were understandably susceptible to being influenced by the fact that Mr Kho was a prominent and well known figure in Xiamen.  There was also inequality in bargaining power between the parties in the negotiation.  Fu Man was only a developer with little experience.  As it was offered an attractive deal of cooperating in a real estate project in a prime location, Madam Lin and Mr Huang Rui-fu were eager to grasp the opportunity notwithstanding that the Oral Revival Term was not reduced to writing.  The fact that Fu Man did not bring along its Mainland lawyer or its company seal for the meeting further indicates that Fu Man and Madam Lin did not expect to enter into any contract on 16 April 2004.

187. Although Madam Lin and Mr Huang Rui-fu had not received a lot of education, it is clear to me that they are sophisticated businessman.  Without knowing how to protect their business interests, I do not believe that they would have been able to develop their real estate business in the Mainland in such a short period of time.  Although their previous projects might be of smaller scales, they are and were not inexperienced developers.  The final terms of the Written Contract also show that Madam Lin was keen to protect her interests in the transaction, and I do not accept that there was any inequality in the bargaining power.

188. As mentioned in the earlier part of this Judgement, Madam Lin and Mr Huang Rui-fu were negotiating for a multi-million dollars deal, and they were dealing with the Kho’s brothers for the first time.  In such circumstances, I do not accept that Madam Lin and Mr Huang Rui-fu would have been so naïve in trusting the words of Mr Kho in not putting the alleged Oral Revival Term in the Written Contract.

189. Although Mr Kho may have exaggerated his loss in the Counterclaim[12], the evidence of Mr Huang Rui-fu and Madam Lin on the Counterclaim is even worse. Madam Lin and Mr Huang Rui-fu are experienced businessman, and yet they did not verify the identities of the agents recommended by Mr Lin.  I cannot accept that they would have been so naïve in trusting that these agents were “innocent persons” with no connection with the underground world.

190. In fact, Mr Huang Rui-fu agreed to pay a substantial sum of RMB 60 million to Mr Zhuang if he could secure the right of Fu Man to develop Lot A1.  The amount of the reward speaks for itself.  It would certainly give enough incentive to Mr Zhuang to achieve the objective by whatever means.  Further, apart from the serious confusion in Mr Huang Rui-fu’s evidence as to when he actually signed the Zhuang Agreement, I find it extremely odd that Mr Huang Rui-fu had not told his wife about the Zhuang Agreement.  It is clear that Madam Lin played an important role in the operation of Fu Man. If Mr Huang Rui-fu was offering RMB 60 million to Mr Zhuang for the assistance in the resolution of the dispute, I find it unbelievable that he had not told Madam Lin about such arrangement.

191. For all these reasons, I do not find Madam Lin or Mr Huang Rui-fu to be honest or truthful witness.

 (vi) Conclusion

192. I therefore find as a matter of fact that: (i) the parties did not agree on the Oral Revival Term whether in the meeting on 16 April 2004 or at all; and (ii) the parties had not made any agreement or reached any understanding relating to the 1^st or 2^nd Variation of the Contract as alleged by Mr Huang Rui-fu.

193. Since the express phrase “Lot A4” has been used in the Written Contract and there is an exact description of “Lot A4” in the same document, there is no room for the court to rewrite the bargain between the parties so as to extend the subject matter of the Written Contract to cover any land to be exchanged for Lot A4.  One may perhaps sympathise with Madam Lin that, because of the rising property market in Xiamen, she is not able to get any benefit from the Contract despite making a substantial amount of part-payment. However, no one has a crystal ball about the future.  In some possible scenarios, it may actually be in the interest of Madam Lin that the Contract was to cover only Lot A4.  The court cannot rewrite a bargain simply because the end result may be unfair to a particular party.

194. I accept that the parties, at the time of the making of the Written Contract, might have known that there might be planning changes in Lot A4.  However, there was no detail of the planning changes available at that time.  As contemplated by the parties in the arrangement under clause 2-2, it might be the case that the planning changes would reduce the building area in Lot A4, and as a result the parties agreed for a corresponding reduction in the contract price.  It had nothing to do with any land exchange. In fact, Madam Lin had all along been interested in getting the prime site of Lot A4, and there is no basis for the court to extend the meaning of “Lot A4” in the Written Contract based on the background of the negotiation.

195. Whether Madam Lin knew about the presence of Lianfa at the time of the making of the Contract or not, she knew full well that Kin Ming had interests in other portion of the Land for development.  In the case of any land exchange, Kin Ming’s interests in the other portion of the Land might be adversely affected, and one cannot expect Kin Ming to protect Madam Lin’s interests at all cost.  At most, Kin Ming only had a duty to cooperate with Madam Lin for the development of the Project in Lot A4 (a duty which, to an extent, was expressly stipulated in the Written Contract[13]), but this is quite different from a fiduciary duty owed by Kin Ming to Madam Lin in the case of any land exchange imposed by the Xiamen Government.  Hence, there is no basis for the court to impose any fiduciary duty on Kin Ming.

196. Neither can Madam Lin argue that Kin Ming was holding the land in exchange for Lot A4 on trust for her.  As I have ruled in the earlier part of this Judgment, the subject matter of the Project is a matter of construction of contract.  If the court has already made a ruling that the subject matter of the Contract is only limited to Lot A4, there is no room to extend the fiduciary duty to cover any property which is not the subject matter of the Contract.

197. As pointed out by Mason J (as he then was) in Hospital Products Ltd v United States Surgical Corp[14], when the contractual and fiduciary relationships co-exist, any fiduciary duty must yield to the contractual terms[15]:

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.”

198. Even if the court were to impose a fiduciary duty, there was no breach of such duty on the part of Kin Ming.  Both parties accept that if the government authority was demanding Kin Ming (Xiamen) to execute any land exchange in Strait City, there was nothing Kin Ming (Xiamen) could do but to comply with the demand.  They also accept that they could not, in practice, seek any relief against or to sue the government authority for imposing any land exchange.  Further, apart from speaking directly with the government official in September 2004, Kin Ming had written twice to the Xiamen Government in May and June 2005 begging for permission to develop Lot A4 as per the original plan.  In such circumstances, there was no breach of any duty.

199. Based on the aforesaid findings, it is not necessary for me to determine whether the Madam Lin is bound per rem judicatem by the Default Judgment.  In any event, both counsel have not put in a lot of effort in arguing this matter and so I do not propose to spend any more time on such academic issue.

200. For the above reasons, the Contract did not apply to any land exchanged for Lot A4 and Madam Lin’s claim in the Main Action must fail.

COUNTERCLAIM

(i) Liability

201. Mr Kho claims that from about late July 2010, Madam Lin and Mr Huang Rui-fu had engaged agents to harass and intimidate Kin Ming and Mr Kho into settling the Main Action with Madam Lin.  The wrongful acts of harassment and intimidation took the form of repeated and persistent telephone calls threatening to do harm to Mr Kho and his family members, and repeated and persistent unsolicited visits to Mr Kho’s office with an intimidating and threatening demeanour.  Mr Kho made a report to the police about these incidents.  For the safety of himself and his family, they even moved to live in a hotel in the end of August or early September 2010.  As I find Mr Kho to be a reliable witness, I accept his evidence about the harassment and intimidation as the truth.  In fact, there is no serious challenge to Mr Kho’s evidence in this regard.

202. There is no dispute that Madam Lin and Mr Huang Rui-fu had signed the 2 Powers of Attorney and the Zhuang Agreement.  Madam Lin and Mr Huang Rui-fu claim that they trusted his friend Mr Lin who was a fervent Buddhist and they believed that Mr Lin’s friends would render assistance in the resolution of the dispute with Kin Ming.  However, Mr Huang Rui-fu promised to give a substantial sum of RMB 60 million to Mr Zhuang to get the job done. Although no reward had been stated in the 2 Powers of Attorney, there is evidence to suggest that Mr Hung and Mr Zhuang were related.  According to Mr Kho, Mr Hung showed a copy of the Zhuang Agreement to Mr Kho when he caused disturbances at Kin Ming’s office on 29 October 2010.  In any event, one would not expect that these agents would do the job for free.

203. Obviously, Madam Lin and Mr Huang Rui-fu turned a blind eye to the characters and backgrounds of these agents.  They made no attempt to find out any details of such persons including their contact details and the nature of their business.  They made no attempt to find out how their agents would undertake the task of getting Kin Ming to settle the dispute. They stuck a staggering RMB 60 million as reward to at least one of their agents.  A reward of such magnitude would certainly lure any agents to complete the task by whatever means necessary.  Being sophisticated businessmen and land developers, I do not accept that Madam Lin and Mr Huang Rui-fu were totally innocent when they appointed these agents to put pressure on Kin Ming to continue the development of the Project.

204. For the above reasons, I find that Mr Kho had been harassed and intimidated by the agents of Madam Lin and Mr Huang Rui-fu, and the latter are liable to Mr Kho for the wrongful acts of their agents.  

205. As outlined by Mr Neoh in his opening submissions, Kin Ming and Mr Kho are relying on 2 causes of action in the Counterclaim, namely the tort of intimidation and the tort of harassment.  Since Kin Ming and Mr Kho have not expressly pleaded nuisance in the Amended Counterclaim or relied on nuisance in the opening submissions, I will not deal with this particular cause of action.

206. There is some dispute between the parties as to: (i) whether Mr Kho has established all the ingredients of the tort of intimidation; and (ii) whether the tort of harassment exists in common law.  I will deal with these issues in turn.

207. There are 3 elements for a claim based on the tort of intimidation[16]:

(i) unlawful threat;

(ii) intention to cause harm to the claimant with the threat; and

(iii) damage to the claimant.

208. Based on Mr Kho’s evidence, I accept that he has established all these elements of the tort.  The agents of Madam Lin and Mr Huang Rui-fu had made unlawful threats to Mr Kho, meaning to harm Mr Kho and his family members.  There was certainly intention to cause harm to Mr Kho with such threats.  As Mr Kho had suffered mental distress as a result of the threats, all the 3 elements of the tort are present.

209. However, Mr Fung submits that there is an additional ingredient of the tort of intimidation that the person under threat must yield to the demand of the tortfeasor. In support of such contention, Mr Fung relies on the following passage in Clerk and Lindsell[17]:

“In the tort of intimidation, ‘it is essential to the cause of action that the person threatened should comply with the demand’.  If A says to B: ‘I will hit you unless you give me £5’, and B resisted saying: “you can do your worst.  I am not going to pay you £5’, at that point B has no cause of action for damages.”

210. Further, Mr Fung relies on the dicta of Lord Denning in Morgan v Fry[18] and Stratford v Lindley[19] in supporting such additional element of the tort.

211. In my judgment, these authorities show no more than the proposition that damage to the claimant is a necessary ingredient of the tort.  In some of the economic tort cases involving the making of unlawful threats, for example in the trade union cases like Morgan v Fry and Stratford v Lindley, if the claimant does not yield to the demand, that particular claimant has actually suffered no damage which would be a necessary ingredient of the tort.  In Stratford v Lindley, the defendant, being the trade union, was being sued by the plaintiff, a company that carried on the business of letting out barges on hire and as repairers of vessels, for the tort of intimidation by the defendant asking its trade union members not to continue to hire barges from the plaintiff.  In such circumstances, the plaintiff obviously would not have suffered any loss unless the union members or its customers yielded to the defendant’s demand.  In that particular context, Lord Denning observed that the party threatened must comply with the demand rather than risk the treat being carried into execution, in which case that the party damnified can sue for damages.

212. However, loss may be suffered by the mere infliction of a treat.  As long as damage is caused, an act of intimidation may be actionable regardless of the yielding to the demand.  In Rookes v Barnard, Lord Evershed said the following[20]:

“I take the case of A, engaged in some profession or business. I assume that B, from motives of intense personal dislike of A, uses threats of personal violence to A of real coercive force intended (and effective) to interfere with A’s business. If, as a result of B’s threats, A is compelled to abandon his business or profession he will, according to the view of the Court of Appeal as well as your Lordships, have a cause of action against B and such cause of action will be founded upon the tort of intimidation … … But clearly the damage to A might not be so confined – he might well, as a consequence of B’s intimidation, suffer in many ways including health, and if he did, then, as I conceive, his cause of action against B would be founded on the tort of intimidation and would not be confined, by reference to the damage suffered, to interference with his business.”

213. If Mr Fung’s proposition is right, in all debt-collector cases, in order to be actable under the tort of intimidation, the debt-collector must successfully have collected the debt before an action is maintainable.  This simply cannot be right.  In Chang Ming Fang Jacqueline v Zhang Zi Qiang[21], the defendant had a bad gambling habit and he kept on making unlawful threats to the plaintiff for money.  The plaintiff did not yield to the defendant’s demand but she suffered serious distress as a result.  Mr Recorder A Chan, SC (as he then was) concluded that the acts of the defendant clearly constituted assaults and intimidations.  In Wong Wai Hing v Hui Wei Lee[22], the debt-collector did not successfully recover the purported debt which the defendant claimed the plaintiff owed her, and yet the court held that the defendant was liable for assault and intimidation caused by the defendant’s debt-collector.

214. Hence, Mr Kho has made out a case of intimidation.

215. The second issue relating to liability under the Counterclaim is whether the tort of harassment exists in common law.  In view of my decision on tort of intimidation, this particular issue now becomes academic. However, since counsel have addressed me extensively on the issue, I feel obliged to give my view on such question of law.

216. There are conflicting decisions as to whether such tort exists:

(i) Lau Tat Wai v Yip Lai Kuen Joey[23], followed by DHCJ E Fung SC in Shen Xing v Li Jun[24], confirming that the tort of harassment exists under the law of Hong Kong;

(ii) Pong Seong Teresa & Ors v Chan Norman[25], in which DHJC Linda Chan SC held that no such tort exists under the law of Hong Kong;

(iii) at the Court of Appeal level, 朱祖永訴香港警務處[26], Yuen JA held that there is no tort of harassment under the common law; whereas in the later decision of Wong Tai Wai David v The Hong Kong SAR Government[27], A Cheung J (as he then was) and with whom Yuen JA agreed, observed that it is quite impossible to say that, given the present state of the law and its possible development in Hong Kong, the tort of harassment is unknown to the law as a cause of action.

217. The question as to whether the tort of harassment exists in common law has haunted the courts for many years.  The position in England has been governed by statute since the enactment of the Protection from Harassment Act in 1977.  In Hong Kong, there is no equivalent or similar legislation outside the spheres of sexual and disability harassment.  The position is therefore governed by common law.

218. If necessary, I would find that the tort of harassment exists as part of the common law in Hong Kong and Madam Lin and Mr Huang Rui-fu are liable to Mr Kho for the commission of such tort.

219. As I see it, DHCJ Linda Chan SC considered herself bound by the decision of the Court of Appeal in朱祖永[28], and that was why the learned judge ruled that no such tort exists in common law.  Despite the clear statement in 朱祖永that such tort does not exist, as observed by DHCJ Linda Chan SC in Pong Seong Teresa[29] and A Cheung J in Wong Tai Wai David[30], there were conflicting decisions in England and it is arguable that a tort of harassment per se, or as part of the tort of intentional (or reckless) infliction of injury (physical or mental), exists at common law.  In Wong Tai Wai David, A Cheung Jdid not rule out the existence of such tort.  As the Court of Appeal has not shut the door for the development of the tort of harassment, the existence of such tort remains an open question.  In particular, Yuen JA was sitting together A Cheung J in Wong Tai Wai David and they delivered a unanimous decision in refusing to strike out the plaintiff’s claim on harassment.

220. As to whether such tort should exist in common law, I agree with the reasoning of A Chan J in Lau Tat Wai that the tort of harassment should exist “to protect the people of Hong Kong who live in a small place and in a world where technological advances occur in leaps and bounds”[31]. In particular, intrusion on privacy is difficult to prevent and it is hard for the victim to escape harassment.  Further, a claimant in a claim for harassment has to establish the various ingredients of the tort as mentioned in the next paragraph, and I cannot see the reason as to why a person, who knows that his harassment would cause worry, emotional distress or annoyance to another person, or reckless as to whether the victim would suffer injury as a result of the harassment, should not be liable for damages caused to the victim as a result.  So long as there is intention to inflict harm on the victim, there should be no difference between damages caused by a physical act of violence or a series of harassing conducts.  Hence, if there is a need for Kin Ming or Mr Kho to rely on such cause of action, I accept that the tort of harassment exists as part of the common law in Hong Kong.

221. In Lau Tat Wai, A Chan J set out the principles and the elements of the tort of harassment as follows:

(i) “harassment” means a course of conduct by a person, whether by words or action, directly or through third parties, sufficiently repetitive in nature as would cause, and which he ought reasonably to know would cause worry, emotional distress or annoyance to another person[32];

(ii) the mental element required is reckless as to whether the victim would suffer injury from the defendant’s conduct[33]; and

(iii) the plaintiff must have suffered damage as a result of the harassment; anxiety would suffice, though the defendant must take the victim as he finds him; financial loss is also recoverable[34].

222. Again I find that these elements exist in the present case.  There were repeated and persistent telephone calls threatening to do harm to Mr Kho and his family members, and also repeated and persistent unsolicited visits by the agents to Mr Kho’s office with intimidating and threatening demeanour.  These conducts were sufficiently repetitive in nature, which Madam Lin and Mr Huang Rui-fu should have known would cause worry, emotional distress and annoyance to Mr Kho.  As a result of such harassment, Mr Kho had suffered mental distress.  Hence, Madam Lin and Mr Huang Rui-fu are also liable for damages for harassing Mr Kho.

223. Kin Ming, as a corporation, also claims for damages and injunctive relief against Madam Lin and Mr Huang Rui-fu for intimidation and harassment.  It is clear that the tort of intentional infliction of injury is regarded as a tort of trespass to person[35].  Harassment is a variant of the tort of intentional infliction of injury, and so I do not accept that Kin Ming, as a corporation, can sue Madam Lin and Mr Huang Rui-fu for such tort.

224. On the other hand, intimidation is sometimes regarded as an economic tort[36]. As a kind of economic tort, yielding to the demand is an essential ingredient of the tort.  However, the case of Rookes v Barnard shows that the tort of intimidation is not limited to interference with business[37].  If the intimidation has caused injury to a person including deterioration in health, that particular person can sue for damages for intimidation.  It is more akin to a tort of intentional infliction of injury on a person.  Since the intimidation and the unlawful threats in the present case were directed to Mr Kho and his family as persons and not to Kin Ming, I do not accept that Kin Ming, as a corporation, can sue Madam Lin and Mr Huang Rui-fu for the tort of intimidation.  This is the case even if Mr Kho is a director of Kin Ming. 

(ii) Quantum of damages and injunctive relief

225. There is a dispute between the parties as to whether Madam Lin and Mr Huang Rui-fu are liable for the harassment and intimidation caused by the “friends” of Mr Lin after 28 October 2010, which was the date of the termination of the appointment of the agents under the 2 Powers of Attorney and the Zhuang Agreement.

226. As I see it, such dispute would not materially affect the quantum of Mr Kho’s claim.  There were repeated harassment and intimidation on the part of the agents of Madam Lin and Mr Huang Rui-fu prior to 28 October 2010, and I do not consider that the further harassment and intimidation after the said date would add very much to the quantum of the claim.  However, since Sakhari J, after trial, had already exonerated Madam Lin and Mr Huang Rui-fu for contempt for causing further harassment or intimidation to Mr Kho after 28 October 2010, I do not find them to be liable for the harassment or intimidation caused to Mr Kho after the termination of the appointment of the agents.

227. Mr Kho had been examined by Professor Peter Lee, a clinical psychologist, in April 2013.  Based on the information supplied by Mr Kho and his son, Professor Lee is of the opinion that Mr Kho was suffering from posttraumatic stress disorder as a result of the threats and harassment.  Such disorder would have significant impairment in Mr Kho’s work and daily life functions.  His condition has improved.  But at present, Professor Lee is of the view that Mr Kho still suffers from adjustment disorder with mixed depressed mood and anxiety of a moderate intensity.

228. The expert for Madam Lin and Mr Huang Rui-fu is Professor Felice Lieh Mak who is a specialist in psychiatry.  Professor Lieh Mak has not examined Mr Kho, because she considers that such examination would be of limited value due to the long lapse of time after the incidents.  In her report, Professor Lieh Mak mainly criticizes that Professor Lee, being a clinical psychologist with no medical qualification, is not the appropriate person to assess the psychiatric and mental health condition of Mr Kho. Furthermore, the assessment made by Professor Lee is not reliable because, inter alia: (i) the assessment was made based on the subjective complaint of Mr Kho; and (ii) the examination was conducted a long time after the incidents.

229. Mr Kho had attended a number of consultations with a cardiologist, Dr Lau Chu Pak, in the period from August 2010 to March 2011 with respect to his heart condition.  According to Dr Lau, Mr Kho complained of tiredness in the consultation on 13 August 2010 for which no specific cause was found.  Dr Lau did not refer Mr Kho to see other specialist.

230. Since I believe the evidence of Mr Kho, I accept that the unlawful threats had caused him considerable mental distress, otherwise he would not have moved away from his home in order to avoid the intimidation and harassment.  The facts that he made a report to the police and applied for an ex parte injunction from the court also show that Mr Kho was very anxious and upset by that time, which also add weight to his complaint about the effect caused by the intimidation and harassment.

231. Although I have no doubt about the credibility of the evidence of Mr Kho, there may be some concern that Mr Kho has exaggerated the extent of the mental distress suffered by him.  Firstly, if Mr Kho was suffering any serious symptoms arising from the mental distress or depression, his cardiologist, Dr Lau, would have referred Mr Kho to see a psychiatrist in the end of 2010 or early 2011.  Yet no such referral was made.  Secondly, in his own police statement dated 13 January 2011, Mr Kho alleged that he was able to tend to his business in the Philippines in December 2010.  He was also able to meet Mr Lin for the first time in that month, who was the person claimed to be at least partly responsible for causing the harassment and intimidation.  Thirdly, the transcript of the meeting between Mr Lin and Mr Kho in Manila on 6 January 2011 shows that Mr Kho was apparently in command of his faculties, and he did not show any serious sign of mental illness during the whole conversation.

232. As I see it, the disgraceful treatment he received in Xiamen and the harassment and intimidation caused by the agents of Madam Lin and Mr Huang Rui-fu gave Mr Kho considerable mental pain.  He may become a little bit sensitive.  Further, in the case that his company had lost some business opportunities, instead of blaming himself for inaction, it would be tempting for Mr Kho to shift the responsibility to someone else like Madam Lin and Mr Huang Rui-fu.

233. In my judgment, although Mr Kho’s complaint about the anxiety and distress is genuine, he may have exaggerated the effect of such anxiety and distress on him.  If he was able to communicate properly with Mr Lin in early 2011, I doubt whether his condition was so worse to the extent that he was not able to make business decisions for Kin Ming.  In particular, there was no contemporaneous medical report supporting his condition at that time and the examination by Professor Lee was conducted much later after the incidents.  Further, Professor Lee opines that Mr Kho at present still suffers from adjustment disorder with mixed depressed mood and anxiety of a moderate intensity, and yet Mr Kho is able to answer all the questions put to him at the trial without difficulty.

234. Based on the aforesaid, I do not accept all the observations made in Professor Lee’s report on face value.  Whilst Mr Kho had suffered considerable distress and anxiety caused by the harassment and intimidation, I do not find that his medical condition was serious to the extent that he would not be able to make proper business decisions for Kin Ming.

235. In respect of general damages, Mr Neoh has asked for both aggravated and exemplary damages to be awarded to Mr Kho.  Aggravated damages are to compensate the victim for his suffering in his feelings, dignity and pride, for his mental discomfort and distress.  Exemplary damages, on the other hand, are punitive in nature and are awarded to teach the culprit that “tort does not pay” and to deter him and others from similar conduct[38].  Mr Neoh asks for the sums of $600,000 and $200,000 for the 2 kinds of damages respectively.

236. Due to the harassment and intimidation, Mr Kho had suffered mental distress resulting in deterioration of his health, insomnia and loss of appetite.

237. In Lau Tat Wai v Yip Lai Kuen Joey[39], the plaintiff and the defendant met in a language course and developed an intimate relationship, which the plaintiff ended after 4 months.  After the termination of the relationship, the defendant carried out a campaign of harassment and intimidation for the next 6 years.  The acts included making repeated telephone calls to the plaintiff, hacking into his email account and surveillance on him and his family.  These acts had the effect of forcing the plaintiff to switch jobs and to move from his home.  Aggravated damages and exemplary damages were awarded in the sums of $600,000 and $200,000 respectively.

238. In Mir v Mir[40], the defendant, in a domestic context, physically assaulted the plaintiff and caused physical injuries to her as a result.  Aggravated damages in the sum of $140,000 was awarded, which was not challenged upon appeal.

239. In Tangrorang v Chan Chau Wing[41], the defendant was convicted for 3 counts of indecent assault and 3 counts of criminal intimidation of the plaintiff who was a domestic helper.  After he was released from prison, he threatened the victim through a telephone call and was convicted with another count of criminal intimidation.  The victim suffered from posttraumatic stress disorder and required psychiatric treatment for 1 year.  The District Court awarded $30,000 as aggravated damages.

240. In Chang Ming Fang Jacqueline v Zhang Zi Qiang[42], damages in the sum of $200,000 was awarded to the plaintiff against the defendant, who was the plaintiff’s brother, for assault and intimidation for a period of about 1 year.  The court found that the defendant had made threatening telephone calls and messages, disturbed the plaintiff at her workplace, distributed posters relevant to the dispute to people near her workplace, and splashed paint at her workplace.

241. In the present case, the acts of harassment and intimidation lasted for a few months since late July 2010.  Although there was no actual act of violence leading to physical injuries, the threats were made by persons with dubious background which might cause real alarm to Mr Kho and his family.  Having considered all the facts of the present case and the cases cited to me by the parties, I award $300,000 as aggravated damages and $150,000 as exemplary damages.

242. A substantial part of the Counterclaim consists of the claim for the loss of business opportunities.  According to Mr Kho, he was unable to properly attend to his business in the Philippines between August 2010 and March 2011 which resulted in the loss of business opportunities in investing in a golf course project and a nickel ore project.

243. In respect of the claim for the loss of opportunity in investing in the golf course project, Mr Kho claims that the Philippines Air Force, in about early August 2000, offered to sell the Villamor Golf Course in Manila (“the Golf Course”) at Philippine Peso(₱)10,000 per square metre to Mr Kho, proposed to be developed into a multi-purposes resort, and asked Mr Kho to submit a development plan for its consideration.  By reason of the harassment and intimidation, Mr Kho could not attend to these matters.  The Air Force subsequently sold the right to develop the Golf Course to another party.

244. Mr Chen Jun Tao (陳君陶)(“Mr Chen”), manager of AAM-PHIL Natural Resources & Development Corporation (“AAM-PHIL”), testifies in court about the Golf Course project.  AAM-PHIL is a subsidiary company of UAA which is owned and controlled by Mr Kho.

245. Mr Chen worked as a restaurant waiter before joining AAM-PHIL.  He was responsible for entertaining a retired general in July 2010 who told him about the offer of the Golf Course for sale by the Philippines Air Force.  The retired general was the manger of the Golf Course. During the period from August 2010 to early 2011, the general had kept on chasing Mr Chen to supply the development plan for the project.  However, Mr Kho lost his concentration on his work and so no plan was submitted.  In February 2011, Mr Kho asked Mr Chen to follow-up on the project again.  In April 2011, the planning company engaged by AAM-PHIL conducted a site inspection of the Golf Course and AAM-PHIL submitted the development plan in May 2011.  Later in August 2011, he contacted the retired general who told him that the Air Force had already approved the development plan submitted by another company, and Mr Chen therefore assumed that the Golf Course had been sold to such company.  He knows nothing about the particulars of the sale.

246. Mr Autencio, the expert on real estate valuation engaged by Kin Ming and Mr Kho, opines that: (a) the 2010 market value of the Golf Course project was ₱11,000 per square metre; and (b) its 2012 market value was ₱58,000 per square metre.  The market value further raised to ₱70,000 to ₱80,000 per square metre as of May 2013.  Assuming a notional realisation of the Golf Course project in 2012, Kin Ming and Mr Kho claim for loss of profit in the region of ₱26 billion [(₱58,000 – ₱11,000) x 561,077 square metres], equivalent to about US$600 million.

247. On the other hand, Mr Frances Albert Ngo (“Mr Ngo”) testifies in support of the claim relating to the nickel ore project.  Mr Ngo is the president of AAM-PHIL.  He is responsible for the trading aspect of the mining business of AAM-PHIL but he himself has received no technical training in mining or metallurgy.

248. In March 2010, Mr Ngo learnt that there was 25 million tons of lateritic nickel ore tailing with Fe (Iron) content at 45% (“the Nickel Ore”) for sale and the price was US$4 per tonne.  He told Mr Kho who was interested to acquire the Nickel Ore.  Mr Kho gave instruction to do a feasibility test, and the result was positive.  Mr Ngo and Mr Kho therefore met some government officials who indicated their support for the project.  Since August 2010, the seller pressed Mr Kho for decision as to whether to acquire the Nickel Ore.  However, Mr Kho lost concentration on his work and the matter dragged on without much progress.  It was only in February 2011 that Mr Kho asked Mr Ngo to conduct a full examination of the Nickel Ore.  Mr Kho also visited the site in March 2011.  After that, Mr Ngo approached the seller but he told Mr Ngo that he had already found another buyer who offered US$12 per tonne for the Nickel Ore.  Mr Ngo is of the view that, had there been no delay, AAM-PHIL should have been able to acquire the Nickel Ore.

249. Mr Kho claims that he lost the chance to purchase the Nickel Ore, which was then in high demand in the Mainland, at US$4 per tonne, having spent considerable time in ascertaining the feasibility of such transaction.  When Mr Kho later recovered from the disorder and depression, he resumed contact with the vendor of the Nickel Ore.  By that time, the price of the Nickel Ore had risen to US$12 per tonne but the vendor had sold the Nickel Ore to another party.  Kin Ming and Mr Kho therefore claim for loss of profit from being able to acquire the Nickel Ore at a cost of US$23.5 per tonne (US$4 for the ore and US$19.5 for treatment costs and tax) and to resell and export the finished product at US$58 per tonne.  With a profit margin of US$34.5 per tonne and 14.375 million tonnes of refined nickel ore, the total loss is therefore about US$500 million.

250. According to Mr Neoh, the claim of Kin Ming and Mr Kho is one for loss of a chance in acquiring the Golf Course and the Nickel Ore. There is no need to prove on the balance of probabilities that the vendors would have acted in selling the Golf Course and the Nickel Ore to AAM-PHIL. All that Kin Ming and Mr Kho need to prove is that they had a real or substantial chance, as opposed to a speculative one, in acquiring the Golf Course and the Nickel Ore. In such circumstances, the court can assess the damages based on the loss of such chance.

251. I disallow the claim for the loss of business opportunities for the following reasons.

252. Firstly, as I have mentioned above, I have some doubt as to whether the distress or depression suffered by Mr Kho was serious to the extent that his ability to manage the affairs of Kin Ming was impaired.

253. Secondly, the issue of “loss of chance” only comes into play as a question of quantification of loss after causation has been proved.  The question of causation is one of historical fact.  The court has to determine on the balance of probabilities whether the defendant’s act caused the plaintiff’s loss[43]. Hence, before proving his chance of developing the Nickel Ore project and the Golf Course project, Kin Ming and Mr Kho must first show that the conduct of Madam Lin and Mr Huang Rui-fu caused the loss of businesses which would not have occurred but for the tortious act.

254. In this regard, the evidence presented by Kin Ming and Mr Kho in support of the claim relating to the Golf Course project is far from satisfactory.  There is no single piece of documentary evidence to support the allegation that an offer had in fact been made by the Philippines Air Force.  The “general” who allegedly made the offer to Mr Chen was actually the retired manager of the Golf Course, and Mr Chen did not know whether such “general” had the power to make decision on behalf of the Air Force in selling the right to develop the project to AAM-PHIL.  There is also no evidence about how many offers had been made and how many proposals had been received by the Air Force. Neither is there any evidence to prove that the Golf Course had in fact been sold to another party and the price offered by such party to acquire the Golf Course. Had there been such a sale, it is unimaginable that Kin Ming’s own valuation expert, Mr Autencio, would not use that figure to be the basis for assessing Kin Ming’s alleged loss.  Without knowing such information, the court is not able to assess the chance that Kin Ming would be able to purchase the Golf Course had Mr Kho not suffered the mental distress caused by the harassment and intimidation.

255. Further, the court would not be able to know whether the delay in the submission of the development plan was the sole reason, or indeed any one of the reasons, as to why AAM-PHIL could not acquire the development right of the Golf Course.  Even according to the evidence of Mr Chen, the “sale” did not take place until August 2011.  With ample time before the alleged sale, it seems that the inaction of Mr Kho was not the reason for the loss of such business opportunity.

256. Similarly, the evidence in support of the claim relating to the Nickel Ore project is also unsatisfactory.  Mr Ngo agrees that the price of the Nickel Ore might have gone up in the period from March to July 2010, and so it was uncertain whether AAM-PHIL could have acquired the Nickel Ore at US$4 per tonne.  Mr Ngo does not even know when the vendor sold the Nickel Ore to the purchaser and at what price.  In such circumstances, if AAM-PHIL did not raise the offer price, it might not be able to buy the Nickel Ore at all.  Mr Ngo also does not know the price offered by the other potential purchasers. With so many uncertainties, I doubt whether AAM-PHIL would have been able to buy the Nickel Ore even in the absence of the harassment and intimidation.

257. Further, for the project to be a successful, AAM-PHIL would need to build a plant to process the Nickel Ore.  Hugh capital would be required for the building of the plant, though Mr Ngo does not know the amount of the capital involved.  Mr Ngo also agrees that considerable time would be required to obtain the necessary permits.  Yet in 2010 and 2011, there was no land, no plan and no machine in existence for such purpose.  There is no dispute that it would take time to process the Nickel Ore, and the price of the Nickel Ore might fluctuate in the meantime.  Hence, there is no guarantee that, even if AAM-PHIL was able to acquire the Nickel Ore, it would have been able to make the profit as alleged by it.

258. For these reasons, I agree with Mr Fung that the alleged chance in acquiring the Golf Course and the Nickel Ore is fanciful and illusory, or at the very least, unsubstantiated with concrete evidence.

259. Thirdly, if there was any loss relating to these business opportunities, the alleged loss was that of AAM-PHIL, which apparently was a subsidiary company owned by Kin Ming or UAA.  In the absence of any evidence to show the exact relationship between Kin Ming and AAM-PHIL, Kin Ming cannot claim for the loss suffered by AAM-PHIL.  Even if AAM-PHIL is one of its wholly owned subsidiaries, Kin Ming cannot claim for any reflective loss which is actually suffered by its subsidiary company AAM-PHIL[44].  Neither can a shareholder of a company sue for the reflective loss suffered by his company[45], and so Mr Kho cannot claim for any loss of businesses suffered by Kin Ming or AAM-PHIL.  Coupled with my earlier ruling that Kin Ming, as a corporation, cannot sue Madam Lin or Mr Huang Rui-fu for harassment or intimidation, the claim by Kin Ming and Mr Kho for loss of business opportunities cannot possibly succeed.

260. Kin Ming and Mr Kho have also asked for injunctive relief to restrain Madam Lin and Mr Huang Rui-fu from causing further harassment and intimidation to them.  Since Kin Ming cannot sue Madam Lin or Mr Huang Rui-fu for harassment or intimidation, no injunctive relief will be granted in favour of Kin Ming.

261. Different considerations apply in the case of Mr Kho. Given the history of this case, in particular Madam Lin and Mr Huang Rui-fu were prepared to pay huge sum of reward to persons with dubious background to handle the dispute with Kin Ming, there is a likelihood that, unless restrained by the court, they may continue to do so in the future.  This is a case that damages are inadequate remedy and protection to Mr Kho, and I therefore grant a permanent injunction in his favour.

262. For the above reasons, I dismiss Madam Lin’s claim in the Main Action and grant judgment in favour of Mr Kho on the Counterclaim in the sum of $450,000.  Since the injunction will only cover the claim by Mr Kho, I direct the parties to submit the agreed terms of the permanent injunction to me for approval within 21 days.  The parties have not addressed the court on the issue of interest, and so they should also submit the agreed terms for the award of interest (if any) within the same 21 days.  If the parties cannot agree on the terms of the injunction and the question of interest, they are at liberty to apply to court to determine these issues.  Before the finalisation of the terms of the permanent injunction, I grant an interim injunction as per the terms of the undertaking previously given by Madam Lin and Mr Huang Rui-fu to the court.  I also dismiss the counterclaim by Kin Ming.

263. Mr Kho loses on the claim for loss of business opportunities which forms a significant part of the Counterclaim.  I therefore make the following costs order nisi:

(i) Madam Lin do pay to Kin Ming the costs of the Main Action;

(ii) Madam Lin and Mr Huang Rui-fu do pay to Mr Kho 60% of the costs of the Counterclaim;

(iii) there be no order as to costs between Kin Ming on the one part and Madam Lin and Mr Huang Rui-fu on the other in respect of the Counterclaim; and

(iv) there be certificate for 2 counsel for both the Main Action and the Counterclaim.

264. The order nisi shall be made absolute 21 days after the date of the handing down of this judgment.

265. Finally, I would like to express my gratitude to counsel for all the assistance that they have provided to this court.

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 216 OF 2008

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D E C I S I O N

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1.  The plaintiff (“Lin”) commenced the present action in 2008 against Kin Ming Holdings International Limited (“Kin Ming”) in connection with certain land development in Xiamen, the Mainland.  In 2012, Jose Kho (“Kho”) came to be joined as a party.  Trial of the action has been fixed to be held in September 2014.

2.  This is the application by Kin Ming and Kho against Lin for security for costs of the main action.  Having heard the application, the Registrar refused the application.  This is the appeal.

BACKGROUND

3.  Lin and Kin Ming entered into an agreement in respect of the development of certain land in Xiamen known as Strait City (“the Written Agreement”).  Pursuant to that, deposits in the sum of RMB 130 million had been paid by Lin to Kin Ming.  The Written Agreement provides that if Kin Ming fails to obtain notification of land fee payment from the municipal government by 30 June 2004, the Written Agreement would come to an end.  In that event, the deposit paid would have to be returned to Lin.  However, if approval to lawful development is obtained within 2 years thereafter, the parties’ co-operation should continue.

4.  Kin Ming was unable to obtain the abovementioned notification.  Further, due to changes in the land planning of the Xiamen government, Kin Ming did not obtain the development rights to the lot envisaged under the Written Agreement but was granted rights over a new lot within the boundary of the original site.

5.  Kin Ming took the view that the Written Agreement was terminated; and sought to return the deposit to Lin.  In 2005, Kin Ming commenced HCA 2350/2005, seeking declaration that the Written Agreement was duly terminated.  After hearing, DHCJ L Chan (as he then was) gave default judgment against Lin on 27 January 2006 (“the 2006 Judgment”).

6.  Whilst Lin still complains that she had not been served with the proceedings, the 2006 Judgment was never set aside; and the case proceeded to taxation of costs, in which Lin was legally represented.

7.  By the 2006 Judgment, it was declared that the Written Agreement had been terminated. However, the learned Judge refused Kin Ming’s request to declare that the same had been frustrated, in view of the provisions providing for the revival of the same as mentioned above.  The declaration was therefore granted without prejudice to such possible revival pursuant to the agreement (See the written decision at §§14-17).

8.  Lin then filed a claim against Kin Ming in the Mainland; but was dismissed on the ground that it should have been litigated in Hong Kong.  On 6 February 2008, Lin commenced the present action.

9.  In the present action, Lin alleges that the agreement between the parties was partly oral and partly reduced into or evidenced by the Written Agreement.  The agreement between the parties has allegedly revived, now in respect of the development of the new lot, notwithstanding the earlier termination.

10.  Kin Ming has attempted to strike out the claim.  It was dismissed; and remained so after the appellate court refused to give leave to appeal in May 2010.  The proceedings in the present case continued.

11.  The allegations about the oral terms and the revival of the agreement are denied by Kin Ming.  Further Kin Ming filed its counterclaim in October 2010.  It complains about harassment and threat made by the agent appointed by Lin and her husband on behalf of their company, Xiamen Fu Man Holdings Limited (“Fu Man”). It is alleged that Lin negotiated and concluded the co-operation agreement for the benefit of Fu Man.  Kin Ming claims for injunction and damages.

12.  In line with the contentions in the counterclaim, Kin Ming has at one stage obtained an ex parte injunction; but the same has since been discharged by consent.

13.  In 2012, Kin Ming sought to add Kho, director of Kin Ming, as a party; and to amend the counterclaim.  The applications were eventually heard before DHCJ M Chan (as she then was), who gave leave to Kin Ming on 6 June 2012 (see [2012] 3 HKLRD 550).  Hence, the joinder of Kho not only as the 2^nd plaintiff by counterclaim but also as the 2^nd defendant by original action. The scope of the claim for damages was also expanded.

14.  During the following 6 months, the parties were engaged in other applications, including committal proceedings against Lin and her husband.  Kin Ming and Kho took out the present application for security for costs by summons filed on 16 November 2012.

15.  After some debate as to whether there should be split trial, leave to set the case down for trial was eventually given in March 2013.  As mentioned, trial has been fixed to commence in September 2014, which is estimated to last for 17 days.

16.  The application for security for costs was heard by the Registrar on 18 June 2013. On the same day, he dismissed the application (see his written decision of the same date).

17.  By notice filed on 24 June 2013, Kin Ming and Kho appeal.  Hence this hearing.

18.  Notwithstanding the parties’ different views and emphases, I think the above summary of the background of the action suffices for the purpose of this hearing.

THE PRINCIPLES

19.  Though counsel referred to and made submission on the Registrar’s reasons for decision, this is a re-hearing of the application for security for costs.  I am neither prevented from nor obliged to consider the Registrar’s reasons for his decision for the purpose of my decision.

20.  O.23, r.1 of the Rules of the High Court provides that:

“(1) Where, on the application of a defendant to an action orother proceeding in the Court of First Instance, it appears to the Court -

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

(b) that the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so, or

(c) subject to paragraph (2), that the plaintiff's address is not stated in the writ or other originating process or is incorrectly stated therein, or

(d) that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation, then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant's costs of the action or other proceeding as it thinks just.

(2) The Court shall not require a plaintiff to give security by reason only of paragraph (1)(c) if he satisfies the Court that the failure to state his address or the misstatement thereof was made innocently and without intention to deceive.

(3) The references in the foregoing paragraphs to a plaintiff and a defendant shall be construed as references to the person (howsoever described on the record) who is in the position of plaintiff or defendant, as the case may be, in the proceeding in question, including a proceeding on a counterclaim.”

21.  It is the burden of the applying party to satisfy the court that the case belongs to one of the limbs under O.23, r.1(1); and that the opponent will be unable to meet an adverse costs order if made.  The court has discretion as to whether to order security; and will do so if it is just in the circumstances of the case.

22.  In the case of a plaintiff who is ordinarily resident outside Hong Kong, it is ordinary or general practice to order security, as it is ordinarily just to do so: see Hong Kong Civil Procedure 2013 (“HKCP”) at 23/3/4.

WHETHER JUST TO ORDER SECURITY

23.  There is no dispute that Lin is a Hong Kong Identity Card holder.  However, she is a Mainland business woman residing in Xiamen.  Much was said about the reliability of the addresses that Lin has so far provided.  Irrespective of that, her last address in Hong Kong provided is that of her friend’s.

24.  Mr Fung SC (appearing with Ms Lok) for Lin did not dispute, and I think rightly, that Lin is ordinarily resident outside Hong Kong for the purpose of O.23.

25.  Mr Neoh SC (appearing with Ms Wong) for Kin Ming and Kho no longer took the point that Lin was a mere nominal plaintiff.

26.  Points about delay on the part of Kin Ming and Kho in taking out the application as well as enforcement of costs order in the Mainland, Mr Fung SC confirmed, were no longer pursued during this appeal.

27.  Mr Fung SC submitted that entering into the merits of the case would not be suitable for the present purpose either.  This must be right, particularly in view of the background summarised above and dispute that could only be resolved after the long trial ahead.

28.  The remaining difference between the parties really is whether Lin will be unable to meet an adverse costs order, if eventually made.

29.  Mr Fung SC submitted that Kin Ming and Kho fail to discharge their burden of establishing his client’s inability; and that it would not be just to order security.  Mr Fung SC asked me to consider the following circumstances:

(1)   Lin has satisfied previous costs order in HCA 2350/2005.

(2)   Lin has cash deposit in the bank in Hong Kong in the sum of about HK$3 million.

(3)   The bill of costs put forward by Kin Ming and Kho is excessive.

30.  That Lin has satisfied previous costs order in HCA 2350/2005 may suggest her lack of intention to default in meeting an adverse order.  However, in question is not whether her opponents can look to her with confidence that she would likely pay the costs.  The question is whether Lin has in the jurisdiction assets that her opponents can look to for the purpose of enforcing the costs order against her.

31.  Mr Neoh SC pointed out that the previous costs order in HCA 2350/2005 consequential upon the default judgment amounted to about HK$455,000.  The likely costs of her opponents in the present action, even according to the case of Lin in this appeal, would amount to millions.  The substantial difference in the quantum of costs may well affect how one consider the likelihood that Kin Ming and Kho, if successful after trial, would be able to pay such costs.

32.  Then Mr Fung SC argued that excessiveness and exaggeration discounted, the costs of Kin Ming and Kho should come down to an amount well covered by his client’s HK$3 million cash deposit in the bank.  He emphasized that the cash deposit is undisputed affidavit evidence and thus fact.

33.  In her affirmation, Lin stated in one sentence that she has such cash deposit in a bank account in Hong Kong without any details.  I do not understand Mr Neoh SC to be arguing that such statement is untrue.  Instead he argued that such deposit, even if true, does not suffice for the present purpose.

34.  Mr Neoh SC referred to Hoogland Hendricus Antonius v Gino L Lin & Anor, HCA 657/2007 (29 May 2008); and submitted that Lin as a foreign plaintiff needs to show that she has substantial asset within the jurisdiction, namely: the property must of a fixed and permanent nature, which can certainly be available for costs.  In the case cited, cash deposit in bank accounts in Hong Kong would not suffice.  Nor would residential properties.  See also HKCP 2013 at 23/3/6.

35.  I may not necessarily take the view that residential properties within the jurisdiction would not suffice as assets of fixed and permanent nature for the purpose of enforcement of costs order.  But cash deposit in bank certainly would not suffice, because of the ease in operating the account as and when the account holder desires in a place like Hong Kong.  There is just nothing in place that would ensure that the amount would still be there when the adverse order is enforced.

36.  Mr Fung SC emphasized that it is for the applying party to prove the foreign plaintiff’s inability to pay costs.  No doubt this is right.  But the applying party would not necessarily have knowledge about the financial and asset position of the foreign plaintiff within the jurisdiction.  In the ordinary course of events, the applying party should be entitled to security, if the foreign plaintiff adduces no or insufficient evidence of substantial assets within the jurisdiction to counter the contention that he or she does not appear to have the necessary means in Hong Kong.

37.  Mr Fung SC submitted that had Kin Ming and Kho requested, his client would have been prepared to give an undertaking not to remove the amount from the bank account.  Such indication, it appears to me, works against Lin.  That she would have no difficulty in either undertaking to maintain the amount in the bank account or coming up with cash as and when it is necessary to meet an adverse costs order suggests that it would not be unjust or prejudicial to order security. If the amount could be maintained, there is no reason why the same could not be paid into court, which will be normally maintained as bank deposit in the normal course of events.  As to whether the security will stifle her claim because of lack of financial resources or being too close to trial, there is simply no allegation or evidence of that sort.

38.  Considering all the circumstances, I find that this is a case where it is just to order security.

QUANTUM

39.  The bill of costs presented by Kin Ming and Kho is divided into the following parts:

(1) Part I (costs incurred for work done from January 2008 to November 2012 exceeding HK$8,100,000) comprising:

(a) Solicitors’ costs exceeding HK$3,800,000;

(b) Counsel fee exceeding HK$4,300,000;

(2) Part I (costs incurred from November 2012 and to be incurred up to trial in September 2014 exceeding HK$9,800,000) comprising:

(a) Solicitors’ costs exceeding HK$2,100,000;

(b) Counsel fee exceeding HK$7,700,000.

40.  The bill adds up to a total sum in excess of HK$17,900,000.

41.  According to the affirmation in support, the costs ordered in favour of Lin in previous proceedings were not included in the bill; and the same have been paid by Kin Ming.  After making provision for overlap between the action and the counterclaim as well as party and party taxation, it was suggested that security in the sum of HK$13,000,000 would be reasonable.  In court, Mr Neoh SC submitted that it should be no less than HK$8,000,000.

42.  Mr Fung SC asked the court to discount various items of the bill of costs that he described as excessive and illusory.  In this respect, he suggested that the assessment by the Registrar, who is of course experienced in taxation matters, may have reference value.

43.  Mr Neoh SC submitted that this is not a taxation exercise; and that the court should adopt a broad brush approach to decide the amount of security as it is just in the case.  He acknowledged that full security is never ordered.

44.  Both sides acknowledge the relevance of the overlap between the main action and the counterclaim but differ insofar as the extent is concerned.  Reference was made to the decision on the joinder of Kho mentioned above.  As I understand, DHCJ M Chan acknowledged that the counterclaim (for harassment causing general damage and economic loss) is not directly related to the issues in dispute in the main action.  Kho was nevertheless joined because firstly, the facts and the allegations in the counterclaim would be relevant to credibility (see §§17; 19); and secondly, whether Lin should be entitled to specific performance depends on, I believe the learned judge to be saying, the issue of ‘clean hands’ (see §20).

45.  Precision as to the extent of the overlap between the main action and the counterclaim, particularly in the light of how the overlap will manifest in terms of the work involved, and thus the incidental costs is simply impossible.  It is not called for, for the present purpose.

46.  Considering the bill, I can well understand why that, particularly the part regarding solicitors’ costs, raised the eyebrows of those acting and appearing for Lin.

47.  Bearing in mind all the features of the present case, and taking a broad brush approach, I would, with respect, differ from the conclusion of the Registrar in respect of quantum of the security.  I say an amount of HK$6,000,000 should be reasonable security for the costs of Kin Ming and Kho of the main action, including the 17-day trial.

ORDER

48.  I allow the appeal; and set aside the Order.  I make the following order instead:

(1) Lin do provide security for the costs of Kin Ming and Kho of the main action by payment into court of the sum of HK$6,000,000 within 21 days from the date hereof;

(2) Until the above security is provided, all further proceedings be stayed save and except that in default of compliance with (1) above, the main action do stand dismissed with costs without further application or order.

49.  As to costs, I make a nisi order that Lin shall pay to Kin Ming and Kho their costs of and occasioned by the application as well as this appeal.  In the absence of application to vary within 14 days, this costs order shall become absolute. Upon that, unless the parties agree otherwise, costs shall be summarily assessed by the court on paper; and for such purpose, Kin Ming and Kho shall then submit and serve their statement of costs within 7 days; and to which Lin shall submit her written comment within 7 days thereafter.

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 216 OF 2008

________________________

_______________________________

DECISION

_______________________________

THE APPLICATION

1. There are two summonses taken out by the defendants (“the Applicants”) in the main action (the plaintiffs in the Counterclaim) on 24 April 2013 as amended under the order made on 29 April 2013 for leave to apply for leave to adduce expert evidence at trial from:-

(1)  Mr Joel C. Autencio, Real Estate Appraiser, on the valuation of the Villarmor Golf Course Project; and

(2)  Dr Lee Wing Ho Peter, Clinical Psychologist, on the issue of the mental distress of Mr Jose Kho (2nd plaintiff by Counterclaim)

2. The Respondents are the plaintiffs in the main action and the defendants in the Counterclaim.

3. Mr. J. Chang, counsel acts for the Applicants and Mr. Fung, senior counsel and Ms. F. Lok, counsel act for the Respondents.

THE FACTUAL BACKGROUND

4. The parties had appeared before me in another interlocutory application where the Applicants applied for security for costs against the Respondents on 18 June 2013. I shall recite the brief factual background below.

5. In short, this is a case about a dispute between the parties over the development rights on a piece of land in Xiamen, PRC.  The central issue in the main action is whether an oral agreement exists alongside a written agreement.  It is a valuable piece of land for development of residential/ commercial units amounting to a total building area of 335,192.16 sq. m.  The 1st Respondent had paid RMB125 million as deposit, which was subsequently returned by the Applicants to the 1st Respondent for the reason that the written agreement had terminated, which the 1st Respondent disputes and argues that the written agreement still remains binding upon the Applicants.  This is the main issue in the main action for the trial.  However, the Applicants had, at one stage, raised the issue that the 1st Respondent and her husband, the 2nd Respondent, had employed third parties to threaten Mr. Jose Kho, the 2nd Applicant, which gave rise to the Applicants’ application for an injunction and their application to join Mr. Kho as the 2nd plaintiff in the Counterclaim.  Mr. Kho counterclaimed that because of the harassment, he had suffered mental distress, as a result of which he had lost business opportunities in the total sum of US$1,100 million^[1].  The expert evidence under the application refers to the Counterclaim only.

6. On 5 July 2012, DHCJ Mimmie Chan (as she then was) gave directions for the filing of pleadings (following the joinder of Mr Kho), directed a CMC to be held before a Master, and ordered that “no further interlocutory applications shall be brought without leave of the court”.  At the Case Management Conference hearing,I had raised whether medical evidence would be necessary for the mental distress issue in the Counterclaim, which the Applicants would take it, in support of their application today, as the court was indicating that medical evidence should be adduced.  This is obviously a wrong concept under the present civil litigation regime.  Unlike the civil litigation culture before the Civil Justice Reform where the court would take a laissez-faire approach, leaving the conduct of the proceedings to the respective parties, Order 1A of the RHC has imposed an obligation upon the court to actively manage the case.  Active case management under Order 1A rule 4(2) includes, inter alia, identifying the issues and giving directions to ensure that the trial of a case proceeds quickly and efficiently, rule 4(2)(b) and (l) respectively.  At the Case Management Conference, the court would always pay attention to the pleaded case and ensure the preparation has been done properly before leave is given to the plaintiff to set the case down for trial.  I raised the issue at the Case Management Conference in order to ensure that there would not be a last minute application for expert evidence before trial, which should not be taken as the Court was making any indication to any party. If the Applicants confirmed that they would not require expert evidence, this would be put on record, which will assist the court if the Applicants are to make the application shortly before trial.

7. The Applicants, after seeking senior counsel’s advice, had taken out the application by way of two summonses for leave to adduce the expert reports on the valuation of the golf course and the medical report compiled by Dr. Lee on Mr. Kho (collectively called “the expert reports”).  The Respondents opposed the application on a technical ground that the Applicants could not take out the application without leave from the Court as provided in the order dated 5 July 2012 made by Deputy Judge M. Chan (as she then was).  The Applicants therefore amended the summons to the effect that the application was for leave to apply for leave to adduce expert reports.

8. However, I consider that it will be costs and time saving if I can also deal with the issue whether leave should be given to the Applicants to adduce the expert reports in the same hearing.  The written submissions of the parties have also discussed whether leave should be given to the Applicants to adduce the expert reports.  Mr. Fung SC has no objection to this proposal.  Mr. Chang also agrees with me on this proposal.

9. Mr. Fung SC refers me to the chronology of proceedings to demonstrate that there had been a lot of interlocutory hearings for this matter. It appears obvious that Deputy Judge M. Chan (as she then was) was dissatisfied with the progress of the matter and therefore she made the directions that the parties had to obtain leave for any further interlocutory applications in her order dated 5 July 2012.

RESPONDENTS’ GROUNDS OF OBJECTION

10. The facts above set out the background of today’s application. I shall now set out the reasons of the Respondents’ objection as follows:

a.   expertise is not made out;

b.   they are unnecessary or irrelevant in that they are not helpful to the Court in resolving any issue justly but tends to prejudice the Respondents unjustly; and

c.    the Applicants are guilty of undue delay in bringing this application which causes prejudice to the Respondents that cannot be compensated by costs.[2]

THE LEGAL PRINCIPLES

11. The legal principles applicable to the application are as follows:

a.   The Court has the jurisdiction to rule on the admissibility of expert evidence at the pre-trial stage and where the proposed expert evidence is plainly inadmissible or irrelevant, the court ought to exercise its discretion to refuse the admission of such evidence.  But where the court cannot form a clear view on the relevance of the proposed expert evidence or where it considers that the proposed evidence is clearly relevant, then it should grant leave for the evidence to be adduced at the trial.  In deciding whether certain proposed expert evidence should be received, the relevant test has been stated to be a two-stage one.  Firstly, the evidence has to be admissible as “expert evidence” for the purpose of section 58 of the Evidence Ordinance, Cap. 8. Secondly, the evidence must be relevant, in the sense that it is helpful to the court in arriving at its decision on one or more of the issues to be resolved.  §§12 and 13 of Wong Hoi Fung v American International Assurance Company (Bermuda) Limited & Shrila Chan [2002] 3 HKLRD 507;

b.   The burden to show that the expert has sufficient familiarity and knowledge of the matter on which he gives his expertise is on the Applicants and that the court has the power to exclude the expert reports if they are irrelevant or not helpful for the resolution of the disputes justly. Re Ocean Time Development Ltd. [2008] 2 HKLRD 393 at paras. 13 to 16 by Barma J. at §§13-16 as proposed by Mr. Fung, SC;

c.    If the status of the expert is challenged, the court has the discretion to determine whether the expert evidence should be admissible. In Susan Field v. Barber Asia Limited HCA7119/2000 delivered on 17 June 2003, Deputy Judge Barma (as he then was) said at §17 “Although it is fair to say (and Mr Green readily accepted) that he had no experience of acting as a financial advisor to expatriates, or in Hong Kong, I do not consider that these limitations impinged significantly on Mr Green’s ability to express an opinion on what I consider, at the end of the day, to be reasonably straightforward matters of investment and financial advice.”

d.   Where there is a challenge on the expert’s qualification in giving his expert opinion, the issue should be left to the trial, in which counsel may cross-examine the expert.  At §27 of Citibank N.A. vNoble Treasure & Others HCA2639/2008 by Deputy Judge Au-Yeung (as she then was) on 23 December 2010 said: “In my view, the queries that Mr. Rogers have on the qualifications of Mr. Green are best left to be dealt with at the trial, when the plaintiff will be at liberty to cross-examine Mr. Green.  If the queries of Mr. Rogers are established, they go more to the weight to be attached to Mr. Green’s evidence than his suitability as an expert. The trial judge will also distinguish between opinion evidence on which he may be guided by the expert and evidence of facts which he alone can decide.”

DISCUSSION

12. We shall now proceed to consider the Respondents’ objections to the expert reports by reference to the above principles.

Paragraph 10(a): Expertise not made out

13. In respect of the valuation report for the golf course project, Mr. Fung SC challenges Mr. Autencio’s qualification as an expert in this field. He submits that Mr. Autencio had neither stated his qualifications nor made the declaration as an expert in compliance with Appendix D of Order 38 RHC in his first expert report, but only did so in the supplemental expert report, which was filed without court’s leave; that he had inflated the value of the golf courses project and that his expert report would therefore not be useful for the trial judge.[3]

14. Mr. Fung SC agrees that if leave is given to the Applicants to adduce Mr. Autencio’s supplemental expert report, those technical defects regarding the qualifications and the declaration can be rectified.  He has no objection that the supplemental expert report of Mr. Autencio should be dealt with in this hearing as well.  I am grateful for Mr. Fung’s sensible agreement, which will certainly save time and costs for the parties and the Court.  This kind of conduct complies with Order 1A rule 3 RHC, which calls for co-operation of the members of the legal profession to assist the Court in furthering the underlying objectives of the rules.

Paragraph 10(b): reports not helpful

15. As to the challenge to Mr. Autencio’s expertise and his expert report, the issues should be left to the trial judge for determination as according to Barma J. (as he then was) in Susan Field’s caseand Deputy Judge Au-Yeung (as she then was) in Citibank N.A.’s case mentioned above.

16. As to the medical report of Dr. Lee Wing Ho, Peter, Mr. Fung SC challenges his qualification more aggressively, citing the case of Cheung Yuen Fan Sallyv Hong Kong University of Science & Technology HCPI 106 & 107/2003 (unrep; 13^th March 2006) in which the court held: “Clinical psychologists are not normally medically qualified, and are referred to as “doctors” by virtue of their PhD degrees.  Therefore a non-medically qualified clinical psychologist’s report cannot be relevant or necessary in the circumstances.”[4]

17. Mr. Chang reminds me of the fact that the ruling of Master Kwan was on a Personal Injury’s case whereas this case is not on personal injury.  It is on the mental distress symptoms, which caused economic loss to the Applicants.  I agree that for the personal injury cases where liability will depend on the finding of facts leading to the accident, the expert report will normally not be of assistance except for some peculiar traffic accident cases where there were no witnesses at the scene to tell how the accidents took place and the courts had to rely upon expertise evidence to determine the time and the braking distance by reference to the brake-marks of the vehicles.  For the present Counterclaim, the Applicants have pleaded that because of the harassments caused by the Respondents, Mr. Kho had suffered from mental distress symptoms, which caused the economic loss to him.  Whether Mr. Kho has suffered from such mental distress symptoms will be a matter of fact to be found by the trial judge.  The question is whether Dr. Lee’s expert report will assist the trial judge to make the finding of the facts. On the face of it, the causation of mental distress symptoms and the degree of the influence will be examined at the trial.  The trial judge will require some sort of expert opinions on these issues.

18. Mr. Fung SC complains that Dr. Lee’s tests were not objective tests and he had admitted self-serving statements from Mr. Kho for his report; that he has given opinion on the credibility of Mr. Kho, thereby usurping the court’s function and to admit his expert report would cause more time and costs to be wasted for the trial.^[5]

19. Mr. Fung SC has helpfully taken me through some salient paragraphs of the expert report of Dr. Lee to demonstrate his complaints.  The complaints go to the suitability of Dr. Lee as the expert on the mental distress of Mr. Kho for the reason that he was not the expert Mr. Kho had consulted when he suffered from the alleged mental distress symptoms, the methodology of his tests and the quality of his expert report, all of which will require examination of the contents of the expert report and cross-examination of Dr. Lee himself by counsel, which should be left to the trial judge as according to the cases mentioned above.

20. Mr. Fung SC does not say that expert evidence on the valuation of the golf course project and on the mental distress as alleged by Mr. Kho is not necessary.  All he complains is that the expert reports are not helpful for the court.  On the other hand, the Applicants argue that the expert reports are relevant to the issues pleaded in the Counterclaim and the expert reports are useful to assist the court for the trial.  If no leave is given to the Applicants to adduce the expert reports for the trial, it appears to me that the Applicants will only have two options, viz., either to proceed to trial without expert evidence in support of their Counterclaim, in which event the trial judge will not be assisted at all for the determination of the issues in dispute and the Applicants may fail in their counterclaim or the Applicants will have to prepare other expert reports in place of the existing expert reports.

21. In the circumstances, I have doubt that the expert reports and the supplemental expert report on the golf course project are irrelevant to the issues in the Counterclaim and that to allow them to be adduced in the trial will waste costs and time.  If leave is given to the Applicants to adduce the expert reports for the trial, the trial judge certainly has the power to consider what weight should be given to the expert reports.  He or she may even give no weight to the expert reports or simply reject them outright after hearing the evidence and cross-examination of the experts by counsel.  In accordance with Wong Hoi Fung’s decision, on these grounds of objection, the Court should give leave to the Applicants to adduce the expert reports for the trial.  I am bound by this decision.

Paragraph 10(c): delay

22. Finally, Mr. Fung SC relies upon the Applicants’ delay in taking out the application.  The fact that the Applicants have not taken out the application in compliance with the Order dated 5 July 2012 cannot be denied.  Where the Court has the discretion to allow or refuse the application of adducing expert evidence, which is crucial for the trial, the Court has to exercise its discretion judiciously as guided by the established authorities in order to maintain consistency in the administration of justice.  It is trite law that the Court has to take into consideration of all the circumstances relating to the issues before exercising its discretion.  Ultimately, in the final analysis, the Court has to ask itself whether it is just to exercise the discretion, which he or she has to exercise.  This approach is adamantly and clearly stated in the authorities.  In the judgment of Lord Denning in Aeronave SPA v Westland Charters [1971] 3 All ER 531 at 533 where the discussion was whether there was inflexible rule that security for costs order should be made against a foreign plaintiff.  The learned judge took the view that there was not and he said “It is the usual practice of the courts to make a foreign plaintiff give security for costs.  But it does so, as a matter of discretion, because it is just to do so. (emphasis added) …” In the Judgment of the Court of Final Appeal in The Liquidator of Wing Fai Construction Company Limited (in Compulsory Liquidation) v. Yip Kwong Robert & Others (2011) 14 HKCFAR935, the Court of Final Appeal was discussing the exercising of the Court’s discretion on striking out of the cases for breaches of the rules.  At §34 of the judgment, the Chief Justice said:

‘Rules do not exist for the sake of compliance with them as an end in itself; they exist for the purpose of ensuring that disputes before the courts are justly resolved. It does not, however, provide any excuse for parties or their legal representatives not to comply with the Rules or orders made by the court, nor does it relieve them of this duty under O.1A r.3. The emphasis must be placed on the word “just”.’

23. As submitted by Mr. Chang, the trial has been scheduled to commence in September 2014, about one year from today.  There is still reasonable time for the Respondents to prepare expert evidence in response to the expert reports adduced by the Applicants.  As disclosed today, the Respondents have already obtained Professor Lieh Mak’s expert report in response to the Applicant’s medical report.[6] It seems that the Respondents are not taken by surprise that the Applicants would adduce expert evidence.  As I have observed in the previous hearing of security for costs on 18 June 2013, on the issue of the quantum for the security, Mr. Fung SC submitted that there would be two expert witnesses for the Counterclaim. See paragraph 21 of the Decision dated 18 June 2013.

24. Mr. Fung SC has not stated why the delay cannot be compensated by costs in his written submissions.

25. Mr. Fung SC submits that to allow the expert reports to be adduced as evidence at trial, the estimated length of the trial may be affected.  Mr. Chang refers me to the 4th Listing Questionnaires in which Senior Counsel acting for the Applicants had indicated that there would be expert evidence at the trial.  He takes the view that the expert reports will not affect the estimated length of the trial.  As there is still about one year from the trial, I do not consider this factor plays an important role in my determination of the issues today.

CONCLUSION

26. Balancing all the circumstances, I consider that it is just for leave to be given to the Applicants to apply for expert evidence for the Counterclaim and further that leave should be given to the Applicants to adduce the expert report and the supplemental expert report of Mr. Autencio and the expert report of Dr. Lee Wing Ho, Peter at the trial.  I shall now consider what consequential directions should be given to the Respondents to prepare the expert evidence in response to the Applicants’ expert reports.

27. By consent, the Respondents are at liberty to serve the expert reports in response to Mr. Autencio’s expert report and supplemental expert report and Dr. Lee’s medical report within 3 months from the date hereof and the Applicants may then be at liberty to serve their expert reports in reply within one month thereafter.  There shall be liberty to apply for further directions on the availability of Mr. Kho for medical examination.

COSTS

28. On the question of costs for this application, including the hearing today, Mr. Chang submits that there should be two sets of costs, one being the costs up to 3 June 2013 (including the costs for the call-over hearing on 29 April 2013 with counsel certificate), which should be given to the Respondents and the costs for the substantive hearing today (with counsel’s certificate) be given to the Applicants.  Mr. Fung asks for costs for this application on the ground that the Applicants are asking for indulgence.  Alternatively, the costs should be in the cause.  Mr. Fung further submits that the application is for leave to apply for leave to adduce the expert evidence.  The Court has proposed that both leave to have leave and the leave to adduce the expert evidence should be dealt with together. This may cast some strength to his argument that the costs should be in the cause.  Mr. Chang argues that since the Respondents had argued both applications, viz. leave to apply for leave and the leave to adduce expert evidence, and the Court has ruled in favour of the Applicants, the costs should be given to the Applicants.  Costs are matters of the court’s discretion under Order 62 rule 5 of RHC and the Court should take into consideration of the factors as stated therein.  This Court should take into consideration that the Applicants have not complied with Deputy Chan’ order dated 5 July 2012 to take out the application and that the application is only for leave to apply for leave to adduce expert evidence.  The Respondents had suggested to allow the Applicants to adduce the expert report of Mr. Autencio, subject to the conditions that no admission was to be made to the contents and the costs.  However, such negotiation did not come to a fruitful conclusion.  Today’s arguments on the issues have disposed of all the issues on the expert evidence for the trial and on the whole, I have to say that the rulings today are in favour of the Applicants.  There is no reason why they should not have the costs for the arguments today.  I therefore order that the costs up to 3 June 2013 be to the Respondents, as conceded by Mr. Chang and the costs for today’s hearing, (with counsel’s certificate) be to the Applicants; such costs are to be assessed under Order 62 rule 9A RHC by the Applicants lodging and serving the schedule of costs within 7 days from the date hereof, followed by the Respondents’ lists of objection within 7 days thereafter.  The parties will be advised whether the assessment will be made summarily on paper or there should be a hearing for assessment on such time and date to be informed.  The parties should endeavour to settle the costs themselves without a hearing.

29. The Court makes an order in terms as follows:

a.   Leave be given to the Applicants to apply for leave and further that leave be given to the Applicants to adduce the expert reports as provided under paragraph 26;

b.   In terms of paragraph 27 on further directions; and

c.   Costs in terms of paragraph 28.

Mr. Patrick Fung S.C. and Ms. Frances Lok, instructed by Jesse H.Y.  Kwok & Co., for the plaintiff (in main action) and the defendants (by counterclaim)

Mr. Jonathan Chang, instructed by Simon Si & Co., for the defendants (in main action) and the plaintiffs (by counterclaim)

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 216 OF 2008

BETWEEN

_______________________________

_______________________________

DECISION

_______________________________

The application

1.  This is the application for security for costs under RHC Order 23 rule 1 by the defendants in the Main Action on the ground that the plaintiff Lam Moon Yuen (also known as Lin Man Yuan) is:

(i) ordinarily resident out of the jurisdiction; and/or 

(ii) the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of Xiamen Fuman Holdings Ltd (廈門福滿集團有限公司) (“Fu Man”) and there is reason to believe that she will be unable to pay the costs of the defendants if ordered to do so;

(iii) and the circumstances  are such that the Court should exercise its discretion to make such an order.[1]

2.  Miss B. Wong, counsel acts for the defendants and Mr. Fung, senior counsel and Miss F. Lok counsel act for the plaintiff.

Factual background

3.  In short, this is a case about a dispute between the parties over the development rights on a piece of land in Xiamen, PRC.  The central issue in this case is whether an oral agreement exists alongside a written agreement.[2]  It is a valuable piece of land for development of residential / commercial units amounting to a total building area of 335,192.16 sq. m.  The plaintiff had paid RMB125 million as deposit, which was subsequently returned by the defendants to the plaintiff for the reason that the written agreement had terminated, which the plaintiff disputes and argues that the written agreement still remains binding upon the defendant.  This is the main issue for the trial.  However, apart from the interlocutory applications in these proceedings between the parties, the defendants had, at one stage raised the issue that the plaintiff and her husband, the 2^nd defendant in the counterclaim, had employed third parties to threaten Mr. Jose Kho, the 2^nd defendant in the main action, which gave rise to the defendants’ application for an injunction and their application to join Mr. Kho as the 2^nd plaintiff in the counterclaim.  All these are only side issues, which are, in my view, having no direct bearing on the present application, a statutory provision for a specific purpose at the discretion of the court.

The law

4.  Order 23 rule 1 provides:

“(1) Where, on the application of a defendant to an action or other proceeding in the Court of First Instance, it appears to the Court -

(a) that the plaintiff is ordinarily resident out of the jurisdiction, or

(b) that the plaintiff (not being a plaintiff who is suing in a representative capacity) is a nominal plaintiff who is suing for the benefit of some other person and that there is reason to believe that he will be unable to pay the costs of the defendant if ordered to do so, or

(c) subject to paragraph (2), that the plaintiff's address is not stated in the writ or other originating process or is incorrectly stated therein, or

(d) that the plaintiff has changed his address during the course of the proceedings with a view to evading the consequences of the litigation, then if, having regard to all the circumstances of the case, the Court thinks it just to do so, it may order the plaintiff to give such security for the defendant's costs of the action or other proceeding as it thinks just.

(2) The Court shall not require a plaintiff to give security by reason only of paragraph (1)(c) if he satisfies the Court that the failure to state his address or the misstatement thereof was made innocently and without intention to deceive.

(3) The references in the foregoing paragraphs to a plaintiff and a defendant shall be construed as references to the person (howsoever described on the record) who is in the position of plaintiff or defendant, as the case may be, in the proceeding in question, including a proceeding on a counterclaim.

5.  For this application to succeed, the defendants have to show:

a. The plaintiff is ordinarily resident out of the jurisdiction or she is a nominal plaintiff who is suing for the benefit of some other person; or

b. The plaintiff has changed her address during the course of the proceedings with intention of evading the consequences of the litigation; and

c. The plaintiff will be unable to pay the costs of the defendants if ordered to do so; and

d. In the circumstances, the court considers that it is just and fair to make an order that the plaintiff should give the security for the defendants’ costs.

Discussion

6.  This morning, Mr. Fung has confirmed to me that the emphasis of his argument will be on the quantum of the defendants’ costs.  However, Mr. Fung submits that he will also rely upon his argument of delay and enforcement of the costs order, if granted by the court in favour of the defendants.

7.  Mr. Fung agrees that it is not necessary to consider the merit of the plaintiff’s case for this application.[3] The plaintiff’s grounds of objection are:

a. Madam Lin is not a nominal plaintiff.

b. The Defendants have failed to prove that the Plaintiff is unable to pay costs.

c. On the contrary, the Plaintiff has assets within the jurisdiction for costs.

d. The application is made very late, way after all the facts on which the application is based became known to the Defendants, without any explanation, and causes prejudice to the Plaintiff.

e. The amount of security sought (to the tune of HK$17.9 million) is exaggerated, excessive, illusory and oppressive.

8.  Mr. Fung submits that it is trite law that a nominal plaintiff under RHC Ord. 23, r.1(1)(b) means a plaintiff suing for the benefit of some other person, and has no interest in the action.  A nominal plaintiff is “nothing but a puppet for some third party, a mere shadow, in the sense that he has parted with any right he may have had in the subject matter”: Andrews v Caltex Oil (Aust) Pty Ltd (1982) 40 ALR 305.[4]

9.  Mr. Fung submits that the plaintiff owes 38.17% of the shareholding of Fu Man, which carries on property investment in China.[5]

10.  Miss Wong’s reply to the above argument is that the plaintiff was the agent of Fu Man.

11.  It seems that the plaintiff is not a nominal plaintiff.

12.  However, Mr. Fung does not dispute that the plaintiff is ordinarily resident outside the jurisdiction.[6]  He argues that the defendants are unable to show that the plaintiff is unable to pay the costs.  It is not disputed that she has $3 million cash available for costs.  The defendants’ argument is that the 3 million is not sufficient to meet their costs if the court orders her to pay their costs.

13.  This will bring the argument on the quantum of costs for the defendants for the proceedings, including trial. Mr. Fung has also raised the issue of delay in the defendants’ application.  He relies on BBMB Finance (Hong Kong) Ltd v. China Underwriters Life and General Insurance Co. Ltd (In Liquidation) & Anor [1991] 1 HKLR 617, 626G-627C, 627J-628E that it is incumbent upon the defendants to explain the delay.  He refers to A Co. v. K Ltd [1987] 1 WLR 1655, 1657 and approved by the Court of Appeal in the BBMB Finance case at 628, that the delay amounts to very real prejudice and indeed, potential injustice.  This issue of delay was also considered in Wing Fai Construction Limited (in liquidation) v. Cheng Kit Yin Kelly & Others CACV249/2010, Le Pichon JA, 3 March 2011, where the learned Justice of Appeal said:

“6. I agree that applications for security for costs must be made promptly but in exercising its discretion, the court is to have regard to all relevant circumstances. In the present case, the plaintiff could not have been taken by surprise given the earlier written request... The fact that there has been delay in making the application is a relevant and important consideration but it is not necessarily conclusive or dispositive.”

14.  Given the intervening contested interlocutory applications between the parties, this application for security for costs should not give the plaintiff any surprise.  BBMBFinance case concerned about the liquidator distributing the company’s assets to the creditors, which is not an issue in this case.  Having considered the relevant factors, and there being no prejudice to the plaintiff, I shall not give too much weight to this factor of delay in the circumstances.

15.  The remaining issue for consideration is whether the defendants are able to show that the plaintiff will be unable to pay the costs if ordered to do so, which concerns with the quantum of costs for the defence. However, before the discussion on this issue, Mr. Fung has raised the issue of enforcement of the costs order under Cap. 597 for the reciprocal enforcement of judgments between Mainland China and Hong Kong to support his argument that security for costs should not be provided for. I shall therefore discuss this issue below before coming to the quantum of the defendants’ costs.

16.  Mr. Fung submits that the rationale or objective underlying Ord. 23, r.1(1)(a) is to alleviate the difficulty that may be faced by a successful defendant in seeking to recover costs against a foreign plaintiff.  Importantly, there has already been put in place a well-designed mechanism under Cap. 597 for the reciprocal enforcement of judgments between Mainland China and Hong Kong.  This may be true. However, there is no authority to support that, given all other factors in support of the application are satisfied, an order for security for costs should not be granted.  This factor alone, though may be one of the factors for consideration, should not, in my view, be conclusive or dispositive, to borrow Madam Justice Le Pichon’s words in Wing Fai Construction Limited (in liquidation) v. Cheng Kit Yin Kelly & Others CACV249/2010, supra.  See also the discussion on the court’s approach on weight that should be given to enforcement of the costs order at §§52-55 of Lim Yi Shenn v Wong Yuen Yee [2012]3 HKLRD 505by Recorder H. Wong SC, in which the learned Recorder discussed the approach as recommended by HH Judge Lok in the case of  Izumo Mokko Co Ltd v TS Lines Ltd [2007] 2 HKLRD 363 that the court should focus its attention on the issue of enforcement of the costs order in determining whether an order for security for costs should be imposed, reference having been made to the UK case Nasser v United Bank of Kuwait [2002] 1 WLR 1868, taking into account of the human rights issue of access to court.  The learned Recorder refused to adopt HH Judge Lok’s approach and decided that the conventional approach, without taking the human rights issue into account, should be adopted.  The learned Recorder, however, recognized that enforcement of the court order should be one of the factors for the court’s consideration for its determination whether an order for security for costs should be made.

17.  The Court of Appeal in Montgomery Ward & Co Incorporated v Evergo Trading Company Limited and Evergo Holdings Company Limited, unreported, CACV 32/1996, 31 May 1996, where Nazareth VP held (paragraph 8):

‘Given that there are no proper factors weighing in favour of the foreign plaintiff or at least either way, it seems to me that [the judge 's] discretion plainly had to be exercised in conformity with the position set out in the judgment of Lord Denning in AeronaveSPA v Westland Charters [1971] 3 All ER 531 at 533 where he said this:

"I agree with the note in the Supreme Court Practice that the rule does give a discretion to the court.  In 1984 in Crozai v Brogden Lopes J said that there was an inflexible rule that if a foreigner sued he should give security for costs.  But that is putting it too high.  It is the usual practice of the courts to make a foreign plaintiff give security for costs.  But it does so, as a matter of discretion, because it is just to do so.  After all, if the defendant succeeds and gets an order for his costs, it is not right that he should have to go to a foreign country to enforce the order." (emphasis added). Parker LJ observed in the case of Berkeley Administration Inc v McClelland [1990] 2 QB 407 at 418F: "....... it is, I accept, common for orders to be made on little if anything more than fact of residence outside the jurisdiction, but this is because it is also commonly the case that it is obvious from the pleadings that enforcement of any judgment for costs in the event of the plaintiff's action being dismissed would be difficult and costly to enforce.

18.  On balance, following the above authorities, the issue of enforcement of the costs order should not be given much weight.  After all, the fact that the costs order will have to be enforced in the Mainland does not alleviate the difficulty in the defendants’ enforcement of the costs order.

19.  We shall now focus on the quantum.

20.  Mr. Fung submits that even if the plaintiff were to be responsible for the defendants’ costs, the defendants’ skeleton bill with an estimated amount of $17.9 million is excessive and oppressive.[7]  He has pointed out in his written submissions the exaggerated costs charged by the solicitors for the consideration of the consent summons, the senior counsel’s drafting of pleadings, which he had to spent another 10 hours at his rate of $4,000 per hour, which is obviously unnecessary in the circumstances etc.  Miss Wong seems to have raised no substantive argument over the criticisms raised by Mr. Fung, except that for some of the time for consideration by the senior partner, the time should be minutes instead of hours.  She confirms that the total amount of $17.9 million was calculated on the basis of hours instead of minutes.

21.  Apart from the skeleton bill, Mr. Fung also argues that the defendants’ counterclaim is a separate issue unrelated to the main issue in the main action, although Miss Wong argues that there will be common issue of credibility of the factual witnesses.  On this issue, I tend to agree with Mr. Fung. According to Miss Wong, there will be three factual witnesses and two expert witnesses for the counterclaim alone.  In fact, the court has found that the plaintiff had appointed agents to assist her in the mediation.  There should not be very much factual dispute over this issue.  The most vigorous contest will be over the expert evidence.  The defendants’ counterclaim amounts to 1,600 million US dollars against the plaintiff.  Mr. Fung submits, which I believe to be true, that both liability and quantum of the counterclaim will be hotly contested.  This will lead his argument over the length of the trial for the counterclaim, which he estimates to be not less than half of the whole length of the trial of 17 days.  Miss Wong argues that it will only take 4 days.

22.  Having taken into account of the amount involved and the number of witnesses, both factual (3 for the defendants and 2 for the plaintiffs) and expert witness (2 from each side) for the counterclaim vis-à-vis the factual witnesses for the main trial with 2 for the plaintiffs and 8 for the defendants, I agree with Mr. Fung that at least half of the trial will have to go to the counterclaim.

23.  Mr. Fung submits that assuming that half of the trial will be for the counterclaim, the defendants’ costs for the main action as per the skeleton bill will be $8.9 million.  With the reduction of the inflated items and duplications of the works done as set out in the skeleton bill, the estimated amount should be $4.45 million.  The court should take a broad brush approach and, taking into account of the possibility of settlement without a trial or shortening of the trial, there will be a reduction of at least 30%, the net amount being roughly $3.1 million.  I agree.  Taking a broad-brush approach of the estimated costs for security, I am prepared to adopt $3 million, less the costs of this application, which will be awarded to the plaintiff as will be dealt with below.

24.  It is not in dispute that the plaintiff has $3 million cash deposited in the bank available for the costs of the defendants’, if so ordered by the court. There is no evidence to show that the plaintiff will remove the cash outside the jurisdiction.

25.  Under those circumstances, I find that the defendants have failed to show that the plaintiff will be unable to pay the defendants’ costs, if so ordered by the court under Order 23 rule 1(b) and their application for an order for security for costs fails.

26.  As to the costs of this application, including the costs reserved, Miss Wong does not argue that they should follow the event.  Mr. Fung asks for two counsel’s certificate, which Miss Wong disputes.  I have been referred to their schedules of costs and Mr. Fung says that the defendants have also instructed senior counsel, who is not here today. He also refers to 62/App/48 of the White Book 2013 on the factors that the court should consider certificate for counsel, in particular, that the matter is important to client and the amount involved is huge.  I have considered these factors. In my view, this application is not of the complexity that requires two counsel for argument.  I am only prepared to allow one counsel for the argument.  Taking a broad-brush approach for summary assessment under Order 62 rule 9B RHC, the costs for the application, including the costs reserved and for today’s hearing, are $140,000.00, which is to be paid by the defendants to the plaintiff within 14 days from the date hereof.

27.  I shall make an order in terms as follows:

a. The defendants’ application be dismissed; and

b. Costs of this application be as per paragraph 26 of this Decision.

(K.W. Lung) Registrar, High Court

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 216 OF 2008

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D E C I S I O N

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1. The hearing before me relates to an application made by the defendant in the main action (“Kin Ming”) for leave to join Jose Kho (“Kho”) as the proposed 2^nd plaintiff by counterclaim and to amend the counterclaim which was filed in these proceedings on 26 October 2010. Koh is a director of Kin Ming. The application is opposed by the plaintiff in the main action (“Lin”), who seeks to have the main action and the counterclaim to be separately tried.

2. Put briefly, the main action concerns a dispute between Lin and Kin Ming over an agreement made between them on 16 April 2004 for co-operation in the development of a part of the land in Xiamen (“Property”), over which Kin Ming (or its subsidiary) had been granted the development rights by the Xiamen government. A sum of RMB 130 million was paid by Lin to Kin Ming under the Agreement to develop the part of the Property identified in the proceedings as “Lot A4”. As a result of changes in the land planning of the Xiamen government, Kin Ming did not ultimately obtain the development rights to Lot A4 as envisaged under the Agreement, but Kin Ming was instead granted the development rights over other lots within the boundary of the original Property (“Replacement Lot”). The main issue between the parties in the main action is whether or not the Agreement extended to the Replacement Lot.

3. The counterclaim which was filed by Kin Ming in October 2010 relates to the alleged harassment and intimidation made by one Tsoi Chun Yu and Hung Kwok Wai, who were claimed to be agents authorized by Lin under powers of attorney signed by her. The harassment and threats of intimidation were claimed to have been made against Kho from July 2010 to October 2010, to exert pressure on Kin Ming to settle the dispute in the main action with Lin. By way of counterclaim, Kin Ming seeks an injunction to restrain Lin and her husband, Huang Ruifu (“Huang”), named as 2^nd defendant by counterclaim, from intimidating, threatening and annoying Kin Ming’s directors, officers and employees or their family members, and unquantified damages.

4. The application to amend the counterclaim and to join Kho as 2^nd plaintiff by counterclaim was made in January and May 2012. The initial summons to amend was issued shortly before the case management conference scheduled for 26 January 2012.

5. It should be highlighted at the outstart that all the claims of alleged harassment and intimidation were included in the counterclaim filed in October 2010. The defence to counterclaim was filed on 28 December 2010. The alleged acts of harassment and intimidation were dealt with in the Corrective Affirmation of Kho dated 25 October 2010, the witness statement of Kho dated 12 October 2011, the 4^th affirmation of Lin dated 26 October 2010 and the witness statements of Lin and Huang dated 28 September 2011. The proposed amended counterclaim repeats factual matters already set out in Kho’s statement and affirmation, and pleads the basis of a claim for exemplary or aggravated damages.

6. The proposed amendment of the counterclaim and the joinder of Kho is made under Order 15 rule 6 and Order 20 rules 5 and 8, RHC. Order 15 rule 6 (2) (b), which is relied upon by Kho, permits the joinder as a party to an action:

“(i)   any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or

(ii)  any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.”

7. The application for joinder is opposed by Lin, on the basis that Order 15 rule 2 only permits “a defendant in any action” to make a counterclaim against a plaintiff, and that notwithstanding Order 15 rule 6, the court has no jurisdiction under Order 15 rule 3 to permit a person, not already a party to the main action, to be joined as co-plaintiff with a defendant in the latter’s counterclaim (Pender v Taddei [1898] 1 QB 798).

8. Order 15 rule 3 provides as follows:

“(1) Where a defendant to an action who makes a counterclaim against the plaintiff alleges that any other person (whether or not a party to the action) is liable to him along with the plaintiff in respect of the subject matter of the counterclaim, or claims against such other person any relief relating to or connected with the original subject matter of the action, then, subject to rule 5 (2), he may join that other person as a party against whom the counterclaim is made.”

9. In Pender, the defendant sought to join a new party, Mr Bellani, as a defendant by counterclaim, although he had in fact a joint cause of action with Mr Bellani against the plaintiff. The English Court of Appeal held that the rules did not admit such a counterclaim. In his judgment, Smith LJ referred to the then Order 21 rule 11 of the English rules, which is equivalent to our Order 15 rule 3, and observed thus:

“It is clear that the defendant is not really raising any question between himself and the plaintiffs along with any other persons; he is raising a question between himself along with another person and the plaintiffs. He seeks to put Bellani in the position of defendant when he ought to be in the position of co-plaintiff with himself in the counterclaim. I do not think the defendant can do indirectly what the rules do not appear to enable him to do directly.”

10. Chitty LJ agreed with the views expressed by Smith LJ on Order 21 rule 11 :

“The words of the rule can only be construed as referring to cases where the defendant raises by counterclaim questions between himself and the plaintiff along with other persons, and not as including a case where the defendant raises questions between himself along with other persons and the plaintiff. …If the rules do not give the defendant power to counterclaim jointly with another person against the plaintiff directly, then, counterclaim being entirely the creature of the Judicature Act, I do not think he can be allowed to do the same thing indirectly in the manner proposed.”

11. Leading counsel for Kin Ming relies on the decision of Deputy High Court Judge Carlson in Mimi Kar Kee Wong Hung v Severn Villa Ltd & Ors HCMP 522/2011 24 October 2011, when leave was granted by the court for the joinder of a new party to make cross-claims against existing parties to the action, to avoid the necessity for separate proceedings to be instituted. Paragraph 15/6/1 of the Hong Kong Civil Procedure was referred to, and relied upon by counsel for Kin Ming in this case:

“ …these are all provisions designed to save rather than to destroy, to cure that which is capable of cure… This rule prevents an action being defeated by the misjoinder or nonjoinder of parties, and it provides for any necessary amendment in respect of the parties to an action being made at any stage of the proceedings… This rule should be construed so as to bring the parties to the disputes relating to one subject matter before the court at the same time so that the disputes may be determined without the delay, inconvenience and expense of separate actions and trials. Under it the court has power to secure the determination of all disputes relating to the same subject matter, without delay and the expense of separate actions.”

12. Counsel for Kin Ming also relies on Montgomery v Foy, Morgan & Co [1895] 2 QB 321, to support the proposition that where there is one subject matter out of which several disputes arise, the object of the Judicature Acts is that all parties may be brought before the court, so that the disputes may be determined at the same time without the expense and delay of several actions and trials. It was further argued that since Pender v Taddei, the courts have adopted a more liberal approach to the joinder of parties, as illustrated in the decisions in Guntner v Circuit (1968) 2 QB 587, Balkanbank v Taher & Others 14 April 1975, Times Transcript, Umm Qarn Management Co Ltd v Bunting & Another, All England Official Transcripts, Lexis Nexis High Court of Justice 10 October 2000 and Hodgson v Amcor 9420 of 2004, 2010 VSC 204.

13. Leading counsel for Lin points out that all the cases relied upon by Kin Ming are distinguishable on their special facts. It was also emphasized that Montgomery v Foy, Morgan & Co, and Guntner v Circuit  all deal with joinder of defendants in an action, and not with the joinder of a party as a plaintiff by counterclaim. The party allowed to be joined in the counterclaim in Balkanbank v Taher & Others was also joined as a defendant in the main action.

14. In this case, Kin Ming claims by its original counterclaim that Lin is liable to Kin Ming in respect of the alleged harassment, and it is not alleged by the proposed amended counterclaim that Kho, the party to be joined, is liable to Kin Ming along with Lin. Nor does Kin Ming claim against Kho any relief relating to the alleged harassment. The proposed joinder does not fall within the language of Order 15 rule 3.

15. However, I agree that the joinder of parties envisaged and permitted by Order 15 rule 6 should be given a liberal application, particularly in the aftermath of the Civil Justice Reform. This is also consistent with the objective set out in s 16 of the High Court Ordinance, which provides that in administering law and equity in any civil cause or matter before it, the Court shall exercise its jurisdiction so as to ensure that, as far as possible, all matters in dispute between the parties are completely and finally determined, and all multiplicity of legal proceedings with respect to any of those matters is avoided.

16. In Balkanbank v Taher & Others 14 April 1975, Times Transcript, All England Official Transcripts, Lexis Nexis High Court of Justice 10 October 2000, Clark J did not follow the decision of Pender v Taddei, but granted leave to the defendants under Order 15 rule 6 (2) (b) (ii) to add their subsidiaries as defendants in the action, to enable the subsidiaries to advance a counterclaim. The learned judge did not consider the decision of the Court of Appeal in Pender v Taddei to be binding on him as a decision on the construction of Order 15 rule 6, despite the fact that there was a reference to the order in argument. Clark J considered that sub-paragraph (ii) of Order 15 rule 6 should be given its ordinary and natural meaning, and that a joinder of a party should be permitted so long as it can be shown that: (a) there exists a question or issue between the party to be joined and a party to the cause or matter; that question or issue arises out of or relates to or is connected with other relief or remedy claimed in the course or matter ; and (b) it would be just and convenient to determine that question or issue as between the parties to be joined and that party as well as between the parties to the cause or matter.

17. Although it is true that the claims of harassment which are made by Kin Ming & Kho in the counterclaim are not, strictly, related directly to the issues of the dispute in the main action, on the construction of the Agreement and whether the Agreement was subject to the terms orally agreed, the facts and allegations made in the counterclaim would affect the credibility of Lin, Huang and Kho - the key witnesses in the trial of the main action.

18. As the English court in Umm Qarn Management Co Ltd v Bunting & Another (All England Official Transcripts, Lexis Nexis High Court of Justice 10 October 2000) had observed, the resolution of all the issues capable of arising in the proceedings will involve consideration of the credibility of the protagonists, and that cannot be satisfactorily assessed without an investigation of all the disputes. The trial judge’s assessment of a witness’s credibility will have an impact on his resolution of the issues to be tried. The court accordingly granted leave to the defendant in the main action to add new parties both as claimant and defendant to the counterclaim.

19. Counsel for Kin Ming has emphasized that Lin’s credibility is essential to the court’s determination of her claim on the terms orally agreed on 16 April 2004 as part of the Agreement. It was argued that the evidence on the counterclaim shows that Lin and Huang lied in many material respects, that the credibility of Lin and Huang are issues which exist between Kho and Lin, and that the facts in the counterclaim relate to the matters in the main action, to justify a joinder under Order 15 rule 6.

20. I would say that the counterclaim is not only relevant to the question of whether Lin and Huang should be believed in the evidence on the issues and subject matter of the main action, but is related to the essential question of whether Lin is entitled to the relief which she seeks as plaintiff in the main action. According to paragraph (5) of the prayer in her Re-Amended Statement of Claim, Lin seeks an order for specific performance of the oral agreement, and/or specific performance of clause 7.1 of the written agreement, for development of the Replacement Lot. Specific performance is an equitable remedy granted at the discretion of the court. If the counterclaim is proved, that Lin had authorized and instructed agents to intimidate and harass Kho and members of his family in order to exert pressure on Kin Ming and its directors to develop the Property with Lin, the court may not be ready to grant specific performance to Lin, even if her claims under the Agreement are established.

21. I consider that it is necessary to allow the joinder of Kho as a party in this action, to enable him to raise the amended counterclaim against Lin and Huang and to enable the court to completely and effectively determine all matters in dispute between all the parties.

22. Counsel for Lin sought to distinguish the decision made in Umm Qarn Management Co Ltd by virtue of the different language used in CPR Part 19, rule 19.2 (2), which permits the court to order a person to be added as a new party if it is “desirable” to do so. Under Order 15 rule 6 of our rules, an order may be made on such terms as the court thinks just,for the joinder of a person “who ought to have been joined”, or whose presence before the court is “necessary” to ensure the effectual determination of the matters in dispute (rule 6(2)(b)(i)), or if in the opinion of the court it would be just and convenient to determine the question or issue within the criteria of rule 6(2)(b)(ii). To the extent that Order 15 rule 6 imposes a stricter test, I am satisfied that it is just and convenient to join Kho as a necessary party.

23. Provided that the court considers that the presence of a third party is necessary to ensure that all matters in dispute are effectively dealt with, the court may add the third party, of its own motion under Order 15 rule 6 (2) (b), even though there is no cause of action against that party (para 15/6/6, p 299 Hong Kong Civil Procedure 2012), or no claim is made against him (per Kempster, JA in Hong Leong Investment Co Ltd v The Tai Ping Insurance Co Ltd CACV 27/1991, 20 June 1991). Ultimately, the question is whether the court should exercise its discretion to grant the order, having regard to the prejudice to the parties, the stage the action has reached when the order was sought, the delay in making the application, and any delay that may be caused should an order be made.

24. The underlying objectives of the Rules of the High Court (“RHC”) are to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court, to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings, to facilitate the settlement of disputes and to ensure that the resources of the Court are distributed fairly. Order 1A rule 2 expressly states that the Court shall seek to give effect to these underlying objectives when it exercises any of its powers (whether under its inherent jurisdiction or given to it by the rules or otherwise), or when it interprets any of the rules of RHC.

25. If the joinder of Kho is not permitted, Kho will have to institute separate proceedings against Lin, and may seek consolidation of those proceedings with this action. The existence, conduct and subject matter of these proceedings will form the essential background of the claims in the separate proceedings of the harassment and intimidation alleged to have taken place.

26. Even if Kho’s joinder and the amendment of the counterclaim is not allowed, Lin and Huang will be extensively cross-examined at the trial of this action on the alleged harassment of Kho, and on the agreement which is claimed to have been made between a company owned by Lin and Huang (“XFHIL”) and an agent involved in the alleged harassment (“Agency Agreement”). Under the Agency Agreement which was signed by Huang, XFHIL agreed to engage the agent to cause Kin Ming to continue to perform or honour its Agreement with Lin, and to transfer a part of the Property to XFHIL, in consideration of XFHIL’s payment to the agent of a substantial fee of RMB 60 million.

27. If separate proceedings had to be commenced by Kho against Lin and Huang, there will inevitably be references made in the pleadings and evidence to the Agreement for the development of Lot A4, the history and conduct of these proceedings, and similarly, cross-examination of the witnesses on the Agreement, on the facts and circumstances of the alleged harassment and intimidation by Lin’s agents, and on the existence of the Agency Agreement.

28. The joinder proposed will avoid a multiplicity of proceedings, and duplication in time, costs and resources of the court and the parties.

29. It is true that there has been delay in bringing the parties’ dispute to trial, bearing in mind that the Agreement was made in April 2004. Having reviewed the history of the matter, it would appear that both sides had a role to play in protracting the resolution of the dispute, from the time when proceedings were first instituted by Kin Ming in Hong Kong in 2005, to Lin’s institution of legal proceedings in China in October 2006, to her institution of these proceedings in February 2008 to seek the court’s determination of the dispute concerning the effect of the Agreement, and whether it should extend to the Replacement Lot.

30. After some interlocutory skirmishes which led to these proceedings being delayed until May 2010, the counterclaim was filed in October 2010 and the first case management conference was held on 4 April 2011, when directions were given and the next case management conference was fixed for hearing on 26 January 2012. Witness statements were ordered to be filed in the interim. The Master also directed on 4 April 2011 that all interlocutory proceedings be issued within 74 days of the exchange of witness statements. Those acting for Kin Ming stressed that the application for amendment of the counterclaim was made within the time-table set by the Master on 4 April 2011.

31. It was always Kin Ming’s case that the threats and harassment by Lin’s agents were directed against Kho. The matters contained in the proposed amended counterclaim have been dealt with in the witness statements. I fail to see how Lin can be surprised by the proposed amendments to the counterclaim. Counsel for Kin Ming and Kho has confirmed that no further witness statements will have to be filed on their side. In her 4th affirmation of 26 October 2010 and her witness statement of 28 September 2011, Lin already dealt with the allegations made by Kho in his affirmations of 25 October 2010 and 12 November 2010, in relation to the Agency Agreement.

32. Hence, despite the fact that the proposed joinder and amendment of the counterclaim will cause some inevitable delay for the amendment of the defence to counterclaim and/or the filing of supplemental statements by Lin, at this stage of the proceedings when the parties are still at case management hearings, I cannot see any prejudice being caused to Lin by the amendment, which cannot be compensated by costs. Overall, bearing in mind the evidence so far filed, I consider that more time and costs would be saved in the long run, by allowing the proposed joinder and the amendments, so that all the necessary parties can be brought before the court for the full and effective determination of all their disputes at the same time, by the same court and the same legal team considering all the related issues in one go, instead of separating but duplicating the agony.

33. For all the above reasons and to achieve the purposes set out in paragraphs 28 and 32 above, I will order Kho to be joined as 2^nd defendant in the main action, to enable him to make the counterclaim as 2^nd plaintiff by counterclaim.

34. I will grant leave for the filing of the amended counterclaim. However, despite the claims of harassment having been made as early as October 2010 when the original counterclaim was filed, no particulars have ever been furnished of the damage allegedly sustained by Kin Ming as a result. The amended counterclaim is similarly lacking in such particulars of Kin Ming’s and Kho’s damage. Accordingly, I will order that unless Kin Ming and Kho file and serve by 30 June 2012 full particulars of their damage sustained as a result of the pleaded harassment, the amended counterclaim will be struck out.

Orders

35. I allow Kin Ming’s summons of 14 May 2012, with the further order that Kho be joined as 2nd defendant in the main action, with costs to Lin. I dismiss Lin’s summons of 20 January 2012, with costs to Kin Ming. The 2 earlier summonses of Kin Ming of 11 January and 16 January 2012 are dismissed, with costs to Lin. All orders for costs will include certificate for counsel.

36. As indicated at the hearing on 6 June 2012, the parties will make submissions on paper as to the further directions to be made as a result of my orders on the summonses before me. If the parties cannot agree on such directions, Lin should file such submissions within 14 days of the handing down of this Decision, and Kin Ming and Kho should file their submissions within 7 days thereafter.

Mr Patrick Fung SC and Miss Frances Lok, instructed by Jesse H Y Kwok & Co, for plaintiff (in main action) and defendants (by counterclaim)

Mr Anthony Neoh SC and Miss Barbara Wong, instructed by Simon Si & Co, for defendant (in main action) and plaintiff and intended 2^nd plaintiff (by counterclaim)

HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 216 OF 2008

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BETWEEN

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HCA 216/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 216 OF 2008

____________

BETWEEN

____________

_____________

D E C I S I O N

_____________

1.   The defendant applies to strike out the plaintiff’s claim. The plaintiff applies to amend her statement of claim. Both summonses are being contested.

2.   The subject matter in this action has been referred to in my judgment in HCA 2350/2005 (“HCA 2350”) given on 27 January 2006. That was a judgment in default of notice of intention to defend. The defendant there did not appear at all. The defendant there is the plaintiff here and the plaintiff there is the defendant here. For convenience, I refer to the plaintiff here as Madam Lin and the defendant as Kin Ming.

3.   In the application to strike out, I am provided with more facts than in HCA 2350. The dispute is on the meaning and effect of an agreement made between the parties on 16 April 2004 (“the Agreement”). Before referring to the Agreement, I would refer to the history of the matter.

BACKGROUND

4.   By an “Agreement for the Grant of State-Owned Land of Xiamen Municipal with Consideration” of ref. (98) Xia Land Contract No. (Public Contract) No. 001 and dated 9 May 1998 (“the 1998 Grant”), the Xiamen Municipal Lands Property Management Authority (“Xiamen Lands Authority “) assigned to one Cheong Ming International Investments Limited, a Hong Kong company (“Cheong Ming Intl”), the land use rights of a piece of waterfront land of about 8.8 million m² at a place called Pupianqu. A fugitive Lai Cheong Sing, who is currently staying in Canada and fighting extradition proceedings, was the legal representative of Cheong Ming Intl.

5.   The 1998 Grant was amended by a supplemental agreement dated 14 October 1998 whereby the grantee was changed to Xiamen Cheong Ming Construction Development Limited (“Xiamen Cheong Ming”). The supplemental agreement also spelt out the exact area of the lot at 872,757.273 m² (“the Land”) and the consideration payable to the Government for the development right at RMB261,827,181.90 (or RMB300 per m² as stipulated in the 1998 Grant). Before making the supplemental agreement, the Xiamen Municipal Planning Authority (“Planning Authority”) had already granted Xiamen Cheong Ming a licence for construction site planning no. 98D253 and dated 28 August 1998. The licence permitted Xiamen Cheong Ming to plan the construction on the Land a comprehensive development of commercial building called “the Strait City”.

6.   On 29 September 1998, the Xaiman Municipal People’s Government (“Xaiman Government”) also wrote to Xiamen Cheong Ming under reference Xia Government [1998] Land No. 392 agreeing to assign the Land to it. The letter also spelt out the different tenure for different accommodation to be built on the Land. The letter also advised Xaiman Cheong Ming that it had to submit a construction plan to the Planning Authority for approval and to obtain a licence for construction planning. The licence had in fact been granted on 28 August 1998 as referred to in the last paragraph.

7.   There was then a further supplemental agreement dated 26 July 1999 which changed the grantee to two entities namely Xiamen Cheong Ming and one Kin Ming (Xiamen) Properties Company Limited (“Xiamen KM”) with each owning 50% of the land use rights of the Land. The Land was rectangular in shape. It was divided into four smaller lots named A1, A2, A3 and A4. Lots A3 and A4 bordered the sea and A1 and A2 were at the back. The land use rights over lots A1 and A4, which were positioned diagonally to each other, were allocated to Xiamen KM and the rights over lots A2 and A3 were allocated to Xiamen Cheong Ming.

8.   On 21 July 1999, the Xiamen Lands Authority granted Xiamen KM a Xiamen Land and Property Certificate of reference Land No. 00000396 to develop lot A4. The area of lot A4 was also specified in the certificate at 209,493.10 m². The user was stated to be for integrated development of commercial housing (商品房). It also set forth the length of tenure for different types of accommodation to be built on the lot. The Xiamen Government later confiscated the rights of Xiamen Cheong Ming over lots A2 and A3 possibly because of the company’s connection with the fugitive Lai Cheong Sing.

9.   Xiamen KM is a subsidiary of Kin Ming. On 16 April 2004, Kin Ming entered into the Agreement with Madam Lin. By the Agreement, Kin Ming sold the development rights of Xiamen KM over lot A4 to Madam Lin for RMB495 million. The Agreement stated that the useable surface area of lot A4 was 209,495.16 square metres which permitted a total building area of 335,192.16 square metres at a plot ratio of 1.6. The terms of the Agreement that have been referred to by the parties and those that are relevant to the arguments and their certified translations are:

「合同內容條款

甲、乙雙方經過友好協商，就甲方全資擁有的建明（廈門）房地產有限公司名下“海峽城”A4地塊的合作開發事直（以下簡稱：合作項目）達成本合同，具體內容條款如下：

一．陳述與保證

甲方基於最大誠信，陳述與本合作項目有關的基本事實如下：

…

二．土地合作條件及金額

2-1 建明（廈門）公司於1999年7月23日經廈門市人民政府批准（廈府 [1999] 地186號），依法取得址在廈門市前埔會展中心‘海峽城‘商品房（A4地塊）用地，宗地四至：東至昌明公司用地，西至池塘，南至昌明公司用地，北至池塘。用地面積209495.10平方米，總建築面積為335192.16平方米，容積率1.6。該項目用地現狀：尚未辦理征用補償、填土及‘七通一平’。

2-2 雙方確認合作項目的最高包乾合作金人民幣四億九任伍佰萬元整（其中包扣土地綜合配套費、土地稅），如因政府規劃部門而最終批准的總建築面積低於335192.16平方米。每減少一平方米則從乙方應付的合作款項中扣減人民幣1500元正。除比之外，合作項目的一切盈虧均由乙方自行承擔，與甲方無關。

三．付款條件

具體付款時間及金額如下：

3-1 2004年4月20日前支付人民幣500萬元定金。

3-2 2004年4月30日前支付人民幣壹億元整（含定金），但甲方應將該筆款項優先用於支付合作項目的土地綜合配套費及與合作項目的直接有關費用。

3-3 待甲方取得廈門市房管局的繳交土地綜合配套費通知書時。即於2004年6月30日前支付人民幣伍仟萬元整，7月30日前支付人民幣伍仟萬元整，如甲方未在6月30日前取得房管局繳交地價通知書，則付款時間相應順期後延。

3-4 …

3-5 甲方將合作項目繳足地價款後的土地使用權証，移交給乙方後的90天內，支付一億元人民幣，150天內再支付一億元人民幣。

3-6 餘款待合作項目，取得售樓許可證後90天內付清。

四．合作方式

…

4-9 雙方同意合作項目的方案、設計、施工、產品定位、策劃、銷售等所有一切工作均由乙方負責，開發建設所需的全部資金亦由乙方負責投入，但合作項目的土地綜合費配套費，土地稅由甲方負責繳納。

五．雙方的其他權利及義務

5-1 甲方責任

a. 甲方負責本合作項目，所要求的政府開發建設的文件，負責繳納土地配套費及土地稅。…

d. 甲方予本合同書簽定後，必須繼續無條件配合乙方對項目的開發建設。…

5-2 乙方責任

a. 乙方負責本合同書簽定後項目開發建設所需的一切資金及營業稅費。

b. 乙方負責本合同簽定後以甲方名下建明（廈門）房地產有限公司之名義負責項目開發建設所需的一切事宜（細節再列明）。

c. 乙方在國家法律允許的範圍內，可根據市場需求向有關部門申請對地塊的現有規劃做出調整。甲方應予積極配合。相應的法律後果由乙方自行承擔。如果因此補交的費用亦由乙方自行負責。

六．爭議的解決

6-1 本合同履行過程中產生的與本合同有關的一切爭議，雙方應協商解決。協商不成，任何一方有權將爭議在香港特別行政區法院提出訴訟。

6-2 如甲方未能於2004年6月30日前在努力向廈門市政府相關部門，取得此項目繳交地價款之通知書，甲方需於2004年6月30日後十五個工作天內退還乙方已付之一‍億元人民幣。本協議的效力因而中止，乙方的董事委任亦應撒銷，若甲方不能如期退還該款項，乙方有權追討依照香港高等法院之判決欠款利率為準則計算利息。

七．其他約定

7-1 甲方退還乙方款項後二年內，如甲方能取得上述項目之合法開發權，甲方必須按與乙方原先訂立此合同條約與乙方重新合作。（但已收甲方利息應全額退還）

7-2 甲方若再獲取合作項目開發權時，應書面通知乙方重新合作，但乙方須於收到甲方通知書後的15天內，應作出決定，否則視為放棄重新與甲方合作。

…

八．合同未盡事宜及合同修改補充應由雙方協商後，另行簽定書面補充合同。補充合同為本合同之有效組成部分，具有同等法律效力。」

“Terms of the Contract

Party A and Party B after friendly negotiation regarding matters of the co-operation in the development of A4 plot of the ‘Strait City’ under the name of Kin Ming (Xiamen) Properties Company Limited, a wholly owned subsidiary of Party A, (referred to below as the cooperation project for short) reach the present agreement. The specific contents of the clauses/terms are as follows:

1 Statements and Warranties

Party A, based on its utmost good faith, states the fundamental facts related to this cooperation project as follows:

…

2. Land Corporation Condition and Amount of Money

2.1 Upon the approval of the Xiamen People’s Government on 23^rd July 1999 (Xia Municipal [1999] Land No. 186), Kin Ming (Xiamen) Properties Company Limited lawfully obtained the land for the use of commercial and/or residential building situated at ‘Strait City’ (A4 plot), Qian Pu Convention Centre, Xiamen.

Boundaries on the four directions: East till the land belonging to Chang Ming company; West till the pond; South till the land belonging to Chang Ming company; North till the pond. Surface area of land covers 209,495.10 m². Total building area is 335,192.16 m². Plot ratio is 1.6. The present status of the project land: requisition compensation procedure has not been done; filling process has not been done; ‘the seven supplies and one smoothness’: the connection of water, electricity, road, mail, telephone, heat, gas or natural gas has not been done, and the land has not been levelled.

2.2 Both parties confirm that for the cooperation project the maximum all inclusive cooperation amount is RMB495 million (including deduction of the Fees for the Integrated Ancillary Facilities on the Land, land tax). If because of the planning department of the government (the) approved total floor area is below 335,192.16 m² , then for each square metre less, RMB1,500 is deducted from the amount of cooperation money that Party B is obliged to pay. Apart from this, all profits and losses of the co-operation project are borne by Party B alone and have nothing to do with Party A.

3. Condition/terms for Payment

Specific time and amount of payment of money are as follows:

3.1 RMB5 million deposit is to be paid before 20^th April 2004;

3.2 RMB100 million (including deposit) is to be paid before 30^th April 2004 but Party A should first apply this money to pay the Fees for the Integrated Ancillary Facilities on the Land for the cooperation project and other expenses directly related to the cooperation project.

3.3 When Party A obtains notice to pay the Fees for the Integrated Ancillary Facilities on the Land issued by the Xiamen Housing Administrative Bureau, namely before 30^th June 2004, pay RMB50 million, before 30^th July 2004, pay RMB50 million. If Party A does not obtain notice to pay land price issued by the Housing Administrative Bureau before 30^th June 2004, then the time to pay money is accordingly postponed.

…

3.5 Within 90 days after Party A has transferred to Party B certificate of the right to use the land after land price of the cooperation project was paid in full, RMB100 million is to be paid, another RMB100,000,000 is to be paid within 150 days thereafter.

3.6 The remaining amount shall await the co-operation project, is to be settled within 90 days after the licence permitting sale is obtained.

4. Mode of Cooperation

…

4.9 Both parties agree that the proposal, design, construction, positioning of product, planning and sale, etc. and all works of the co-operation project are the responsibility of Party B; all the funds necessary for the development and construction are also responsible by Party B to inject in but the Fees for the Integrated Ancillary Facilities on the Land and land tax of the cooperation project are paid by Party A.

5. Other Rights and Obligations of both of the Parties

5.1 Responsibilities of Party A

a. Party A is responsible for this co-operation project, the required documents of the government development and construction, and is responsible to pay the Fees for the Integrated Ancillary Facilities on the Land and land tax.

…

d. After the present contract is signed, Party A should continue to unconditionally coordinate with Party B in the development and construction of the project.

…

5.2 Responsibilities of Party B

a. Party B is responsible for all the funds and business taxes needed for the development and construction of the project after the present contract is signed.

b. Party B is, after the present contract is signed, responsible for all affairs needed for the development and construction of the project under the name of Kin Ming (Xiamen) Properties Company Limited owned by Party A (particulars to be itemized).

c. Within the purviews permitted by the laws of the State, party B can according to the need of the market apply to the relevant departments to adjust the present layout plans of the plot. Party A should afford active accommodation. The corresponding legal consequences are borne by Party B alone. If extra expenses are needed to be paid as a result, Party B alone should also be responsible for them.

6. Dispute Resolution

6.1 All disputes which arise during the execution of this contract and related to this Contract, shall be resolved by both parties by negotiation and consultation. If the negotiation and consultation fails, either party is entitled to litigate the dispute in the courts of the Hong Kong Special Administrative Region.

6.2 If Party A fails to after making all endeavours obtain the notice to pay land fees of this project from the relevant departments of the Xiamen Municipal Government before 30^th June 2004, Party A should return the RMB100 million that has been paid by Party B within 15 working days after 30^th June 2004. The validity of this contract would as a result be terminated, the appointments of Party B as directors should also be revoked. If Party A cannot return the said funds on time, Party B is entitled to recover interests calculated according to the judgment rate of the High Court of Hong Kong.

7. Other Provisions

7.1 Within two years after Party A has returned Party B her funds, if Party A is in a position to obtain the right to develop the aforesaid project legally, Party A must co-operate with Party B again according to the terms of this contract originally agreed. (but all interest received from party A should be returned in full)

7.2 When Party A obtains the right to develop the co-operation project again, it should notify Party B in writing to co-operate again, but Party B shall within 15 days after receiving the written notice from Party A make a decision, otherwise she is deemed to have given up to co-operate with Party A again.

8. Any thing/matters which has not been completely dealt with/fully covered in this contract and any amendment and addition/supplement to this contract should, after negotiation by both parties, be put in a written supplemental contract to be signed. A supplemental contract will form/forms a part of this contract and will have the same legal effect.” (Certified Translation)

10.   It is clear from clause 6.2 of the Agreement that if the Xiamen Government should issue the notice to pay land fees on or before 30 June 2004, Kin Ming would receive from Madam Lin RMB495 million by stages and had to pay the fees for the integrated ancillary facilities on the Land and the land tax. The land tax was at RMB300 m². Save the RMB495, Kin Ming and Xiamen KM would not derive any the profit or loss from the development and would have no say on how the development should take place. The development would however be carried out in the name of Xiamen KM with all the costs and risks to be borne by Madam Lin. Xiamen KM would only act as the façade for Madam Lin as the land use rights were granted to it. It would also have to do all the things necessary to facilitate Madam Lin’s work in carrying out the development. Indeed, Mr Neoh, leading counsel for Kin Ming, agreed in the course of argument that Kin Ming was holding the development rights (through Xiamen KM) for the benefit of Madam Lin. Kin Ming or Xiamen KM would not be exposed to any risk in the development of lot A4.

11.   30 June 2004 came and went, but no notice for payment was issued by the Xiamen Government. Kin Ming then tried to repay the money to Madam Lin but Madam Lin refused to accept it. Kin Ming then brought HCA 2350. Madam Lin did not take part in it. Upon Kin Ming’s application for default judgment, I on 27 January 2006 declared in HCA 2350 as follows:

“(1) The agreement dated 16 April 2004, signed between the plaintiff and the defendant is terminated but without prejudice to its possible revival pursuant to clause 7.1 therein.

(2) Subject to paragraph 1 above, both the plaintiff and the defendant are hereby discharged from further performance of the said agreement dated 16 April 2004.”

Madam Lin does not dispute my declarations.

12.   The Xiamen Government did not issue the notice on 30 June 2004 probably because it had changed the intended land use of lot A4. It did not want lot A4 to be developed by Xiamen KM. It wanted to change the land use planning for the Land. In fact, when Kin Ming and Madam Lin entered into the Agreement, they were aware of the possibility of change of planning for Lot A4 by the Xiamen Government. Kin Ming had pleaded to this and a collateral agreement arising therefrom in the statement of claim of HCA 2350 as follows:

“11. Prior to entering into the Agreement, the defendant had conducted her own due diligence in relation to the planning status of Lot A4 for the “海峽城” project, as a result of which she became aware or ought to have become aware of the well known fact that the future planning of Lot A4 was likely to be changed to one principally based on public facilities and accordingly, it may not be possible to proceed with the development of the project on the basis of the original planning as stated in the Planning Permission No. 98D253 referred to in clause 1 – 4 of the Agreement.

12. The Agreement was therefore entered into on the basis of a collateral oral agreement contemporaneous with the Agreement that both the Plaintiff and Defendant would attempt to lobby the Municipal Government to ensure that the future planning status of Lot A4 would revert back to that stated in the Planning Permission No. 98D253. However, in case that could not be achieved, Clause 6.2 of the Agreement was intended to allow the parties to end the Agreement.”

13.   On 16 July 2004, the Deputy Mayor, the Supervisor and the Deputy Secretary of the Xiamen Government had a meeting with Kin Ming’s director and general manager, Mr Hsu Ming Chi (“Mr Hsu”) and its deputy general manager, Ms Wong. They discussed the problem of re-arranging land to Xiamen KM for development. Subsequently, a memorandum dated 21 July 2004 (“the 21 July 2004 memorandum”) was prepared and signed by the representatives of the parties. The 21 July 2004 memorandum recorded an agreement between the parties that the part of the Land for development by Xiamen KM would be adjusted and the adjusted land would remain within the Land but in another part of it. After the adjustment, the user, the land surface area and the building area for construction would remain as before. The infrastructure and public facility within Kin Ming’s land should be constructed by Kin Ming in accordance with the original agreement.

14.   Xiamen KM later submitted a report to the Government on the coordination of the use of land in Strait City. Kin Ming has not produced this report in this application. The Government replied on 26 July 2004 and said, among other things, that it agreed with Xiamen KM’s request for land exchange within the Land (“the 26 July 2004 letter”). The 26 July 2004 letter further said that the user, surface area and building area would remain as before, the construction of the public ancillary facilities within Xiamen KM’s plot would remain the responsibility of Kin Ming as in the original agreement.

15.   After some nine months and despite the 21 July 2004 memorandum and the 26 July 2004 letter, Kin Ming suddenly wrote to the Xiamen Government on 3 May 2005 saying that it had learnt of the Government’s plan to re-arrange the use of lots A1 and A4. It further said that it had already signed contracts with a related company to co-develop these lots. It therefore requested the Xiamen Government to allow it to develop the lots according to the original approved plan.

16.   The Xiamen Government replied to Xiamen KM on 30 May 2005 and stated that the lots of Xiamen KM had to be adjusted according to planning requirement. The overall design of the project after adjustment should meet the planning requirement of the district and that the Planning Authority would decide the specific planning directions. After adjustment, Xiamen KM’s project of commercial housing should have overall planning and integrated development, and should not be divided. The Xiamen Government also said that according to the relevant law and regulation, it did not recognize the contract that Xiamen KM had entered into with relevant departments.

17.   The Xiamen Government then issued a document of reference no. 05186 setting out the principle for adjusting the lots of Xiamen KM. The adjusted lot should be within the original Strait City. On 13 July 2005, the Xiamen Municipal Land Development Head Company (“the Land Development Company”) (a representative of the Xiamen Government) and Xiamen KM and entered into an agreement pursuant to document no. 05186. Under this agreement, Xiamen KM had to submit to the Land Development Company “an Opinion on the Choice of Construction Site” which would set out the boundary of the lot it would like to have by way of adjustment of its lots. The Land Development Company would in accordance with the area for the readjustment as set out in the Opinion carry out resumption and then assign the same to Xiamen KM per the Opinion. Kin Ming has not produced the Opinion of Xiamen KM in this application.

18.   From a letter of the Xaiman Government and dated 16 June 2006, it appeared that Xiamen KM and one Lianfa Group Company (“Lianfa Group”) had on 30 May 2006 jointly submitted to the Authority various planning proposals with details for the re-grant of development rights with the Land. The proposals have also not been produced in this application.

19.   On 15 September 2006, the Xiamen Government granted to Xiamen KM and Lianfa Group another “Agreement for the Grant of State-Owned Land of Xiamen Municipal with Consideration” of reference (2006) Xia Land Contract (Contract) 036 (“the 2006 Grant”). The 2006 Grant was for exchange with Xiamen KM of its development rights over lots A1 and A4 for new development rights. It granted Xiamen KM development rights over a new lot within the Land. This new lot covered the bulk of the original lot A1, the whole of the original lot A2 and about one quarter of the original lot A4 but not any part that bordered the sea. Its area is bigger than that of lot A4 but smaller than the total area of lots A1 and A4. The 2006 Grant provided that this new lot is adjustment land and no land fee would be payable for it while the land fee paid for lots A1 and A4 would not be refunded. It was a re-grant in exchange for lots A1 and A4.

THIS ACTION

20.   In this action, Madam Lin relied on clause 7.1 of the Agreement for its revival. She also pleaded in the statement of claim that the Agreement was partly oral (“the oral part”) and partly written. She set out the oral part in paragraph 8(g) of the statement of claim as follows:

“(g) Within two years after the Defendant had returned to the Plaintiff the said funds, if Kin Ming (Xiamen) was in a position to obtain again the Development Rights over the Land, whether on the portion of the Land identified as Lot A4, or on any other portion thereon (the ‘re-granted lot or lots’), the Defendant must co-operate with the Plaintiff to develop the same by building commercial and/or residential units thereon to the extent of the Total Building Area in accordance with the terms of the Agreement.”

21.   She also pleaded in paragraph 10 that under the factual matrix of the transaction, the expression of “lot A4” in the Agreement meant and was understood and/or intended by the parties to mean any portion of the Land covering a building area commensurate with the total building area over which Xiamen KM possessed the development rights which portion included any re-granted lot or lots.

22.   She then pleaded in paragraph 12 that by virtue of the Agreement, with or without the oral part, Kin Ming owed her fiduciary and/or contractual duties. The duties include the obligation to notify her when Kin Ming or Xiamen KM obtained or re-obtained or in a position to re-obtain the rights to develop the Land or lot A4 or any re-granted lot or lots notwithstanding termination pursuant to clause 6.2 of the Agreement and not to make secret profit directly or indirectly.

23.   She also pleaded that prior to or in around July 2994, Kin Ming already knew that the Xiamen Government would exchange with Xiamen KM lot A4 for another lot from within the Land. She relied on the 21 July 2004 memorandum that recorded an agreement between the Xiamen Government and Kin Ming that the part of the Land for development by Xiamen KM would be adjusted and the adjusted lot would remain within the Land but in another part of it.

24.   She then referred to the 2006 Grant and the fact that there was no settlement of land fees between the re-granted lot and the original lots A1 and A4. She therefore pleaded that Kin Ming had through Xiamen KM obtained the rights to develop commercial housing of at least 335,192.16 square metres over the re-granted lot and the rights were obtained within two years from the return of the funds that she had paid Kin Ming.

25.   She claims that Kin Ming has, in breach of its duties to her, failed to notify her about the re-grant of development rights over the re-granted lot under the 2006 Grant and failed to co-operate with her to develop the re-granted lot pursuant to clause 7.1 of the Agreement and/or the oral part pleaded in paragraph 8(g) of the statement of claim.

26.   By reason of the foregoing, she claims a declaration that the Agreement has revived pursuant to clause 7.1 of the Agreement and/or the oral part. She further claims a decree of specific performance that she and Kin Ming should develop commercial housing on the re-granted lot for building area of no less than 335,192.16 square metres in accordance with the 2006 Grant and the Agreement. She also claims an account of the development rights and damages from Kin Ming.

27.   She now wants to add b y way of amendment that Kin Ming was and is her partner or agent and hence owes her the said fiduciary and/or contractual duties. These duties also include the duty not to receive any secret profit or personal benefit in circumstances where a conflict or significant possibility of conflict existed between its fiduciary duties to Madam Lin and its own interest in the pursuit of profit or benefit. The duties also prevent Kin Ming from receiving such interest and benefit by reason of its fiduciary position or knowledge resulting from such position.

28.   She also wants to add that the Xiamen Government had by the 26 July 2004 letter agreed with Xiamen KM’s request for land exchange within the Land. The user, surface area and building area would remain as before. Therefore, Kin Ming through Xiamen KM had received or obtained a right to a new grant by the Xiamen Government of a lot within the Land (which later became the 2006 Grant) under which Xiamen KM would possess or come to possess the development rights to develop commercial housing on the lot amounting to at least 335,192.16 square metres.

29.   She also wants to add a relief of a declaration that Kin Ming is holding its entitlement and/or interest in the re-granted lot by itself or through Xiamen KM as a constructive trustee for her.

EVIDENCE ADDUCED IN THE APPLICATION TO STRIKE OUT

30.   Kin Ming has applied to strike out Madam Lin’s claim on the grounds that it is scandalous, frivolous and vexatious or it is otherwise an abuse of process. It also relies on the inherent jurisdiction of this court. It later also added the ground that the statement of claim does not disclose any reasonable cause of action.

31.   Mr Hsu made an affirmation in support of the application. He referred to HCA 2350 and my judgment of 27 January 2006. He then referred to the efforts made to serve the judgment on Madam Lin and to refund the RMB130 million to her. Eventually, Madam Lin’s solicitors appeared in June 2006 and represented her to finalize the taxation of costs in that action.

32.   Madam Lin then instituted proceedings in the People’s High Court of Fujian (“the Fujian Court”) against Kin Ming for its breach of the Agreement. Kin Ming defended the action by arguing that the matter sued on by Madam Lin had been determined by this court of the HKSAR.

33.   The Fujian Court held that the dispute between Madam Lin and Kin Ming had been determined in HCA 2350. It took the view that Madam Lin’s claim before that court which was to seek performance by Kin Ming and Xiamen KM of the Agreement was a re-litigation of the same matter. The Fujian Court therefore accepted Kin Ming’s argument on jurisdiction and dismissed Madam Lin’s action.

34.   Madam Lin then appealed to the People’s Highest Court in Beijing. The Peoples’ Highest Court held that the dispute between the parties had been adjudicated by this court of the HKSAR pursuant to the parties’ agreement on jurisdiction. To avoid jurisdictional conflict between the Mainland’s courts and the courts of the HKSAR, the Peoples’ Highest Court did not regard it improper for the Fujian Court to dismiss Madam Lin’s claim. Her appeal from the Fujian Court was thus dismissed by the Peoples’ Highest Court.

35.   Mr Hsu then referred to this action and said that Madam Lin had never raised her allegation of the oral part in the Mainland proceedings. He also submitted that its existence was inherently improbable. Madam Lin also did not apply to set aside my judgment in HCA 2350. He then submitted that I had already determined the issue in this action conclusively in HCA 2350. He said there should be finality in litigation and this action should not be allowed to proceed. He emphasised that Madam Lin had not applied to set aside my default judgment in HCA 2350 and in fact had taken part in the taxation of costs therein. He said it would be manifestly unfair to Kin Ming for this action to go on.

36.   Madam Lin made an affirmation to oppose the application. She said neither the Fujian Court nor the Peoples’ Highest Court in Beijing had dealt with the merits of her Mainland action. It was dismissed for want of jurisdiction.

37.   She referred to the Agreement and said that although the Xiamen Government did not issue the notice of payment on 30 June 2004, Kin Ming in fact did not repay her the RMB100 million within 15 working days thereafter. It was because Kin Ming already knew that the Xiamen Government would exchange lot A4 into another lot from within the Land. She relied on the 21 July 2004 memorandum and 26 July 2004 letter. Hence, she said that the Agreement after termination was revived as it was certain that Kin Ming through Xiamen KM would come to possess the right to develop certain lot within the Land. She further said that if the oral part of the Agreement did not exist, Kin Ming should have returned the RMB100 million to her within 15 working days after 30 June 2004. But Mr Hsu instead asked her to advance Kin Ming a further RMB30 million as Kin Ming was in urgent need of money. She paid Kin Ming this sum on 17 August 2004. The payment was made one month after 16 July when Kin Ming learnt from the Xiamen Government of its intention to effect exchange of lots within the Land. She therefore said that the payment was evidence in support of the fact that the Agreement was revived and remained ongoing after the town planning change. Kin Ming only refused to co-operate with her when she declined Kin Ming’s demand made on about 30 June 2005 for more money on top of the RMB495 million.

38.   She further said that she was not seeking to re-litigate in this action the question of termination of the Agreement which was decided in HCA 2350. She is seeking in this action to sue Kin Ming for breaches under the Agreement as revived. In other words, she is not challenging my judgment in HCA 2350. She is bringing this action pursuant to it. It is thus unnecessary to set it aside. She also said that she did not collect the refund of payment by Kin Ming because the Agreement was revived and is ongoing.

39.   Mr Hsu filed a second affirmation. He referred to the submissions by the parties in the Mainland proceedings and repeated that the oral part as now alleged by Madam Lin was never raised therein.

40.   Regarding the payment of the RMB30 million, he said Madam Lin paid that money after knowing of the Xiamen Government’s decision not to allow the development of lot A4. But Madam Lin insisted that they should try to overturn the Government’s decision. That proved to be impossible after their having tried for a year. Thereafter Kin Ming tried to return the RMB130 million to Madam Lin but she refused to accept it.

41.   I find Mr Hsu’s explanation a bit strange. Even if Madam Lin did not want to accept the Xiamen Government’s decision not to allow development of lot A4, it did not mean that she had to pay Kin Ming another RMB30 million. The Agreement with or without the oral part would not have obliged her to do so. However, I do not think this payment is germane to this application. The point that Madam Lin wants to make by relying on this payment can be made better by reference to the 21 July 2004 memorandum and the 26 July 2004 letter of the Xiamen Government.

42.   Mr Hsu went on in his second affirmation to refer to the 2006 Grant and said that the project to develop the lot under this grant was completely different in scope and size from that of lot A4. This project also involved much more capital and completely different commercial risks. The new project was largely residential. It had been widely publicised in Xiamen. Kin Ming’s partner in the project was a substantial company listed in the Shanghai Stock Exchange. At least 60% of the apartments for phase I of the project had also been sold to the general public.

43.   Madam Lin filed a second affirmation to respond. She tried to explain the reason for the oral part not having been mentioned in the Mainland proceedings. She said her Mainland Lawyers did not refer to it because the dispute was on jurisdiction. She referred to the payment of RMB30 million and the 21 July 2004 memorandum again. She re-iterated that she was not obliged to pay this sum even if she wanted to overturn the decision of the Xiamen Government. She further said that she did not try to overturn the decision because she was happy to develop the re-granted lot.

44.   She then made various allegations on how Mr Hsu and his brother had tried to extract money from her in addition to the RMB495 million and her refusal to pay. However, I do not think these allegations are relevant to this application.

45.   She also responded to Mr Hsu’s allegation that the 2006 Grant was completely new. She argued the simple point that the re-grant by the 2006 Grant just revived the Agreement and whether the 2006 Grant was completely new was irrelevant. She highlighted the fact of no settlement fee as between the 2006 Grant and the previous grant.

46.   Mr Hsu made a third affirmation. He said Madam Lin insisted on the lobbying efforts and also insisted on paying Kin Ming the further RMB30 million. He thus gave her a receipt for the payment under the Agreement. He attacked the alleged oral part again. He also denied that he or his brother had tried to extract more money from Madam Lin.

47.   He also delved into the details of the 2006 Grant and repeated that the development and planning conditions of this grant were very much different from those for lot A4.

48.   He filed a fourth affirmation to explain why the 2006 Grant was made to Xiamen KM and Lianfa Group. On about 10 August 1999, Xiamen KM entered into a contract with Lianfa Group to develop about half of the former lot A1. Lianfa Group was supposed to pay Xiamen KM RMB150 million to purchase the development rights for that part of lot A1. The Xiamen Government then issued a formal land and property ownership certificate to Xiamen KM and Lianfa Group for this part of the lot on 19 August 1999. Lianfa Group had participated in the negotiation for the 2006 Grant. That part of lot A1 that Lianfa Group was entitled to was then reduced by some 40% in the 2006 Grant.

49.   Madam Lin then made a third affirmation to respond. She said Kin Ming’s arrangement with Lianfa Group was similar to the arrangement with her. However, I do not think I need to consider the arrangement between Xiamen KM and Lianfa Group as Madam Lin is suing on the Agreement and her rights, if any, depends on the terms of the Agreement and not on the arrangement between Xiamen KM and Lianfa Group.

50.   Madam Lin also alleged a lot more factual details on the making of the oral part. In gist, she said the oral part was agreed between the parties whilst the drafter was drafting the Agreement in another room and was not aware of the oral part. When the drafting finished, Hsu’s brother hurried her into signing it in Hsu’s presence. She then signed it and the oral part was not incorporated in it.

ARGUMENTS FOR AND AGAINST STRIKING OUT AND DECISION

51.   There is no dispute on the applicable legal principles governing striking out applications. It is only in plain and obvious cases that the court should excise its summary powers to strike out pleadings (Hong Kong Civil Procedure 2009, Vol. 1, para. 18/19/4). Cases which are plainly unarguable or without foundation of law would be struck out (Byjoy Limited v Thorogood Estates [1985] 2 HKC 746). Cases which are hopeless or have been conducted oppressively can be struck out under the inherent jurisdiction of the court.

No Reasonable Cause of Action

52.   Kin Ming takes a number of points to argue that Madam Lin’s statement of claim does not disclose any reasonable cause of action.

Entire Agreement and Inadmissibility of Parol Evidence

53.   Kin Ming argued that clause 8 of the Agreement as cited above is an entire agreement clause. The Agreement on its face is also a complete contract. Clause 8 also expresses the intent of the parties that the Agreement in written form is to contain all the terms of the bargain. It therefore does not admit the oral part as alleged by Madam Lin which is inconsistent with the written terms. Kin Ming also relies on the parol evidence rule.

54.   Mr Fung, leading counsel for Madam Lin, referred to the content of clause 8 and submitted that this clause is by definition not an entire agreement clause as it does not purport to say that the written agreement has set out the full agreement between the parties, nor does it say that any side agreement not contained in the written agreement is void and of no legal effect.

55.   Clause 8 provides the machinery for amending the Agreement as well as to incorporate further matters to be agreed. It required the amendment and further agreements to be made in the form of written supplement which will form part of the Agreement. The machinery no doubt expresses the desire to have any amendment or further agreement to be in written form. The parties might have intended that all terms of the Agreement should be in written form. But clause 8 indeed does not say that the written agreement has set out the full agreement or that any side agreement not in writing is void. By definition, it is at least arguable that it is not an entire agreement clause. If the parties have not incorporated an entire agreement clause in the Agreement, I should not hold that the Agreement is an entire agreement by reason of the machinery in clause 8. I find that it is arguable that the written agreement is not an entire agreement and Madam Lin is entitled to argue that the Agreement is partly written and partly oral.

56.   Mr Fung also submitted that the oral part does not contradict the written part as the written part has not dealt with land exchange whilst the oral part deals with the re-granted lot. He also argued that the oral part could stand as an independent collateral agreement to the Agreement (see para. 12-103 of Chitty on Contracts, 29^th edn.).

57.   I think it is arguable that the oral part is an independent collateral agreement providing for the revival of the written agreement in the event of land exchange and re-grant. It does not contradict the written agreement as it does not go against the purposes intent of the written agreement. I do not think the extension of life to the written agreement is a contradiction to it though it may vary the effect of the termination clause. I do not take any variation as a contradiction unless it goes against the purpose and intent of the original agreement, otherwise all variations are contradictions, but that cannot be right.

58.   Regarding the argument of collateral agreement, Kin Ming had in fact also pleaded in HCA 2350 an oral collateral agreement to the Agreement which varied clause 6.2. Paragraphs 11 and 12 of Kin Ming’s statement of claim in HCA 2350 read:

“11 Prior to entering into the Agreement, the defendant had conducted her own due diligence in relation to the planning status of Lot A4 for the “海峽城” project, as a result of which she became aware or ought to have become aware of the well known fact that the future planning of Lot A4 was likely to be changed to one principally based on public facilities and accordingly, it may not be possible to proceed with the development of the project on the basis of the original planning as stated in the Planning Permission No. 98D253 referred to in clause 1 – 4 of the Agreement.

12 The Agreement was therefore entered into on the basis of a collateral oral agreement contemporaneous with the Agreement that both the Plaintiff and Defendant would attempt to lobby the Municipal Government to ensure that the future planning status of Lot A4 would revert back to that stated in the Planning Permission No. 98D253. However, in case that could not be achieved, Clause 6.2 of the Agreement was intended to allow the parties to end the Agreement.”

59.   In the premises, I hold that Madam Lin can at least argue for the oral part despite the parol evidence rule.

Expiry of Clause 7.1

60.   Kin Ming then argued that by my judgment in HCA 2350, the Agreement was terminated on 15 July 2004.

61.   I do not think I have decided in that judgment that the Agreement was indeed terminated on 15 July 2004. I did mention this in my judgment when I summarized and recounted the facts contained in the affirmations of Mr Hsu, but I did not so decided. The termination date as provided in clause 6.2, as I then understood it, was upon or after the return of money by Kin Ming to Madam Lin. There was however no evidence in that action on the date of the first attempt by Kin Ming to return the money. Hence, according to my then understanding of the clause, I did not know when was the date of termination. I took that to be before the institution of that action as Kin Ming’s attempts to repay were pleaded therein. I therefore did not refer to the exact date of termination in my declarations in the judgment.

62.   I in fact treated the termination as happening on the date of judgment and the parties were discharged from their obligations in the Agreement by the judgment. In retrospect, I think I should have declared to the state of affairs in existence at or immediately before the launching of that action. In any case, I did not adjudge that the Agreement was terminated on 15 July 2004.

63.   Mr Neoh, leading counsel for Kin Ming, also argued that clause 6.2 when properly interpreted would mean that if no notice to pay was issued by the Xiamen Government on 30 June, the Agreement would automatically terminate. I however think that it is arguable that the proper meaning of clause 6.2 is that termination would only take place upon Kin Ming’s repayment of money or at least upon a tender by Kin Ming. This is the meaning preferred by Madam Lin. This is in fact the meaning accepted by Kin Ming in paragraph 25 of its statement of claim in HCA 2350. This latter meaning also appears to be the plain and natural meaning of the clause. Madam Lin’s case on the payment of the further RMB30 million also negates the argument of automatic termination on 15 July 2004.

64.   For the purpose of this application, the parties agreed that Kin Ming had after May 2005 asked Madam Lin to take the deposit back (see paragraph 4 of the third affirmation of Mr Hsu). I hold that it is arguable that the Agreement between Kin Ming and Madam Lin had only terminated after May 2006 but was subject to revival under clause 7.1.

Interpretation of the Agreement: Factual Matrix

65.   Kin Ming also argued that there was no revival of the Agreement by the 2006 Grant. It submitted that the revival referred to in clause 7.1 was only for the project to develop lot A4 and not any other lot or any re-granted lot. The project to develop lot A4 was in fact not revived. The 2006 Grant was for different development rights.

66.   I have already held that Madam Lin can argue in this action for the oral part. That disposes of this argument. Furthermore, Madam Lin has pleaded that under the factual matrix of the transaction, the expression of lot A4 in the Agreement also means the re-granted lot. She submitted that the meaning of the project should be understood in the factual matrix of the transaction. I am of the view that Kin Ming has already pleaded part of the relevant factual matrix in paragraph 11 of the Statement of Claim in HCA 2350 as cited above. Mr Fung has also referred me to Reardon Smith Line v Yngvar Hansen-Tangen [1976] 1 WLR 989 at 995E-996F where Lord Wilberforce said that it is legitimate to have regard to the commercial purpose of the contract and this presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties operate. I also refer to Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F to 913F where Lord Hoffmann referred to the speech of Lord Wilberforce in Reardon Smith Line and further said that:

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

(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’. But this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.”

67.   However, Mr Neoh further argued for Kin Ming that the re-granted lot was for interchanging with both lots A4 and A1. The development on this lot would be on a landlocked combined site. When compared with the development of lot A4, which was a seafront lot, there would be a difference in value. The economics for developing the combined re-granted site would be completely different. Therefore Mr Neoh said that it was necessary to have a further agreement between Kin Ming and Madam Lin which contained specific provisions for developing the combined site. The inter-changeability of the former lot A4 for the re-granted lot as claimed by Madam Lin cannot be a reasonable conclusion from the factual matrix.

68.   This argument however ignores the fact that the Xiamen government had by the 26 July 2004 letter agreed with Xiamen KM’s request for land exchange to take place within the Land and that the user, surface area and building area would remain as before. Furthermore, Xiamen KM and Lianfa Group had on 30 May 2006 jointly submitted to the Authority various planning proposals with details for consideration of the re-grant. The Xiamen Government has thus given Kin Ming an opportunity to indicate where the re-granted lot should be and how its boundary should be drawn. But Kin Ming has not produced in evidence the opinion or the proposals it submitted to the Xiamen Government on the location and boundary of the re-granted lot. There is no evidence to show what Kin Ming has done to perpetrate or preserve Madam Lin’s interest. This does not place Kin Ming under favourable light. This is particularly so as I will decide below in favour of Madam Lin that she can argue for fiduciary duties owed to her by Kin Ming.

69.   In any case, the alleged difficulty of economics for Madam Lin to take part in the development of the combined re-grant site is just a matter for the architects and valuers. Without expert evidence, it cannot be said that Madam Lin cannot continue with the Agreement on the re-granted site or part or parts thereof. The assertion of difficulty by Kin Ming in this application cannot stop Madam Lin from proceeding with her case of interchange of lots in this action.

70.   In the light of the background known to the parties and as pleaded by Kin Ming in HCA 2350, it is also open to Madam Lin to argue for an extended meaning for lot A4 as pleaded in her statement of claim. This is so despite the rights given by the 2006 Grant was to replace the rights in both former lots A1 and A4. I would also observe that if lot A4 should be given the extended meaning as contended for by Madam Lin, the meaning and effect of clause 7.1 would be very similar to those of the oral part.

Inconsistency and Uncertainty

71.   On this point, Kin Ming repeated its arguments of difference in value and commercial realities between the development of lot A4 and the development of the combined re-granted site. It also argued that the mechanics for developing the new site had yet to be agreed between Kin Ming and Madam Lin. It then submitted that reasonable parties would not make a deal that is uncertain and could leave either of them at a substantial disadvantage, therefore the intention of the Agreement must have been for lot A4 only and not cover the re-granted lot which would give rise to uncertainty. The development of the re-granted lot would be for a further agreement which would define the burdens and benefits for the parties. Hence, Madam Lin’s oral part is plainly inconsistent with the written agreement.

72.   Kin Ming also argued that Madam Lin’s interpretation of lot A4 in the Agreement to include the re-granted lot is bad for uncertainty. It argued that it is unclear how the extended meaning of lot A4 would have operated to swap A4 into the re-granted lot. For the development on the re-granted lot to take place to the extent of the Total Building Area in accordance with the terms of the Agreement will leave too many questions to be resolved by a further agreement. The extended meaning of lot A4 thus seeks to swap lot A4 for the unknown.

73.   I however agree with Mr Fung that Kin Ming’s real complaint here is not insistency, but that the mechanics for Madam Lin to take part in developing the new lot remain to be agreed. This argument of Kin Ming overlaps with its last argument of factual matrix. Mr Fung submitted that the Agreement after revival could still be carried out. He said the subject matter of the Agreement after revival was certain. Madam Lin and Kin Ming were aware since July 2004 that lot A4 would be exchanged for another lot within the Land. The key is the Total Building Area. The parties should therefore continue to develop the Total Building Area on the re-granted lot according to the terms of the Agreement.

74.   Mr Fung further submitted that to the extent any further agreements are necessary, the Agreement itself has the machinery catering for them. Clause 2.2 provides a mechanism for adjusting the amount payable by Madam Lin to Kin Ming upon variation of the total Building Area. Clause 8 provides a mechanism to incorporate amendment and further agreements of the parties to be made. Clause 5.2(c) contemplated application by Madam Lin to change the layout plans and provided the incidence of the consequences upon change. Mr Fung further submitted that the practicalities of the Agreement after revival should be left to be addressed by experts and it is premature to strike out this action without such evidence.

75.   Mr Fung further referred me to Scammell & Nephew Ltd v Quston [1941] AC 251 at 255 where Viscount Maugham said:

“In commercial documents connected with dealings in a trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought that they made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which it would be impossible to supply in other kinds of contract. (See Hilas & Co. v Arcos, Ltd, 147 LT 503, 511, 512, 514)”

76.   Kin Ming raised the specific problem that the Land fees payable by it under the 2006 Grant may be different from the Land fees originally payable for lot A4, hence, the RMB495 million payable by Madam Lin under the Agreement may not be the right compensation to it. I understand that the net benefit to Kin Ming under the Agreement for developing lot A4 was ascertainable as a matter of arithmetic. If the development should take place on the re-granted lot as contemplated by the parties, it should still be a matter of arithmetic to calculate the amount of compensation payable by Madam Lin so as to secure Kin Ming’s benefit. Kin Ming has not explained why its interests under the Agreement cannot be secured if it should allow Madam Lin to develop the re-granted lot.

77.   Regarding the difference between lot A4 and the re-granted lot, Mr Fung further referred to Xiamen KM’s role in choosing and demarcating the re-granted lot. He submitted that if the re-granted lot should appear different from the original grant, that was just evidence of Kin Ming’s breach of the Agreement. The difference should not exculpate Kin Ming from its breach.

78.   I agree with Mr Fung on these submissions. I do not think Madam Lin should be barred from arguing the oral part or the extended meaning of lot A4 in the Agreement on the grounds of inconsistency or uncertainty. I do not think Kin Ming has demonstrated that the differences in value of the lots and in the economics or commercial realities for the different developments can justify a conclusion that the parties cannot continue to develop the re-granted lot in accordance with the terms of the Agreement together with terms necessarily implied. Madam Lin should be allowed to continue to argue her case of oral part and an extended meaning of lot A4 despite Kin Ming’s assertions that there are too many questions to be resolved. I think Madam Lin can argue that there is in the Agreement a workable framework for co-operation on the development of the re-granted lot.

Scandalous, Frivolous and Vexatious

79.   Kin Ming repeated its argument of commercial reality for this ground. It also referred to my judgment in HCA 2350 and said that I have implied in the judgment that Kin Ming could redevelop the re-granted lot. However, I was only summarizing the evidence of Mr Hsu rather than expressing my own view. My declarations clearly do not support such argument.

80.   Kin Ming also argued that the oral part alleged by Madam Lin reinforced the argument that her allegations are frivolous. It submitted that clause 8 of the Agreement required such matters to be evidenced in writing. However, I have already held that it is at least arguable that clause 8 is not an entire agreement clause. This argument does not help Kin Ming.

81.   Kin Ming also said that this action is vexatious and oppressive as Kin Ming is already developing the re-granted lot with a company listed in the Shanghai Stock Exchange. But Mr Fung has rightly pointed out that Kin Ming in co-operating with this other partner might have breached the Agreement. The possible breach cannot be a ground for striking out this action.

Prejudice, Embarrass and Delay Fair Trial

82.   For this ground, Kin Ming repeated its submissions made under the grounds of inconsistency and uncertainty. It further submitted that with these problems in existence, it could not fairly be expected to be able to defend itself. I suppose Kin Ming is saying that it is unable to defend itself. It further said that since there was no agreement on the many uncertainties, it was impossible to quantify what duties and obligations the parties had undertaken so as to ascertain the consequences of any breach.

83.   I have already dealt with the complaints on inconsistency and uncertainty. I do not think Kin Ming has presented any concrete case of difficulty in defending this action so as to justify a striking out.

84.   Kin Ming has a further argument of embarrassment in defending this action. It referred to the fiduciary and/or contractual duties pleaded by Madam Lin. Madam Lin pleaded the terms of the Agreement, the oral part, the extended meaning of lot A4 and her payment to Kin Ming of the total sum of RMB130 million. By reason of these matters, she further pleaded that Kin Ming owed her fiduciary and/or contractual duties which included the following:

“(a) the duty to notify the Plaintiff in good faith if and when the Defendant and/or Kin Ming (Xiamen) obtained, re-obtained, or was in a position to obtain the Development Rights over the Land to develop commercial and/or residential units whether on the portion of the Land identified as Lot A4 and/or any of the re-granted lot or lots notwithstanding that the Agreement might have been terminated pursuant to the oral agreement therein or Clause 6.2 of the Written Contract;

…

(c) the duty not to make directly or indirectly any secret profit or benefit from the said development to the exclusion of the Plaintiff;

(d) the duty to keep full, complete and proper accounts and records of all transactions carried out in relation to the said development; and

(e) the duty to account to the Plaintiff for any direct or indirect secret profits made in the said development, or for any property of the Plaintiff which has been misapplied or placed within the possession or control of the Defendant.”

85.   Mr Neoh submitted that there was no pleaded factual basis for inferring a fiduciary duty in a commercial contractual relationship, nor can it be said that a fiduciary duty can fairly arise from the facts pleaded.

86.   On Madam Lin’s application to amend to add that Kin Ming was and is her agent or partner by virtue of the Agreement and hence owes her the said fiduciary and/or contractual duties, Mr Neoh argued that the Agreement was an arms length commercial contract wherein the parties’ rights and responsibilities were defined. Kin Ming had not undertaken in the Agreement to act for Madam Lin and the Agreement was not for the joint pursuit of profit. Therefore, Kin Ming said there could not be any agency or partnership. I am also referred to Bowstead On Agency and the Partnership Ordinance for the definitions of agents and partners.

87.   Mr Fung however referred to Snell’s Equity. Paras 7-07, 7-08 and 7-11 of the 31st edition of Snell say:

“The categories of fiduciary relationships are not closed. Fiduciary duties may be owed despite the fact that the relationship does not full within one of the settled categories of fiduciary relationships, provided the circumstances justify the imposition of such duties. …

There is, however, growing judicial support for the view that ‘a fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. ‘The concept encaptures a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position in such a way which in adverse to the interests of the principal.

It ‘is of the first importance not to impose fiduciary obligations on parties to a purely commercial relationship’, but ‘it is altogether too simplistic, if not superficial, to suggest that commercial transactions stand outside the fiduciary regime.’ It is quite clear that it is possible for fiduciary duties to arise in commercial settings. Agency, which is frequently a relationship between two commercial actors, provides a clear example, the primary source of duty between principal and agent is a matter of contract law, often applied in a commercial setting, and yet fiduciary duties will be owed by the agent (unless they have been excluded). The reason fiduciary duties do not commonly arise in commercial settings is that it is normally inappropriate to expect a commercial party to subordinate its own interests to those of another commercial party. But if that expectation is not inappropriate in the circumstances of the relationship between the parties, and this will be presumed in a settled category of fiduciary relationship, then fiduciary duties will arise.”

88.   Madam Lin also relies on various obligations of Kin Ming in the Agreement to justifythat Kin Ming was and is her agent or partner. But I think the most important argument is that Madam Lin has agreed under the Agreement to pay Kin Ming RMB495 million in return for the development rights as defined in the Agreement. She will have to bear all the risks and be entitled to all the profits of the development to the exclusion of Kin Ming. Nevertheless, the project in the meantime would be held in the name of Xiamen KM until the final stage when the land certificate would be transferred to her. Under clause 5 of the Agreement, Kin Ming had to be responsible for this project and to unconditionally co-ordinate with her in its development and construction. Kin Ming did not assume these duties gratuitously but did so for good consideration. Her entire rights in the project from time to time are in the hands of Kin Ming until the transfer of the land certificate. In the light of all these, it is certainly open to her to argue that the circumstances in which Kin Ming has undertaken to act for her have given rise to a relationship of trust and confidence. Hence, it is arguable that Kin Ming owes her the fiduciary duties as pleaded.

Abuse of Process

89.   Kin Ming’s grounds of abuse by Madam Lin are that she had sued Kin Ming for the same subject matter in the Mainland courts and that she did not take issue with the default judgment in HCA 2350.

90.   Regarding the Mainland proceedings, they were disposed of for lack of jurisdiction. The Mainland courts did not find it necessary to go into the merits of Madam Lin’s claim at all. This action is the first time that the merits of her claim will be scrutinized. I therefore do not think that Madam Lin is trying to re-litigate decided issues. The merits of her claim have not been decided so far. Kin Ming also repeated the point that she only alleged the oral part in this action. I do not think it would have made any difference even if she should have alleged the oral part in the Mainland proceedings. I do not think Kin Ming has been prejudiced because she had not done so in the Mainland proceedings.

91.   Regarding HCA 2350, Madam Lin did not take part in it and is not disputing the declarations therein. She is claiming in this action the revival of the Agreement which was expressly preserved in those declarations. She is therefore suing pursuant to the declarations. I see no reason for her to apply to set aside the default judgment. Even if she should have wanted to ventilate the oral part, that would still not be a ground to apply to set aside the default judgment as the oral part does not impinge upon the declarations at all.

92.   I do not think the principle of res judicata is applicable here. In the premises, I do not find this action an abuse of process.

RESTRICTED PROCEEDINGS ORDERS

93.   Since I have disagreed with Kin Ming on its grounds for striking out, I would dismiss this application. There is therefore no basis for making any restricted proceedings order.

AMENDMENT

94.   Regarding the amendments, the claim of agency appears to be a reasonable one and Madam Lin should be allowed to argue it. The claim of partnership may appear a bit slender. But I do not think I should shut out Madam Lin from arguing it at this early stage. I would therefore allow the amendments sought by her.

95.   Madam Lin also seeks to add by way of amendment the duties of Kin Ming not to obtain any profit in circumstances of conflict of duties or by using its fiduciary position. I also allow these amendments.

96.   There are also some proposed amendments which are for filling in more details on the development of the re-grant and the consequences of breach. I also allow them.

DECISION

97.   For the above reasons, I dismiss Kin Ming’s application to strike out. I also make an order nisi that Kin Ming do pay Madam Lin the costs of the application.

98.   I also grant leave to Madam Lin to amend the Statement of Claim herein in terms of her summons filed on 2 June 2008. I also direct her to amend the date of the 2006 Grant in paragraph 17 of the Statement of Claim by correcting it to 15 September 2006. I also make an order nisi that Madam Lin do pay Kin Ming the costs of and occasioned by her application to amend save and except the costs of the argument of this application which should be paid by Kin Ming to her.