KAN WAI CHUNG AND OTHERS v. HAU WUN FAI AND OTHERS

HCA811/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 811 OF 2010

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 868 OF 2013

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D E C I S I O N

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1.  This is the taxation review hearing brought by the defendants to review the plaintiffs’ Bill of Costs dated 3 June 2013 taxed by me on 8 August 2014.

2.  The bill was prepared by the plaintiffs pursuant to the Order of the Court of Appeal dated 7 February 2013 (“the said Order”) whereby the defendants were ordered to pay the plaintiffs costs of the appeal (in CACV 43 of 2012 on appeal from HCA 811 of 2010) and below on party‑and‑party basis, save the plaintiffs’ costs of preparing the hearing bundles for the appeal be disallowed.

3.  At the substantive hearing of the taxation of the bill, the defendants asked that the hearing be adjourned for their clarification with the Court of Appeal as to whether under the said Order, the defendants need to pay the costs of the plaintiffs below in relation to the setting aside of the default judgment.

4.  Subsequent to the adjournment, despite the defendants’ request, Court of Appeal refused to make clarification.  In the letter dated 20 February 2014, Court of Appeal replied that:-

“...The costs order in the formal order as drawn up correctly reflects the costs order made by the court, and it is now far too late to seek to re‑open the matter. The taxation should therefore be carried out in accordance with the costs order as it stands. ”

5.  In fact, the said Order reads:-

“UPON READING...appeal from the order of the Honourable Mr. Justice Poon made on the 6^th day of February 2012, whereby it was ordered that the Plaintiffs’ default judgment dated 30^th October 2020 be set aside, appeal of the Defendants against the Decision of Master R. Lai dated 11^th October 2012 be allowed, that the Statement of Claim be struck out, and the action dismissed with the costs of Defendants of the action including the costs of their appeal [before Poon J] and the setting aside application and the costs before the Master be to the Defendants with certificate for two counsel.

AND UPON READING the said Order

IT IS ORDERED that this appeal be allowed to the extent that the order striking out the Plaintiffs’ claim and dismissing the action is set aside

IT IS FURTHER ORDERED that there will be a cost order nisi that costs of the appeal and below be paid by the Defendants to the Plaintiffs to be taxed on party‑and‑party basis. ”

6.  In the judgment of the Court of Appeal, they mentioned explicitly they will not disturb the setting aside of the default judgment by Poon J.

7.  Although the Court of Appeal did explicitly deny the Plaintiffs’ entitlement to the costs of the preparation of the appeal bundle, in the said Order, they did not mention that the Plaintiffs are only entitled to part of costs below, it follows therefore that they are entitled to the whole of the costs below.  The Defendants did not seek to vary the costs order nisi given by the Court of Appeal, the same is therefore made absolute and are binding on the defendants.

8.  The defendants’ interpretation of the said Order, that the plaintiffs are not entitled to costs below if they should relate to setting aside of the default judgment, is flawed.  They are adding words to the said Order.  It must be remembered that costs is always a matter of discretion of the court.  The fact that the Plaintiffs did not succeed in full the whole appeal does not entail a necessary consequence that they are not entitled to full costs below.

9.  The Defendants adopted the objections raised in the Appointment to Review as their submission for the review.

10.  In the Appointment to Review dated 19 August 2014, Defendants objected to items 5, 6, 15, 18, 20, 21, 24 and 28 solely by the reason of the said Order not covering these items, as they relate to setting aside of default judgment, by reasons aforesaid, I refused to accept these objections and I maintain my rulings on these items.

11.  Likewise, the defendants objected to the costs allowed to the plaintiffs for the following items, for reason that certain percentage of these items of work attributed to application for setting aside the default judgment, such as 20% for item 16, 25% for item 37, 20% for item 38 and 50% for item 63 and 50% for item 64, certain letters for item 65.  Again, for reasons said earlier, I refuse to accept these objections.  I maintain my rulings on these items.

12.  The additional ground of objection for item 63 is that as the appeal was on paper, few instructions were required.

13.  This bill of costs covered period from the Notice of Intention to enter Judgment on 15 June 2010 to June 2012.  During this period, default judgment was entered against the defendants, affidavits were filed including that of some of the plaintiffs, appeal was subsequently lodged by the defendants seeking to strike out the plaintiffs’ statement of claim and dismissing plaintiffs’ action, application by defendants was made to set aside the defendant judgment entered, affirmations were prepared by both sides for these applications, discussion as to briefing of counsels and choice of counsels are all necessary.

14.  The hearing before Mr. Justice Poon, as he then was, would decide whether to set aside the default judgment already entered in favour of the plaintiffs and further whether to strike out the plaintiffs’ statement of claim and dismiss his action.  If the defendants succeed, the plaintiffs will be denied the fruits of the judgment already in hand and he will also be denied of having his claim heard in court.  The appeal therefore is of paramount importance to the plaintiffs.

15.  The plaintiffs’ solicitors need to take full instructions from the plaintiffs in preparing affirmations for the hearing as well as explaining and advising the plaintiffs throughout the progress of the case.

16.  I maintain my rulings of 7 hours for solicitors conferences as the same is necessary.

17.  Coming to the dispute on counsel fees allowed.

18.  Defendants objected to part of the counsel fee of Mr. Y.C. Mok as they relate to the setting aside of default judgment and therefore not covered by the said Order.  For the same reasons above, I refuse to accept this ground of objection.

19.  They further submitted that brief of counsel, should cover all the work done by way of preparation for representation at the trial and attendance on the 1^st day of trial.  They say the counsel is not normally entitled to be remunerated separately for necessary work which is incidental to the proper representation of the client.

20.  Further, they say the brief fee of $250,000 is excessive.  Mr. Mok is not a Senior Counsel but his brief fee at $250,000 may exceed those of quite a number of Senior Counsels.

21.  As said by the Plaintiffs, the Defendants were represented by two strong teams of counsels.  The 1^st, 3^rd, and 4^th Defendants were represented by Mr. Rimsky Yuen SC leading Ms. Zabrina Lau whereas the 2^nd Defendant was represented by two senior junior Mr. K M Chong and Ms. Emma Wong.

22.  Voluminous documents were first sent to counsel, the trial bundles consist of well over 2,500 pages of copied documents which consist also of other pleadings and documents in HCA 1517‑1521 of 2005 of which neither the instructing solicitors nor counsel had participated.

23.  A lengthy Plaintiffs’ (Respondents’) Skeleton Argument as well as the List of Authorities consisting of 26 cases and authorities was compiled by counsel.

24.  According to the plaintiffs, Mr. Mok had accepted the Brief on the basis that he would be assisted by a junior counsel.

25.  Mr. Y.C. Mok is a very senior junior counsel, called to the bar in 1975 and is a well respected successful barrister. Although he has not taken silk, it does not mean the counsel fee that he fetches must be lower than that of senior counsel.

26.  I had previously allowed counsel fee of $250,000 as his brief and another $50,000 for his work done within the period commencing from nearly 2 weeks prior to his day in court which includes his formulating arguments, engaging in discussion with the junior counsel by telephone and email on various occasions.

27.  Mr. Mok only charged $60,000 for his refresher.

28.  I have reconsidered the counsel fee allowed for brief under this item and I maintain my rulings at $250,000.

29.  Upon reconsideration as to the $50,000 counsel fee, the work was done within 2 weeks of the hearing date and was performed after delivery of the brief, and having regard to the fact that the same can be considered as preparation for representation at the trial and attendance on the first day of trial. (Hong Kong Civil Procedure 2015 Vol. 1, para.62/APP/31 p.1212)

30.  I have decided to tax off the sum.

ITEM 3 IN SECTION B

31.  Defendants said counsel is not entitled to be remunerated separately for the preparation of final submission, that they should have been included in the brief of refreshers: Loveday v. Renton (No.2) [1992] 3 All E.R. 184.

32.  Plaintiffs said that in this case, the Plaintiffs’ Reply Submissions was prepared and lodged pursuant to the directions made by Mr. Justice Poon at the end of the hearing on 8 November 2011.  When negotiating the Brief, both counsel and the instructing solicitors were not aware of or have expected the need for preparation of a full Reply Submission.

33.  Counsel had to review the Supplemental Skeleton Reply and the 5^th List of Authorities of the 2^nd Defendant, the Reply Submissions for D1, D3 and D4 before preparing this Reply Submission.

34.  It was said by Mr. Mok that the 22 pages documents were the result of 32 hours work.  I do not doubt either his integrity or his ability and therefore conclude such work is necessary in preparing the submission, $80,000 for this item means $2,500 per hour.

35.  In the circumstances of this case, I accept that the preparation of this Reply Submission, a full submission, should not be counted as being included in the brief fee or the refresher as in the normal case where skeleton arguments are to be included in the brief or the refresher.

36.  I therefore maintain my ruling on this item.

COSTS

37.  As the defendants fail to succeed on most of the items under review, I made an order nisi that they shall pay the plaintiffs 85% of the costs of the review for this bill, the same to be summarily assessed.

38.  The plaintiffs do lodge and serve within 7 days after the order nisi is made absolute the statement of costs for summary assessment and the defendants shall lodge and serve their comments thereto within 7 days thereafter.

HCA 811/2010

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AND

HCA 868/2013

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(Actions HCA 811/2010 and HCA 868/2013 consolidated by the Order
made by Master J Wong dated 18 November 2013)

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J U D G M E N T
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INTRODUCTION

The two preliminary issues to be tried

1.  This is the trial of two preliminary issues upon the application of the 1^st to 4^th Defendants by inter partes summons dated 1 June 2015, pursuant to Order 33 of the Rules of the High Court.  The two preliminary issues to be determined have been set out in the schedule annexed to the summons.  The first one is relevant to both actions.  The second one is only relevant to HCA 868/2013.  These issues are:

(1) Whether the Plaintiffs have any interest in the Land Lots and if so, what interest, having regard to the uncontroversial facts that:-

(i) the Land Lots, being the subject matters of the 1^st to 5^th Plaintiffs’ claim in HCA 811/2010, were transferred or caused to be transferred to the 1^st to 5^th Plaintiffs from the 1^st and 2^nd Third Parties between 1995 and 1999, without consideration;

(ii) the village-type houses were built and erected on the Land Lots by and at the costs of the 1^st and 2^nd Third Parties;

(iii) the payment of premiums for uplifting the non-alienation clauses in the building licences upon which the Government consented to the sale and purchase of the Land Lots were made by the 1^st to 2^nd Third Parties; and/or

(iv) the 1^st to 5^th Plaintiffs had declared in the Co-operation Agreements that they held the Land Lots upon trust for the 1^st Third Party.

(2) Whether costs incurred by the 1^st to 5^th Plaintiffs and costs orders made against them in the 2005 Actions were sufficiently caused by the production and use of the sale and purchase agreements by the 1^st and 2^nd Third Parties as set out in paragraph 9 of the Statement of Claim of HCA 868/2013, having regard to the facts that no material issue as to the validity of the said sale and purchase agreements was raised by the parties or any of them in their pleadings in the 2005 Actions.

2.  There is some argument by Mr Yip, counsel for the Plaintiffs that the term “Land Lots” is not defined in the schedule and that it appears from the written skeleton argument of Mr Neoh, counsel for the 1^st to 4^th Defendants that the term refers to the various agricultural land lots transferred to the Plaintiffs under various agreements (the “Co-operation Agreements”) but do not include the village-type houses built thereon.  On that basis, Mr Yip argues that determination of the Plaintiffs’ interest in the Land Lots simpliciter would not dispense with further trial or with the trial of other substantial issues in these actions, the subject matters being the village-type houses erected on the Land Lots.

3.  “Land Lots” is a term introduced by the 1^st to 4^th Defendants in the preliminary issues.  It is not defined in the schedule or in the statement of claim in HCA 811/2010.  Reading the statement of claim, one could have no doubt that “Land Lots” referred to in the schedule are the subject matters of the litigation in HCA 811/2010 and what they are.  They are the village-type houses erected on the various lots of land identified in paragraph 1 of the statement of claim and collectively referred to as (the “Plaintiffs’ Land”).  In their answers to requests for further and better particulars, the Plaintiffs confirmed that their “respective properties” in respect of which they suffered loss included “the land and the structures built thereon”.  Furthermore, it is a well established legal principle that “land” includes all permanent improvement thereon.  In no way could I understand Mr Neoh as referring to the Land Lots as separate from the village houses built on them.  To my mind, “Land Lots” refer to the five lots of land with the village-type houses built on them, if such houses had been erected; or to the five lots of land without the houses, if they have not yet been built. 

4.  It is unfortunate that the parties’ solicitors have not been consistent in their terminology.  The Plaintiffs’ solicitors used the term “Plaintiffs’ Land” to refer to the various plots of land without the structures erected thereon; and “small houses” and “properties” to refer to the structures built thereon, while the 1^st to 4^th Defendants’ solicitors introduced the term “Land Lots” in the preliminary issues.  It troubles me to think that the Plaintiffs’ solicitors seem to consider that there are separate and distinct legal interests in the land and the various storeys in the village-type houses built on that particular plot of land.  They seemed to have ignored the concept of land holding in Hong Kong is by way of co-ownership of land and building erected on the land with exclusive possession of parts of the building assigned to individual co-owners under a deed of mutual covenant.

5.  Mr Yip submits that the court will only determine a preliminary issue based on question of law if the relevant and necessary facts have been ascertained or not in dispute.  He argues that as there are serious factual disputes not yet resolved the court should not proceed to trial of the two preliminary issues until all material facts have been ascertained. I can see no merit in that submission.  The decision to try the two preliminary issues was made when I allowed the 1^st to 4^th Defendants’ application to set the issues down for trial.  I considered the facts stated in the preliminary issues adequate for a decision to be made, which if resolved in favour of the Defendants would dispose of the Consolidated Actions entirely. Insofar as disputes of facts not stated in the preliminary issues are concerned, if they turn out to be material, they will, for the purpose of this hearing, be assumed in favour of the parties against whom the preliminary issues are to be resolved, ie the Plaintiffs.  If the preliminary issues are resolved against the Defendants, the action will proceed to trial on those disputed issues together with any other material issues, and with the benefit of the legal issues determined at this hearing.  The time spent in this hearing would in no event be wasted.

The background

6.  The following factual background is based on uncontroverted or incontrovertible evidence.

7.  The 1^st and 2^nd Third Parties (“Sino Favour” and “Shiny” respectively or the “Developers” collectively) are property developers. 

8.  The Plaintiffs are indigenous villagers in the New Territories (“dings”) who, under the then Small House Policy of the Government (the “Policy”), were entitled to apply for building licence to build one village-type house on their land (the “ding right”).

9.  Between March and August 1994, the Plaintiffs entered into similar agreements with Sino Favour (the “Co-operation Agreements”), which were in effect agreements to sell their ding rights to Sino Favour in return for $200,000 so that Sino Favour could build village-type houses on the Land Lots.  Under the Co-operation Agreement, Sino Favour would assign a Land Lot to a Plaintiff, the Plaintiff would apply to Government for building licence under the Policy, the Developers then build a village-type house on the Land Lot, and the Plaintiff would hold the Land Lot and the house built thereon as nominee on trust for the Developers. 

10.  Pursuant to the Co-operation Agreements, Sino Favour transferred or caused to be transferred the five Land Lots to the Plaintiffs.  Although a monetary consideration was stated in the assignments, there is no dispute that no monetary consideration was in fact paid.  Building licences were applied for and village-type houses were built on the Land Lots at the costs of the Developers, who also paid premium to the Government in order to uplift the non-alienation clause in the Government lease so that the village-type houses may be sold to the public.

11.  In mid-2005, the construction of some of the village-type houses was completed.  The Developers put them in the market for sale and subsequently entered into various sale and purchase agreements with the ultimate purchasers (the “First Set of SPAs”).  The First Set of SPAs was expressed as agreements by the Plaintiffs to sell the respective Land Lots with village-type houses built on them.  The Plaintiffs averred that these agreements, allegedly signed by them or with their authority, were forgeries and referred to them as “Falsified Documents” in HCA 868/2013. 

12.  The 1^st to 4^th Defendants were the partners of Messrs Hau, Lau, Li & Yeung (“HLLY”), a firm of solicitors instructed by and acting for Sino Favour to carry out the conveyancing transactions relating to the First Set of SPAs.  The 5^th Defendant in HCA 868/2013 was a clerk of HLLY.

13.  At about the same time, the Plaintiffs entered into another set of provisional sale and purchase agreements (the “Second Set of SPAs”) with Barbican Capital Investment Limited (“Barbican”) in respect of the village-type houses built on the same Land Lots.  The Second Set of SPAs was registered with the Land Registry, thereby affecting the interest in the Land Lots.

14.  On 2 August 2005, soon after discovery of the registration of the Second Set of SPAs, the Developers took out an ex parte application for injunction to restrain the Plaintiffs from selling or completing the sale of the Land Lots and village-type houses under the Second Set of SPAs and further claimed damages for breach of the Co-operation Agreements.  The application came before Hartmann J (as he then was), who granted an interim injunction restraining the Plaintiffs from selling the Land Lots until further order.

15.  On 3 August 2005, pursuant to an undertaking given to court, the Developers instructed HLLY to commence actions against the five Plaintiffs, Barbican and Wilkie Tsang who is a director of Barbican.  These five actions are HCA 1517 to 1521 of 2005 (collectively, the “2005 Actions”).  The writs in those actions and the injunction application papers were duly served on all the defendants in the 2005 Actions, ie Barbican, Wilkie Tsang and the Plaintiffs herein.

16.  As the time for completion under the First Set of SPAs drew near, the Developers applied to court under the 2005 Actions for leave to complete those agreements.   The application came before Deputy High Court Judge Saunders (as he then was).  Barbican appeared and filed an affirmation of Wilkie Tsang made on its behalf.  The Plaintiffs did not appear.  In his affirmation, Wilkie Tsang conceded to the completion of the First Set of SPAs provided that the interests of Barbican and the Plaintiffs were secured by placing the proceeds of sale in an interest bearing account, pending further order.  Barbican’s interest was said to be the profits from its joint venture with Shiny; and the Plaintiffs’ interest was said to be the amount outstanding to them under the Co-operation Agreements.  Deputy Judge Saunders granted liberty to complete the First Set of SPAs and ordered $2.5 million to be set aside from the proceeds of sale and to be placed in an interest bearing account (the “Judge Saunders’ Order”).

17.  Thereafter, the Land Lots were sold by the Developers with HLLY acting as their solicitors in completing the sale and purchase under the First Set of SPAs.  This necessarily means that the completion by way of assignments was done in the name of the Plaintiffs who were the then registered owners of the Land Lots.

18.  It is not known when precisely the Plaintiffs became aware of the sale of the Land Lots to third parties in their names.  But it is reasonable to infer from the fact that Barbican having succeeded in obtaining the order to retain $2.5 million to secure Barbican’s and the Plaintiffs’ interest, the Plaintiffs would have been told of Judge Saunders’ Order soon after the hearing in the light of their claimed interest in the outstanding payments due to them under the Co-operation Agreements.  In any event, they would have been served with a copy of Judge Saunders’ Order.

19.  On 10 October 2005, the Developers filed their statements of claim in the 2005 Actions.  The Plaintiffs entered into appearance and filed their defence and counterclaim. 

20.  In their defence filed on 16 December 2005, the Plaintiffs admitted signing the Co-operation Agreements but alleged long delay in implementation of the Co-operation Agreements and counterclaimed outstanding payment under the Co-operation Agreements.  They denied executing or authorising the execution of the First Set of SPAs.  It is significant to note that the Plaintiffs made no claim for any interest in the Land Lots.  By that time, they must also know well that the Land Lots had been sold to third parties in their names as registered owner.

21.  On 6 February 2009, the Developers took out an inter partes summons seeking an order that the proceeds of sale of $2.5 million set aside be released to them.  The application was heard on 1 September 2009 before Reyes J.  The Plaintiffs were represented by counsel at the hearing. They did not make any claim for any proprietary interests in the Land Lots.   Reyes J allowed the application.

22.  On 26 February 2009, the Plaintiffs issued a third party notice in the 2005 Actions against the 1^st to 4^th Defendants seeking an indemnity against the Developers’ claim.  In the third party notice, they alleged that the 1^st to 4^th Defendants had not been given any authority to act for them and therefore were liable to indemnify them for any loss claimed by the Developers.  That notice was filed without leave.  On 20 March 2009, by consent the Plaintiffs withdrew the notice with costs against them.

23.  In July 2009, the Plaintiffs took out an inter partes summons for discovery against the Developers and the 1^st to 4^th Defendants (as non-parties). The application was dismissed by Master de Souza. The Plaintiffs’ appeal against the master’s decision was also dismissed with costs against them by Bharwaney J in February 2010. 

24.  In February 2010, the Plaintiffs took out an inter partes summons seeking to amend their defence and counterclaim.  Three new defences were proposed by the Plaintiffs:

(a) that there was an implied term in the Co-operation Agreements that the Co-operation Agreements would be good only for three years;

(b) that the Co-operation Agreements were not enforceable as they were illegal and contrary to public policy; and that the Plaintiffs would have no need to comply with their terms; and

(c) that the Plaintiffs had never instructed the 1^st to 4^th Defendants to act for them and that the 1^st to 4^th Defendants had no authority to act for them.

Fung J only allowed the amendment relating to the plea of illegality.  As the matter progressed, it is now common ground, at least for the purpose of these proceedings, that the Co-operation Agreements were illegal.

25.  In June 2010, the Plaintiffs commenced HCA 811/2010 against the 1^st to 4^th Defendants, alleging them of conspiracy with the Developers to injure them by unlawful means thereby depriving them of their interest in the Land Lots, which they referred to as the “Plaintiffs’ Land”.  This is the first time they asserted interest in the Land Lots.

26.  In October 2010, the Plaintiffs and the Developers agreed to a “drop-hand” settlement in respect of the 2005 Actions. The parties discontinued their respective claims and counterclaims and waived their entitlement to the costs orders made in those actions.  However, HCA 811/2010 remains alive.

27.  In May 2013, the Plaintiffs commenced HCA 868/2013 against the 1^st to 4^th Defendants and one of their clerks, namely the 5^th Defendant, claiming their legal costs incurred in the 2005 Actions.

28.  HCA 811/2010 and HCA 868/2013 were consolidated (the “Consolidated Actions”) pursuant to the order of Master J Wong dated 18 November 2013.  They are set down for trial on 18 April 2016.

The Plaintiffs’ claims under the Consolidated Actions

29.  The Plaintiffs’ cause of action in HCA 811/2010 is conspiracy to injure by unlawful means (“unlawful means conspiracy”).  Their case is that the 1^st to 4^th Defendants and the Developers conspired together to injure them by using the Falsified Documents to sell the Land Lots, thereby causing them to suffer loss and damage to the extent of the total value of the Land Lots and the village-type houses built thereon.

30.  The Plaintiffs’ causes of action under HCA 868/2013 are: (1) unlawful means conspiracy in forging the Falsified Documents; and (2) conspiracy to prosecute them in the 2005 Actions with a real and predominant purpose to injure them (“unlawful purpose conspiracy”).  Their case is that by forging and using the Falsified Documents in prosecuting them in the 2005 Actions, the Defendants caused legal costs to be incurred by them in defending those actions (the “Wasted Costs”). They claim Wasted Costs in the total sum of $2,117,290.17.

31.  To succeed in unlawful means conspiracy, the plaintiff has to prove the means or overt act which is unlawful.  To succeed in unlawful purpose conspiracy as distinct from unlawful means conspiracy, it is not necessary to prove that the combination was carried out or executed by unlawful means; the means may be lawful.  Proof that the combination was carried out with a real and predominant purpose or object which is illegitimate and unlawful suffices.  But, the real and predominant purpose would be lawful if the action was taken to advance the defendants’ lawful interests in a matter under circumstances in which the defendants honestly believe that those interests would directly suffer if the action taken against the plaintiffs was not taken: Crofter Hand Woven Harris Tweed Co v Veitch[1] and Clerk & Lindsell[2].

32.  It is trite that conspiracy is not actionable per se: Pido v Compass Technology Co Ltd[3] and Crofter Hand Woven Harris Tweed Co v Veitch[4].  The plaintiff has to prove loss and damage as well as a causal link between the concerted acts of the defendants and the loss he suffered.  In Marrinan v Vibart[5], Salmon J said:

“ … the gist of the tort of conspiracy is not the conspiratorial agreement alone, but that agreement plus the overt act causing damage. It is true that the crime of conspiracy is the very agreement of two or more persons to effect an unlawful purpose, and any overt acts done in pursuance of the agreement are merely evidence to prove the fact of the agreement. The tort of conspiracy, however, is complete only if the agreement is carried into effect so as to damage the plaintiff. Accordingly, the acts done in pursuance of the agreement are an integral part of the tort…”

Thus, in order to succeed in an action for conspiracy, the Plaintiffs have to prove not only the alleged unlawful means or the real and predominant purpose to injure, but also that they have suffered loss and damage (the “damage issue”), and that the loss was caused by the Defendants’ tortuous acts (the “causation issue”).  The burden of proof of both issues is on the Plaintiffs.  These are the issues addressed respectively in the first and second preliminary issues.

THE FIRST PRELIMINARY ISSUE

The Plaintiffs’ case on beneficial interest

33.  The Plaintiffs’ claims in HCA 811/2010 and HCA 868/2013 are founded on the factual proposition that they were the legal and beneficial owners of the Land Lots.  In the premises, Mr Neoh submits that the Plaintiffs’ claims may succeed only if they can show that they had beneficial interest in the Land Lots at the time of commencement of the 2005 Actions.  I agree.  If the Plaintiffs had no beneficial interest in the Land Lots, they could have suffered no loss in HCA 811/2010 as result of Judge Saunders’ Order allowing the Developers to sell the Land lots, and the Wasted Costs claimed in HCA 868/2013 were not caused by the Defendants, but by their own wishful thinking that they had the necessary beneficial interest in the Land Lots to defend the 2005 Actions.  If the first preliminary issue is determined in the Defendants’ favour, that would be the end of the Consolidated Actions.  Proof of the conspiracies without proving their interest in the Land Lots would not entitle the Plaintiffs to judgment. 

34.  The Plaintiffs assert beneficial interest in the Land Lots by virtue of the assignments of the Land Lots to them by Sino Favour and their registration of the assignments in the Land Registry.  However, there is no dispute that they provided no monetary consideration for the assignments. Hence, Mr Neoh argues that as mere volunteer recipients of the Land Lots, the Plaintiffs could not be constituted beneficial owners when the assignments of the Land Lots were executed.  He draws support for the above proposition by referring to the following dicta of Barma JA in CACV 43/2012 which was an appeal from the decision of Poon J (as he then was) in one of the interlocutory applications in HCA 811/2010:

“6. In order to succeed on this claim, the Plaintiffs must establish that they had a beneficial interest in the houses that were sold. If they did not, they could suffer no loss or damage. As I understand their case, they assert that they did, because their declaration of trust in favour of Sino Favour under the Development Agreement is invalid and unenforceable by reason of illegality, as to uphold it would involve a misrepresentation (as to their being beneficial owners of the land on which their respective houses were built) having been made to the Government in order to obtain permission to build such houses.”

35.  Mr Yip argues that the Plaintiffs do have a beneficial interest in the Land Lots by reason of their applying for building licences under the Policy to erect village-type houses on the Land Lots.  His argument is as follows.  The indigenous villager is the intended beneficiary under the Policy.  Under normal circumstances, the village-type house will and will have to be registered in the name of the indigenous villager who applied for the building licence under the Policy.  After that the indigenous villager’s ding right will be exhausted.  The indigenous villager will become the legal and beneficial owner of the village-type house.  His interest in the village-type house erected can only be alienated upon payment of premium and with the written consent of the District Land Officer.  Mr Yip is not relying on the sale of the ding right as good consideration to support the Co-operation Agreements, which he asserts are illegal.  He is therefore arguing that by exercising his once in a lifetime right to enable the village-type house to be built, the indigenous villager somehow has acquired beneficiary interest in the village-type house.  He further argues that the Plaintiffs were the intended beneficiaries under the Policy, their ding rights had been exercised, exhausted and could not be revived, and by reason thereof, they have acquired beneficial interest in the village-type house.  In his skeleton submission, Mr Yip has been careful not to mention the legal and beneficial ownership or interest of the land on which the village-type houses were to be built.  It seems to me that his submission is rested on the basis that there is a separate and distinct interest in the superstructure built on land from the interest in the land on which the superstructure is built.  With respect, that is the flaw in his argument as it is trite law that land includes all permanent improvements on the land.  

36.  That aside, while there is no dispute that an indigenous villager has a once in a lifetime ding right, Mr Yip is factually incorrect about the Policy.  To exercise the ding right, the indigenous villager has to have a plot of land registered under his name first.  Then, he may apply for the licence and build a village-type house on his land.  He has to be the legal and beneficial owner of the land on which the village-type house is to be built in the first place, whether by way of purchase, inheritance or gift, before the licence would be issued.  He has to remain so throughout the course of construction of the house as each piece of brick was laid and when the house was erected.  The ding right is a personal right and not a proprietary right.  If the ding has no proprietary interest in the land to begin with, he could not have been issued the licence.  The indigenous villager does not all of a sudden “become the legal and beneficial owner of the village-type house” without having been the legal and beneficial owner of the land on which the village-type house was built.  The illogicality of Mr Yip’s submission is readily exposed if one strips his submission down to its skeleton.  In essence, he is submitting that by exercising his once in a lifetime ding right, the ding acquires beneficial interest in a house which someone else built on a piece of land which he has no beneficial interest for nothing.  With respect, his submission is lacking in logic and legal sense.

37.  Not only that Mr Yip’s argument is flawed, Mr Neoh submits that Sino Favour’s transfer of the Land Lots to the Plaintiffs without consideration would, per se, give rise to a presumption of resulting trust in favour of Sino Favour: Westdeutsche Landesbank Girozentrale v Islington London Borough Council[6]. This resulting trust arises by operation of law, even in the absence of an express declaration of trust.  Mr Neoh does not seek to rely on the declaration of trust in the Co-operation Agreements which he accepts are unenforceable because of illegality.

38.  Mr Yip argues that a party cannot succeed on the basis of a scenario that he or his opponent has not pleaded; and as the 1^st to 4^th Defendants never pleaded there is any other declaration of trust, Mr Neoh may not launch his argument on resulting trust.  In my view, there is a distinction between “pleading law” and “raising an issue of law”.  The latter is permissible but not the former.  As submitted by Mr Neoh, by pleading the admitted fact that no consideration had been paid by the Plaintiffs to Sino Favour in return for the Land Lots, the 1^st to 4^th Defendants have sufficiently raised an issue of law on the existence of a resulting trust.  It is not necessary to plead using the magic words “resulting trust”.  The 1^st to 4^th Defendants have rightly not so pleaded.  That does not prevent them from arguing on resulting trust.

39.  Next, Mr Yip argues that the proprietary right being founded on the illegal Co-operation Agreements is unenforceable.  Mr Neoh’s reply is that as the proprietary right relied on by the 1^st to 4^th Defendants arose by operation of law and is not founded on the illegal Co-operation Agreements, it is enforceable under the principle in Tinsley v Milligan[7]. 

40.  In Tinsley v Milligan, the plaintiff and the defendant carried on a joint business.  They acquired a property with the profits of their business. The property was held under the plaintiff’s name alone to facilitate the defendant’s purpose of making fraudulent social security claims.  When the parties fell out, the plaintiff sought an order for possession.  The defendant counterclaimed a share under a resulting trust.  The House of Lords held, by a majority, that a party to an illegality can recover by virtue of a legal or equitable property interest if, but only if, he can establish his title without relying on his own illegality.  On the fact, the House of Lords held that as there was no evidence to rebut the presumption of resulting trust, the defendant was entitled to succeed on her counterclaim based on her beneficial interest in the resulting trust.  Lord Browne-Wilkinson said:

“The principle of locus poenitentiae is in my judgment irreconcilable with any rule that where property is transferred for an illegal purpose no equitable proprietary right exists. The equitable right, if any, must arise at the time at which the property was voluntarily transferred to the third party or purchased in the name of the third party. The existence of the equitable interest cannot depend upon events occurring after that date. Therefore if, under the principle of locus poenitentiae, the courts recognise that an equitable interest did arise out of the underlying transaction, the same must be true where the illegal purpose was carried through. The carrying out of the illegal purpose cannot, by itself, destroy the pre-existing equitable interest. The doctrine of locus poenitentiae therefore demonstrates that the effect of illegality is not to prevent a proprietary interest in equity from arising or to produce a forfeiture of such right: the effect is to render the equitable interest unenforceable in certain circumstances. The effect of illegality is not substantive but procedural.”[8]

After considering the relevant authorities, Lord Browne-Wilkinson held that the doctrine of illegality only barred the plaintiff from relying on the illegal transaction to rebut the equitable doctrine. He then concluded that a party claiming beneficial interest in a property which was transferred to or held by another party for illegal purpose or pursuant to an illegal agreement, was nevertheless entitled to recover his or her share so long as the party claiming beneficial interest did not found her claim on the illegal transaction.  He said:

“ The claim based on the equitable title did not fail simply because the plaintiff was a party to the illegal transaction; it only failed because the plaintiff was bound to disclose and rely upon his own illegal purpose in order to rebut the presumption of advancement. The Privy Council was plainly treating the principle applicable both at law and in equity as being that a man can recover property provided that he is not forced to rely on his own illegality.

I therefore reach the conclusion that, although there is no case overruling the wide principle stated by Lord Eldon, as the law has developed the equitable principle has become elided into the common law rule. In my judgment the time has come to decide clearly that the rule is the same whether a plaintiff founds himself on a legal or equitable title: he is entitled to recover if he is not forced to plead or rely on the illegality, even if it emerges that the title on which he relied was acquired in the course of carrying through an illegal transaction.”[9]

41.  Tinsley v Milligan is still being followed by the English courts: see Davies v O’Kelly[10].  Mr Neoh has identified the following Hong Kong cases in which Tinsley v Milligan was followed: Best Sheen Development Ltd v Official Receiver[11], Loyal Luck Trading Ltd v Tam Chun Wah[12], Peconic Industrial Development Ltd & Anor v Chio Ho Cheong & Ors[13], Wong Kwok Learn Baldwin v International Trading Co Ltd[14], Cheerbond Development Ltd v Tung Kwok Yu[15], Tang Wai Cho v Tang Wai Leung[16], Lau Kwai Kiu v Bian Xintian[17] and Ryder Industries Ltd v Chan Shui Woo[18].  All except two of these authorities are decisions of the Court of Appeal.  Best Sheen Development Ltd v Official Receiver and Lau Kwai Kiu v Bian Xintian are concerned with village-type houses in the New Territories.  In HKSAR andLau Kam Ying[19], both Tinsley v Milligan and Best Sheen Development Ltd were considered and approved by the Court of Final Appeal. 

42.  Mr Yip seeks to distinguish Best Sheen Development Ltd from the instant case on the ground that the developer in that case withdrew from the illegal transaction before the ding applied for licence and before it was granted by the District Land Officer, whereas in the present case, the illegal purpose had been completed and the village-type houses built.  He submits that it was on the basis of the doctrine of locus poenitentiae that the court held the developer could recover its property provided that it had withdrawn from the transaction before the illegal purpose had been wholly or partly performed.

43.  With respect, the locus poenitentiae point in no way undermined the principle in Tinsley v Milligan adopted in Best Sheen Development Ltd and the other Court of Appeal authorities quoted above, and the approval of the principle by the Court of Final Appeal in HKSAR andLau Kam Ying.

44.  Mr Yip argues that the approval by the Court of Final Appeal was only a passing comment.  He quotes Chitty on Contracts[20] in which the learned authors referred to the decision of the High Court of Australia in Nelson v Nelson [21] which adopted an approach wholly different from that in Tinsley v Milligan.  The learned authors in Chitty wrote:

“ 16-186 The approach in Tinsley v Milligan, depending as it does on proprietary concepts, was not followed in the important decision of the High Court of Australia, Nelson v Nelson. It is not possible to do justice to the subtlety and scholarship of this judgment. Nelson v Nelson involved a contract designed to acquire for the transferor of property under the contract a statutory benefit to which she would not have been entitled had the transfer not been effected. Thus it was a situation on all fours with Tinsley v Milligan. Rather than adopt the proprietary based reasoning of Tinsley v Milligan, the approach of the High Court was to determine whether the statutory rule which rendered the contract illegal precluded relief and the court held that it did not. The court cited with approval the views of an American author to the effect:

“ … if illegality consists of the violation of a statute, courts will give or refuse relief depending upon the fundamental purpose of the statute.”

The majority also held that in granting relief the court could do it on terms; such a power enables the harshness of the illegality doctrine to be tempered in appropriate circumstances.

16-187 The Bowmakers principle can, as with the illegality doctrine in general, operate in a capricious way. The capriciousness of its operation was trenchantly criticised in the Australian High Court decision, Nelson v Nelson:

“ The Bowmakers rule has no regard to the legal and equitable rights of the parties, the merits of the case, the effect of the transaction in undermining the policy of the relevant legislation or the question whether the sanctions imposed by the legislation sufficiently protect the purpose of the legislation. Regard is had only to the procedural issue; and it is that issue and not the policy of the legislation or the merits of the parties which determines the outcome. Basing the grant of legal remedies on an essentially procedural criterion which has nothing to do with the equitable positions of the parties or the policy of the legislation is unsatisfactory, particularly when implementing a doctrine that is founded on public policy.” ”

Based on the conflicting decision in Nelson v Nelson and the above observations in Chitty on Contracts, Mr Yip submits that the law is not settled and the court should not proceed to trial of the two preliminary issues if the question of law on which the dispute revolves is unsettled.

45.  I can see the attraction and forcefulness of the reasoning in Nelson v Nelson.  However, Tinsley v Milligan has been accepted and consistently applied in the Court of Appeal in Hong Kong.  As submitted by Mr Neoh, as of today, no appellate jurisdiction of equal or higher standing has ever challenged or doubted the correctness of the principle in Tinsley v Milligan.  Nelson v Nelson had come to the notice of the Court of Appeal in Loyal Luck Trading Ltd v Tam Chun Wah[22]. The Court of Appeal held that the potential conflict between Tinsley v Milligan and Nelson v Nelson could only be resolved by the Court of Final Appeal. On the present state of authorities, Tinsley v Milligan is still good law in this jurisdiction.  I consider the various Court of Appeal decisions are binding on this court.  There is no basis to support Mr Yip’s submission that the law is unsettled in Hong Kong. 

46.  Thus, a transferor claiming beneficial interest under a resulting trust, is only required to prove that he transferred or caused to be transferred a property to the transferee without consideration from the latter.  It is not necessary for him to rely on any contract, legal or illegal in support of his claim.  Once he shows that the transfer is voluntary, the burden is shifted to the transferee to show that the transfer was intended to be an outright gift, either by legal presumption or by proof of actual intention.  In the instant case, the relationship between Sino Favour and the Plaintiffs do not give rise to a presumption of advancement.  In Tinsley v Milligan, it was the legal owner who pleaded and relied upon the illegality.  The House of Lords held that was impermissible.  The House of Lords also held that the beneficial owner who established a resulting trust by contributing to the purchase price of the property without relying on the illegality was entitled to claim her beneficial interest in the property.  In this respect, Sino Favour is in a much stronger position than the defendant in Tinsley v Milligan because the Land Lots were transferred or caused to be transferred by Sino Favour to the Plaintiff without any monetary consideration.  So are the Defendants who rely on Sino Favour’s beneficial interest in the Land Lots. 

47.  Lastly, Mr Yip argues that because at the time of transfer of the Land Lots to the Plaintiffs the village-type houses were not in existence, hence Sino Favour could not have any beneficial interest in the village-type house which were built subsequently.  He further argues that the village-type houses would not have come into existence but for the application for building licences by the Plaintiffs pursuant to the Policy.  He submits that the Developers were the driving force behind the illegal Co-operation Agreements and played an active role in performing them by paying the building costs and premium, it would be contrary to the intent and spirit of the Policy for the Developers to obtain benefit under the Policy.  That submission is only to be rejected as it ignored the basic principle of land law that land includes all permanent improvements thereon.  Besides, both the Developers and the Plaintiffs were culpable parties.  The Plaintiffs played no lesser or less active role in making false representations in their application for licences. Why should the Policy still favour the dings who are equally culpable and who abused the Policy and seek to benefit from their illegality?

Conclusion

48.  Accordingly, on the first preliminary issue, I find that the Developers have retained a beneficial interest in the Land Lots by operation of law under a resulting trust; and that the Plaintiffs have no beneficial interest in the Land Lots.  They were mere nominees holding the legal title of the Land Lots on trust for the Developers.

THE SECOND PRELIMINARY ISSUE

The alleged conspiracies

49.  The second preliminary issue is directed at the Wasted Costs claimed by the Plaintiffs under HCA 868/2013.  Apart from proving loss and damage, to succeed in an action for conspiracy, the Plaintiffs have to establish a sufficient causal link between the alleged conspiracy committed by the Defendants with the Developers and their alleged loss and damage.  The test is whether but for the tort committed by the defendant, the plaintiff would not have suffered loss and damage: Clerk & Lindsell on Torts[23]. 

50.  The Plaintiffs allege two conspiracies.  In paragraphs 3(ii) and 18 of the statement of claim in HCA 868/2013, they allege an unlawful purpose conspiracy between the Developers and the Defendants with the predominant purpose to injure the Plaintiffs by prosecuting them together with Barbican and Wilkie Tsang in the 2005 Actions.  In paragraph 19, they allege that one of the purposes of the conspiracy was to seek costs orders against them.  In these paragraphs they pleaded as follows:

“ 3. (ii) …

However, in or about 2005, the individual Defendants unlawfully and wrongfully conspired with the 2005 Plaintiffs with the predominant purpose to injure the plaintiffs by prosecuting the Plaintiffs (together with other co-defendants, (i.e. [Barbican and Wilkie Tsang]) in the 2005 Action:-

…

18. It is unlawful for the 1^st - 4^th Defendants in presenting the Falsified Documents to the Court in the 2005 Actions and induced the Court to accept it as genuine and by reason of so accepting it therefore an Injunction Order was granted for carrying through the Falsified Documents in addition to the Defendants’ breach of full and frank disclosure owed to the Court in the Injunction Application as officers of the Court.

19. Further, the Defendants are therefore guilty of conspiracy to injure the Plaintiffs by prosecuting the 2005 Action and seeking costs order against the Plaintiffs for the carrying through of the Forged Document sought by [the Developers].”

They rely, among other things, on the overt acts pleaded in paragraphs 1(a), 2(d), 3(ii), 3(a)-(g), 4(a), 8B, 18, 20(k), 20(n), 20(o) and 22.  Those overt acts include:

(a) between April to June 2005, forging the Falsified Documents; and

(b) between August 2005 to February 2009, applying for the injunction by:

(i) issuing the summons on 3 August 2005;

(ii) filing the affirmation of Yeung Kang Tim Timmy dated 2 August 2005 in support of the injunction application;

(iii) applying for the injunction order to give effect to the sale and purchase of the Land Lots stated in the Falsified Documents; and

(iv) failing to disclose to the court the falsity of the Falsified Documents.

In essence, they allege the Defendants of presenting the Falsified Documents, ie the First Set of SPAs, to court in order to obtain the injunction order to enable them to carry through the conveyancing transaction stated in the Falsified Documents. 

51.  In paragraph 16 of their statement of claim in HCA 868/2013, they pleaded an unlawful means conspiracy in forging the Falsified Documents. In paragraph 19, they sought to recover as damages the Wasted Costs in the 2005 Actions.  The conspiracy is only confined to the period between 2 August 2005 when the Developers issued the summons applying for injunction and 12 August 2005 when Judge Saunders’ Order was made.

52.  In paragraph 23, the Plaintiffs itemize the loss they suffered by way of legal costs in defending and counterclaiming in the 2005 Actions, ie the Wasted Costs.  These are:

(a) the Plaintiffs’ own legal costs for the general conduct of the proceedings in the amount of $1,490,829.60;

(b) the Defendants’ legal costs awarded by court against the Plaintiffs in their application for discovery before Master de Souza and the appeal before Bharwaney J in the amount of $586,920.57;

(c) the Developers’ legal costs awarded by court against the Plaintiffs for withdrawing the third party notice in the amount of $800;

(d) the legal costs of the Developers awarded by court against the Plaintiffs in their application to amend their defence and counterclaim before Fung J in the amount of $40,940; and

(e) Barbican’s and Wilkie Tsang’s legal costs awarded by court against the Plaintiffs for withdrawing the third party notice in the amount of $800.

The total amount is $2,117,290.17.

53.  The thrust of Mr Yip’s submission is focussed on the forgery aspect of the Falsified Documents.  It was my provisional view at the hearing of the application for trial of the preliminary issues that forgery is not a material issue.  For the reasons as stated in the following section, I confirm that view.  Even if forgery were relevant, the ultimate issues the Plaintiffs have to prove are loss and causation.  These are what the two preliminary issues are directed at.  Only if these issues are resolved in favour of the Plaintiffs, then they may need to prove forgery to further establish their claims.

54.  Mr Neoh made two observations.  First, he submits that once it is established that the Developers were the true beneficial owners of the Land Lots, it would be legitimate for them to commence the 2005 Actions with a view to protecting their own interest in the Land Lots and to seek costs against the Plaintiffs if they unreasonably sought to defend it: Crofter Hand Woven Harris Tweed Co v Veitch[24]. As the Developers were beneficial owners of the Land Lots at the material time, it can hardly be disputed that what the Developers did in instituting the 2005 Actions was to protect their own interest in the Land Lots.  The Defendants’ agreement with the Developers to institute the 2005 Actions could not have been unlawful.  I agree.  That is the impact my finding in the first preliminary issue will have on the Plaintiffs’ claim in HCA 868/2013.

55.  Second, Mr Neoh argues that the 1^st to 4^th Defendants were at all times solicitors acting for the Developers in the 2005 Actions.  It would be far-fetched and legally remote to suggest that the 2005 Actions were instigated with a predominant purpose to injure the Plaintiffs by making them incur legal costs.  This argument is directed at the existence or otherwise of the conspiracy.  It is outside the scope of the second preliminary issue.  It is a matter to be considered at trial if both preliminary issues are resolved against the Defendants.  I shall not take this submission into account in my consideration of the second preliminary issue.

56.  I shall deal strictly with causation in respect of each item of the Wasted Costs in the sections below.

(a) Plaintiffs’ own legal costs in defending the 2005 Actions

57.  In respect of this item of claim, Mr Neoh argues that the proceedings could be split into two stages: the first stage from 2 August 2005, ie the date of issue of the ex parte summons seeking an injunction against the Plaintiffs and Barbican, to the date of Judge Saunders’ Order on 12 August 2005 and the second stage thereafter. 

58.  In respect of the first stage, which includes the hearings before Hartmann J and Deputy High Court Judge Saunders (as he then was) when the parties had yet to file their pleadings, the Plaintiffs had not entered into appearance at the hearing at all.  No costs could have been incurred.  They could have suffered no loss.  That is entirely correct.

59.  The second stage includes all costs for the general conduct of the defence in the 2005 Actions, such as preparing the respective defence and counterclaims, witness statements and general conduct of the defence, etc, but do not include the costs of interlocutory applications awarded against the Plaintiffs.  To investigate the issue of causation, it is necessary to examine the Plaintiffs’ claim for Wasted Costs in HCA 868/2013 against the Developers’ statement of claim and the Plaintiffs’ defence pleaded in the 2005 Actions and see if there is any causal link between the Wasted Costs and the Defendants’ overt acts pleaded in HCA 868/2013.

60.  In the 2005 Actions, the Developers pleaded the following matters in support of their claim for breach of trust and/or the Co-operation Agreements:

“ 10. By reason of the provisions of [the Co-operation Agreements] and/or the performance of [the Co-operation Agreements] by [the Developers], [the Plaintiff] held [the Land Lots] as trustee, express or implied, for [the Developers].

16. Wrongfully and without the consent or knowledge of [the Developers],

(a) [the Plaintiff] and [Barbican] purportedly entered into [the Second Set of SPA] dated 30^th May 2005 whereby [the Plaintiff] purportedly agreed to sell and [Barbican] purportedly agreed to purchase [the Land Lots] …”

In paragraph 15, the Developers pleaded that they advertised the sale of the village-type houses in May 2005 and that the Plaintiffs entered into the First Set of SPAs, which the Plaintiffs referred to as the “Falsified Documents”.  In paragraph 17, the Developers pleaded that the Second Set of SPAs was caused to be registered against the Land Lots at the Land Registry.  In paragraph 21, the Developers pleaded that the registration was deemed an incumbrance on the title of the village-type houses as a result of which they suffered loss.

61.  Initially, in their defence, the Plaintiffs pleaded that they treated Wilkie Tsang, a director of Barbican, as the de facto developer of the Land Lots behind the Developers and alleged that he agreed to pay them the outstanding remuneration under the Co-operation Agreements in consideration for their executing the Second Set of SPAs.  They disputed signing the Falsified Documents.  They counterclaimed for the outstanding remuneration payable by the Developers under the Co-operation Agreements and damages arising from the delay in construction of the village-type houses. 

62.  As the matter then stood before Deputy High Court Judge Saunders, the Developers’ claim was made on the strength of their own beneficial interest in the Land Lots under the Co-operation Agreements. The Plaintiffs did not plead illegality as a defence.  They also relied on the Co-operation Agreements as the basis for their counterclaim for the outstanding remuneration.  The execution of the Falsified Documents was not the basis of the Developers’ claim and could not have been the basis of the court’s grant of injunction order restraining the sale and purchase of the Land Lots under the Second Set of SPAs or the order for sale under Judge Saunders’ Order.  It only served as a factual background, leading to the discovery of the registration of the Second Set of SPAs, the subsequent application for injunction and the issue of the writs in the 2005 Actions.  Simply put, the Developers’ case was that someone with whom the Plaintiffs were connected unlawfully registered an incumbrance against the title of the Land Lots of which they were the beneficial owners.  With or without alleging the execution of the Falsified Documents, Judge Saunders’ Order would have been granted just the same.

63.  Later, on 24 June 2010, after having obtained leave to amend the statement of claim from Fung J, the Plaintiffs pleaded that the Developers were not the beneficial owners of the Land Lots by reason of illegality.  But as the Developers can rely on their beneficial interest in the Land Lots under resulting trust without relying on the illegal Co-operation Agreements, the amendment has no impact on the Developers’ claim.  Even if illegality had been pleaded and argued before Deputy High Court Judge Saunders, the outcome would still have been the same.

64.  In either event, the Plaintiffs’ case based on the Falsified Documents cannot provide them a meritorious defence to or counterclaim in the 2005 Actions.  Thus the real operative cause of their loss in term of legal costs in the 2005 Actions was the conduct of their defence and counterclaim which did not concern the falsity of the Falsified Documents.  The Plaintiffs are unable to establish the necessary causal link between the use of the Falsified Documents by the Developers and their legal costs.

65.  Furthermore, such costs were wasted and caused by the Plaintiffs’ conscious decision to waive their costs under the settlement agreement with the Developers.  The causal link is blatantly missing. 

(b) Costs in the discovery application and appeal and (d) Costs in the application to amend the defence and counterclaim

66.  Against the above background, it must necessarily follow that it was a futile exercise to seek discovery of the sale and purchase agreements used by the Developers to sell the Land Lots, ie the Falsified Documents.  The Plaintiffs’ application was rightly dismissed with costs by Master de Souza and their appeal against the master’s decision was dismissed by Bharwaney J, also with costs.  These results repeatedly demonstrate that the Falsified Documents are irrelevant.  The costs ordered to be paid were caused by the Plaintiffs’ conduct of their defence.  Again, they failed to establish the causal link between the use of the Falsified Documents and the costs in the discovery application and in the appeal.

67.  For the same reasons, the application to amend the defence and counterclaim was another futile exercise.  After all, it was the Plaintiffs’ own fault not to have pleaded illegality in the first place. But even if they had done so, it could not have availed them.  The costs ordered to be paid were due to the Plaintiffs’ conduct of their defence. Again, they failed to establish the necessary causal link.

68.  In any event, as submitted by Mr Neoh, the Developers’ entitlement to costs against the Plaintiffs arising out of the interlocutory applications had been scrutinized by the court in the 2005 Actions.  These are “extra costs” as described by Brett MR in Quartz Hill Consolidated Gold Mining Co v Eyre[25], and are unrecoverable.

(c) and (e) Costs to the Developers, Barbican and Wilkie Tsang defendants for withdrawing the third party notice

69.  For similar reasons, there is no causal link between the use of the Falsified Documents and these costs.  In particular, the third party notice was issued without leave.  The Plaintiffs only had themselves to blame for the costs awarded against them.

Conclusion

70.  For the above reasons, the Plaintiffs have failed to prove any causal link between the alleged conspiracies and the alleged loss and damage suffered by way of legal costs.

CONCLUSION

71.  In conclusion, I answer the questions of law set out in the schedule to the 1^st to 4^th Defendants’ inter partes summons dated 1 June 2015 as follows.

72.  In respect of the first preliminary issue, I find that the Developers have retained a beneficial interest in the Land Lots by operation of law under a resulting trust; and that the 1^st to 5^th Plaintiffs in HCA 811/2010 and HCA 868/2013 have no beneficial interest in the Land Lots.  They were mere nominees holding the legal title of the Land Lots on trust for the Developers. “Land Lots” refer to the subject matters of the Plaintiffs’ claim in HCA 811/2010 which are also the lots of land on which the “Houses” referred to in paragraphs 1(a) and 9 of the statement of claim in HCA 868/2013 were erected.

73.  In respect of the second preliminary issue, I find that the costs incurred by the 1^st to 5^th Plaintiffs in HCA 868/2013 were not caused by the production and use of the sale and purchase agreements by the 1^st and 2^nd Third Parties as set out in paragraph 9 of the statement of claim in HCA 868/2013, ie the Falsified Documents or the First Set of SPAs. 

74.  Both preliminary issues are resolved in favour of the 1^st to 5^th Defendants.  Accordingly, I make a costs order nisi that the 1^st to 5^th Plaintiffs shall pay the costs of the 1^st to 5^th Defendants with certificate for two counsel.  Such costs are to be taxed if not agreed.

HCA 811/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 811 OF 2010

____________

______________

D E C I S I O N
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Introduction

1. This is the plaintiffs’ appeal against the master’s order dated 3 September 2014 whereby Master Lai made no order on their application for discovery of documents (taken out pursuant to RHC Ord 24 rr 10(1) and 11A (which ought to be Ord 24 r 11(1)).

Background

2. To properly understand how this appeal came about (and how it should be determined), it is necessary to understand the two actions taken out by the plaintiffs: HCA 811/2010 (“the main conspiracy claim”) and this action.  Although only 4 defendants are sued in the main conspiracy claim, but 5 defendants are sued herein, for present purpose, they can be treated as the defendants (for reasons which will become apparent below).

3. The plaintiffs are male indigenous villagers, and owned pieces of land in Hang Tau (in the Sheung Shui area).  As such, they enjoyed a right under the government’s “Small House Policy” to build village-type houses.  The first 4 defendants herein are a firm of solicitors, whereas the 5^th defendant is a clerk employed by them.

4. The gist of the plaintiffs’ complaint in the main conspiracy claim is pleaded as follows:

“… from about April to June 2005, the Defendants, wrongfully and with intent to injure the Plaintiffs by unlawful means, conspired and combined … to deprive the Plaintiffs of their rights and interests in the Plaintiffs’ Land by selling the small houses or part(s) of the small houses erected thereon without the Plaintiffs’ prior knowledge or consent” (para 3, statement of claim).

(“the main conspiracy”)

5. The principal means for carrying out the main conspiracy was the use of false documents.  These are described as follows in the statement of claim of the main conspiracy claim:

(a) formal sale and purchase agreements (particulars given under para 4 thereof);

(b) powers of attorney purportedly executed respectively by the 1^st and 3^rd plaintiffs (para 7(a) thereof).

6. It is further averred the defendants encountered difficulties in carrying out the main conspiracy in that the plaintiffs:

(1) had sold their respective land lots and houses to third party purchasers;

(2) refused to convey their respective land lots and houses to the defendants’ co-conspirators who purportedly sold their said properties to some other third party purchasers.

7. In order to further the main conspiracy, the defendants conspired to:

(a) commence false claims against the plaintiffs (HCA 1517 to 1521/2005) (“the 2005 false claims”);

(b) adduce false evidence (including a witness statement and court testimony from the 5^th defendant) to obtain relief in the 2005 false claims.

This conspiracy is the subject-matter of this action (“the false claim and evidence conspiracy”).

8. Although it is not expressly so pleaded in the statement of claim herein, in essence the plaintiffs’ case is that, through the use of false evidence in the 2005 false claims, the defendants successfully obtained:

(1) a court order authorizing the defendants’ co-conspirators to convey the plaintiffs’ said properties to third party purchasers;

(2) a court order releasing the related sale proceeds to the defendants’ co-conspirators;

(3) a consent order in October 2010 whereby the 2005 false claims were discontinued (and the plaintiffs’ counterclaim therein was also discontinued) with no order as to costs.

(see para 2 and 3, statement of claim herein)

9. Insofar as is relevant to this appeal, the false evidence alleged in the statement of claim herein as having been used by the defendants in the 2005 false claims (and hence used as a means of carrying out the false claim and evidence conspiracy) was:

“… the sale and purchase agreements marked collectively as ‘TY-35’ of [the] Exhibits with the Plaintiffs named therein as the vendors … ” (para 3(c), statement of claim herein);

Their complaint in this action is:

“The Defendants applied to court to prosecute for injunction order to give effect to the [above] sale and purchase agreements … ” (para 3(c), statement of claim herein),

and that:

“In making the Injunction Application, the Defendants never disclose to the Court that the [above] sale and purchase agreements (i.e. the Falsified Documents) with the Plaintiffs named therein as the vendors were forged and among other specifically the attestation and interpretation were forged by the 2^nd and 3^rd Defendants … ” (para 3(d), statement of claim herein).

(emphasis supplied) The term “Falsified Documents” has been defined in the statement of claim herein as the sale and purchase agreements referred to in para 3(c) thereof.

This appeal

10. As stated above, this appeal is brought pursuant to Ord 24 rr 10(1) and 11(1).  Ord 24 r 10(1) says:

“Any party to a cause or matter shall be entitled at any time to serve a notice on any other party in whose pleadings, affidavits or witness statements served under Order 38, rule 2A, or experts’ reports, reference is made to any document requiring him to produce that document for the inspection of the party giving the notice and to permit him to take copies thereof”.

Ord 24 r 11(1) provides:

“If a party … who is served with a notice under rule 10(1) … objects to produce any document for inspection, … then, subject to rule 13(1), the Court may, on the application of the party entitled to inspection, make an order for production of the documents in question for inspection … ”.

11. It is accepted that Ord 24 r 11(1) has conferred upon the court a discretionary power.  In view of Ord 24 r 13(1), that discretion is to be exercised with the necessity (i) for disposing fairly of the cause or matter, or (ii) for saving costs, in mind.

12. The documents sought by the plaintiffs in this appeal (and in the application before the master) are the powers of attorney executed by the 2^nd, 4^th and 5^th plaintiffs (“the subject documents”).

13. When queried why the subject documents fall within the criteria laid down by Ord 24 r 13(1), the plaintiffs first draw attention to the defence of the 1^st to 4^th defendants:

“Pursuant to the express term [of the Co-operation Agreements between the land developer and the plaintiffs], upon the orders and directions of the Developer … , between 1995 and 1996, the 1^st to 5^th Plaintiffs signed and executed … the following documents … Powers of Attorney appointing the nominees of the Developer as their attorneys … ” (para 12(a) thereof).

14. Based on the above averment, the plaintiffs contend that the subject documents fall within Order 24 r 13(1) because:

“One of the issues to be tried, … is ‘Whether the 1^st to 4^th Defendants have conspired with the 1^st and 2^nd Third Parties (the Developers) to use unlawful means, i.e. using forged conveyancing documents, to injure the Plaintiffs’ interest in the Land Lots (if any)?’ … ” (para 20, plaintiffs’ skeleton argument).

15. But this is a mis-description of this action, which subject-matter is the false claim and evidence conspiracy (rather than the main conspiracy).  Further, the loss allegedly having been suffered in this action by the plaintiffs was the legal costs which the plaintiffs incurred in defending the 2005 false claims, whereas the loss allegedly having been suffered in the main action by them was the value of their respective properties.

16. In addition, as can be seen from para 9 above, the subject documents are not part of the false evidence relied on by the plaintiffs as part of their pleaded case concerning the false claim and evidence conspiracy.  The part of the defence referred to in para 13 above does not advance this appeal; the focus of that part is about the background leading to why the documents referred to therein came to be executed, rather than on the documents themselves.  In any event, it should also be noted here that mere relevance does not by itself satisfy either of the purposes mentioned in Ord 24 r 13(1): Hong Kong Civil Procedure 2015, Vol 1, para 24/13/1.

17. Taking the plaintiffs’ case in this appeal to the highest, the subject documents can at most be useful for establishing the credibility of the plaintiffs’ witnesses and/or undermining that of the defence witness.  But specific discovery for the purpose of impeaching the credit of the opposite party is not generally allowed: Tai Fook Futures Ltd v Cheung Moon Hoi [2005] HKEC 587, para 30 (see also CACV 103/2005 (23 October 2006), para 29) and this also applies to the subject documents.

18. For completeness, I pause to note that the subject documents may or may not be relevant to the main conspiracy claim.  But because that claim is not part of this appeal, it is unnecessary (perhaps even inappropriate) for them to be considered in that perspective.

Conclusion

19. The appeal is dismissed; the master’s order is to stand.

20. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

21. The parties agree that costs should follow the event. There will accordingly be a costs order that the costs of this appeal be paid by the plaintiffs to the defendants.

22. I consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a) the defendants be at liberty to lodge with court and serve a statement of costs within 7 days from today;

(b) the plaintiffs be at liberty to lodge with court and serve a statement of objections within 7 days thereafter.

HCA 811/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 811 OF 2010

_________________________

BETWEEN

_____________

D E C I S I O N

_____________

A.  The Application

1.  Before the two actions of HCA811/ 2010 and HCA 868/2013 were consolidated, the Plaintiffs applied by summons dated 7 June 2013 in action HCA811/2010 for further and better particulars of a certain part of the Defence. The matters discussed in this decision notwithstanding the consolidation are only concerned with the action HCA811/2010.

2.  The Defendants, in response to the summons, served an Answer dated 15 July 2013. In it, apart from providing some documents (to be referred to in §67 below), the Defendants virtually refused to answer most of the requests. Hence, the hearing for argument in which the Plaintiffs were represented by counsel, Mr Fong, and the Defendants by counsel Mr Chong and Miss Wong.

B.  Background

3.  Before discussing the substantive merits of the requests, a brief mention should be made of the history of events.

4.  Prior to the summons, the Defendants had applied to strike out the Plaintiffs’ claim, but failed before the Master.  This led to the appeal heard by Poon J, who allowed the appeal against the Master’s order, struck out the claim and set aside the default judgment (that had been entered against the Defendants). Dissatisfied with Poon J’s order, the Plaintiffs appealed to the Court of Appeal under CACV 43/2012. The Court of Appeal by a unanimous judgment handed down on 7 February 2013 (“CACV Judgment”) allowed the Plaintiffs’ appeal.  Barma JA, in the leading judgment,  discussed in great detail the background to the Plaintiffs’ claim, and I will respectfully set out the relevant part of his judgment relating to the background as follows:

“The background to the Plaintiffs’ claim

5. In these proceedings, the Plaintiffs, all of whom are male indigenous villagers of a village in the New Territories, claim damages against the Defendants, who are partners in a firm of solicitors, for conspiracy and malicious falsehood. The factual background to the claim is as follows:-

(1) The Plaintiffs were respectively the registered owners of Sections C, J, H, E and L of Lot 482 in DD 94, in Hang Tau, New Territories. The 5^th Plaintiff was also the registered owner of section A of Lot 485 in DD 94. As male indigenous villagers, they were each entitled to build a house on their land, in accordance with the Government’s Small House Policy in relation to New Territories land.

(2) In about 1993, three companies – Wang Kee and Company Limited (“Wang Kee”), Keeprofit Limited (“Keeprofit”) and Barbican Capital Investment Limited (“Barbican”) entered upon a joint venture project to develop small village houses in Hang Tau…

(3) During 1994, Sino Favour entered into agreements (“the Development Agreements”) with 21 male indigenous villagers, including the Plaintiffs, to acquire their rights to build small houses on Lots 482 and 485. Each of the agreements provided for Sino Favour to be responsible for construction works, bearing all the costs of construction, while the villagers would be responsible for obtaining necessary government approvals for the construction of a small three-storey house on the land of which they were respectively the registered owners… the villagers agreed to hold their respective pieces of land as bare trustees for Sino Favour.

(4) ……

(5) … in 2003, Sino Favour brought in a new joint venture partner, Shiny Develop Limited (“Shiny Develop”), for the first phase of the project, under which 10 houses were to be built.

(6) The 10 houses were completed in about January 2005… and between April and June 2005, Sino Favour and Shiny Develop entered into agreements for the sale and purchase of the houses that had been built with third party purchasers. The Defendants acted as the solicitors for Sino Favour and Shiny Develop in relation to these sales.

(7) The Plaintiffs say that they were unaware of the sales of the houses, and that the houses were sold without their knowledge and consent. They say that in the case of the 1^st and 3^rd Plaintiffs, the sale documentation by which houses were sold by these Plaintiffs was executed by purported attorneys on their behalf, in whose favour they had never in fact executed powers of attorney. In the case of the 2^nd, 4^th and 5^th Plaintiffs, it is said that they never authorised the Defendants to act as their solicitors in respect of such sales, and never signed the sale and purchase agreements that purport to bear their signatures, which must therefore have been forgeries (or involved a misuse of their signatures on other, originally blank, documents). Further, all the Plaintiffs say that the attestation and interpretation clauses in the various sale and purchase agreements to which they were apparently parties were untrue and therefore amounted to forgeries, as the 2^nd and 3^rd Defendants never attested the Plaintiff’s signatures, and none of the agreements were interpreted to the Plaintiffs. The Plaintiffs also claim never to have received any of the consideration payable under the sale and purchase agreements.

(8)     In these circumstances, the Plaintiffs claim that the Defendants were guilty of conspiracy to injure them by selling their property without their knowledge and consent, and of malicious falsehood by falsely representing to the purchasers that the Plaintiffs had agreed to the sale and purchase of their houses, and to have suffered damage in respect of the value of their property of which they have thereby been deprived.”

C.  Earlier proceedings

5.  The factual background as taken from the Barma JA’s judgment only encapsulates the Plaintiffs’ claim.  In order to properly understand the issues of this case (to be discussed below), it is necessary to consider the gist of the Defendants’ defence as some of its pleas are the subject matter of the requests.

6.  In their Defence, the Defendants alluded to a host of previous events and court orders in connection with the subject land lots of this claim.  Again, Barma JA’s judgment gave a succinct description of it. For the purpose of avoiding repetition,  I will respectfully extract the relevant part of his judgment under the heading of “the history of the earlier proceedings” as follows:

“The history of the earlier proceedings

9. … These can, for present purposes, be summarised as follows: -

(1) In about mid-2005, the Developers having entered into contracts for the sale and purchase of the small houses developed in the first phase of the project, they discovered before such contracts were completed that, notwithstanding the declarations of trust that had been made by the Plaintiffs, the Plaintiffs had purportedly entered into provisional sale agreements in respect of the same houses under which they were to sell the houses to Barbican at what was alleged to be a gross undervalue, and had given Barbican irrevocable powers of attorney in respect of the houses, without the knowledge or consent of the Developers, and had registered the provisional sale and purchase agreements against the houses, thereby creating an impediment to the completion of the Developers’ sales to their own purchasers (all of whom were unrelated bona fide third parties).

(2) As a result the Developers brought HCA 1517-1521/2005 against the Plaintiffs and Barbican (five separate actions being brought against each of the 1^st to 5^th Plaintiffs respectively, in all of which Barbican was joined as a defendant).

(3) …

(4) On 12 August 2005, the return day for the injunctions granted by Hartmann J, the Developers and Barbican appeared before Deputy Judge Saunders. …, the Developers sought a continuation of the injunctions granted ex parte by Hartmann J...

(5) …Deputy Judge Saunders was persuaded to make orders for sale permitting the Developers to sell or complete the sale of the houses “on the basis” that “the [Plaintiffs] are just the bare trustees of the [Developers] holding the legal title [to the houses] on trust for the [Developers]”. There was, however, also an undertaking on the part of the Developers to hold a sum of HK$2,500,000 (representing the proceeds of sale) through their solicitors (the Defendants) as stakeholders…..

(12) The earlier proceedings were eventually settled.”

7.  The Developers referred in §9(1) of the CACV Judgment set out above were Sino Favour and Shiny Develop.

8.  For convenience, I will, unless otherwise stated, adopt the same abbreviations as set out in the CACV Judgment extracted above.

D. Pleadings and issues

D.1  Pleadings

9.  According to the Statement of Claim (“SOC”), the Plaintiffs’ interests in the subject land lots were based on them being the registered owners of the subject land lots.  Wrong was allegedly committed against the Plaintiffs when the Developers and the Defendants, between April and June 2005, by 10 respective sale and purchase agreements (“2005 SPAs”) and the purported power of attorneys allegedly executed by the respective 1^st and 3rd Plaintiffs (“Impugned PA”), caused the disposal of the sale of the houses erected on the subject land lots without their prior knowledge and consent.

10.  In the Defence, heavy reliance has been placed on the previous proceedings set out in Section C above, especially the order made by Deputy Judge Saunders on 12 August 2005 (“Saunders Order”) described in §9(5) of the CACV Judgment.  The gist of the Defendants’ defence is:

(1) By virtue of the terms of the Development Agreements, the Plaintiffs were only bare trustees without any beneficial interest in the said land lots and in the houses built and completed by the Developers on the said land lots.

(2) The Plaintiffs had entered into the 2005 SPAs in the capacity of the trustees of Sino Favour. By the Saunders Order, the Developers had been authorized to sell and dispose of the houses, in respective of which transactions the Defendants only acted for the Developers (but not the Plaintiffs).

11.  Before discussing the Reply, it is perhaps also convenient to identify at this stage another set of documents the Defendants alleged (in §15 of the Defence) the Plaintiffs had allegedly executed pursuant to an express term of the Development Agreements and under the order and direction of Sino Favour.  These documents were allegedly executed between 1995 and 1996, and they were (a) power of attorneys; (b) formal sale and purchase agreements and (c) assignments (collectively “95/6 Documents”).  These 95/6 Documents will be discussed in greater detail in Section F.2 that deals with the requests arising from this plea.

12.  In the Reply, the Plaintiffs averred that the Development Agreements were illegal and unenforceable (§§5-10 of the Reply).  It was further denied that the Plaintiffs had signed any of the 95/6 Documents.

D.2  Issues

13.  In this application, Mr Fong, in his Reply Submission, identifies three issues[1] said to be relevant to this action.  They are,

(a) Whether the Plaintiffs are the legal and beneficial owners of the subject land lots;

(b) Whether the Development Agreements were unlawful and unenforceable against the Plaintiffs; and

(c) Whether the Defendants have conspired with the Developers and/or other persons to sell and dispose of the Plaintiffs’ properties by using false/forged documents.

14.  Mr Chong, on the hand, contends[2] that there are only two relevant issues in this action:

(a) Whether the Plaintiffs were bare trustees of the Developers without beneficial interests in the said land lots.

(b) If the Plaintiffs were not bare trustees and had interests in the said land lots, whether the 2005 SPAs and the Impugned PA have caused loss and damage to the Plaintiffs.

15.  Despite the slight difference in the number of issues the counsel have identified, I think they are substantially the same, and boil down to two. The first issue is, undisputedly, the question of beneficial interests as Barma JA had already observed in the CACV Judgment (at §6) that the Plaintiffs in order to succeed on this claim,  “must establish that they had a beneficial interest in the houses that were sold.  If they did not, they could suffer no loss or damage… [the Plaintiffs] assert that they did, because their declaration of trust in favour of Sino Favour under the Development Agreement is invalid and unenforceable by reason of illegality, as to uphold it would involve a misrepresentation (as to their being beneficial owners of the land on which their respective houses were built) having been made to the Government in order to obtain permission to build such houses”.

16.  The question of beneficial interest would undoubtedly involve a determination of the legality of the Development Agreements.

17.  It should be noted that in Barma JA’s judgment, the beneficial interests that he had identified referred to those of the houses that were sold, not to the land lots.  This must be correct as the Plaintiffs’ claim for the alleged loss and damage concerns the houses that had been built on the subject land lots but were sold in 2005.  The beneficial interest that is being discussed in this decision should be referable to the beneficial interest in the houses though it is observed that counsel do not seem to have made such a distinction in their written submissions.

18.  If the Plaintiffs fail on the beneficial interest issue, they will also fail in their claim.

19.  If, beneficial interests could be established, the next issue that needs to be determined will be whether the Defendants had committed any wrongdoing as the Plaintiffs alleged in the SOC, that is, whether they had conspired with the Developers and other persons to dispose of the houses without their consent, and whether they had forged the 2005 Agreements and the Impugned PA and whether they had falsely made representations as to these documents.

20.  The second issue therefore is to determine if the Defendants had committed any wrongful acts as alleged.

21.  In summary, the first issue on beneficial interest covers issues (a) and (b) Mr Fong’s identified and Mr Chong’s issue (a); while the second issue on the alleged wrongful acts will be Mr Fong’s issue (c) and Mr Chong’s issue (b).

22.  Having identified the relevant issues, I next consider the applicable principles, which I do not think are in dispute.

E.  Applicable Principles

23.  Broadly speaking, the principles to be applied in this application are those governing Order 18 rule 12, Rules of the High Court (“RHC”), which rule, since the amendment made under the Civil Justice Reform, now requires an applicant to show that the particulars sought are “necessary either for disposing fairly of the cause or matter or for saving costs” (Order 18 rule 12(3B), RHC).  Relevance, as accepted by counsel, is not the only requirement.

24.  The question of rrelevance is not confined to a consideration of the averments made in pleadings.  The court can disregard any immaterial or irrelevant averments in the pleadings.  Thus, discovery may be refused if it can be shown that the documents, though being averred to in a pleading, are irrelevant to matters that need to be resolved at trial (Allington Investments Corp v First Pacific Bancshares Holdings Ltd [1995] 2 HKC 139, followed by Re Cosmo-Technology Ltd [2009] 2 HKLRD 151).

25.  A decision of Deputy Queeny Au-Yeung (as she then was) in Well Joint Trading Ltd v Chiu Chung Chiu, unrep. HCA 1768/2011, 9 July 2012 was also cited by Mr Fong. In this decision, the then learned Deputy Judge after quoting a passage of the judgment of Mr Justice Ma CJHC (as he then was) in Wing Hang Bank Ltd v Crystal Jet International Ltd & Others [2005] 2 HKLRD 795 at 799 A-F, recapped (at §§14-16) the well-established principles on the function of particulars.

26.  The principles on the function of particulars are well-established and trite, and I do not propose to repeat them but will bear them in mind in this application.

27.  Before leaving this discussion, I should also mention (for completeness) the cases Mr Chong referred to in his written submission concerning the requirement that is applicable to this claim – a requirement of pleading special damage. In this claim as the Plaintiffs’ claim has included a claim under malicious falsehood (citing Ratcliffe v Evans [1892] 2 QB 524 and British Railway Traffic and Electric Co v The C.R.C Co and the London Country Council [1922] 2 KB 260) and a tort of conspiracy (citing Crofter Hand Woven Harris Tweed Co v Veitch [1942] AC435), it is therefore submitted that the requirement would apply.

28.  I do not think much turns on these authorities as I do not think Mr Chong is suggesting that he is relying on a pleading defect in the Defendants’ refusal to provide particulars to be further discussed in Section F below.

29.  I now turn to the specific requests.

F.  Requests

F.1  Paragraph 8 of the Defence (Request 1)

30.  At the hearing of the summons, Mr Fong indicated to the court that the Plaintiffs no longer pursued this request.

F.2  Paragraph 15 of the Defence (Request 2)

31.  It is pleaded that the Plaintiffs, pursuant to an express term of the Development Agreements, and upon the orders and direction of Sino Favour, were contractually obliged to do, signed and executed the 95/6 Documents to enable Sino Favour to sell or otherwise dispose of their legal title in the land lots.

32.  In their Answer to the Request, the Defendants answered that the house (with the land lot number being stated to be 882) referred in §4(a) of the SOC did not concern them.

33.  So far as the sales referred to in §4(e) to (g) of the SOC are concerned, the Defendants answered that the sale in relation to the houses of the respective land lots (that is, those of the 3^rd and the 4^th Plaintiffs) described in the said sub-paragraphs had been cancelled.  It is therefore contended that no loss or damage could have been caused to the 3^rd and 4^th Plaintiffs, and the 95/6 Documents are wholly unnecessary.

34.  As for the requests for the identity of the person acting for Sino Favour; the details of the orders and directions having been allegedly given by Sino Favour; the exact dates of and the location of the signing and execution of, the Plaintiffs’ legal representation in respect of the alleged execution of, the particulars of attestation of, the custody of and the present state of the 95/6 Documents, were contended by the Defendants as being irrelevant to any issues raised in the claim or defence.

35.  Continuing with the pursuit, Mr Fong submitted that the Defendants, having alluded to the 95/6 Documents, were positively pleading a case that they were the solicitors for Sino Favour in the sale and disposal of the subject land lots (§16 of the Defence), and given the fact that the 95/6 Documents were allegedly for the sale and disposal of the subject land lots,  the  particulars sought would give information on whether the Defendants had been involved in the preparing and/or arranging of the 95/6 Documents and  whether they had been used to proceed with the sale of the houses sold by the Developers in 2005.

36.  Mr Chong raised a number of contentions.  The gist of his contentions is as follows:

(1) It is the Plaintiffs’ case that they have allegedly suffered loss and damage as a result of the sale of their respective land lots under the 2005 SPAs.  Whether the plaintiffs have signed other documents which did not dispose of the subject land lots were irrelevant.  It is not necessary for the Defendants to identify the 95/6 Documents.

(2) By the doctrine of merger, a sale and purchase agreement is to be merged in the final assignment.  By the operation of this doctrine, any earlier sale and purchase agreements that might have been signed would have been merged with the actual assignment that finally disposed of the interest in the houses.

(3) Even if the 95/6 Documents were relevant for the disposal of Issue (b) that he has identified, the particulars sought are irrelevant for the following reasons:

(a) The matter pleaded in §15 of the Defence is whether the Plaintiffs were bound by the terms of the Development Agreements to sign the 95/6 Documents.  The circumstances and the details of the execution of these documents are irrelevant.

(b) The request is for evidence as the Defendants would be required to lead evidence in their witness statements on the circumstances surrounding the execution and signing of the 95/6 Documents.  The Plaintiffs will not be surprised at trial if the requested particulars are not answered as the Plaintiffs will know from the witness statements what evidence they have to answer (Sunny Tadjudin v Bank of America National Association, HCMP 337/2012, unrep. 29 March 2012 at §§30-34). As the Plaintiffs denied having signed any of the 95/6 Documents  (§12 of the Reply), Mr Chong therefore contended that the detailed particulars requested by the Plaintiffs are not relevant for the resolution of the issue as to whether the 2005 SPAs and the Impugned PA were executed by them.

(c) On the request on attestation, Mr Chong further contended that if the 95/6 Documents were proved to have been executed by the Plaintiffs, they would have bound them whether they had or had not signed in the presence of the Defendants or any of them.

(d) Lastly, Mr Chong contended that whether the Plaintiffs were legally represented, is also irrelevant since there is no plea of non est factum.

37.  The submission by Mr Fong that just because the Defendants have alluded to the 95/6 Documents, they shall be obliged to provide particulars of the averment is in fact contrary to the authority discussed above (See Allington, supra).

38.  Mr Fong’s indication of his willingness to abandon these requests if the Defendants were able to confirm that the 95/6 Documents do not form any part of the 2005 SPAs suggests that he is in fact going after evidence.  If that were indeed the main purpose in seeking these particulars, it could simply be done by comparing the 95/6 Documents (that the Plaintiffs could obtain from the Defendants) with the 2005 SPAs and the Impugned PA.

39.  As the history of the events (set out in Sections B and C above) has shown, the houses on the subject land lots had been disposed of in 2005 under the Saunders Order.  The Defendants have provided copies of the 2005 SPAs to the Plaintiffs that show that the Plaintiffs (or their purported attorneys in the case of the 1^st and the 3^rd Plaintiffs) were the vendors.  After a protracted history of proceedings between the Plaintiffs and the Developers, the Plaintiffs in this claim are alleging that the alleged executions appeared in the 2005 SPAs and the Impugned PA are not what they represent themselves to be – that the signatures were not Plaintiffs’ signatures, the attestation had not taken place as stated in the documents, and that no power of attorney had ever been executed by any of the Plaintiffs.

40.  I am not persuaded by Mr Fong’s stated purpose for these requests as being relevant- that is to confirm whether the 95/6 Documents form any part of the 2005 SPAs or the Impugned PA.  In the six[3] of the 2005 SPAs that relate to the sale of the houses registered in the name of the 2^nd and the 5^th Plaintiffs, they show the purported signatures of the 2^nd and the 5^th Plaintiffs, the purported attestations by one of the Defendants and the purported interpretation by the legal executive of the Defendants.  No reference can be found having been made to any of previous documents, let alone the 95/6 Documents.

41.  Even assuming the 95/6 Documents might have formed the 2005 SPAs and Impugned PA, I am not persuaded that they are relevant to the issues in this case for the reason, as Mr Chong rightly pointed out, that the allegations of the tortuous acts against the Defendants are not concerned with any documents that disposed of the houses in 2005 - the 2005 SPAs and the Impugned PA.

42.  I agree with Mr Chong that §15 was pleaded to particularize in greater detail the Plaintiffs’ obligations under the Development Agreements, one of which was to execute and sign the 95/6 Documents under the direction and instructions of Sino Favour.  The particulars sought, in my considered view, would not help resolve the beneficial interest issue, or the wrongful acts issue.

43.  It should also be correct in my view that any earlier documents, if so required in the disposal of the houses, would have been required to be included in or annexed to each of the 2005 SPAs for the final disposal and sale of the properties as one single integral part of the formal conveyance contract.  This is only as a matter of common sense and one does not need to apply the doctrine of merger.  I think Mr Fong is correct in saying that this doctrine only relates to conveyancing matters as the doctrine is primarily concerned with the principle that says that the final contract is that contained in the deed of conveyance and the executory contract cannot be used for the purpose of changing what is contained in the deed[4]. The question in this request is definitely not about whether a term of an earlier contract should be merged into a final conveyance deed.

44.  Having come to this view, I do not need to discuss Mr Chong’s other points, but wish to make one observation about the cancellation of the sales as an objection raised in this application, I think evidence should have been filed in support. I should also mention about the objection to question (a) on the ground that a wrong land lot had been identified.  It is plain in my view on any reasonable reading of §4(a) of the SOC that the reference to Lot No 882 there would have been obviously a clear typographical error for the Plaintiffs have already in the preceding part of the SOC at §1(a) of the SOC correctly described the land Lot No as being Lot No 482.  This objection is bad, and will not be accepted.

F.3  Paragraph 16 of the defence (Request 3)

45.  The Defendants plead,

“At all material times, the 1^st to 4 Defendants as solicitors for the Developer and the Co-Developer [that is the Developers] for the sale and disposal of the said Land Lots.” [the definition in bracket is added]

46.  The Plaintiffs wish to know:

(a) Since when the Defendants had acted for the Developers for the sale and disposal of the said land lots;

(b) The identity of the legal representatives of the Plaintiffs for the sale and disposal of the said land lots prior to the Saunders Order; and

(c) Whether the Plaintiffs had been legally represented prior to the Saunders Order when the said land lots were sold and whether the Defendants had advised the Plaintiffs to seek independent legal advice if it is averred that the Plaintiffs were not legally represented.

47.  The Defendants declined to provide any particulars to these requests on the ground of irrelevance.

48.  The justification for these questions, according to Mr Fong, arises from the apparent representation in the 2005 SPAs that the Defendants were the Plaintiffs’ solicitors in the sale of the houses, which representation is in stark contrast to the Defendants’ pleaded case (at §27(b) of the Defence) that they had never been retained by the Plaintiffs.  It is therefore submitted that these requests would be relevant for they would enable the Plaintiffs to know the Defendants’ case in respect of the 2005 SPAs.

49.  Mr Chong contends that question (a) is irrelevant because the answer will not help pin down the Defendants’ case. As for questions (b) and (c), Mr Chong argues that since it is undisputed that the Defendants were solicitors for the Developers at the hearing before Deputy High Court Judge Saunders, the requests are wholly irrelevant.

50.  One of the most fundamental matters concerning the disposal of the houses in 2005 under the Saunders Order is that by the Saunders Order, the Developers had been able to transfer the title of the houses to the third parties on the basis of a declaration contained in the Saunders Order that the Plaintiffs were trustees.  There is no dispute that the Defendants acted for the Developers in the disposal of the houses in accordance with the Saunders Orders.  I think this is the point Mr Chong was trying to make when he mentioned the Defendants as having been the Developers’ solicitors in the hearing before Deputy Judge Saunders.

51.  Mr Fong is certainly right in saying that the 2005 SPAs on their face indeed suggest that - as evidenced by, according to my reading of these documents, some of the terms -  the Defendants were acting as the Plaintiffs’ solicitors in the sale of the houses.  For example, if one were to read clause 3 (that directs the purchase price to be paid to the Vendor’s solicitors as stakeholders) and Schedule 4 (that provides that the purchase price should be made to the Defendants) together, there is little doubt that the words in these provisions show that the Defendants were indeed acting for the Plaintiffs.  I am in agreement with Mr Fong’s observation that these terms are in contradiction to the Defendants’ pleaded case of having acted for the Developers alone.

52.  This contradiction should therefore be clarified. But, do the Plaintiffs’ requests address this ambiguity? I think not.

53.  Request (a) on when the Defendants had acted for the Developers will not tell the Plaintiffs why the pleaded case is different to the terms of the 2005 SPAs.  Question (b) on who the legal representatives of the Plaintiffs before the disposal of the houses in 2005 were also, with respect, bears no relevance to the apparent difference.  Lastly question (c) on whether the Plaintiffs were legally represented when the houses were sold prior to the Saunders Order is by no means clear and it further fails to illicit information about  the apparent contradiction identified in §51 above.

54.  I cannot therefore be satisfied that these requests will be able to illicit information that is relevant to the matters or questions in dispute.

F.4  Paragraph 26 (b) of the defence (Request 4)

55.  Paragraph 26(b) pleads:

“The 1^st to 5^th Plaintiffs, by themselves and/or through their lawful attorneys, entered into sale and purchase agreements of the said Land Lots with third parties as therein identified, in their capacity as the trustees of the Developer [i.e. Sino Favour].”

56.  The Plaintiffs asked 6 questions.  The first three questions of questions (a) to (c) are about the date, the place of the execution of the said agreements and on whether the Plaintiffs and the/their lawful attorneys were legally represented.

57.  Questions (d) to (f) are on whether there were any provisional sale and purchase agreements with the third parties.

58.  The Defendants refused to provide any of the particulars on the ground of irrelevancy.

59.  These particulars if provided would, Mr Fong submitted, enable the Plaintiffs to know the Defendants’ case surrounding the circumstances under which the 2005 SPAs were entered.  Given the denial by the Plaintiffs in the SOC of having executed the 2005 SPAs and the Defendants having attested to their signatures, Mr Fong therefore submitted that these particulars must be provided.

60.  Mr Chong contends that as the sale and purchase agreements between the Plaintiffs and the third parties were subsequently cancelled due to the effect of the Saunders Order, these requests are not relevant to the subject claim.  In any event, it is contended that no issue has been taken in relation to the conveyances between the Plaintiffs and the third parties.

61.  In order to properly understand the arguments, it is necessary to examine the context in which paragraph 26 of the Defence is pleaded.  Paragraph 26 pleads to the averments in §4 of the SOC (that avers that the Defendants together with the Developers sold the houses under the various 2005 SPAs without the Plaintiffs’ prior knowledge or consent).

62.  When §26(b) is considered against the overall context of this plea in §26, I would respectfully disagree with Mr Chong’s contention that this plea is to serve as background information.  His argument about the cancellation as set out in §60 above also seems to be, with respect, a misreading of paragraph 26(b) of the Defence.

63.  One of the matters in dispute, as disclosed in the SOC, is whether the 2005 SPAs and the Impugned PA (or any of the power of attorneys) had allegedly been executed in the way they appear on these documents.  Particulars as to how the agreements had been executed would likely throw light on the issue of whether such documents had been forged and falsely represented as alleged. They are highly relevant to the wrongful acts issue as identified above.

64.  On questions (d) to (f) about the provisional sale and purchase agreements, I do not think they fall within the same category as questions (a) to (c).  The question of whether the Plaintiffs entered into any provisional sale and purchase agreements prior to the alleged entering of the 2005 SPA, in my view, neither arises from the plea nor from my analysis of the matter in dispute.  On any view, questions (d) to (f) tend to seek for evidence, and should not be allowed.

F.5  Paragraph 26 (c) of the defence (Request 5)

65.  Paragraph 26(c) pleads,

“the executions of the said agreements by the 1^st to 5 Plaintiffs or their lawful attorneys were duly attested by the 1^st – 4^th Defendants or one or more of them.”

66.  The Plaintiffs wish to know the particulars of attestation including the identity of the Defendants, the exact date, the place, and whether it was done in the presence of the Plaintiffs or their lawful attorneys etc.

67.  Apart from providing the sale and purchase agreements, confirming that the agreements were made in the presence of the Plaintiff and/or their lawful attorneys, and that the Defendants only attested the signatures of the Plaintiffs and/or of their lawful attorneys; the Defendants declined to provide particulars concerning the exact dates of and the place of the attestation on the ground that they were self-explanatory.

68.  As discussed above, the circumstances of how the 2005 Agreements came about are highly contentious.  To say that the 2005 SPAs have already been provided to the Plaintiffs would have made these particulars unnecessary is to ignore the underlying allegations the Plaintiffs make in the claim in respect of the 2005 SPAs and the Impugned PA- which are that these documents (that had been used for the disposal of the houses) do not represent the true circumstances on how these documents came into existence. It cannot therefore be right that the physical presence of the documents make the information self-explanatory.

69.  Based on the analysis in Sub-section F.4 above, and for the same reason, I’d be inclined to the view that they are relevant.

G.  Conclusion

70.  Save for Requests 2, 3 and 4 (d) to (f), I am satisfied that the Plaintiffs are able to demonstrate that the particulars are necessary for the fair disposal of the matter and issue in dispute and to enable the Plaintiffs to know what case they have to meet.  I order the Defendants to answer Request 4(a) to (c) and Request 5.

H.  Order

(1) Within 14 days from the date of the handing down of this decision, the Plaintiffs do file and serve the answers set out in section G above.

(2) On a nisi basis, the Defendants do pay the Plaintiffs 50% of the costs of the summons, including all the costs previously reserved, with certificate for counsel.  The costs are to be summarily assessed on paper if they cannot be agreed.  The Plaintiffs are to lodge and serve a statement of costs within 14 days of the handing down of this decision and the Defendants likewise are to lodge and serve their opposition 7 days thereafter.

(3) Any application to vary the costs order nisi shall be made by summons within 14 days, failing which the costs order nisi is to become an absolute costs order.

71.  It remains for me to thank counsel for their assistance.

Mr Raymond Fong, instructed by Fung Wong Ng & Lam, for the Plaintiffs

Mr K M Chong and Ms Emma Wong, instructed by Ho Tse Wai, Philip Li & Partners, for the 1^st- 4^th Defendants

HCA 811/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 811 OF 2010

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BETWEEN

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DECISION ON COSTS

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1.  This Decision on Costs should be read together with the Decision that I handed down on 6 February 2012.

2.  In that Decision, I set aside the default judgment that the Tings obtained on 30 October 2010, allowed the Solicitors’ appeal against the master’s decision dated 11 October 2010, ordered the statement of claim be struck out and dismissed the Tings’ claims.  I further made an order nisi that the Tings do pay the Solicitors costs of the action including the costs of their appeal and the setting aside application and the costs before the master below with a certificate for two counsel.

3.  The parties now apply to vary the costs order nisi.

4.  The Tings say there should be no order as to costs for the appeal.  They argue that the Solicitors had falsely misrepresented that they were the solicitors acting for them in the sale and purchase agreements for the Transactions, thereby abusing their position as practicing solicitors and officers of the court.  Their wrongful conduct and professional mal‑practice should be disapproved by the court.  So there should be no order as to costs.

5.  This argument is entirely misconceived.  Those agreements were executed pursuant to the Order, which authorized the Developers to complete the Transactions.  Even if the Solicitors represented that they were acting for the Tings without their knowledge or consent, it can hardly amount to any wrongful conduct as contended.  It has no bearing on the question of costs at all. 

6.  The Tings next argue that the costs order of the master should not be disturbed as the default judgment was a regular one.  This argument is again misconceived.  My order nisi dealt with the costs of the hearing before the master on 11 October 2010 when he dismissed the Solicitors’ striking out application.  Now that I have allowed the appeal, the Solicitors should have the costs of the hearing before the master. 

7.  The Tings’ variation is refused.

8.  The Solicitors submit that the Tings should pay them indemnity costs.  By two letters dated 24 and 30 June 2010, the Solicitors had already informed the Tings that their claim was liable to be struck out.  The Tings were invited to discontinue the action.  They did not and persisted with the proceedings in the way as they did.  I agree with the Solicitors that the Tings had conducted themselves in a vexatious manner.  They should be penalized by way of indemnity costs.  I allow the variation sought by them.

9.  For the above reasons, I vary the costs order nisi to the extent that all the costs are to be taxed on an indemnity basis if not agreed.

10.  The costs of the variations are to be borne by the Tings as well.  Such costs are likewise to be taxed on an indemnity basis if not agreed.

Mr Tang Wing Lam, David of Fung Wong Ng & Lam, for the plaintiffs

Mr Rimsky Yuen, SC leading Ms Zabrina Lau, instructed by Y S Lau & Partners, for the 1^st, 3^rd and 4^th defendants

Mr K M Chong and Ms Emma Wong, instructed by Ho, Tse, Wai & Partners, for the 2^nd defendant

HCA 811/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 811 OF 2010

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BETWEEN

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D E C I S I O N

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1.  Before the court are two applications brought by the defendants (“the Solicitors”):

(a) by way of notice of appeal dated 21 October 2010 against the order of the master dated 11 October 2010, refusing to strike out the statement of claim; and

(b) by way of summons dated 25 November 2010 for an order that the judgment in default entered against them on 30 October 2010 be set aside.

2.  The background may be summarized as follows.

The Tings Agreements and the project

3.  The 1^st to 5^th plaintiffs were respectively the registered owners of Sections C, J, H, E and L of Lot 482 in Demarcation District 94, Hang Tau, New Territories.  The 5^th plaintiff was also the registered owner of Section A of Lot 485 in the same DD94.  They were “tings” having the right to build small houses on their land, according to the relevant government policy.  I will refer to the plaintiffs collectively as “the Tings” below.

4.  In about 1993, Wang Kee and Company Limited (“Wang Kee”) and Keeprofit Limited (“Keeprofit”) agreed with Barbican Capital Investment Limited (“Barbican”) to be partners in a joint venture project for developing small houses in Hang Tau.  Sino Favour Development Limited (“Sino”) was accordingly incorporated as the corporate vehicle for the joint venture, with Wang Kee, Keeprofit and Barbican holding 40%, 10% and 50% of the shares respectively.  Barbican was at all material times controlled by Tsang Wing Kei, Wilkie (“Tsang”).

5.  In 1994, Sino entered into agreements with 21 “tings” including the Tings for acquiring their right to build small houses on the Lots 482 and 485 (“the Tings Agreements”).  The terms of the Tings Agreements were identical.  In particular, the Tings agreed that Sino would be wholly in charge of the construction works with all the expenses to be borne by Sino.  The Tings would be responsible for obtaining all necessary government approvals for the construction of a 3 storey small house.  Each of the Tings was guaranteed a profit of HK$200,000 to be paid thus :

(a)   HK$100,000 upon signing of the Tings Agreements;

(b)   HK$50,000 upon the issuance of the building license by the District Lands Office;

(c)   HK$50,000 after completion of the building upon issuance of the certificate of compliance by the government and upon the payment of government premium.

6.  The Tings were not entitled to receive any further money save and except the guaranteed profit of HK$200,000.  The Tings finally agreed that they should hold their land as bare trustees on behalf of Sino.

7.  Pursuant to the Tings Agreements, Sino had already paid each of the Tings the said sum of HK$200,000 in full.  The Tings also assigned their land to Sino in September 1995.

8.  The development project involved the lands owned by Barbican, which were treated as its capital contribution for acquiring its 50% shares in Sino.  However, Barbican failed to obtain the necessary government permission for the development on its lands.  By an agreement dated 27 May 1996, Barbican agreed to relinquish all its interest in Sino and transferred its 50% shares to Wang Kee and Keeprofit at HK$1 per share.

9.  On 26 June 2003, Sino and Shiny Develop Limited (“Shiny”) agreed to be partners in Phase 1 of the project covering 10 small houses built on Lots 482 and 485.  Shiny further acquired beneficial interest in the Lots and the small houses.  Phase 1 was completed in or about early January 2005 when certificates of compliance in respect of the Lots were duly issued.  The premium to remove the non-alienation restriction was paid in or about April 2005.  I will refer to Sino and Shiny as “the Developers” below.

10.  In April to June 2005, the Developers entered into agreements for the sale and purchase of the small houses (“the Transactions”).  The Solicitors were solicitors acting for the Developers in the Transactions.

The 2005 Actions

11.  In August 2005, the Developers commenced HCA 1517-1521/2005 (“the 2005 Actions”) against the Tings, Tsang and Barbican.  They alleged that pursuant to the Tings Agreements, the Tings held their land and the small houses thereon as trustees for them.  They complained that the Tings had in May 2005 entered into provisional agreements for sale and purchase of the small houses to Barbican at prices substantially lower than the market value.  They claimed for damages.

12.  On 2 August 2005, the Developers obtained an ex parte injunction restraining the Tings, Tsang and Barbican from selling or disposing of interest in the properties in suit without their prior consent.

13.  The return date was on 12 August 2005. The Tings were absent at the hearing (“the 2005 Hearing”).  The Developers applied for an order to enable them to complete the Transactions.  Deputy Judge Saunders (as he then was) ordered that the Developers be at liberty to sell and/or complete the sale of the properties in suit, registered in the Tings’ name on the basis that the Tings “are just the bare trustees of [the Developers], holding the legal title in the properties on trust for [them]; and that [Tsang and Barbican] did not make any claim of interest in the properties” (“the Order”).  He then gave consequential direction that the sale proceeds be held by the Solicitors as stakeholder.

14.  Pursuant to the Order, the Developers completed the Transactions.

15.  The Tings filed their defence and counterclaim on 16 December 2005. For present purposes, I need not detail their allegations.  It will be sufficient to mention two points.  First, they denied that they were bare trustees (para 10.3).  Second, they claimed for, among other things, damages for breach of the Tings Agreements.  Their claims, as later observed by Reyes J, were purely personal in nature : see para 17 below.

16.  By a notice dated 25 February 2009, the Tings joined the Solicitors as a third party in the 2005 Actions.  They alleged that the Solicitors had without their authority or knowledge purported to act as their solicitors in the Transactions.  The Solicitors had been negligent and acted in breach of their professional duty.  The Tings claimed for an order of indemnity and damages.

17.  On 1 September 2009, Reyes J allowed the Developers’ application that the sale proceeds held by the Solicitors as stakeholder be released to them.  His Lordship said :

“3. In my view, none of the Defendants (that is, the Tings, Barbican and Tsang) can claim a proprietary interest.

4. [The Tings’] pleadings at best counterclaim for the payment of money and damages. The counterclaims are purely personal. The [Tings’] defences and counterclaims do not raise any or any viable issue of a proprietary interest traceable into the monies held by the [Solicitors].

…

8. In relation to illegality, I do not think that the question is relevant here.  The monies were paid to the [Solicitors] pursuant to [the Order].  The Order was made on the footing that it was perfectly legal and proper for the properties to be sold to the parties.  The only question then, today, is the proper destination of the proceeds of sale, namely, the monies held by the [Solicitors].”

18.  On 20 May 2010, the Tings were given leave to withdraw their third party notice against the Solicitors.

19.  On 17 June 2010, Fung J dismissed the Tings’ application to amend their pleadings save and except the plea of illegality of the Tings Agreements.  Fung J refused the amendment to challenge the Developer’s title to sell the properties and the execution of the consequent sales documents :

“38. As to the amendment relating to [Sino’s] title to sell, regardless of whether the Order of Sale was unnecessary [sic] wider than the negative injunction prayed for or it was res judicata, it remains that there was no appeal from it and the sales to third parties were completed. Realistically, Mr Lam (for the Tings) did not insist on challenging the sales as his main aim is the defence to the Plaintiffs’ claims, as they should not be allowed to recoup any ill-gotten gain whatever the interruption by the Defendants. As a matter of discretion, the amendment of impeachment on title to sell is not allowed, and correspondingly the challenge on the execution of the sales documents.”

20.  By a consent order dated 19 October 2010, the 2005 Actions were discontinued.  (I am told that the parties had reached a settlement.)

The present action

21.  The Tings commenced the present action on 2 June 2010 against the Solicitors for conspiring with the Developers with intent to injure them by unlawful means by selling the small houses without their prior knowledge or consent; and for malicious falsehood by representing to the purchasers that, inter alia, the Tings had agreed to the sale and purchase of the small houses.

22.  On 15 June 2010, the Tings issued a notice of intention to enter judgment if the Solicitors failed to serve the defence within time.  On 10 July 2010, the Solicitors took out the striking out application.  The master dismissed the application on 11 October 2010.  The Solicitors issued the notice of appeal on 21 October 2010.  In the meantime, no defence was filed.  The Tings entered default judgment on 30 October 2010.  The Solicitors then applied to set it aside on 25 November 2010.

The parties’ case

23.  Initially, the Solicitors argued that the default judgment is irregular.  But it is plainly a regular judgment.  The filing of the notice to appeal did not extend the time for filing the defence. When the defence was not filed within time, the Tings were entitled to enter judgment in default.  In the end, the Solicitors did not insist.

24.  In contending that they have a defence with a reasonable prospect of success for setting aside the default judgment, and that the statement of claim should be struck out, the Solicitors relied essentially on the same point.  That is to say, according to the decisions made by the courts previously in the 2005 Actions, the Tings were bare trustees of the properties in suit.  By reason of the doctrine of res judicata or abuse of process, the Tings can no longer deny that they were bare trustees.  Nor can they assert that they were the absolute owners of the properties in suit.  Accordingly, they do not have any locus or entitlement to commence the present action, thus rendering it an abuse of process.

25.  The Tings argued that, by reasons of estoppel by deed and illegality, the Solicitors’ contention that they were bare trustees must fail.  They went further to argue that they were the absolute owners.  They also argued that the doctrine of res judicata or abuse of process did not apply.

Res Judicata/Issue estoppel

26.  The Solicitors contended that the narrow form of the doctrine of res judicata, that is, issue estoppel, applied.  The issue whether the Tings had beneficial interest in the properties had already been determined with finality in the 2005 Actions, which is binding on the Tings.  They cannot re-litigate this issue here.

27.  It is trite that for issue estoppel to arise, three requirements must be satisfied :

(a)   The issue raised in the same proceedings is the same;

(b)   The issue has been determined with finality in the earlier proceedings;

(c)   The parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies.

28.  The first requirement is plainly satisfied.  In both the 2005 Actions and the proceedings herein, the Tings are said to be bare trustees of the Developers with no beneficial interest in the properties.

29.  The second requirement needs a closer examination of what took place at the 2005 Hearing. I have called for the transcripts, which shows how Deputy Judge Saunders came to make the Order as he did.

30.  As said, the Tings were absent from the 2005 Hearing.  Deputy Judge Saunders was satisfied that they had been served and chose not to appear.  He proceeded to deal with the matter on that basis.  It is significant to note that subsequently, the Tings had not disputed that they had not been properly served with the notice of the 2005 Hearing.  In other words, they had in fact made a conscious decision of not appearing.  Nor had they put in any evidence to contest the application by the Developers for an order to complete the Transactions.

31.  The Developers initially urged upon the Deputy Judge to make the order on the basis that the Tings had no valid claim of interest in the properties.  The Deputy Judge observed that they were in effect applying for summary judgment against the Tings.  He was however very conscious of the fact that he had to have a proper basis for acceding to the Developers’ application.  He was in particular concerned about the fact that the Tings remained the registered owners of the properties.  He wanted to be satisfied that they would have no valid claim of interest in the properties.  Eventually, counsel for the Developers submitted that the Tings were trustees holding the legal title of the properties.  The Deputy Judge then said, “I think that satisfies my problem with it.”  He then granted the Order.

32.  Mr Mok, for the Tings, submitted that the Deputy Judge simply dealt with the Developers’ application on balance of convenience so as to allow the Transactions to go ahead and to avoid any potential claim from the purchasers arising from any defect in title.  He had not dealt with the question whether the Tings were bare trustees on merits.  I disagree.  In my view, it is clear from what transpired at the 2005 Hearing that the Deputy Judge had decided that question on merits based on the evidence then available to him.  His decision was final, although it was an interlocutory hearing.  See M & R Marketing Systems Inc v Tse Mee Shuen & Others, HCA 1598/2001, unreported, 13 December 2001, per Chu J (as she then was) at paras 19-21.

33.  It is significant to note that the Tings had not appealed against the Order.  So although they had denied that they were bare trustees in their pleadings, they are still bound by the determination of the Deputy Judge.  Further, it is quite apparent that both Reyes J and Fung J had proceeded to deal with the matters before them on the basis that the Tings were bare trustees.  In particular, Reyes J ruled that the defence and counterclaim raised no proprietary claim that would allow the Tings to trace into the sale proceeds of the Transactions.

34.  Subject to the third requirement, I do not think it is now open to the Tings to re-litigate the issue if they were bare trustees anymore.  To the third requirement I now turn.

35.  The Tings argued that as the Solicitors have no degree of identification with the Developers.

36.  Privies are of three classes :

(a)   Privies in blood, for example, ancestor and heir;

(b)   Privies in law, for example, testator and executor;

(c)   Privies in estate or interest, for example, assignor and assignee, employee of a defendant company.

See generally Halsbury’s Laws of England, 4^th Ed, Reissue, Vol 16(2), para 999 at p 452.

37.  On what constitutes privy in interest, Megarry VC in Gleeson v J Wippell & Co Ltd [1977] 3 All ER 54 expounded at p 60 b-d that there has to be a sufficient degree of identity between the parties before they can be privies in interest; and that a party does not need to be the alter ego of the other before they can be privies, although there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party.

38.  In my view, there is a sufficient degree of identification between the Developers and the Solicitors for two reasons. First, the Solicitors were solicitors for the Developers in the Transactions. As such, they were the Developers’ agents.  Second, the Tings are now alleging that the Solicitors and the Developers were co-conspirators in effecting the Transactions.  As against the Developers, any claim of conspiracy, if ever made by the Tings, must fail in light of the finding by Deputy Judge Saunders in the 2005 Actions that they were bare trustees.  It is plainly just to bind the Tings by the same finding in their claims against the Solicitors, the agent and alleged co-conspirator of the Developers, in these proceedings.

39.  The third requirement is satisfied.

40.  I fully accept that the rules relating to res judicata in interlocutory matters may be less stringent than those generally applicable : see Chu Hung Ching v Chan Kam Ming [2001] 1 HKC 396, per Mayo VP at p 402.  The court may allow an issue to be re-litigated if certain exceptions exist :

(a)   If the ruling on the first application was not based on the merits of the issue but on a technical objection;

(b)   If upon the first application the applicant had failed to prove essential facts from mistake or inadvertence;

(c)   If there is new evidence that seriously justifies reconsideration of the issue;

(d)   If there is material change of circumstances of a non-evidentiary nature.

However, none of the above exceptions exists here.

41.  Mr Mok argued that the Solicitors were estopped by the assignments effected between the Tings and Sino, which referred to the Tings as beneficial owners of their land, from denying that the Tings were beneficial owners.  This argument is misconceived. For it is plain from the evidence, which is admissible as an exception to the parol evidence rule, that as between Sino and the Tings, the latter were bare trustees.  Sino was not bound by the assignments.  Nor are the Solicitors, their privies.

42.  Mr Mok next relied on illegality.  He submitted that the Tings Agreements between the Developers and the Tings were tainted by illegality.  But the Solicitors were not trying to enforce the Tings Agreements.  They were relying on it to show why the Tings were bare trustees.  The Developers could do so if they were sued here : Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866.  So can the Solicitors, their privies.  So Mr Mok’s submission does not assist the Tings.

43.  For the above reasons, I hold that the doctrine of issue estoppel applies with full force against the Tings.  They are estopped from contending against the Solicitors in these proceedings that they were beneficial owners of the properties in suit.

44.  The significance of holding the Tings to the finding that they were bare trustees is this.  They can no longer maintain their pleaded claim of conspiracy, which presupposes that they had beneficial interest in the properties in suit.  Nor can they sue on malicious falsehood. For as bare trustees, they must follow the Developers’ wish to sell the properties and the Solicitors were entitled to act in accordance with the Developers’ instructions.

Abuse of process

45.  Further, the present claims of conspiracy and malicious falsehood against the Solicitors could and should have been raised in the 2005 Actions after the Tings had joined them as a third party.  They chose not to do so and later withdrew the third party proceedings.  It is plainly an abuse of process if they were allowed to raise these causes of action in these proceedings : Henderson v Henderson (1843) 3 Hare 100; Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1.

Dispositions and costs

46.  For the above reasons, I set aside the default judgment, allow the Solicitors’ appeal and order the statement of claim be struck out and the Tings’ claims be dismissed.

47.  Costs should follow the event.  I make an order nisi that the Tings do pay the Solicitors costs of the action including the costs of their appeal and the setting aside application and the costs before the master below, to be taxed if not agreed.  There be a certificate for two counsel.

Mr Mok Yeuk Chi and Mr Simon K C Lam, instructed by Messrs Fung Wong Ng & Lam, for the plaintiffs

Mr Rimsky Yuen, SC leading Ms Zabrina Lau, instructed by Messrs Y S Lau & Partners, for the 1^st, 3^rd and 4^th defendants

Mr K M Chong and Ms Emma Wong, instructed by Messrs Ho, Tse, Wai & Partners, for the 2^nd defendant