Rich Fine (HK) Investment Ltd and Another v. Leung Yiu Chuen

HCA 1243/2012

[2018] HKCFI 1126

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1243 OF 2012

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Before: Hon Mimmie Chan J in Court

Dates of Hearing: 17 to 20, 23 & 24 April 2018

Date of Judgment: 25 May 2018

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J U D G M E N T

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Background

1.Development of small houses in the New Territories is a fertile area for disagreement, dispute and litigation.  Here is yet another example of such dispute leading to the breakdown of trust between two partners in a joint development.

2.The 2^nd Plaintiff in these proceedings (“Mr Jim”) had known the Defendant (“Mr Leung”) since 1995, he claims.  Mr Leung had worked on some of Mr Jim’s renovation projects, and they became friends.  Mr Jim told Mr Leung that he was interested in the property business.

3.Mr Jim left Hong Kong for England in around 1999. One day in 2006, he received a telephone call from Mr Leung in Hong Kong, who told him that a developer of a construction project in Ho Chung, Sai Kung (“Project”) was looking for an investor.  The Project involved constructing 10 small houses at a construction cost of about HK$12 million.  The developer was looking for an investor to pay for all the construction costs, in return for 4 small houses after completion of the Project.  The developer had already paid $1 million for a small part of the construction, and Mr Leung’s company Rich Fine Engineering Limited (“Engineering”) (of which Mr Leung was the sole director and shareholder) was the contractor for the construction in the Development.  Mr Leung inquired if Mr Jim had interest to invest in the Project. As Mr Jim was not prepared to be solely responsible for the entire costs, he ultimately agreed with Mr Leung that they would make a joint investment.

4.According to the oral joint venture agreement (“JV Agreement”) which was made between Mr Jim and Mr Leung in about October 2006 (and this is not disputed), a company was to be set up by Mr Jim and Mr Leung to invest in the Project.  Mr Jim was to have 60% interest in the venture, and Mr Leung was to have 40%.  The costs of the Project and the profits from the Project were to be shared between them in the same ratio.  It is not disputed that the 1^st Plaintiff, Rich Fine (HK) Investment Limited (“RFI”), was incorporated for the purpose of the joint venture, and that Mr Jim and Mr Leung became the holders of 60% and 40% respectively of the shares issued in RFI.

5.In March 2006, 10 separate written construction contracts (together referred to as “Construction Contract”) had been made between Engineering and Soon Grow Limited (“SG”), which was the developer of the Project to which Mr Leung had referred, when he first approached Mr Jim to solicit his interest in the Project.  Under the Construction Contract, SG was required to pay to Engineering a sum of HK$950,000 as the construction costs for each of the 10 small houses comprising the Project.

6.As part and parcel of the JV Agreement, RFI entered into an agreement with SG on 17 October 2006 (“Development Agreement”). Under the Development Agreement, the parties acknowledged that SG had the right, under powers of attorney or letters of authorisation signed by owners of rights in the small houses, to develop the relevant land and to construct the relevant small houses.  The Development Agreement further recited the fact that Engineering had been engaged by SG as contractor in the Project, and that SG and RFI had agreed to jointly develop the relevant land.

7.Under the Development Agreement, RFI agreed to arrange for Engineering to undertake the Project and to pay the total construction costs of $12.6 million for the 10 small houses, in accordance with the Construction Contract between SG and Engineering.  The Development Agreement expressly provides that upon completion of the Project, the small houses constructed would be distributed between SG and RFI, that SG would be entitled to receive 6 designated houses, and RFI would be entitled to be assigned 4 designated houses (“Designated Houses”) of the  small houses of the Project, including the right to sell the property right to the Designated Houses.

8.The Development Agreement also provides that within 15 days after the execution of the said agreement, RFI should repay to SG the sum of HK$1 million which SG had paid to Engineering as construction costs.

9.It is not disputed that in 2007, building licences were procured for the construction of 9 small houses only.  As a result, the JV Agreement between Mr Jim and Mr Leung was varied, to the effect that only 9 small houses of the Project would be built, instead of 10.  Apart from that, the JV Agreement and in particular the share of profits and costs remained 60/40 as between Mr Jim and Mr Leung.  It is common ground that as a result of the reduction of the number of small houses to be built in the Project, a sum of HK$1,080,480 had to be paid by RFI to SG as compensation under the Development Agreement.

10.The small houses were apparently completed in about November 2011.  The Plaintiffs claim that whereas Mr Jim had paid for his share of the capital required for RFI to finance the construction costs payable under and pursuant to RFI’s Development Agreement with SG, Mr Leung never paid for his share of 40%.  According to Mr Jim, he had to pay Mr Leung’s 40% share as well, thus financing the entire construction costs of $12,599,186.  Mr Jim accordingly claims that Mr Leung had repudiated the JV Agreement, that he had accepted such repudiation, and that Mr Jim should be treated as having given up his rights under the JV Agreement.  He seeks a declaration that Mr Leung’s interests under the JV Agreement have been forfeited.  Alternatively, Mr Jim claims that Mr Leung should pay his portion of the capital in RFI, in the sum of $4.8 million.

11.The Plaintiffs further claim that of the 9 small houses which were built, Mr Leung had unlawfully occupied and taken possession of 3 of the Designated Houses (namely, Houses 3, 5 and 7, together referred to as “Occupied Houses”), since November 2011.  The Plaintiffs claim that in so doing, Mr Leung had acted in breach of his fiduciary duties owed to RFI as a director and to Mr Jim as Mr Leung’s “quasi-partner”, and had deprived the Plaintiffs of the benefit of and profit from these houses.  They claim vacant possession of the 3 Occupied Houses to be delivered by Mr Leung to RFI, mesne profits in respect of the occupation of the houses by Mr Leung and his family, and further, damages.

12.By the time of the filing of the Re-Re-Re-Amended Defence and Counterclaim in the course of trial, Mr Leung admits that the construction costs of the Project were to be borne as to $7,559,511.60 by Mr Jim, and as to $5,039,674.40 by Mr Leung, in the agreed 60/40 proportion.  He claims that Mr Jim had agreed with him that the capital required to be injected into RFI was to be paid to Engineering directly for the costs of the construction of the Project.  Mr Leung admits that between 21 September 2006 and 9 January 2010, he had received 32 cheques issued by Mr Jim, for the total sum of $10,028,879.80 (“Amount”).  The Amount was all paid into the accounts of either Mr Leung or Engineering.  However, Mr Leung claims that the Amount was not entirely for the construction costs of the Project.  Instead, he claims that $3,068,770 of the Amount was paid by Mr Jim and used by Mr Leung for Mr Jim’s “personal expenses and/or debts”, $1,150,950 of the Amount was for payment of Mr Jim’s share of the costs and/or operation expenses of other projects (which were unrelated to the Project), and that $592,320 of the Amount was in fact Mr Jim’s share of the extra construction costs of the 4 Designated Houses.

13.On Mr Leung’s case, therefore, a balance of $599,401.80 was unpaid and remains to be paid by Mr Jim for his share of 60% of the construction costs of the Project.  Mr Leung claims that he had caused the Project to be completed, and he had paid all the construction costs from his own funds, mixed with the Amount received from Mr Jim.  According to Mr Leung’s Defence (as finally amended), his “share of contribution of (RFI’s) capital and/or construction costs is deemed to have been made”.

14.Mr Leung’s original defence to the claim of his unlawful occupation of the 3 Occupied Houses was that Mr Jim had agreed to such occupation.  By the filing of the Re-Amended Defence, Mr Leung claimed that since the parties had agreed to share profits in the ratio of 60:40, the share of the Designated Houses between Mr Jim and Mr Leung should follow the same ratio.

15.The essence of the defence, as summarized above, was only elicited from and clarified by Mr Leung and his team of lawyers through the Re-Re-Re-Amended Defence and Counterclaim, in the course of Mr Leung’s cross-examination at trial.  This is a most unsatisfactory state of affairs and reflects the poor preparation of Mr Leung’s defence. 

16.Mr Leung seeks to blame his former team of solicitors who had prepared his Defence and his case up to 9 April 2018, when his current solicitors and counsel came on the record.  The extent to which Mr Leung’s excuses is to be believed is open to doubt, particularly when his former lawyers have not been given the opportunity to reply to Mr Leung’s assertions, that he had never been told of the requests for particulars and discovery made by the Plaintiffs, and that he was not aware of the need to produce the documentary proof of his defences and the expenses which he had allegedly paid on behalf of Mr Jim. 

17.In any event, on the basis of the final state of the pleadings as amended, the issues for determination at conclusion of the trial are:

(1)   whether Mr Jim had paid his share of 60% of the capital or construction costs for the Project;

(2)   whether Mr Leung had paid his share of 40% of the capital or construction costs for the Project;

(3)   whether Mr Leung was in repudiatory breach of the JV Agreement and whether his 40% share and interest in the Project had been forfeited;

(4)   whether Mr Leung is liable for damages in respect of his breach of the JV Agreement, and if yes, the amount of damages payable;

(5)   whether RFI is entitled to seek vacant possession of the 3 Occupied Houses from Mr Leung;

(6)   whether Mr Leung is liable for mesne profits in respect of the use of the 3 Occupied Houses by his family.

The essence of the JV Agreement between the parties

18.Mr Jim’s own case on his agreement with Mr Leung is clear, and simple, as set out in paragraph 7 of his witness statement.  Even before RFI had been set up for the agreed joint venture, Mr Leung had asked Mr Jim to start paying the construction costs in order to proceed with the Project.  As Mr Jim considered that Mr Leung was his joint investor, and Mr Leung’s company, Engineering, was the contractor responsible for the construction in the Project, Mr Jim agreed to Mr Leung’s proposal, that the construction costs required for the Project should be paid to Mr Leung directly, without the need to first inject the necessary capital into RFI.  Mr Jim explained that as he trusted SG as well as Mr Leung, he agreed to Mr Leung’s requests with regard to the payment of the construction costs.  This was what was in fact done by Mr Jim, as evidenced by the schedule and copies of the cheques he had issued in respect of the construction costs, all of which were issued to Mr Leung, with 6 exceptions: 5 cheques were issued to RFI, and one cheque of $50,000 was issued to Engineering.

19.In that context, it may be artificial to investigate (as Counsel for Mr Jim suggested the Court to do) and consider whether Mr Jim and Mr Leung had in fact made payment for the shares issued to and registered in their respective names, or to decide whether Mr Leung had paid for the shares in RFI.  Often, this may be an account entry and adjustment in practice.  The more pertinent question is whether Mr Jim, and Mr Leung, had made payment of their agreed respective share of the construction costs of the Project, directly, or through RFI, to Engineering.

20.As Mr Jim himself admitted in paragraph 17 of his witness statement, he had asked Mr Leung to pay his share of the construction costs when RFI was first set up, but had not repeated his demand thereafter.  Mr Jim’s stated intention was that upon completion of the Project, a meeting would then be held with Mr Jim, for RFI to resolve to seek payment from Mr Leung of 40% of the construction costs, as RFI’s capital. On the evidence, a meeting of RFI was in fact convened to be held on 29 March 2012.  It suffices to say that Mr Leung did not attend the meeting, nor did he make payment of the sum of $4.8 million to RFI, as sought by Mr Jim and RFI.

Whether the agreed contribution had been made

21.Despite pleading in the original Defence, that he had only received a total sum of $8,435,500 from Mr Jim, Mr Leung admitted in paragraph 8 of the Re-Re-Re-Amended Defence that he had received the Amount of $10,028,879.80 from Mr Jim.  The only remaining dispute raised by Mr Leung was whether $3,068,770 of the Amount received from Mr Jim (“Disputed Amount”) was Mr Jim’s payment of the construction costs of the Project.  Mr Leung claims that it was not, and that he had to advance the Disputed Amount from his own funds in order to pay for the construction costs of the Project.

22.In relation to the Disputed Amount, despite its having been raised in the original Defence and Counterclaim filed on 30 October 2012, it was only when request for further and better particulars was filed on 21 March 2015, that Mr Leung provided on 8 June 2016 details of the Disputed Amount and the alleged purpose of the payment.   The particulars were supplied in 3 schedules or tables (“Schedules”) of the “extra construction costs”, “other project expenses and/or operation expenses” and of Mr Jim’s “personal expenses and/or debts”, as pleaded in paragraph 8 of the Defence. 

23.As Counsel for Mr Jim highlighted, the details of the Disputed Amount have evolved over time.  In the original Defence dated 30 October 2012, the expenses of the “other projects” were stated to be $2,972,105, and Mr Jim’s personal expenses and/or debts were stated to be $1,325,500.  According to paragraph 12 of Mr Leung’s witness statement dated 12 December 2016, the expenses of the “other projects” were stated to be $1,620,735, whereas Mr Jim’s personal expenses were said to be $1,711,050.  In the Re-Re-Re-Amended Defence dated 23 April 2018, submitted after Mr Leung had made concessions in the course of his cross-examination at trial, the “extra construction costs” to be borne by Mr Jim were revised from $987,200 to $592,320, the expenses of the “other projects” were revised to $1,150,950, and Mr Jim’s personal expenses and debts remained at $1,325,500.

24.On 14 September 2017, Mr Jim had applied for specific discovery of documents, including (inter alia) ledgers, management accounts and audited accounts of Mr Leung which show: the personal expenses, project expenses and operation expenses paid by Mr Leung on behalf of Mr Jim; Mr Leung’s payment of the Disputed Amount; and receipts from contractors, and the management accounts of Mr Leung to show the settlement of the expenses of the “other projects” and Mr Jim’s personal expenses and debts.  Mr Leung did not produce any relevant documents to support the payments and amounts particularized in the Schedules.

25.On the 1^st day of trial, Mr Leung sought to introduce a new lever arch file of documents, some of which were said to support the expenses and payments particularized in paragraph 8 of the Defence and Counterclaim and in the Schedules.  However, no affidavit was ever offered to explain the delay in the production of these documents which had hitherto been in the possession, custody and control of Mr Leung.  They had not been referred to in any witness statement.  Nor was there any affirmation, or offer to produce a witness statement, from Mr Leung to explain the provenance of the new documents, their relevance, the issues raised in the pleadings or witness statements to which the new documents relate, and what they seek to prove.  Against such background, this Court refused leave to Mr Leung to introduce these new documents at trial (Big Island Construction (HK) Limited v Wu Yi Development Company Limited HCA 1957/2005, 22 February 2010).

26.In respect of Mr Leung’s assertion that the Disputed Amount received from Mr Jim was used, not for the construction costs of the Project, but for the purposes he alleged: namely, for other projects, for Mr Jim’s personal expenses and debts, and for extra construction costs of the Project over and above the agreed costs of $12,599,186, it remains a bare assertion made by Mr Leung.  At trial, there were no documents to support his claim at all.  If there had indeed been legitimate expenses for projects in which Mr Jim and Mr Leung had invested, other than the Project, and if there had indeed been extra construction costs for the Project which had to be paid by RFI, Mr Jim and Mr Leung, there would have been documents to establish all the payments made and/or receipts issued, and such documents should have been in the possession and control of Mr Leung and/or Engineering.  None was produced, despite the fact that the Amount and Disputed Amount had been issues in dispute between the parties since the filing of the original Defence and Counterclaim in October 2012.  All that the relevant Schedule contained was a breakdown of payments to various individuals, solicitors’ firms, and names of various locations, with no meaningful particulars or details.  Nor did Mr Leung ever explain in detail in his witness statement the nature of Mr Jim’s investments or interests in these alleged “other projects”, when Mr Jim allegedly requested Mr Leung to pay these expenses on his behalf, and what the payments to the named individuals or solicitors were for.  Pertinently, although Mr Leung maintained that Mr Jim was liable for his share of the expenses for the “other projects”, he never explained, apart from a cursory reference in paragraph 4 of his witness statement, how and when he and Mr Jim had agreed to invest in these projects, or the ratio of their share in the investment. 

27.The original claim made in the Defence (dated 30 October 2012) was that the alleged expenses of the “other projects” were $2,972,105.  This was ultimately reduced to $1,150,950 (in the Re-Re-Re-Amended Defence of April 2018), by the deletion of various substantial items, and by designating the amount from Mr Jim as his half share of such expenses.  All these changes and the lack of a satisfactory explanation for the changes make Mr Leung’s Schedules, and the claims he made, totally unreliable and unconvincing.

28.In relation to the alleged “extra construction costs” incurred for the Project, Mr Leung has not explained why the costs referred to in the relevant Schedule were not included in the original construction costs of $950,000 for each small house, when the Construction Contract and the Development Agreement both make provision for the cost of works such as the laying of electric cables and water drainage.  Moreover, the Schedule of the alleged extra construction costs only sets out a costs quotation issued by Engineering, dated February 2007.  There is no evidence that the costs quoted had been accepted by Mr Jim/RFI, no evidence that the works set out in the quotation were actually carried out, and no evidence that the costs had been actually paid by Mr Leung.  Counsel for Mr Jim highlighted that no actual contract or receipt was ever produced by Mr Leung, in order to substantiate the costs allegedly paid for the alleged extra works.

29.Although the burden of proof remains on the Plaintiffs to establish Mr Leung’s breach in making payment of his share of the construction costs, Mr Leung has at least the evidential burden to raise the issue that the Disputed Amount had been paid by him on behalf of Mr Jim, to represent, as he suggests, his contribution to the construction costs.  This he has failed to do.

30.It has to be borne in mind that Engineering was the main contractor responsible for undertaking all the works in the Project. Mr Leung was the sole shareholder and director of Engineering, and had access to and possession of all the documents and financial information of the Project including the work done and payments made by Engineering.  It was also Mr Leung who had the accounting records and bank statements of RFI.  Yet, Mr Leung never accounted to Mr Jim in respect of any of the expenses and payments allegedly made for the Project.  The only information he ever produced were the scanty details in the Schedules, and even those were not accurate, on his own admission at trial.  The reasons he gave, that he never received any of the letters sent to Engineering’s business address, that his lawyers never told him of the need to produce documents to prove his claim, are all but mere excuses, and are entirely unconvincing.  In all, I find Mr Leung’s evidence to be unbelievable, unsubstantiated by any documentary evidence, and totally unreliable to be accepted.

31.On the available evidence, I believe and accept Mr Jim’s evidence that he had made payment of the Amount, and I reject Mr Leung’s claim that the Disputed Amount had been used for the purposes Mr Leung alleged, such that he can set off the Disputed Amount against the Plaintiffs’ claims against him for the outstanding contribution.  There is simply no or totally inadequate evidence to substantiate Mr Leung’s assertion, that he should be deemed to have contributed his share of the construction costs under the JV Agreement.

Occupation of the Designated Houses

32.Of the 4 Designated Houses which were to be allocated and assigned to RFI under the Development Agreement, the Plaintiffs claim that Mr Leung took possession of 3 houses in about November 2011.  House 7 was occupied by Mr Leung as his residence.  House 3 was occupied by Mr Leung’s daughter (“Daughter”) and her family.  House 5 was used by Mr Leung for storage, and for use by his domestic helper.  According to the Plaintiffs, it was only in June/July 2015 that Houses 3 and 5 were returned to RFI, for renovation works to be carried out before they were put on the market for renting.  The Plaintiffs claim that after the completion of renovation works, Mr Leung entered House 5 again in June 2017, and changed the locks without the Plaintiffs’ consent.

33.The defence is that Mr Jim had agreed and consented to the occupation of House 3 by the Daughter, on a temporary basis, from November 2011 to March/April 2012, and to Mr Leung’s occupation of House 7 since January 2012.  There is no claim that Mr Leung’s use of House 5 was with the consent of Mr Jim.

34.There is also an alternative claim made by Mr Leung, that Mr Jim and he should share the Designated Houses in the same ratio of 60:40 as they share the profits under the JV Agreement.  This I can reject, on the basis that it is neither the evidence of Mr Jim nor Mr Leung that under the JV Agreement, they had agreed on the pro rata sharing of the Designated Houses.  What was agreed was that the Designated Houses would be sold, and that the profits of the joint venture would be shared in the agreed ratio.  There is no basis on which Mr Leung can unilaterally claim that he was entitled to take any of the Designated Houses as his share under the JV Agreement.

35.I also reject the arguments made on behalf of Mr Leung, that he and his family as “squatters” have better title to the Designated Houses, and/or that RFI had no title to the Designated Houses to be in a position to claim vacant possession or damages for Mr Leung’s use of the Occupied Houses.  Order 18 rule 8 (1) RHC requires a party to plead any matter which he alleges makes any claim of the opposite party not maintainable.  Mr Leung’s claim of the Plaintiffs’ lack of title in the Designated Houses, and of his own better title to possession, was never pleaded in any version of his Defence.  Mr Leung only relied on Mr Jim’s alleged consent to the occupation (paragraphs 21 and 22 of the Defence).

36.The arguments made by Counsel for Mr Leung in closing submissions, that Mr Leung had a better title and right to the Occupied Houses, are in fact inconsistent with and contradict the pleading made in the Re-Re-Re-Amended Defence, that Mr Leung, his family and Daughter only entered into possession of the Occupied Houses upon obtaining and in reliance on Mr Jim’s consent.  This is not permitted, in the absence of any alternative pleading (O18 r12A RHC).  In any event, when it is Mr Leung’s pleaded case that the possession of the Occupied Houses was pursuant to his seeking and obtaining Mr Jim’s consent, I fail to see how he can claim that he can assert a better title and right to the Occupied Houses.

37.The claim of the Plaintiffs’ general lack of authority to sue, an averment made in paragraph 29 of the Amended Defence, was not permitted to be pursued on the first day of trial.  The authorities are clear (Kammy Town Ltd v Super Glory Corp Ltd, HCA 3524/2003, 14 January 2005, Grant Thornton International Ltd v Tang Chung Wah [2013] HKEC 900, Hui Sum v Hui Ting Nung [2013] HK EC 822).  Any claim of a plaintiff’s lack of authority should not simply be raised in pleadings, but must be dealt with and determined before trial, by preliminary issue, or by striking out.  This course was never pursued by or on behalf of Mr Leung, until the first day of trial, by way of Counsel’s opening submissions.  This was not permitted to be pursued.

38.As for the question of whether Mr Jim had ever consented to the occupation of House 3 and House 7, there is little evidence from Mr Jim save for a flat denial that he had given his consent.  However, even on Mr Leung’s claim, his case on the alleged consent is full of inconsistencies. 

39.Different dates have been pleaded in the different versions of the Defence for Mr Jim’s alleged consent to the Daughter’s occupation (in paragraph 22), whereas Mr Jim was said to have agreed to Mr Leung’s occupation of House 7 since January 2012 (paragraph 23).  According to Mr Leung’s only witness statement, his wife had made a suggestion to Mr Jim (at an unspecified time) for House 3 to be occupied by the Daughter, when the Designated Houses could not be rented out or sold upon completion, and Mr Jim had allegedly agreed.  No date was given as to the alleged discussion, when Mr Jim’s alleged consent had been given.  Mr Leung only stated, in paragraph 18 of his witness statement, that it was in November 2011 that Mrs Leung suggested to Mr Jim that House 7 should be occupied by Mr and Mrs Leung, and that he and his wife moved into House 7 in March 2012, pursuant to agreement reached with Mr Jim, that they should watch over, or be caretakers of, the Designated Houses.

40.Mr Leung’s assertion, that Mr Jim had agreed to Mr Leung and his wife moving into House 7 in March 2012, does not tally with the notice dated 13 March 2012 issued by Mr Jim, which was sent by fax and post to Mr Leung’s office address, and attached an agenda for a board meeting of RFI (“Agenda”) proposed to be held on 29 March 2012, nor with the letter dated 7 March 2012 from Mr Jim’s solicitors to Mr Leung (“7/3 Letter”). By the 7/3 Letter, the solicitors acting for Mr Jim and RFI demanded Mr Leung’s payment of $4.8 million as his 40% capital for the Project, and further demanded Mr Leung to deliver up the Designated Houses.  By the Agenda, Mr Jim proposed to ratify the authority of solicitors to commence proceedings against Mr Leung, to demand Mr Leung’s payment of $4.8 million as outstanding capital required from him as a 40% shareholder of RFI, and further, to demand Mr Leung and other unlawful occupiers to leave the premises which were clearly intended to be referring to the Designated or Occupied Houses.  Shortly thereafter, these proceedings were commenced against Mr Leung on 17 July 2012.

41.If Mr Jim had agreed to Mr Leung and his family moving into House 7 in March 2012, as Mr Leung alleged, it was inexplicable for him to instruct lawyers to issue the 7/3 Letter, and to call for a meeting of the board of RFI to ratify the commencement of proceedings against Mr Leung, and to demand in March 2012 that the Designated Houses be vacated by Mr Leung and his family.

42.On the available evidence, I find as incredible Mr Leung’s claim that he, his family and the Daughter’s family only moved into House 3 and House 7, and had used House 5 for storage, upon obtaining Mr Jim’s consent.  On a balance of probabilities, I accept the submissions made by Counsel on behalf of Mr Jim, that Mr Leung had simply abused the position, and had taken matters into his own hands, by taking possession of the Designated Houses when they were completed and fell vacant.

43.On the pleaded case and the available evidence (including that of Mr Kwong who was called to give evidence for the Plaintiffs), I find that the Daughter had occupied House 3 since November 2011 (as Mr Leung admits in paragraph 22 of the Re-Re-Re-Amended Defence), and that after the Daughter moved out in July/August 2012, Mr Leung had continued to use House 3 until June 2015.  Mr Leung occupied House 7 from January 2012 until the present date, and obtained use of House 5 from January 2012 until July 2015.  I reject the claim that such occupation and use was with Mr Jim’s consent.  I also accept the Plaintiffs’ evidence, that after House 5 had been renovated, Mr Leung entered the ground and 1^st floor of House 5 again from 1 June 2017, without the Plaintiffs’ consent, and changed the locks.

Remedies available

44.In view of my finding that Mr Leung had failed in his defence to the claim of breach of contract by virtue of his failure to pay his 40% share of the Construction Costs, he was clearly in repudiatory breach of the JV Agreement.  The Plaintiffs plead (in paragraph 12A of the Re-Amended Reply) that Mr Leung’s repudiatory breach had been accepted by the 7/3 Letter, but there was in fact no such intimation of acceptance in the letter. Taking instead the service of these proceedings as the Plaintiffs’ acceptance of repudiation, I grant the declaration sought, that Mr Leung was in repudiatory breach of the JV Agreement, and that upon termination of the JV Agreement by virtue of Mr Leung’s repudiatory breach, he had no further interest or right under the JV Agreement.

45.Apart from the pleading that the occupation of Houses 5 and 7 were with the consent of Mr Jim, which I have rejected, no other defence was pleaded as to the plaintiffs’ claim that Mr Jim was acting in breach of his fiduciary duties owed to RFI as a director of the company, in occupying and procuring the occupation of the Occupied Houses without payment of any rent to RFI.  I accept that in occupying and procuring the occupation of Houses 3, 5 and 7 without the Plaintiffs’ consent, Mr Leung was in breach of his fiduciary duties owed to RFI, by putting his own interests above those of RFI, and by depriving RFI of the rental profit to which RFI otherwise would have been entitled from letting out the Occupied Houses at market rent.

46.No evidence has been adduced at trial that the Occupied Houses could not have been rented out on the market, and the 2^nd floor of House 5 was in fact rented out from July 2015, until 1 June 2017. 

47.Notwithstanding the suggestions made that there is or was dispute between RFI and SG as to the transfer of the legal title to the Designated Houses, it is undeniable that Mr Leung was able to procure the use of the Occupied Houses by his family, the Daughter and the Daughter’s family, without any complaint or issue taken by SG, and the Occupied Houses were in fact used and occupied by Mr Leung, his family and the Daughter.

48.The parties have agreed that the monthly market rental value of the Designated Houses is $45,000.  This represents the market rental which RFI would have received if the Occupied Houses had been rented out on the market, instead of being occupied by Mr Leung and the Daughter.  The $45,000 per month represents the market rent of which RFI had been deprived, and to which it is entitled by way of damages as a result of Mr Leung’s breach of fiduciary duties.

49.Accordingly, I order that the monthly sum of $45,000 should be paid by Mr Leung to RFI, for House 3 from 1 November 2011 to 30 June 2015; for House 5 from 1 November 2011 to 31 July 2015, and from 1 June 2017 until the delivery up of vacant possession to RFI; and for House 7 from 1 November 2011 to the delivery up of vacant possession to RFI, at $45,000 per month.

50.I further grant the orders sought, that vacant possession of Houses 3, 5 and 7 should be delivered up to RFI, within 56 days from the date of sealing of the Judgment Order.

51.Mr Jim claims that as a result of Mr Leung’s failure to make his contribution of 40% of the Construction Costs, Mr Jim had to use his bank loans for payment of Mr Jim’s share of $4.8 million.  Bearing in mind the circumstances of Mr Leung’s initial approach to Mr Jim to solicit his interest in financing the Project, and their close relationship at the material time, I am satisfied on the evidence that Mr Leung was aware that Mr Jim had to obtain a loan from the bank to finance the Project.  He had in fact accompanied Mr Jim to the bank when Mr Jim applied for the initial loan.

52.I allow Mr Jim’s claim that Mr Leung should pay interest on the sum of $4.8 million, at the commercial rate of interest paid by Mr Jim under his loan agreements with the banks, in the sum of $2,290,931.66, as damages for Mr Leung’s breach of the JV Agreement.

53.As the Plaintiffs have succeeded in their claims, it follows that the costs of the proceedings, including the counterclaim, should be paid by Mr Leung to the Plaintiffs, and I make an order nisi to such effect.

Mr George Chu, instructed by Leung Kin & Co, for the 1^st & 2^nd plaintiffs

Mr Vincent Kee, instructed by Katherine Y W Or & Co, for the defendant