Yeung Sui Yee v. Tsang Yee Ming
Read the full judgment text of HCA 419/2017 on BabelCite. This High Court CFI judgment was delivered on 7 January 2022.
1. The Defendant and the Plaintiff were formerly husband and wife respectively. They were married in 2006. Regrettably, the relationship was short-lived, and the parties petitioned for divorce in early 2011. The primary dispute in this action relates to the ownership of two assets acquired during their marriage, namely:
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HCA 419/2017 [2021] HKCFI 3922 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 419 OF 2017 ___________________ BETWEEN
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________________ JUDGMENT ________________ A. The Dispute 1.The Defendant and the Plaintiff were formerly husband and wife respectively. They were married in 2006. Regrettably, the relationship was short-lived, and the parties petitioned for divorce in early 2011. The primary dispute in this action relates to the ownership of two assets acquired during their marriage, namely:
2.There are two agreements (collectively, the “Agreements”) which are relevant to the consideration of the question of ownership of the Apartment and the Parking Space:
3.The main dispute centres on whether the parties’ intentions were reflected in the terms of the Agreements, including the extent to which the First Agreement has been overridden by the Second Agreement. The Plaintiff also argues that the Agreements are vitiated by duress and/or illegality. B. Background B1. The Apartment 4.The Plaintiff and the Defendant were married on 26 November 2006. On 8 May 2007, the Apartment was purchased in the joint names of the Plaintiff and the Defendant at the price of HK$1,770,400. 5.The deposit paid for the Apartment was HK$370,400. For payment of the balance of the purchase price, the parties obtained a mortgage of HK$1,400,000 for which they became jointly liable. 6.It is the Plaintiff’s case that she contributed the entire deposit sum of HK$370,400. On the other hand, it is the Defendant’s case that he paid “at least HK$255,000” towards the deposit. There is a dispute regarding the exact breakdown of such sums. I will return to this point later. 7.Shortly after the purchase of the Apartment, on 6 July 2006, the Plaintiff purchased the Parking Space using her own funds for HK$50,000. The Parking Space remains registered in her sole name. 8.It is the Plaintiff’s case that she moved out of the Apartment sometime after the signing of the First Agreement in September 2010 when she and the Defendant started to have conflicts and their relationship turned sour. Shortly thereafter, she started a new relationship with another man, who is now her husband and the father of their two children - the couple’s first child was born in August 2011. 9.The First Agreement was made on 2 September 2010 between the Plaintiff and the Defendant. It seems obvious that the First Agreement was made between the parties in contemplation of an irretrievable breakdown of their marriage with a view to achieving a clean break. The First Agreement was not drafted by professionals. The Plaintiff gave evidence during trial that she conducted some research online and found samples / templates on which she relied in the drafting and preparation of the First Agreement. 10.The essential terms of the First Agreement are reproduced as follows:
11.The First Agreement was signed by both parties. 12.On 7 February 2011, the Plaintiff took the initiative of filing a divorce petition on the basis of one year’s separation with consent. It was specifically stated in the petition that there was no claim for maintenance or any financial relief to be made by either party. 13.It is noted that there is some discrepancy between the Plaintiff and the Defendant in relation to when they actually separated. However, it appears that at the time when the petition was filed, the Plaintiff and the Defendant had not, in fact, separated for one year. Such discrepancies are however immaterial for present purposes. 14.As mentioned above, the Plaintiff’s evidence is that she left the Apartment shortly after the First Agreement was made (i.e. shortly after 2 September 2010), obviously with an intention to start a new chapter of her life. 15.It is the Defendant’s case that the reason why no maintenance claim or financial relief was made in the petition was that a settlement agreement between the parties had already been reached by way of the First Agreement. This is disputed by the Plaintiff for reasons which will be set out below. 16.The Defendant only paid a total sum of HK$110,000 during the period between August 2011 and September 2011 in part performance of the First Agreement. Hence, the First Agreement was not fully performed within the stipulated 2-year period as provided for under Clause 3 of the First Agreement. The Plaintiff’s case is that the First Agreement would expire in two years (i.e. by September 2012) and hence, all the terms and conditions should be fulfilled within that term, after which the First Agreement would be terminated by common intention. The Defendant’s interpretation is nevertheless that the parties could still perform the First Agreement after two years but with interest imposed on the outstanding sum payable, pursuant to the relevant term (i.e. Clause 5) of the First Agreement. 17.The Plaintiff’s case is that in about September 2012, given that the First Agreement had not been fully performed, the Defendant approached the Plaintiff to reopen discussions in trying to resolve their dispute over the ownership of the Apartment. According to the Plaintiff, the discussions at that time were only confined to the Apartment but not the Parking Space. 18.However, the Defendant’s case is that in around late 2011 or early 2012, although he did not meet the Plaintiff in person, he realised that the Plaintiff was financially strained. He alleges that at that time he still intended to make attempts to comply with the payment obligation under the First Agreement but to no avail. According to the Defendant’s evidence, the Plaintiff intended to retract from the First Agreement in about late 2012 as she wanted to reap the benefit of the soaring property market by asking for a higher sum from the Defendant. 19.According to the documents, it appears that the negotiations for the Second Agreement in fact started before early November 2012. It has been recorded in a letter written by the Plaintiff’s then solicitors, Messrs Jackson Ho & Co (“JH”) that the parties reached an oral agreement whereby the Plaintiff agreed to transfer her entire share and interest in the Apartment to the Defendant at a consideration of HK$700,000 on the condition that the Defendant shall not sell the Apartment within 15 years from the date of assignment of the Plaintiff’s share. In fact, according to the Plaintiff’s case, the Plaintiff originally intended to impose a lifetime restriction on resale upon the Defendant, but JH advised against it and it was therefore subsequently revised to a 15-year restriction. Hence, this shows that the Plaintiff did not in fact intend to retain her share of the interest in the Apartment but apparently wished to prevent the Defendant from making a quick profit by way of reselling the Apartment shortly after the Plaintiff’s assignment of her share to the Defendant. 20.However, by letter dated 28 February 2013, the Defendant’s then solicitors, Messrs Ng, Au Yeung & Partners (“NAYP”) wrote to JH setting out the following counteroffer to JH’s earlier letter:-
21.In fact, the sum of HK$600,000 was paid by the Defendant on 26 February 2013 to NAYP. On or about 19 April 2013, a cheque in the sum of HK$600,000 was drawn on behalf of the Defendant in JH’s favour for JH to hold as stakeholders pending completion. 22.Further, on 9 April 2013, JH replied to NAYP referring to NAYP’s letter dated 28 February 2013 (the terms of which have been set out above) and did not raise any additional or counter proposal. It therefore emerges from such correspondence that an agreement was reached at about the same time. 23.At this juncture, it should be pointed out that the solicitors’ correspondence (at least up to April 2013) never referred to the Parking Space. 24.It is the Defendant’s pleaded case that the Parking Space was actually included in the Second Agreement and hence the consideration (HK$600,000) of the Second Agreement included both the Apartment and the Parking Space. 25.However, under cross-examination, the Defendant, when referred to his solicitors’ letter dated 28 February 2013 which made no mention of the Parking Space, accepted that (1) he was aware of the terms set out in that letter and that he did read the same at about the time when it was sent out; and (2) the terms as set out in that letter (including the price) did not make any specific reference to the Parking Space and that the agreement as recorded in the correspondence between the solicitors was confined only to the transfer of the Apartment. 26.One important feature of the transaction in relation to the Apartment was that the approval of the HA had to be sought. Under the relevant rules, flats sold under the Home Ownership Scheme are subject to alienation restrictions pursuant to the Schedule to the Housing Ordinance (Cap. 283). In order to remove the alienation restriction, owners must pay a premium to the HA before they can let, sell or alienate their flats in the open market. However, there are certain scenarios where the HA would consent to a transfer of ownership where land premium is exempted, such as the transfer to a spouse owing to divorce or separation. A pre-requisite for such application is that the transfer must be made by way of a Deed of Assignment at nil monetary consideration. 27.In this connection, parties first signed the HA’s Transfer of Ownership Application Form and made a declaration stating that they have divorced and that the Apartment “will be under a change of ownership which at nil monetary consideration [sic] but only by way of a deed of assignment, in which the title will be transferred from [the Defendant] and [the Plaintiff] to [the Defendant].” (“我們經雙方協議下，同意將上述物業的業權以不涉及金錢代價的轉讓契據形式，由[the Defendant] 及 [the Plaintiff] 轉讓給 [the Defendant]，謹此聲明。”). It appears that parties thereafter submitted that application form to the HA. By a letter dated 23 April 2013, however, the HA wrote to inform NAYP that a new version of the application form was used since April 2013 and requested NAYP to resubmit its application by using the new version of the application form. The parties therefore filled in the new form dated 3 May 2013 and provided the same declaration again. 28.The declaration made by the parties has now become one of the disputed issues, namely, whether it amounted to a false declaration to the HA. Relying on an allegation of false declaration, the Plaintiff’s case is that the Second Agreement is unenforceable by reason of illegality. 29.On 13 August 2013, HA sent a letter granting their approval of the proposed assignment of the interest in the Apartment from the Plaintiff and the Defendant to the Defendant solely. Such approval was granted subject to various conditions. It is noteworthy that one of the conditions was that “[t]he change of ownership must be by way of a Deed of Assignment at nil monetary consideration”. It was also stated in the HA’s letter dated 13 August 2013 that “[i]f any of the above conditions is not complied with, this consent shall be deemed to have been withdrawn”. 30.By letter dated 1 November 2013, Messrs Chu & Lau (“CL”), the then newly appointed solicitors for the Defendant, sent a draft assignment (subject to mortgage) at nil monetary consideration in respect of the Apartment to JH for the Plaintiff’s approval. 31.In response, JH issued a letter to CL on 15 November 2013 saying that the draft assignment has been approved by JH without amendment. JH further requested CL to send over the original assignment for the Plaintiff’s endorsement. 32.At this juncture, there appears to be a gap with regards to the solicitors’ correspondences. The next letter which is available for consideration is one dated 29 January 2014 and sent by CL to JH, where CL referred to a past letter dated 10 January 2014 through which CL apparently sent to JH “the Assignment (subject to mortgage) at nil monetary consideration” for the Plaintiff’s execution. Since no response was received from JH thereafter, CL therefore, by virtue of its letter dated 29 January 2014, chased JH for the return of the signed assignment and also their reply but to no avail. 33.Due to JH’s lack of response, by letter dated 3 October 2014, NAYP wrote to JH stating that the intended transfer of the ownership of the Apartment had fallen through and requested for the refund of the stakeholder money in the sum of HK$600,000 held by JH. 34.On 8 October 2014, JH confirmed that the Plaintiff did not wish to transfer her share and interest in the Apartment to the Defendant. Further, a letter dated 27 October 2014 evidences JH’s refund of the HK$600,000 back to the Defendant. B2. The Parking Space 35.The above relates to the matters relating to the Apartment. In relation to the Parking Space, it cannot be disputed that the Plaintiff has at all material times been the sole registered owner of the Parking Space. 36.It is the Plaintiff’s case that she paid for the entire purchase price of the Parking Space out of her own personal funds and that therefore she was and is at all material times the sole legal and beneficial owner of the Parking Space. During their marriage, the Plaintiff permitted the Defendant to use and occupy the Parking Space for free. In or around October 2010 when the relationship between the parties had turned sour, the Plaintiff, according to her allegation, expressly requested the Defendant to pay her a nominal rent of HK$1 per month in consideration of being permitted / licensed to occupy and use the Parking Space. Owing to the Defendant’s failure and/or refusal to pay the Plaintiff such nominal rental payments, the Plaintiff says that she is entitled to vacant possession of the Parking Space as well as the rental arrears / mesne profit for the period from October 2010 until the date of vacant possession on the basis of the Defendant’s use and occupation of the Parking Space. 37.On the other hand, it is the Defendant’s case that the Parking Space was initially purchased by the Plaintiff as an unconditional gift to him and that the registration of the Parking Space under the Plaintiff’s sole name was only done at the Defendant’s request because the Defendant was not able to personally deal with and/or complete the necessary registration procedures at the time due to his then work commitments. However, at or around the same time when the First Agreement was entered into, the Defendant, with a view to saving time and costs and to avoid unnecessary legal proceedings involving potential claims for ancillary relief, nevertheless agreed with the Plaintiff that he would pay a total sum of HK$400,000 to the Plaintiff in exchange for the Plaintiff’s transfer of all her legal and equitable interests in the Apartment and the Parking Space to the Defendant. Hence, the First Agreement was thereafter entered into by the parties. 38.According to the Defendant, he had never used and/or occupied the Parking Space in the capacity as the Plaintiff’s licensee. Rather, he has always been using the Parking Space initially in his capacity as the Parking Space’s rightful owner (on the basis that the Parking Space was an unconditional gift made to him by the Plaintiff) and subsequently pursuant to the parties’ agreement as embodied in the First Agreement. The Defendant further denied that the Plaintiff had ever demanded any nominal rent of HK$1 per month from her in or around October 2010, but he averred that the Plaintiff did, in or around 2012, so demand in an attempt to resile from the First Agreement, in response to which the Defendant immediately refused. 39.It is clear from the documentary evidence that by email dated 13 May 2013, the Defendant, without going through either his or the Plaintiff’s solicitors, sent, amongst others, a draft Licence Deed (“LD”) to the Plaintiff for her consideration. 40.The LD refers to the Plaintiff as “the Licensor” and the Defendant as “the Licensee”. In summary, the LD states that the Plaintiff is “the registered owner of the [Parking Space]” and that the Plaintiff, as Licensor, has agreed to grant the Defendant, the Licensee, “permission to hold use and occupy” the Parking Space until such date as “determined by the parties by mutual agreement and consent”. However, the terms and conditions of the LD do not refer to any payment of rent. Notwithstanding that the Defendant sent the LD over to the Plaintiff, the Plaintiff has never signed the LD. 41.The Defendant, during the course of his oral testimony, said that the reason why he prepared the LD was for the protection of his rights. Apparently, the LD was intended to avoid any potential disputes over the use or occupation of the Parking Space, although, during cross-examination, the Defendant accepted that the LD would not actually serve any substantive purpose. B3. Parties’ Positions 42.The Plaintiff’s position is that both the First Agreement and the Second Agreement should be set aside by reason of duress and/or undue influence which will be discussed below. Further, insofar as the Second Agreement is concerned, the Plaintiff alleges that it is unenforceable by reason of illegality. On the basis of such contentions, it is the Plaintiff’s case that both agreements are neither valid nor enforceable and she therefore would remain one of the joint owners holding 50% interest in the Apartment and the sole legal and beneficial owner of the Parking Space. 43.Further, the Plaintiff’s case is that (1) the First Agreement was terminated by common intention, given that it was not complied with and fully performed by the Defendant within 2 years, and (2) the Second Agreement did not touch upon the Parking Space. 44.Hence, it is the Plaintiff’s case that she remains the sole legal and beneficial owner of the Parking Space and she claims mesne profit from the Defendant for his use and occupation of the Parking Space. In this regard, the Plaintiff’s position is that she allowed the Defendant to use the Parking Space at a nominal monthly rent in the sum of HK$1 since around October 2010. However, she started to claim mesne profits under the Writ of Summons (the “Writ”) which was filed in February 2017. Hence, her claim is on the basis that HK$1 per month was payable by the Defendant from October 2010 to February 2017 and that market rent should be payable from February 2017 onwards. 45.The Defendant denies the allegations of duress, undue influence and illegality. His position is that both the First Agreement and the Second Agreement are valid and subsisting save that certain terms of the First Agreement in relation to the Apartment were revised and superseded by the Second Agreement. In other words, the Second Agreement amounted to a variation of the First Agreement. On this basis, the Defendant seeks specific performance of the Agreements such that the Plaintiff should procure the transfer of her interest in both the Apartment and Parking Space to the Defendant at the price of HK$600,000. C. Issues 46.In their written closing submissions, the parties have agreed on a list of relevant issues which should be determined by this Court:-
47.Each of the above issues will now be discussed. Issue (1): Was there an agreement by the Plaintiff to sell her 50% interest? 48.There seems to be no dispute between the parties that both the First Agreement and the Second Agreement were entered into for the purpose of the transfer of the Plaintiff’s 50% interest in the Apartment to the Defendant. 49.The issue in dispute mainly concerns the terms of agreement and specifically, the impact (if any) of the Second Agreement on the First Agreement. Issue (2): What was the consideration for the Apartment in the Second Agreement? 50.Both the Plaintiff and the Defendant accept that the terms of the Second Agreement are those recorded in the letter dated 28 February 2013 sent by NAYP to JH. 51.As mentioned above, the letter states that “[w]e are instructed that in consideration of our client’s payment of HK$600,000……”. Hence, it clearly refers to HK$600,000 as the consideration. 52.An outstanding issue concerns whether or not this consideration of HK$600,000 covers the Parking Space. This is an issue I will explore in a later section. 53.In reply, JH issued a letter dated 9 April 2013 which, as mentioned above, did not reject the terms set out in the 28 February 2013 letter. Instead, it indicated that the Plaintiff was ready to move on to the next stage of the transaction by completing the application to the HA for its approval of the intended transfer of ownership. Hence, this reinforces the fact that the Plaintiff has no dispute over the figure of HK$600,000. 54.The remaining issue in this regard concerns the status of the sum of HK$110,000 previously paid by the Defendant to the Plaintiff between August and September 2011 in partial performance of the First Agreement. This sum was never refunded by the Plaintiff to the Defendant nor was there ever such a request made by the Defendant. Hence, both parties seem to have no dispute that no credit had to be given for this previously paid sum of HK$110,000 to the effect that the parties accepted that the aggregate sum for the transfer of the Plaintiff’s interest in the Apartment to the Defendant should be HK$710,000 (i.e. HK$600,000 + HK$110,000). In other words, the remaining net sum that the Defendant was required to pay for the transfer should be HK$600,000. 55.Whether or not this sum is inclusive of the consideration for the Parking Space will be discussed below. Issue (3): Duress and Undue Influence 56.The Court takes the view that the Plaintiff’s case on duress and undue influence clearly has no merits. 57.In the course of her oral closing submissions, the Plaintiff’s counsel confirmed with this Court that she would no longer pursue her case on undue influence. Hence, only the Plaintiff’s allegations of duress will need to be considered. 58.First, the relevant allegations only emerged as part of the Plaintiff’s case at quite a late stage of these proceedings. In the original Statement of Claim dated 21 Feb 2017, there was a bare allegation that the Agreements “were made under and induced by the misrepresentation and/or undue influence of the Defendant” without any particulars. 59.In the Plaintiff’s first witness statement (which, according to the Plaintiff’s evidence, was drafted by the Plaintiff herself), she only vaguely alleged that the Plaintiff repeatedly tried to persuade her to transfer her interest in the Apartment to the Defendant by various means “soft and hard”, but the Plaintiff never referred to any alleged threat or abusive conduct on the part of the Defendant. 60.The particulars of duress only first appeared in the Amended Statement of Claim dated 8 June 2018 and almost the same allegations were subsequently replicated in the Plaintiff’s Supplemental Witness Statement dated 30 October 2018 without further particulars. 61.If, according to the Plaintiff, the Defendant’s conduct had intimidated the Plaintiff to the point that she was compelled to enter into any agreement which fundamentally deviated from her own wishes, it can reasonably be expected that such conduct, which no doubt had a profound impact on her, should have at least prompted her to set out the relevant events in her first witness statement which, according to the Plaintiff’s evidence, was entirely drafted by her. The fact that she failed to do so is quite telling. 62.Secondly, the following particulars have been pleaded under §8(8) of the Plaintiff’s Amended Statement of Claim:-
63.The pleaded particulars were silent on exactly when and in what circumstances the Defendant said those words to her. There was also no evidence that the Plaintiff ever complained about any of these incidents to any party or the Police. 64.Third, had she felt in any way misled or unfairly treated by virtue of the First Agreement, she would have naturally sought to deal with the alleged unfair financial distribution in the divorce proceedings. However, the Plaintiff (who initiated the divorce proceedings by filing the petition in the first place) opted not to seek any financial relief against the Defendant. Indeed, in the divorce petition filed by the Plaintiff approximately 5 months after the First Agreement was entered into by the parties, the Plaintiff specifically inserted the following handwritten text under paragraph (7) of the petition: “雙方達成共識，不需要供養對方” (which means that “the parties have reached a consensus; no claim for maintenance or financial relief is to be made by either party”). Nothing in the First Agreement or during the process of the Plaintiff’s filing of the petition shows that she ever complained about being unable to exercise her free will in attempting to reach an agreement with the Defendant. 65.As mentioned above, the Plaintiff’s case is that she left the Apartment shortly after September 2010. Subsequently she started a new relationship with another man (who is currently her husband) and gave birth to their first child in August 2011. In such circumstances, the Plaintiff by reason of her own conduct quite obviously intended to resolve all financial matters and to have a clean break with the Defendant by entering into the First Agreement with him. 66.There are some disputes between the parties as to exactly how much the Plaintiff had contributed to the down payment of the acquisition of the Apartment. It is the Plaintiff’s evidence that she contributed about HK$370,585 through her own funds made up as follows: (1) HK$200,000 in the form of a cashier order drawn by the Defendant’s mother in favour of the HA (the “Cashier Order”) which according to the Plaintiff was in fact part of the betrothal gift given to the Plaintiff by the Defendant’s mother and (2) HK$170,585 which was money from the Plaintiff’s own savings. 67.On the other hand, it is the Defendant’s case that he paid “at least HK$255,000” towards the deposit, which was made up of (1) the Cashier Order in the sum of HK$200,000 which the Defendant contends that it could not have formed part of the betrothal gift to the Plaintiff and should thus count as the Defendant’s contribution as opposed to that of the Plaintiff and (2) a sum of HK$55,000 again paid by the Defendant’s mother out of a joint account held with the Bank of China (Hong Kong) Limited (account no. 012-887-1-049301-8) jointly by the Defendant, the Defendant’s mother and the Defendant’s sister. On this basis, the Defendant contends that the Plaintiff has at most contributed around HK$115,000, which represents the balance of the initial deposits. 68.Notwithstanding such disputes, even if the Plaintiff’s case is taken at its the highest, i.e. that she had contributed around HK$370,585 towards the acquisition of the Apartment, the consideration as stipulated under the First Agreement appears to be largely in line with the sums that the Plaintiff had contributed and hence, the First Agreement would enable the Plaintiff to get back what she had paid. 69.Under cross-examination, the Plaintiff actually admitted that the First Agreement was made in contemplation of the intended divorce and that no relief was sought in the divorce proceedings because financial matters had been taken care of by the First Agreement. 70.However, when she was asked whether the First Agreement was intended to facilitate the resolution of the divorce proceedings, she did not give any concrete answer but simply said that she did not think it through then. This seems rather self-contradictory. 71.Fourth, on the basis that the Plaintiff agreed to enter into the First Agreement in contemplation of the intended divorce, it could only mean that she was amenable to coming up with a plan to deal with her interest in the Apartment and the Parking Space once and for all. But whilst the Plaintiff’s case is that she did not agree to the terms (i.e. the price fixed therein) of the First Agreement, there is simply no evidence that she ever counter-proposed any sum, which in her view, would be a fair price or which represented the then market price of her interest in the Apartment and the Parking Space. It is clear from the Plaintiff’s evidence that she was solely responsible for researching and looking for suitable samples or templates from which she designed and drafted the First Agreement. On that basis, she clearly had control over the contents of the First Agreement and there is no evidence which suggests otherwise. In the circumstances, she ought to have been able to at least come up with a draft with her proposed consideration of the intended transfers but there is no evidence that she ever put forward any such consideration or conducted any research on the market price. 72.The Second Agreement further reinforces that the duress point has no merits:-
73.In view of the above, I conclude that the Plaintiff has failed to prove the allegation of duress. Issue (4): Illegality 74.According to the letter dated 28 February 2013, the Second Agreement contains a term that the assignment of the Apartment shall be at nil consideration. As mentioned above, the assignment of the Apartment was subject to HA’s consent, which was obtained through the parties’ making of the relevant application and submission of a declaration of nil consideration. 75.The Plaintiff submits that the representation of a nil consideration assignment in the declaration amounted to a false declaration to the HA. The Plaintiff’s position is that this would render the Second Agreement illegal. That said, the Plaintiff maintains that she did not dishonestly defraud the HA because she made the declaration at the time under the advice given to her by her then solicitors who, according to the Plaintiff, assured her that it was a normal practice. 76.The first issue to consider is whether there is an illegal act at all. 77.Having considered the parties’ respective positions and submissions, it appears that the declaration of a nil consideration assignment to the HA did seem to involve the making of a false declaration and hence the commission of the tort of misrepresentation to the HA when there was in fact monetary consideration for the transfer under the Second Agreement. That said, the analysis does not end here. 78.In Tse Chun Wai v Leung Kwok Kin Joseph [2017] 4 HKLRD 563, Bebe Chu J held that the applicable principle concerning illegality in Hong Kong is the “reliance rule” under Tinsley v Milligan. Hence, assuming that an illegal act was involved, the next question to consider is whether the illegality was relied upon by the Defendant for the transfer of the Apartment under the Second Agreement. 79.As shown in the line of authorities concerning the Small House Policy as cited by counsel for both the Plaintiff and the Defendant, including Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866, Chung Mui Teck v Hang Tak Buddhist Hall Association Ltd [2001] 2 HKLRD 471 and Kwan Hung Shing & Shing & Anor v Fong Kwok Shan Christine & Ors [2019] HKCFI 1687, those “development scheme” agreements were held to be unlawful and unenforceable by the courts, as the parties had to rely on the false representations in question in order to obtain the building licences. Hence, the illegality must be “relied” upon in order for the purpose of the agreement (i.e., to obtain building licence) to be fulfilled, which rendered the agreements unenforceable. 80.On the other hand, in another case cited by Mr Wong, Lau Kwai Kiu v Bian Xintian [2012] 2 HKLRD 954, the "reliance rule" was discussed in detail as well. 81.In that case, the deceased was a ting who was entitled to apply for a Private Treaty Grant from the government under the Small House Policy. This Grant contained restrictions on alienation. The deceased’s cousin, the plaintiff of the case, explained that before the deceased’s death, she had not asked him to make a formal application to the Government to transfer the property to her because she did not have sufficient funds to pay the additional premium required to remove the alienation restriction. The defendant, the deceased’s second wife, relies on the plaintiff’s non-payment of the additional premium (to remove alienation restriction) as a reason for illegality which renders the agreement unenforceable. Nevertheless, the plaintiff relied on her payment of the premium (for acquiring the land) and construction costs to establish her claim in the house. 82.In any event, the alleged illegality in that case would be a conspiracy between the plaintiff and the deceased, which concerns the deceased’s premature alienation to delay payment of additional premium. 83.Yuen JA raised the issue of “reliance” at paragraph 55 as follows:-
84.In the end, Yuen JA ruled in favour of the plaintiff on the ground that the plaintiff did not need to rely on the alleged illegality to establish her equitable proprietary interest (under a resulting trust or common intention constructive trust) in the house by virtue of her payment of land premium and construction costs, notwithstanding the fact that those interests were acquired in the course of carrying out an alleged illegal transaction. 85.In the present case, I take the view that the Defendant does not need to plead or rely on the asserted illegality (i.e. the making of a false declaration or misrepresenting to the HA to the effect that the change of ownership in the Apartment was to be made “at nil monetary consideration”) in proving his case that by virtue of the First Agreement (as subsequently varied by the Second Agreement), he is entitled to be transferred the Plaintiff’s 50% interests in and of the Apartment upon payment of HK$600,000 as the consideration. 86.Hence, I accept the submissions made on behalf of the Defendant that even assuming that there was any element of illegality, the Defendant could nevertheless establish his case on the strength of the Second Agreement without having to plead or rely on the asserted illegality. 87.For the above reasons, the Plaintiff has failed to establish her case on illegality. Issues (5) & (6): Parking Space 88.The next issue concerns whether or not any agreement has been reached between the Plaintiff and the Defendant for the transfer of the Plaintiff’s interest in and of the Parking Space to the Defendant. This in turn depends on the question of whether the First Agreement has been overtaken in its entirety by the Second Agreement, and if not, to what extent would the Second Agreement impact on the First Agreement in relation to both the Apartment and Parking Space. 89.According to Clause 3 of the First Agreement (as varied by the handwritten amendments), it appears that the parties have agreed that the Defendant would pay a total of HK$400,000 to the Plaintiff in return for the Plaintiff’s transfer of her interest in the Apartment and in the Parking Space (being HK$350,000 in respect of the former and HK$50,000 in respect of the latter). 90.From the documents, it seems clear that the parties have by way the Second Agreement decided to deal with the intended transfer of the interest of the Apartment in accordance with the terms of that agreement. Hence, in my judgment, the terms of the Second Agreement have taken over those of the First Agreement in relation to the Apartment only but not the Parking Space because there was simply no inking whatsoever in relation to the Parking Space in the documents relating to the Second Agreement, save and except the Defendant’s email dated 13 May 2013 in which the LD was attached but the LD has in any event nothing to do with any transfer of interest in the Parking Space. In the premises, it is plain that the stipulated consideration of HK$600,000 under the Second Agreement was not inclusive of the Parking Space, but only represented the consideration for the Defendant’s acquisition of the Plaintiff’s interest in and of the Apartment. 91.Arrangements for the Parking Space have all along only been made or provided for in the First Agreement. The remaining question is therefore whether the First Agreement was terminated as contended by the Plaintiff. 92.The Plaintiff submits that the First Agreement was terminated by common intention by reason of the conduct of both parties. Hence, the original plan to transfer Parking Space under the First Agreement no longer stands. According to the Plaintiff, at the time when the Second Agreement was entered into, the Plaintiff had already abandoned the arrangement for the Parking Space under the First Agreement and had intended to sell the Parking Space in the open market. This however only emerged during the Plaintiff’s oral evidence at trial and was nowhere to be found in the Plaintiff’s witness statements. 93.On a proper reading of the First Agreement, I find the Plaintiff’s interpretation that the First Agreement would automatically be terminated by parties’ common intention within two years from the date of the First Agreement (i.e. by September 2012) untenable. 94.Clause 5 of the First Agreement (as inserted by handwritten text), provides that “Interest will be charged to the outstanding balance after two years, if any. The interest rate will be 5% per annual [sic] for any outstanding balance after two years of the date of this agreement” plainly contemplates what might happen if the Agreement were not fully performed within two years from the date of the Agreement, i.e. 2 September 2010. Thus, it was obviously the intention of the parties that the First Agreement could continue to run even though it was not fully performed within the stipulated period of two years. 95.Moreover, it is not disputed between the parties that the Defendant did pay a sum of HK$110,000 to the Plaintiff during the period between August 2011 and September 2011 in part performance of the First Agreement. As submitted by the Defendant’s counsel, the fact that the Plaintiff never refunded (nor offered to refund) this sum of HK$110,000 to the Defendant even after September 2012 demonstrates that she by her own conduct regarded the First Agreement as being operative and subsisting after that date. I agree with the Defendant in this regard. 96.Further, the Plaintiff relies on the Defendant’s conduct of drafting the LD on 13 May 2013 as supportive of the Plaintiff’s contention that the First Agreement was terminated by common intention. However, whilst the Defendant’s drafting of the LD perhaps evidenced the Defendant’s acknowledgement that at least as of May 2013 the Plaintiff remained the registered owner of the Parking Space, it does not mean that the Defendant did not have the First Agreement in mind at the time or that the Defendant somehow accepted that the First Agreement had been terminated. Indeed, there can be no dispute between the parties that as of May 2013, the First Agreement had not yet been fully performed. In the circumstances, it seems hardly surprising that the Defendant drafted the LD with a view to safeguarding his continuous use and occupation of the Parking Space although he accepted that the LD did not actually serve any meaningful purposes. The truth is that the Second Agreement simply did not deal with the interest in the Parking Space (or any transfer of the same). 97.By reason of the above matters, I find that the First Agreement was only revised or varied by the Second Agreement insofar as the transfer of the Plaintiff’s interest in the Apartment is concerned, leaving the Parking Space to continue to be governed by the First Agreement. 98.In the premises, the parties’ agreement with respect to the Parking Space should still be governed by the terms set out in the First Agreement. The Defendant’s counsel, in his written closing submissions, clearly stated that the Defendant “is willing to buy the [Parking Space] at the agreed price of HK$50,000”. He further accepted that the Defendant should, in accordance with Clause 5 of the First Agreement, pay interests on the said sum of HK$50,000 for the period from September 2012 (i.e. 2 years from the date of the First Agreement) to February 2017 (i.e. when the Writ was issued by the Plaintiff). I agree that the dispute on the Parking Space should be resolved in the manner as suggested by the Defendant. Issue (7): Rental Arrears / Mesne Profits 99.The Plaintiff’s counsel, in her written closing submissions seeks rental arrears / mesne profits in the total sum of HK$20,286, being (1) rental arrears in the nominal sum of HK$1 per month from October 2010 to January 2017 and (2) thereafter, mesne profits in the sum of HK$470 per month from February 2017 onwards (on the basis of the expert report dated 17 April 2018 prepared by Vigers Appraisal and Consulting Limited, the valuation expert jointly appointed by the parties). 100.In view of my findings on Issues (5) and (6) hereinabove, Issue (7) should be determined in favour of the Defendant for the following reasons:-
101.The Plaintiff claims that she has in or around October 2010 (i.e. after the First Agreement had already been entered into by the parties) expressly requested the Defendant to pay her a nominal rent of HK$1 per month in consideration of being permitted / licensed to occupy and use the Parking Space. 102.However, the Plaintiff’s assertion does not sit comfortably with the fact that by October 2010, the parties had already entered into the First Agreement, which was on the Plaintiff’s own evidence drafted and prepared by herself; but there was simply no mention of anything to the effect that the Defendant would need to pay for the use of the Parking Space. 103.What is perhaps more telling is the Plaintiff’s reaction upon receiving the LD drafted by the Defendant on 13 May 2013. As mentioned above, by email dated 13 May 2013, the Defendant, without going through either his or the Plaintiff’s solicitors, sent the LD to the Plaintiff for her consideration. In short, the Defendant acknowledged in the LD that he was merely occupying and using the Parking Space as the Plaintiff’s licensee but the terms of the LD did not refer to any payment of license fee or rent. 104.Had the Plaintiff required the Defendant to pay for the use of the Parking Space, she should have instructed her then solicitors (upon receipt of the Defendant’s draft LD) to write back at least putting on record that the Defendant had failed to make payments for the use of the Parking Space since October 2010. The Plaintiff, however, did not respond to the Defendant’s draft LD at all, except by virtue of JH’s letter dated 23 September 2013 which will be referred to below. The Plaintiff’s complete lack of response in this regard simply does not support her claim for rental arrears / mesne profits. 105.By a letter dated 23 September 2013 sent by JH on behalf of the Plaintiff, JH only complained about the impropriety on the part of the Defendant in communicating directly with the Plaintiff without going through them as the Plaintiff’s then solicitors and stated that because the LD was improperly sent directly to the Plaintiff, the Plaintiff shall not entertain the Defendant’s request. The letter was silent on any alleged requests / demands for rent allegedly made by the Plaintiff, whether in or around October 2010 or indeed at any time. This, in my view, casts considerable doubts on the Plaintiff’s claim for rental arrears or mesne profits. 106.Moreover, given my ruling that there is nothing under the First Agreement which would prohibit the Defendant from using the Parking Space free of charge until the transfer of the same to him by the Plaintiff and there has been no other agreement between the parties regarding payment of either licence fee or rent for the Defendant’s use of the Parking Space, I am of the view that the Plaintiff does not have any ground to claim any arrears of rent or mesne profits from the date of Writ (i.e. February 2017). 107.In the circumstances, I reject the Plaintiff’s claims in this respect. Issue (8): the Defendant’s Counterclaim – Wasted Legal and Administration Fees 108.In view of my findings under Issue (4) hereinabove, there appears to be no reason why the Defendant should not be entitled to recover from the Plaintiff the sum of HK$17,750 being the wasted legal and administration costs. Indeed, as part of the Plaintiff’s closing submissions, the Plaintiff accepts that in the event that the Court finds the Second Agreement enforceable without having been vitiated by duress and/or illegality, the Plaintiff should be liable to pay the Defendant the sum of HK$17,550. D. Conclusion 109.Accordingly, I make the following order:-
110.Costs should follow the event. In view of the above rulings, I make a costs order nisi that the Plaintiff do pay to the Defendant the costs of this action, to be taxed if not agreed. 111.The above costs order nisi shall become absolute unless an application to vary the same is made within the next 14 days.
Ms Leona Chan, instructed by Messrs. K.H. Mak & Co. for the Plaintiff Mr Paul Wong, instructed by Messrs. Au Yeung, Chan & Ho for the Defendant |
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