Lau Chui Fei and Another v. Au Chi Hoe Admund and Another
Read the full judgment text of HCA 847/2019 on BabelCite. This High Court CFI judgment was delivered on 12 June 2023.
1. An apartment unit in Happy Valley (“5A”) was bought by (or at least in the name of) the 2 nd Defendant (“Father”) and later sold to one developer (“Developer”). It is clear that the 1 st Plaintiff (“Lau”) and 2 nd Plaintiff (“Fung”) had ‘chipped in’ the price by paying the 1 st Defendant (“Admund”) who is Father’s son. Lau was Admund’s friend at the time. Fung was also on very friendly terms with Admund.
Cites 3 cases
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HCA 847/2019 [2023] HKCFI 1468 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 847 OF 2019 ________________________ BETWEEN
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________________________ JUDGMENT ________________________ INTRODUCTION 1.An apartment unit in Happy Valley (“5A”) was bought by (or at least in the name of) the 2nd Defendant (“Father”) and later sold to one developer (“Developer”). It is clear that the 1st Plaintiff (“Lau”) and 2nd Plaintiff (“Fung”) had ‘chipped in’ the price by paying the 1st Defendant (“Admund”) who is Father’s son. Lau was Admund’s friend at the time. Fung was also on very friendly terms with Admund. 2.After the sale of 5A to the Developer, and based on the purchase price as reflected in the Lands Registry, around 40% of the profit was paid to Lau and 20% to Fung. Within a shortish period, 5A was sold at a great profit. 3.All would have ended well, with their friendships intact, but for the belated discovery of a “compensation agreement” whereby an extra $13,440,000 was agreed to be paid by the Developer to the owner of 5A (the “Compensation Agreement”). 4.The Plaintiffs now seek their share of the profit as they say the Compensation Agreement was part of the purchase price paid by the Developer for 5A. The Plaintiffs also allege a beneficial interest in 5A. 5.The parties submitted an Agreed List of Issues on 17/4/2023. Having regard to how matters unfolded at trial, I would summarise the broad issues to be decided by me as follows:
6.The live evidence was heard over just about three days. For reasons further elaborated below, I find neither the Plaintiffs nor Admund to be completely forthcoming with the truth. However, the findings I make on the issues set out below are comfortably supported by the contemporaneous evidence and entirely consistent with the inherent probabilities. As it has often been said, Courts try issues and not personalities[1]. The focus must be on the issues and thus evaluating the evidence on those issues, since witness testimony may not always be entirely truthful for reasons other than their central allegation being untrue. In other words, witnesses may be reluctant to tell the truth on some particular issues which may not be relevant to the issues to be tried but for their own personal reasons. MISCELLANEOUS MATTERS 7.I should briefly mention two documents: one called a declaration of trust (“Declaration”), and one called an ‘indorsement’ which in effect was a document purporting to ‘cancel’ the earlier Declaration. 8.At the Pre-Trial Review stage, the Plaintiffs offered to pay for stamp duty for the Declaration, failing which it would be inadmissible as it was unstamped[2]. 9.As events transpired and for reasons which are immaterial for present purposes, the Declaration was ultimately not stamped and therefore it was inadmissible. 10.By the time of the closing submissions, neither counsel suggested the Declaration to be admissible and, in any event, no one suggested it was particularly relevant[3] to the issues to be tried before me. I will therefore say no more about it. THE BASIC FACTS 11.On 27/5/2014, Centaline sent to Admund an email attaching a ‘price list’ about units in Ventris Court (“VC”). This effectively sets out the potential purchase price for units on the assumption that the total purchase price to be paid by the Developer would be for a particular amount. On the assumption that the Developer might pay a total of $2.422 billion for VC for example, 5A might fetch $35,948,702. 12.On 20/6/2014, Centaline wrote to all the owners informing them that an unnamed party had approached them to express interest in taking over VC with total redevelopment value of over $2 billion. 13.On the same date, a cashier’s cheque for the deposit was paid to one Ms Chung who is the vendor of 5A. Father signed a provisional agreement to buy 5A for $23.6 million. 14.The completion date was set to be on 23/1/2015, whereas the Sale and Purchase Agreement (“SPA”) shall be signed on or before 3/7/2015. 15.In the SPA, there is a reference to the fact that the sale was subject to an existing tenancy with an all-inclusive rent of $53,000 per month. 16.Wing Lung Bank gave a formal and written approval in principle to provide a mortgage to Father on 15/12/2014 for a sum of $10 million. 17.A table[4] was prepared where a number of matters were stated:
18.A memorial was lodged with the Land Registry which was received on 18/2/2015. Only Father was listed as the purchaser of 5A. 19.On a document dated 26 January 2015, written in English and regarding 5A, Admund acknowledged he received from Fung the following sums for the said purchase: $672,600 on 18/9/2014 and $2,391,598 on 20/1/2015 and hence “total received as of this date: $3,064,198”. It was also stated that “Share of the investment is 20% for [FUNG].” 20.From 22/10/2015 onwards, 5A was leased out to a French construction company for 2 years at a monthly rate of $52,000. The rent was stipulated to be paid into Father’s account with the Wing Lung Bank. 21.On 22/11/2017, Father gave a formal power of attorney to Admund regarding 5A, in particular, for its disposal. The monies to be received for the consideration was stipulated to be paid to Father. 22.By an Instrument dated 27/12/2017, the sale of 5A by Father to Century Supreme International Limited (in other words the Developer) was stamped thereby incurring an additional stamp duty of $3.4 million odd. The provisional agreement between Developer and Father recorded that there was an existing tenant with a tenancy term from 15/9/2017 to 14/9/2019 and for an all inclusive monthly rent of $65,000. 23.On 27/12/2017, an important document was signed between Admund as “lawful attorney of the Vendor” (i.e. Father’s lawful attorney) and the Developer. That document is referred to as the “Compensation Agreement” and refers in turn to the provisional agreement entered between the Developer and Father for 5A. It provides that the parties agreed as follows:
24.The memorial was filed with the Land Registry on 15/5/2018 and referred to the consideration for 5A being $52.5 million. 25.This was and is reflected on the Land Registry records. This amount of $52.5 million was also the amount which was used by Admund, as well as Lau and Fung, as a basis to calculate the profits to be shared. 26.The evidence of the parties is also consistent with Lau, Fung and Admund sharing effectively 40% of the net profit of the sale of 5A net of costs[5] which related to the acquisition of 5A. The expenses which had been deducted included mortgage payments, renovation costs, and also some expenses which might not have been obviously deductible. 27.This is reflected in contemporaneous messages, including amongst others, a message from Admund to Lau where he said at 5:33 pm on 3/1/2018 that:
28.In the same message, he noted that “the Property was purchased using my father’s name, he had helped us collect rent over the years, paid managements fees and rates. When tenants changed [he] helped with the cleaning of the property and organised the tenancy agreement. I suggest 5% of the net profit be awarded to him. Does everyone have any comment?”. 17 minutes later, Lau replied with 3 clapping hands emojis[7]. 29.13 minutes later Admund replied “on behalf of my father I thank everyone”. There are then no further messages on this issue. 30.Other sums included this so called “Tax Fee” (see above) which Admund says represented his personal taxes to be paid but which Fung and Lau agreed to pay. This is in addition to the 5% for Father which Admund says was agreed to by Fung and Lau to compensate for Father’s trouble and hence in some sense can be considered to be ‘costs’ expended in order to generate the profit arising from the sale of 5A. There is also an apparent discrepancy of $300,000 between the amount of mortgage payments made and those claimed. 31.It is common ground that two cheques dated 25/4/2018 were drawn in favour of Lau (for $16,377,705) and Fung (for $6,188,852[8]). 32.Some electronic communications have been disclosed between Lau and Admund and Fung and Admund which have to do with the investing and disposing of 5A. I will set out below those passages in the messages which I consider to be more pertinent to the issues to be tried. MESSAGES BETWEEN THE PROTAGONISTS 33.On 15/9/2017, Admund told Lau “long awaited result finally came out. New purchaser: Century Supreme International Ltd”. 34.On 28/11/2018, Lau messaged Admund and said that according to the information at the Land Registry, the transaction price was $52.5 million. She added that “there should have been a compensation agreement, I wonder if the amount on the cheque you calculated for us has included the amount of the compensation agreement? As we have never seen the Agreement for the Sale and Purchase …”. She then says this is because she trusted him and “it is indeed unfair for us as investors”. 35.On 28/11/2018, Fung messaged Admund and said “I do not understand why you did not compensate flat 4B with the compensation from your own flat 2C instead you compensated flat 4B which you partly own using the compensation of flat 5A without our knowledge and consent. You have betrayed by concealing the fact. It is totally unacceptable to us. We hereby strongly condemn your action and demand you return the compensation amount proportionally…we must recalculate according to [all the documents]. Please by all means reply when you will hand over the documents and return the compensation amount by 30 November which is the final deadline. Otherwise we will take legal action or report to the authorities!”. 36.By this stage it is clear Admund was being accused of concealing the existence of the Compensation Agreement and of its amount. He was also threatened with legal action and to be reported to the authorities. One would have expected him to deny this and set out his side of the story. Instead, on the same day, he simply said “Got it sister. I am busy, will get back to you when I finish work”. 37.In fact, Admund did not revert immediately to Fung but waited until 3.27 pm on 1/12/2018 when he said as follows (emphasis supplied):
38.It would appear from his close to contemporaneous response at the time that:
39.Earlier on Fung had gone through a similar exchange with Admund:
40.There is also this exchange of messages between Fung and Admund which is of note (emphasis supplied):
41.In so far as the other possibly contentious miscellaneous expenses in the sum of $785,727 are concerned, these are set out in a table which suggests these expenses had been incurred up to 31/3/2018. They include management fees and rates and expenses directly linked to the 1st and 2nd tenancy agreements. There are some decoration charges and cleaning charges which slightly exceed $500,000. 42.For reasons further set out below, I find that Lau and Fung were happy with the profit figure they obtained based on the evidence and explanations provided by Admund at the time and thus agreed with each other at the time of payment that the amounts paid corresponded to the amount of profit (and hence what the true figure for the costs were) which each of them was entitled and agreed were entitled to, assuming of course that the selling price was indeed $52.5 million. 43.On a balance of probabilities and considering the inherent probabilities having regard to the size of 5A, and its market rental, and having considered the figures, I find that the decoration and cleaning expenses had been incurred and, in any event, agreed to by Lau and Fung. 44.In so far as Father’s fee of 5% profit is concerned, I have regard to the contemporaneous messages above and Lau’s reaction at the time, as well as the fact that until it was challenged after the Compensation Agreement came to light, the calculations were such as to reflect the “profit paid to father” ($1.3 million) as ‘a cost’. That it was agreed that Father should have 5% of the net profits is also consistent with the inherent probabilities, given that the net cost to Lau was only in effect $520,000 and to Fung $260,000 (as compared to the enormous profit they made in this operation) and that this was largely based on market intelligence collected by Admund and with Father’s assistance. I thus find that there was an agreement between Lau and Admund, and between Fung and Admund, that they were happy to pay Father this amount which is akin to an agreed ‘service fee’. What amounts to expenses for the purpose of calculating the profit is either ascertained using common sense and logic or by agreement of the parties. In the present case, all the venturers agreed that Father would be entitled to $1.3 million for his services. I see no reason to disturb this. It was only after Lau had found out[9] about the Compensation Agreement that she wanted to back-track (on Christmas Eve of 2018) from her earlier stance and belatedly claim the ‘return’ of Father’s $1.3 million. 45.There is also a discrepancy of $300,000 between what the mortgage costs appear to be from some of the documents and what these were assumed to be at the time of the profit distribution. This issue was not fully explored or at any great depth at trial for good reason. 46.Notwithstanding their protestations to the contrary, I find that Lau and Fung were actually very careful[10] with money and paid close attention to the amounts they were getting. Since on the whole they had made a handsome profit by doing little more than ‘co-investing’ with Admund, they were seemingly happy with him ‘nibbling at the edges’ on their shared profit (whether it was for his personal tax or a little ‘service charge’ for Father) and did not want to get involved in the nitty gritty. Admund and his Father did the running. Lau and Fung were only putting in a bit of money and were in effect sleeping partners. 47.In the closing submissions, and given the quantum involved ($40% and 20% of $300,000) I did not understand Mr Lau to be strongly pressing for this amount[11]. In my view this was a perfectly rational and proportionate stance to take. His focus was rightly on the share of the Compensation Agreement. Since the parties had agreed, as part of their assumed state of affairs, that the mortgage costs were as they were stated, I see no need to re-open the issue nor would it be proportionate to now order some sort of an account. FINDINGS 48.In summary and, for reasons further explained below, I find that:
FURTHER DISCUSSION 49.Before I go into some detail into the analysis of the evidence, it should be noted that it is quite clear from the evidence that all witnesses and in particular Lau, Fung and Admund were quite defensive whenever it might appear there was any arrangement which aimed to or was structured in a way so as to ‘avoid’ paying double stamp duty. 50.Fung also has greatly exaggerated his ‘non chalant’ attitude to his investment as he claimed to very wealthy and this investment was almost nothing to him. The contemporaneous evidence in particular the messages suggest that Fung was following the matter closely. 51.Lau was also not entirely truthful in all respects. The explanation about how she found out about the Compensation Agreement was inherently incredible, i.e that she had overheard other VC owners from a table next to them at a restaurant in Happy Valley. It may well be that she was told by other unit owners who did not want to be identified as there is a confidentiality clause in their agreement. 52.In addition, Admund was very sensitive to reveal any matter which related to his dealings and/or arrangements with the Developer. It is understandable that he may think there are commercial sensitivities at play. 53.It seems to me that when giving evidence the Plaintiffs had deliberately downplayed the fact they were in fact very happy for 5A to be invested in such a way so as to minimise tax. 54.As I have explained to Admund in the course of his giving evidence, the Court can only proceed on the basis of the evidence and the witnesses called in a particular case. 55.If for commercial or other considerations parties choose not to put the whole of the evidence or call witnesses at trial, the Court can only proceed on the basis of the evidence before it. 56.From the contemporaneous evidence, once the issue of the Compensation Agreement was unearthed, Admund sought to explain it and was willing to produce it to his fellow venturers. He also provided some explanation for it and why he considered he was entitled to it. I do not consider that Admund had been dishonest in the sense that he had been consciously trying to deceive his partners of monies which Admund believed they were entitled to. 57.On the contrary, it would appear that he considered he was morally entitled to the Compensation Agreement as he thought he was entitled to some reward for having assisted the Developer in the acquisition process. It is also probably true that he spent much time and some of his money trying to ‘lobby’ other owners to sell. 58.As against that, the Compensation Agreement itself identifies compensation as being linked to the decoration for 5A, which in turn is tied to the sale and purchase of 5A, and thus is to be paid to the owner of that unit. 59.There is simply nothing to link the amounts payable under the Compensation Agreement to Admund’s efforts. Since no such evidence was called by either party, it is anyone’s guess what explanations the employees or directors of the Developer would have given. 60.Based on the inherent probabilities and the evidence before me, I conclude that the Compensation Agreement should be treated as part of the consideration for the sale and purchase of 5A and hence the Plaintiffs should be entitled to judgment on their portion of this sum as calculated at the end of this judgment. 61.It seems to me that the agreement was in reality not a tripartite agreement at least in the sense that Lau did not promise Fung anything, but rather, there were two agreements in identical terms which dovetail as between Lau and Admund and Fung and Admund. Lau and Fung can rely on their ‘own’ agreement with Admund, the terms of the agreements being identical. 62.It is true as Mr Law suggested that there was no agreement on how the ‘profit’ would be determined, but this is not unusual. It seems to me tolerably clear that either the parties to such an agreement could agree, or the Court could determine objectively whether a particular sum is part of the sale price or whether a particular sum is part of the costs which ultimately led to the sale. 63.While I did not accept part of the Plaintiffs’ evidence in so far as they sought to elevate what was a venture to share profit on 5A being sold to an actual beneficial entitlement as if they were owners, I accept on the balance of the probabilities that there was a profit sharing arrangement regarding 5A. 64.The material events happened many years ago and I do not think that whatever ‘inconsistencies’ over the exact timing of what was agreed and exactly at what location it was agreed to be of great moment[13]. 65.Given that I have rejected the proposition that the Plaintiffs held a beneficial interest in 5A by reason of a trust or otherwise, the exact timing of the agreement does not particularly matter. This is consistent with the fact that Lau and Fung were treated as ‘sleeping partners’ and who were on their own case not allowed by Admund to attend the owners’ meeting (discussing the sale) or to determine the sale price or to have any direct involvement with the sale of 5A. 66.It is true as explained above that I did not accept that the Plaintiffs were truthful in all respects but, in so far as the profit sharing arrangement is concerned, that part of the case is supported by the contemporaneous evidence and is very consistent with the inherent probabilities. 67.The profit sharing arrangement is clearly evidenced and reflected in the manner in which the proceeds of sale (ex Compensation Agreement) were distributed, and in the way which the parties were behaving and expressing themselves in the messages. 68.For the same reasons, it seems to me that while the pleadings had referred to a ‘tri partite’ agreement and that the parties to the Investment Agreement would “jointly invest” in 5A, this does not undermine the credibility and factual foundation in so far as that profit sharing arrangement is concerned. 69.While Lau and Fung were at pains to emphasise that they were in reality buying into a property[14], given their level of knowledge and investor experience, it is clear that if they had been intent to at the time, they would have insisted in having their names on the title deeds and in the legal documents. 70.I find that they treated 5A as a venture which would be run by Admund and they neither wanted to be legal nor beneficial owners of 5A nor wanted to be seen as owners of 5A. Whether this is purely or predominantly out of tax considerations (stamp duty) or personal reasons (to hide it from a spouse or partner) is not strictly relevant. 71.As I explained to the parties during the proceedings, most of the evidence in the present case (for example financial contributions flowing from Fung or Lau to Admund, and the ‘rewards’ flowing from Admund to Fung or Lau) is consistent with either the possibility that Fung/Lau were beneficial owners or that they were simply joint venturers sharing the profits on the sale. One must thus pay attention to evidence which is undisputed or undisputable and at the inherent probabilities but focusing on matters which can only be consistent with the party’s case than simply consistent of either parties’ case. 72.It is plain that Admund had a strong conviction that VC would be bought at a premium. He together with his family members would benefit as owners. 73.By co-investing in 5A he would be able to profit from the re-development by earning a profit from that unit but also facilitate the re-development by ‘controlling’ one more unit. 74.He was keen to get Lau and Fung (separately) on board partly to reduce his capital needs if they were willing to invest, but also because he wanted them to ‘profit’. At the time he considered they were friends and of course if they were to make a profit (which they did handsomely) they would also be happy to invest together on other ventures. 75.Although I have rejected Admund’s case that he was merely ‘borrowing’ from Lau and Fung on a balance of probabilities I do not accept the Plaintiffs’ case that he was desperate for funding. There was no basis for this assumption and given his income and his personal and family wealth, Admund would have been able to finance it from his own resources or elsewhere. The amount was not materially significant. 76.Admund claimed that in or about June 2014, Lau and Fung agreed they would lend money to him in order to invest in 5A. The terms of that ‘loan’ are not at all conventional in that they would allow the ‘lenders’ to effectively get the upside if 5A unit was sold. This is to explain why Lau/Fung were able to get 40% and 20% of the profit based on the selling price being $52.5 million. 77.It seems to me that Admund is now claiming there was a ‘loan’ or at least describing that arrangement as a ‘loan’ because he wants to avoid the perception that Lau and Fung were de facto ‘owners’ when Father was the legal owner, as this might have other legal consequences for him or worse still for Father. 78.On the facts, Admund has shared the upside on the sale of 5A. It would be very odd and against the inherent probabilities that he would have agreed with Fung/Lau such that they could suddenly ask for their ‘loan’ to be repaid if property prices went down. 79.This was fairly recognised by Mr Law who referred to this as an unusual aspect for a loan agreement “as it poses essentially no risks to Ps while granting them the upside”. 80.The arrangements between Lau and Admund and between Fung and Admund, are reflected in the payments they ultimately received, and in the language used in the contemporaneous messages, and is consistent with and probative of Lau and Fung being investors in a loose sense, not lenders. 81.There was thus no loan arrangement either in June or September 2014, i.e. either before or after the provisional agreement or the formal Sale and Purchase of 5A, or at any other material time. The contemporaneous evidence in the form of messages reflects the fact that Lau and Fung considered themselves as investors who were monitoring the developments and were eager to profit. 82.I do not consider that the agreement for profit sharing to be too vague or uncertain so as to be unenforceable. As it happens, one can see there was little difficulty in Admund calculating the share of profit to be given by Lau and Fung, who had readily accepted the same, although of course this is by way of observation and not determinative. 83.The only issue in contention was the sum attributable to the Compensation Agreement. This exercise of calculating a profit is not an uncommon one, whether to calculate what profit an enterprise makes or what are the allowable costs for the purpose of calculating profits tax. 84.On the present facts, it is not the case that the Compensation Agreement monies happen to be transferred to Admund and that this bears no relationship with 5A. The wording of the Compensation Agreement links the sale of 5A and its decoration with the compensation. 85.The fact that the price achieved even excluding the amount in the Compensation Agreement was at market or even a little bit above market is just one indicator. But even this cannot be ascertained as one doesn’t know the ‘real’ price[15] fetched by the many other unit owners who also received part of their consideration in the form of a Compensation Agreement. 86.Mr Law fairly accepted there were other ‘compensation agreements’ involving many other units, so it could not be said that although the document refers itself as compensation for the decoration for 5A, it must necessarily be the case that this amount was for the purpose of remunerating Admund for his personal efforts in pushing for the re-development. 87.It is true that the amount in the Compensation Agreement appears as out of sync with the value which would be ascribed to the costs of decorating 5A. But it would be a quantum leap to suggest the amount must therefore be referrable to a personal recompense for Admund, instead of it being linked to the overall purchase price of 5A which is what the document purports to suggest. 88.I accept that the burden of proof is on the Plaintiffs to establish that the monies paid under the Compensation Agreement is part of the consideration for the acquisition of 5A. This they have established by referring to the contents and wording of the Compensation Agreement, together with the fact that there were also other such agreements for other units. The fact that the Plaintiffs could have sought subpoenas or non party discovery is not to the point. 89.The Court has to assess the evidence before it and on a balance of probabilities and see if it has been shown that the monies paid under the Compensation Agreement are referrable to the purchase of 5A by the Developer. I find that the Plaintiffs have done so on a balance of probabilities. However, the Defendants submitted that even if I were to find that which I have found, the Plaintiffs should not be allowed to succeed in obtaining compensation for the reasons set out below. ILLEGALITY / PUBLIC POLICY 90.The Court of Appeal in Monat Investment Limited v. All persons & anor [2023] 2 HKC 627 held at paragraph 52.2 that “Since the common law on the defence of illegality is now expounded by the UKSC in Patel, applying the same stare decisis rule, it would only be logical that Patel is followed in the absence of any local circumstances that render it inappropriate”. 91.Mr Law helpfully drew my attention to the paper prepared for the Legislative Council Panel on Financial Affairs on the Review of Doubled Ad Valorem Stamp Duty (DSD). In the paper three aims are mentioned: (1) prevent exuberance in the property marker (2) ensure the healthy and stable development of the property market (3) accord priority to the home ownership needs of permanent residents in light of the tight housing supply. 92.It was rightly accepted by Mr Law at the closing that if I were to find (as I now have) that there was an agreement to share the profits on 5A but that neither Plaintiffs had a beneficial interest, the issue of illegality would not strictly speaking arise. Mr Kong echoed this submission. 93.However, it was submitted that this arrangement for profit sharing would nevertheless offend public policy and hence the Plaintiffs’ claim should be dismissed on that basis. 94.Mr Law drew attention to the judgment of the English Court of Appeal in Okedina v Chikale [2019] 1 ICR 1635 where Lord Justice Underhill at paragraph 12 held that (my emphasis).
95.Mr Law submitted that in the case of the agreement to share profit as I have found in the present case, this would still amount to “an investment to side bet its price” and may serve as a “new form of financial product”. 96.He cautioned that to allow the enforcement of such agreements such as the present one might open a floodgate for investors (some of which may not be local residents) to further engage in speculating in the property market which might push up the housing prices, although he very fairly recognised that if beneficial ownership does not pass, then the force of that argument would be to some extent weakened. 97.In terms of the ‘overkill’ he also emphasised that the Plaintiffs have already obtained a very substantial profit in the present case. 98.The application of the principle must depend on the peculiar facts of each case. 99.In the present case, had there been no venture involving the Plaintiffs, given Admund’s eagerness and confidence in what he viewed as a one way bet, it is almost inevitable Father would have bought 5A as he did here, but without the financing involving the Plaintiffs indirectly through Admund. In any event, even if Father had not bought 5A, it would most probably have been sold by Father’s predecessor in title before being redeveloped by the Developer. 100.It appears that 5A had been rented all along. If one were to look at this in a macroscopic way, the only difference this arrangement has made is for the Plaintiffs to be enriched (as opposed to the previous owner or Father being enriched) in a way which doesn’t appear to have any material nor significant impact on Hong Kong’s housing situation. This is thus not a case which cries out for judicial intervention on the basis of public policy being infringed. 101.As an aside if the legislature were minded to clamp down on this type of arrangement as a matter of policy, it would be in a better position to fashion a measured and targeted approach to dissuade parties from engaging in this type of activity. DISPOSITION AND COSTS 102.Given my findings above I find that the 1st Defendant is liable to pay the 1st Plaintiff the sum of $5,376,000 and the 2nd Plaintiff the sum of $2,688,000. 103.The claim by the Plaintiffs against the 2nd Defendant is dismissed. 104.In so far as the 2nd Defendant is concerned I will order the Plaintiffs to bear his costs to be taxed if not agreed. 105.In so far as the 1st Defendant is concerned, although the Plaintiffs have been to a large extent successful in obtaining monetary remedies against him, I consider that given the unsatisfactory manner in which the Plaintiffs have exaggerated their evidence, I will only order the 1st Defendant to bear 75% of their costs as against him to be taxed if not agreed. 106.It remains for me to thank counsel for their assistance.
Mr Roland Lau instructed by Messrs Kong & Tang for the 1st - 2nd Plaintiffs Mr Lewis Law instructed by Messrs H Y Leung & Co LLP for the 1st Defendant Mr Kong Sau Fung, Hatten instructed by Messrs C F Lee & Co for the 2nd Defendant [1] The general principles adopted for fact finding are well known and have been summarized by DHCJ Au (as Au J.A then was) in Lee Fu Wing v. Yan Po Ting [2009] 5 HKLRD 513 [2] See also Stamp Duty Ordinance S.15. [3] In Ps’closing, it was stated at paragraph 5 that “the admissibility issue (or the Stamp Duty liability issue surrounding the DoT at least) is neither here nor there”. [4] Said by Admund to have been passed to Lau and Fung in mid Jan 2015 (para. 47 of Admund’s Witness Statement) [5] I say effectively because there is some dispute about $1.6 million of those ‘costs’ but the main issue in this trial is whether the Compensation Agreement is part of the purchase price and whether it should be shared with the Plaintiffs. [6] On 4/1/2018 Lau queried via messaging “What are the costs of $2,100,000 about” to which Admund replied it included acquisition stamp duty, commission, legal fee and selling commission and legal fee, adding that “I think you will understand better if presented in this way”. [7] It does not appear that Fung the smaller ‘partner’ objected to it at the time. His share of it would be effectively $260,000. [8] It appears that this is because $2 million had been “pre-paid” to Fung prior to April 2018 and representing his share of the profit. [9] Timing wise on 5/11/ 2018 from Admund’s message to Fung it would appear that the seeds of discord had been sown and that Fung was “angry” for reasons which Admund said should be easy to clarify. By 7/11/2018 Fung explained that Lau has gone to Australia and that “She has told her lawyer to ask you for document”. Forensically from at least early November 2018 given the contemplation of what might follow the evidence and statements from the parties should be considered with caution. [10] Fung boasted a number of times that this investment was small compared with his business or wealth and thus he would not have taken too many precautions. While it is impossible to know how wealthy or not Fung is, it is plain he did take precautions including asking D1 to confirm in writing shortly after his second transfer of approximately $2.4 million for his “share of his investment” in 5A. [11] At paragraph 45 of the Plaintiffs’ closing they submit that judgment should be entered “in respect of the compensation sum of $13.44 M … and the amount of $1.3M allegedly received by D2”. [12] Although it was faintly mentioned at footnote 11 of the Plaintiffs’ closing. Ultimately this fails on the evidence and based on the applicable legal principles. [13] It is not surprising that when Lau was asked what happened in September 2014 she simply said “it was so long ago I don’t remember”. [14] The Plaintiffs submitted in their closing (at paragraph 18) that “in fact all four parties were acting as if Ps and D1 were beneficial owners”. [15] Given the facts of this case it cannot be said that the actual price in this case $65,940,000 (i.e. including the Compensation Agreement monies) disproves or displaces what is stated ex facie if on the Compensation Agreement itself. In other words, there is no evidence to suggest that no developer would have paid that price inclusive of the Compensation Agreement monies. | |||||||||||||||||||||||||
Cases cited in this judgment