Hung Wai Kuen and Others v. Cheng Shun Ping

CACV 148/2023, [2024] HKCA 799

On appeal from [2023] HKCFI 949

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 148 OF 2023

(ON APPEAL FROM HCA NO. 1674 OF 2019)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Chu VP (giving the Reasons for Judgment of the Court):

Introduction

1.This is the defendant’s appeal against the judgment of A Chan J (“the Judge”)  given on 18 April 2023[1].  By the judgment, the Judge awarded damages for breach of contract to the 1^st and 2^nd plaintiffs and the 3^rd plaintiff in the respective sum of HK$4,368,000 and HK$2,910,000, together with interest, and dismissed the defendant’s counterclaim.  He further ordered the defendant to pay the plaintiffs the costs of the action and the counterclaim.

2.At the hearing, after hearing submissions, we ordered that the appeal be dismissed with costs to the plaintiffs to be summarily assessed.  We now give our reasons for the decision and the assessment of the plaintiffs’ costs.

The facts

3.The defendant is the registered owner of a plot of land in Shatin, New Territories known as Lot 510 in Demarcation District 176 (“the Land”).

4.In November 2011, the 1^st and 2^nd plaintiffs and the defendant executed a Chinese agreement dated 18 November 2011 entitled “發展合約” (“Development Agreement”)  for the construction of a three-storey New Territories Exempted House (“the House”)  on the Land. 

5.The material terms of the Development Agreement included: (1)  the 1^st and 2^nd plaintiffs shall pay the defendant a sum of HK$850,000, of which HK$600,000 was to be paid upon the signing of the agreement; (2)  the 1^st and 2^nd plainiffs shall be responsible for the construction of the House and the related work and also the associated costs and expenses; and (3)  upon completion of the House, the 1^st and 2^nd plaintiffs shall be entitled to the ownership of the ground floor and the second floor inclusive of the roof. 

6.On 14 November 2011, the 1^st and 2^nd plaintiffs paid HK$600,000 to the defendant’s solicitors, Rene Hout & Co (“RHC”).  RHC issued to the 1^st and 2^nd plaintiffs a receipt (“the Receipt”)  dated 14 November 2011 on which the HK$600,000 was described as “Deposit” for “Lot 510 DD 176”.  It is the 1^st and 2^nd plaintiffs’ case, disputed by the defendant, that in May 2012, they paid another sum of HK$250,000 to the defendant in cash.

7.The 1^st and 2^nd plaintiffs and the defendant had also executed a legal charge dated 18 November 2011 (“the Charge”)  under which the 1^st and 2^nd plaintiffs were described as the lenders and the defendant as the borrower.  The recital of the Charge referred to a five-year interest free loan of HK$600,000 from the 1^st and 2^nd plaintiffs to the defendant to be secured by the Land. 

8.The Development Agreement was not registered in the Land Registry, while the Charge was registered on 22 December 2011.

9.The 1^st, 2^nd and 3^rd plaintiffs and the defendant had signed a Chinese provisional sale and purchase agreement (臨時樓宇買賣合約)  dated 25 May 2012 (“PSPA”), in which the defendant was described as the vendor, the 3^rd plaintiff as purchaser and the 1^st and 2^nd plaintiffs as developers.  The terms of the PSPA provided for the sale of the 1^st floor of the House from the defendant to the 3^rd plaintiff for the sum of HK$1,350,000, HK$500,000 of which was to be paid upon the signing of the agreement.  It is the 3^rd plaintiff’s case, disputed by the defendant, that he had paid HK$500,000 in cash to the defendant.

10.Subsequent to the execution of the Development Agreement and the PSPA, the 1^st and 2^nd plaintiffs had since June 2012 engaged professionals and incurred costs to carry out preparatory work for the construction of the House. 

11.On 16 September 2013, a survey record plan of the Land with the covering form signed by the defendant was submitted to the Shatin District Survey Office.  On 17 September 2013, an application (“the Application”)  for approval of the construction of the House signed by the defendant was submitted to the Lands Department.  Between June 2015 and December 2016, RHC exchanged correspondence with the Lands Department requesting for the approval process to be expedited and for an update of the Application as well as dealing with the Lands Department’s request for the demolition of two structures on the Land.  On 14 February 2019, after the 1^st and 2^nd plaintiffs caused the two structures to be demolished, the Lands Department issued to the defendant a letter of no objection to the construction work.  By letter dated 5 March 2019, the Lands Department acknowledged receipt of a letter of acceptance signed by the 1^st and 2^nd plaintiffs and the defendant.  

12.It is common ground that the construction of the House could not and did not commence.  According to the plaintiffs, this is because the defendant and his son had gone to the Lands Department and asked that all applications relating to the construction of the House be suspended.  The defendant, however, said that sometime after February or March 2019, due to his health condition, his son had through solicitors informed the Lands Department to halt all applications relating to the construction of the House.

The action

13.The plaintiffs commenced the action below seeking specific performance of the Development Agreement and the PSPA and alternatively damages for breach of the two agreements.  At the trial, the plaintiffs elected to pursue damages for breach and did not seek specific performance of the two agreements. 

14.The plaintiffs’ case is that the defendant is under an implied duty not to obstruct or prevent the construction of the House, and that in suspending or halting the application process, he has acted in breach of his duty in that the construction of the House could not commence, as a result of which the plaintiffs’ rights and entitlements under the Development Agreement and the PSPA were defeated. 

15.The defendant denies that he had agreed with the 1^st and 2^nd plaintiffs to develop the Land and construct the House or that he had agreed with the 3^rd plaintiff to sell the 1^st floor of the House.  His case is that he borrowed HK$600,000 from the 1^st and 2^nd plaintiffs and the loan was secured by the Charge.  He signed the Development Agreement and the PSPA relying on the oral representation of the 1^st and 2^nd plaintiffs that these documents were additional securities for the loan, and they would not be used or enforced and would be destroyed when the loan was fully repaid.  The defendant also said that he had attempted to repay the loan and discharge the Charge but the repayment and discharge were not accepted by the 1^st and 2^nd plaintiffs.  He counterclaimed for declarations that the Development Agreement and the PSPA were null and void and an order that he be released from the Charge upon repaying HK$600,000 to the 1^st and 2^nd plaintiffs.

16.The 1^st and 2^nd plaintiffs dispute there was a loan of HK$600,000 to the defendant or that the Charge was a security for the loan.  Their case is that the Charge was prepared by RHC on the defendant’s instruction and it was to address their concern over whether the defendant would follow through with the construction of the House. 

The Judge’s judgment

17.At the trial, all the three plaintiffs and the defendant had testified.  The staff of RHC (“Winnie”)  who dealt with the Development Agreement, the Charge and PSPA and one Mr Lai (“Lai”)  who witnessed the execution of the PSPA were also called by the plaintiffs to give evidence.

18.The Judge accepted the evidence of the plaintiffs and their witnesses as credible and reliable, finding that the plaintiffs’ evidence was supported by the documentary evidence and the evidence of Winnie and Lai, who are independent witnesses. 

19.The Judge was not impressed by the defendant’s evidence. He considered the inconsistency between the defendant’s oral evidence and witness statement was due to his confusion over the details of the story that he made up to explain away the documents or his misunderstanding of the questions put to him.  

20.The Judge found the defendant’s case of a five-year interest free loan from the 1^st and 2^nd plaintiffs inherently improbable for a number of reasons:

(1)  Given the defendant’s evidence that he did not know the 2^nd plaintiff in November 2011, there was no reason why the 2^nd plaintiff would join in to grant a loan to him.

(2)  The Charge should be read in conjunction with the Receipt and also the provisions in the Development Agreement, which are indicative of a prior course of negotiations between the parties.

(3)  Winnie testified that there was no loan and the Charge was created so that it could be registered in the Land Registry to prevent the defendant from disposing of the Land.

(4)  Winnie also mentioned another development agreement dated 21 February 2011 (“Feb 2011 Development Agreement”)  executed by the defendant and one Mr Fung (“Fung”)  for the development of the Land and a legal charge over the Land in favour of Fung to secure a loan of HK$600,000.  The Feb 2011 Development Agreement was cancelled on 18 November 2011, which was the date of the Development Agreement.  The Judge considered this earlier transaction showed that the defendant was minded to develop the Land.  It also supported the 1^st plaintiff’s evidence that the defendant needed HK$600,000 to have the Land returned to him, and the HK$600,000 given by the 1^st and 2^nd plaintiffs was treated as a deposit for the development of the Land.

(5)  The PSPA, which was witnessed by Lai, fortified the existence and genuineness of the agreement to develop the Land. 

(6)  The defendant’s case that the Development Agreement and the PSPA were executed at the same time on 18 November 2011 was inherently improbable because the terms of the two documents were not consistent and Winnie would not have drafted the Development Agreement in such terms had she known that the defendant was not going to have the ownership of the 1^st floor of the House.

(7)  The efforts made and the expenses incurred for obtaining various permissions for the construction of the House is compelling evidence that the Development Agreement was genuine and was not an additional security for a loan.

21.The Judge rejected the defendant’s evidence that he had attempted to repay the loan to the 1^st and 2^nd plaintiffs in light of his own evidence that he was in need of money at the material time.  The Judge also did not accept his evidence that he was unfit to execute any document as there was no supporting medical evidence and his witness statement and oral testimony demonstrated he had made recovery from his stroke in 2019.

22.The Judge therefore rejected the defendant’s case on the Development Agreement and the PSPA and held that there was no loan or representation. 

23.The Judge found that the Development Agreement and the PSPA were genuine documents.  The Judge also found that the defendant had obstructed the construction of the House in that the development of the Land came to a halt as a result of request made by him or on his behalf to the Lands Department.  The Judge held that the defendant was in breach of the Development Agreement and the PSPA. 

24.The plaintiffs’ expert evidence on the value of the units of the House upon completion and the construction costs for completing the development of the Land was not disputed by the defendant. There was also no challenge to the plaintiff’s computation of damages.  The Judge accordingly entered judgment for the 1^st and 2^nd plaintiffs for the sum of HK$4,368,000 and for the 3^rd plaintiff for the sum of HK$2,910,000, together with interest, and dismissed the counterclaim.

Grounds of appeal  

25.By a notice of appeal dated 16 May 2023, the defendant appealed the Judge’s judgment.  The defendant’s grounds of appeal are directed at the judge’s rejection of his case that it was a loan of HK$600,000.  In broad terms, the defendant contended that:

(1)  The Judge failed to consider or properly consider that the plaintiffs could have registered the Development Agreement if they wished to prevent the defendant from disposing of the Land before the completion of the House.

(2)  In rejecting the defendant’s case, the Judge failed to properly take into account it was not inherently improbable for the 1^st plaintiff to provide a loan to the defendant in 2011 with a view to taking over the Land when the defendant failed to repay.  For this reason the efforts and expenses incurred by the 1^st and 2^nd plaintiffs to apply for various permissions for developing the Land should not be regarded as compelling evidence in favour of the plaintiffs.

(3)  The Feb 2011 Development Agreement is corroborative of the defendant’s case.

(4)  The plaintiffs failed to provide documentary evidence to show the source of the HK$500,000 said to be paid by the 3^rd plaintiff to the defendant.  This casts serious doubt on the plaintiffs’ case that he 3^rd plaintiff had paid HK$500,000 in cash to the defendant.

Our reasons for decision

26.As Mr Wong, who appeared for the defendant, readily acknowledged, this is an appeal against the Judge’s evaluation of evidence, consideration of the inherent probability of the parties’ case and finding of primary facts.  The law on the appellate court’s approach in this regard is clear: Ting Kwok Keung v Tam Dick Yuen (2002)  5 HKCFAR 336; China Gold Finance Limited v CIL Holdings Limited (unreported)  CACV 11/2015, 27 November 2015; and Sarah Sally Chan-Kent v Chim Sau Ching [2021] HKCA 648.  In gist,

(1)  An appellate court will only intervene when it is satisfied that the trial judge’s findings are plainly wrong in that he has fallen into palpable error. 

(2)  The focal consideration is whether it is permissible for the trial judge to make the findings of fact which he did in the face of the evidence as a whole. 

(3)  An appellant is required to identify a mistake in the judge’s evaluation of the evidence that is sufficiently material to undermine his conclusions.

(4)  Mere assertions that the finding of the trial judge is against the weight of the evidence or that he should have reached another conclusion because of points advanced in the submissions before him do not amount to palpable errors.

27.In light of the established principles and for the reasons set out below, we do not accept that the defendant has met the high threshold of showing that the Judge was plainly wrong in his assessment of the evidence and his rejection of the defendant’s case.

28.At the outset, it should be borne in mind that the Judge, having had the benefit of observing the witnesses and listening to their evidence, had concluded that the plaintiffs and their witnesses were credible and reliable witnesses and had accepted their evidence.  The Judge, on the other hand, did not consider the defendant’s evidence credible.  He found there were inexplicable inconsistencies between the defendant’s oral evidence and witness statement, and that he had made up his story and had difficulties explaining away the documents.  There is no appeal against the Judge’s assessment and finding of the witnesses’ credibility.  

29.Turning to the grounds of appeal, the first ground seeks to challenge the Judge’s findings on the Charge.  It was argued that the Judge should be slow to accept that Winnie, being a staff of a solicitors firm, would knowingly prepare the Charge and caused it to be registered in the Land Registry when on her evidence there was no loan.  It was also argued that the Judge failed to consider there was no credible reason for the creation of a sham document when the registration of the Development Agreement could also have achieved the purpose of preventing the defendant from disposing of the Land. 

30.These arguments have to be considered against the other evidence and the overall circumstances of the case.  RHC was the defendant’s solicitor.  Winnie, as the Judge found, is an independent witness who has no personal interest in the dispute and has no reason to give evidence to support a false case.  The Judge had considered the defendant’s criticism that she knowingly created a false document, but found no basis to doubt her evidence, which is consistent with the documents. The Judge also rejected the defendant’s submission that Winnie drafted the Charge under the 1^st and 2^nd plaintiffs’ instructions.  There is no appeal against these findings of the Judge.

31.Winnie’s evidence is that the Charge was created to avoid registration of the Development Agreement.  When being asked why it was “inconvenient” to register the Development Agreement, she said she had known the defendant for many years and her guess was the defendant did not want fellow villagers to know he was unable to develop the Land himself. While the Judge had referred to this part of Winnie’s evidence, he did not make a finding on the reason for not registering the Development Agreement in the Land Registry[2]. Mr Wong submitted it was incumbent on the Judge to make a finding on the reason for creating and registering the Charge when the same purpose could be achieved by registering the Development Agreement.  We do not agree.  What emerges from the evidence and the Judge’s findings is that the 1^st and 2^nd plaintiffs had concern over whether the defendant would dispose of the Land before the completion of the House; and to address their concern, the Charge was prepared by RHC on the defendant’s instruction, signed by the 1^st and 2^nd plaintiffs and the defendant and registered in the Land Registry.  In the circumstances, there was no need for the Judge to ascertain or make a finding on the defendant’s reason for creating the Charge.

32.It is also relevant to note that the Judge had considered the Charge together with the Receipt and the provisions in the Development Agreement.  The HK$600,000 was described as a deposit in the Receipt.  It was provided in the Development Agreement that if the defendant wanted to sell the 1^st floor of the House, the 1^st and 2^nd plaintiffs would have the right of first refusal, which would remain valid for one year from the issuance of the “certificate of satisfaction” (滿意紙).  The Judge considered this is an example showing the Development Agreement was the result of negotiations between the parties, which militates against the defendant’s case that it was a loan transaction.  

33.All these demonstrate that the judge’s rejection of the defendant’s case and his findings on the Charge are on sound basis, well supported by the evidence in the case.  

34.The second ground of appeal concerns the previous transaction between the defendant and Fung.  Mr Wong submitted that in that transaction, the defendant had used the Land as security to borrow money and the security took the form of the Feb 2011 Development Agreement, which was cancelled upon the repayment of the loan.  It was argued that the defendant followed the same mode of operation in dealing with the plaintiffs such that the Development Agreement and the PSPA were not intended to take effect unless the defendant defaulted in repaying the loan in question. 

35.The submission that the previous transaction with Fung and the present transaction with the plaintiffs share the same mode of operation is, however, not supported by the evidence. Importantly, it is Winnie’s evidence that the previous transaction between the defendant and Fung was different from the present transaction in that it involved both a loan and an agreement to develop the Land.  There was, in addition to the Feb 2011 Development Agreement, a legal charge which had been registered in the Land Registry.  This aspect of Winnie’s evidence is not challenged in this appeal.  In our view, it is open to the Judge to take the view that the Feb 2011 Agreement showed that the defendant had intention to develop the Land and had previously sought to do so.  This previous transaction does not assist the defendant.  

36.The third ground of appeal is directed at the Judge’s findings that it is inherently improbable that the 2^nd plaintiff, who hardly knew the defendant at the relevant time, would join in to make a loan to the defendant, and that the efforts and expenses incurred by the 1^st and 2^nd plaintiffs to apply for various permissions to develop the Land and build the House support the plaintiffs’ case and render the defendant’s case of a loan inherently improbable.  Mr Wong argued that the Judge had overlooked the 1^st plaintiff’s evidence that the defendant was known to him for many years, that over the years the defendant had sold all his lands (except the Land)  to repay his gambling debts and the 1^st plaintiff had provided financial assistance to him from time to time.  He submitted that it was therefore not inherently improbable that the 1^st plaintiff had lined up with the 2^nd plaintiff to make a loan to the defendant knowing there was a strong probability of the defendant defaulting on the loan, in which case they could take over the Land.  For this reason, Mr Wong further submitted, the efforts and expenses incurred by the 1^st and 2^nd plaintiffs should not be regarded as compelling evidence supporting the plaintiffs’ case as the plaintiffs’ conduct was equally consistent with the defendant’s case.

37.These submissions are problematic. First, the loan suggested by the defendant is a five-year interest free loan, not a loan on commercial terms.  It is the defendant’s own evidence that he did not know the 2^nd plaintiff and had no prior dealings with him.  He had been asked, but was unable to explain why the 2^nd plaintiff would agree to extend a five-year interest free loan to him[3].  The Judge had also taken note of the fact that the 1^st plaintiff had provided financial assistance to the defendant in the past[4]. In these circumstances, the judge is entitled to come to the view that the defendant’s case was inherently improbable.  It cannot be said that the Judge is plainly wrong in his finding.  

38.Second, in considering the various applications for permission to build the House, it is of significance that the defendant had signed on all the relevant documents and forms.  The Judge had observed that the defendant, being himself a developer of small houses, was familiar with the application process, and he was able to read and comprehend the contents of the documents which were in Chinese.  These documents, which reflect the efforts made to develop the Land, go a long way to show that there was an agreement to develop the Land.  There is thus ample basis for the Judge’s finding that the efforts and expenses spent on applying for permissions to develop the Land constitute compelling evidence that the Development Agreement was a genuine document.  

39.The final ground of appeal challenges the Judge’s acceptance of the 3^rd plaintiff’s evidence that he had paid HK$500,000 to the defendant in cash as part payment under the PSPA.  Mr Wong submitted that no documentary evidence had been adduced to show the source of this sum of money, which casts doubt on this part of the 3^rd defendant’s evidence and the genuineness of the PSPA. 

40.This submission has, however, ignored the evidence of Lai, whom the Judge found was an independent witness who had no reason to lie.  Ng witnessed the signing of the PSPA at the meeting on 25 May 2012, during which the 3^rd plaintiff paid HK$500,000 in cash to the defendant.  The defendant’s evidence that he signed the PSPA on 18 November 2011 together with the Development Agreement was rejected by the Judge as inherently improbable.  There is also the evidence of the 3^rd plaintiff that the cash payment was requested by the defendant, and in return for this the defendant had reduced the asking price of HK$1,500,000 to HK$1,350,000.  Despite the absence of documentary evidence showing the source of the fund, the Judge cannot be said to have erred in accepting the 3^rd plaintiff’s evidence on the cash payment of HK$500,000.  

41.For the above reasons, we have dismissed the appeal.

Assessment of costs

42.There is no dispute that costs should follow the event.  The defendant does not object to summary assessment of the plaintiff’s costs and has no submission to make on the plaintiff’s statement of costs handed up at the hearing.

43.We have considered the plaintiffs’ statement of cost.  Item D4 (hearing of the appeal)  should be reduced as the appeal hearing did not take three hours.  Taking a broad-brush approach, we summarily assess the plaintiff’s costs of this appeal at HK$120,000, which is inclusive of counsel’s fee. 

Mr Brian Fan, instructed by Ho Tse Wai & Partners, for the 1^st to 3^rd plaintiffs.

Mr. Damian Wong, instructed by Francis Kong & Co, for the defendant.