Wong Ka Chung and Others v. David Wong and Another

HCA001926/1966

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1926 OF 1966

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Coram: Blair-Kerr J. in Court

Date of Judgment: 8 May 1969

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JUDGMENT

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1. During the years 1962/65 certain urban areas in Hong Kong were being rapidly developed; and, in the New Territories, Government was prepared to consider applications for the surrender of agricultural land in exchange for the regrant of building land on the basis of two units of building land for every five units of agricultural land.

2. In the Yuen Long area, it appears that the price which Government was then prepared to pay upon the surrender of agricultural land was approximately 90 cents per square foot. The figure at which Government valued the building land to be regranted in exchange for agricultural land was such that, even on the 5:2 ratio, the grantee of the building land was required to pay a substantial premium; and the Conditions of Grant always included a building covenant which had to be performed by the Crown lessee within two years.

3. The procedure for conversion appears to have been this: The lessee of the agricultural land would write to the District Officer indicating his willingness to surrender his agricultural land in exchange for a regrant of building land. In reply, the District Officer would indicate that he was prepared to put forward for consideration by Government an application for the grant of an area of building land (usually delineated clearly on an accompanying plan) in exchange for the surrender of a specified area of agricultural land. The letter usually included details of the approximate premium payable and the covenant to be performed in the event of Government approving of the exchange.

4. Such letters came to be known to land speculators as "letters B". Legally, such documents were no more than offers to treat; but they were regarded as a clear indication that Government intended to approve a grant of a particular area of land for building user.

5. The demand for building land was very great during this period; and the market price of such land was higher than the figure allocated by Government for purposes of exchange. This resulted in a great deal of speculative dealing in land. To take an example: Supposing the area of agricultural land to be surrendered was 10,000 sq.ft. On the 5:2 ratio of exchange, the lessee of the agricultural land would be entitled to 4,000 sq.ft. of building land. If Government valued the building land at, say, $25 per sq.ft., the value of 4,000 sq.ft., according to the Government figure, would be $100,000. If Government valued the agricultural land at 90 cents per sq.ft., the lessee would be credited with $9,000; and, after Government approved the exchange, the premium payable by the grantee of the building land would be the difference between the two figures ($100,000 less $9,000), that is to say $91,000 or $22.75 per sq.ft.

6. When the Conditions of Grant was ready for execution, the prospective grantee's interest would be capable of assignment; and if, at this time, the market price of building land happened to be, say, $100 per sq.ft. the assignor might make a very substantial profit. Knowing this, a land speculator would obviously be prepared to offer a farmer more than 90 cents per sq.ft. for the agricultural land. If the speculator acquired 10,000 sq.ft. of such land at, say, $4.00 per sq.ft., he would pay the farmer $40,000; and if the premium payable to Government was $91,000, his total outlay would be $131,000. But an assignment of 4,000 sq.ft. on the basis of $100 per sq.ft. would result in his receiving from the purchaser $400,000, thereby giving him a clear profit of $269,000.

7. This is the background of the dispute between the parties in this case. In 1962, the first and second defendants were undoubtedly land speculators; and they and their associates used to meet and talk business over a cup of coffee in a restaurant called El Chico. The first plaintiff and the second defendant had known one another for about thirty years; and the second defendant introduced the first plaintiff to the first defendant some time during the early part of 1962. The first plaintiff's understanding was that the two defendants carried on business together under the name of Hop Tak Co. He and the second plaintiff sometimes sat with the defendants during their coffee sessions at the El Chico Restaurant; and it was during one of those sessions towards the end of 1962 that a land deal of the kind which I have described was discussed between the parties. In fact they had a number of discussions; and on several occasions a friend of the defendants named Ho Hit-po was present. Ho was introduced to the first and second plaintiffs as "an expert in land conversion". He now resides in the United States; and he did not give evidence in these proceedings. The second plaintiff has resided in Brazil during the last year or so; and he was not available as a witness. However, I do not think that the absence of the second plaintiff has prejudiced the trial of this action in any way. Indeed, the first defendant said in evidence that his discussions were with the first plaintiff and that he regarded him as agent for himself and his co-plaintiffs.

8. The first plaintiff and the first and second defendants gave evidence. The second defendant became ill when he was being cross-examined by Mr. Swaine, counsel for the plaintiffs; and, on the adjourned hearing, Mr. Gittins, counsel for the second defendant, produced a medical certificate which indicated that his client was suffering from "slight hypertension and mental fatigue". The doctor advised rest for one week. Although cross-examination of the second defendant had not been completed, Mr. Swaine and Mr. Gittins said that they were not asking for an adjournment; and they were content that I should deal with the evidence as it stood. I was referred to the 10th Edition of Phipson, para. 1540.

9. I do not think that it is necessary for me to analyse the evidence in any great detail because I accepted the evidence of the first plaintiff in toto. Quite obviously he was a truthful and reliable witness. The two defendants lied throughout the whole of their testimony and I put no weight whatsoever on anything said by either of them.

10. It was the defendants who persuaded the plaintiffs to join in the land deal which forms the subject matter of these proceedings. They suggested to the first plaintiff that he should purchase two lots of agricultural land at Yuen Long, the purchase price being $12 per sq. ft. They told the first plaintiff that they were in a position to arrange for the whole of this agricultural land to be converted into building land; and that they were in the process of purchasing sufficient other agricultural land for surrender to Government to enable such an exchange to be effected on the 5 : 2 ratio. In other words, their proposal was not simply that the two lots should be surrendered in exchange for the regrant of an area equivalent to two fifths of the area of the two agricultural lots. The defendants' proposal was that the two lots of agricultural land should be exchanged for an area of building land equivalent to the whole area of the two agricultural lots.

11. The defendants told the first plaintiff that they had every confidence that the conversion could be effected within three or four months; but that if Government's approval to the exchange was not obtained within six months, they would "compensate" the plaintiffs with interest. My note of the first plaintiff's evidence reads:-

"They said that the conversion must be successful and if not successful after six months they would compensate us with interest."

12. The original idea was that the plaintiffs and defendants would embark on this joint venture on a 50 : 50 basis; and that each party would have a half share in the building land to be regranted. However, the first plaintiff suggested to the defendants that they should put up 20% of the purchase price of the two lots; and the defendants agreed to this suggestion. The effect of this was that the defendants had a 60% interest in the joint venture.

13. The parties had no intention of developing the land or even paying the premium, if this could be avoided. The whole idea was to make a quick profit. But they agreed that if it became necessary for them to pay a premium, the defendants would pay 60% and the balance of 40% would be paid by the plaintiffs.

14. The first plaintiff told the defendants that he wished to inspect the lots for which he and his co-plaintiffs were contributing 80% of the purchase price; and the defendants pointed out to him certain lands in Yuen Long which they said were lots 979 and 1126. The first plaintiff was satisfied; and he agreed to embark upon the joint venture with the defendants. It was, apparently, agreed that he should take no part in the actual purchase of the agricultural lots or in the negotiations with Government, and that the defendants would be the plaintiffs' agents in the purchase of the agricultural lots and in all negotiations with Government. In fact the plaintiffs took no part in the purchase of agricultural land or in any negotiations with Government. The first plaintiff said in evidence that in 1962 he trusted the defendants entirely; and I accepted his evidence.

15. The total area of lots 979 and 1126 was 21,790 sq. ft.; and at $12 per sq. ft., the purchase price worked out at $261,480. The plaintiffs had agreed to put up 80% of the purchase price, that is to say $209,184. On 5th November 1962 the plaintiffs paid the defendants $53,000 in part payment of their 80% share of the $261,480. In the meantime, the first plaintiff had, with some lay assistance, managed to draft an agreement embodying the terms of what had been verbally agreed to between himself and the defendants; and he and the defendants signed this agreement on 6th November, 1962. On 8th November, 1962 the plaintiffs paid the defendants $156,184 being the balance of 80% of the purchase price.

16. In the beginning of February 1963 the defendants informed the first plaintiff that in order to facilitate the conversion of lots 979 and 1126 it was desirable that another area of agricultural land should be purchased but that the price of this land was $20 per sq. ft. After discussion, the first plaintiff agreed to the purchase of this third lot at the price suggested. The scheme was that the plaintiffs would contribute 80% of the purchase price; that the whole area of the lot (No.1125) would be converted into building land; and that the defendants would purchase more agricultural land for surrender to enable this to be done. The area of the lot was said to be 5665 sq. ft.; and at $20/ - per sq. ft. this worked out at $113,300 (although in the subsequent written agreement the purchase price was stated to be $113,260). The plaintiffs paid the defendants $90,608 being 80% of the purchase price; and the first plaintiff and the defendants signed another agreement relating to the purchase of lot 1125 on 7th February, 1963.

17. During February and March 1963, the first plaintiff had frequent discussions with the defendants; and on many occasions he pressed them for details as to how the negotiations with Government were progressing. Clearly, his suspicions were aroused as a result of their unsatisfactory replies to his inquiries because in March 1963 he told them that if the conversion of the land had not been approved by Government before the expiry of the six months stipulated in the agreement of 6th November, 1962, he would enforce clause 3 of the agreement and demand the return of the $299,792.- which the plaintiffs had contributed in accordance with the two agreements of 6th November, 1962 and 7th February, 1963. My note of the first plaintiff's evidence in regard to these matters reads:-

18. On 30th March, 1963 the defendants paid the first plaintiff $8,000. They produced to him a piece of paper on which had been typed in English certain words which read:-

19. It was the first defendant who composed this document. What purpose it was intended to serve is far from clear. The name of the alleged purchaser of the "land in the New Territories" is not stated; and there is no reference to Lots 979, 1126 or 1125.

20. It does not appear that the first plaintiff took any particular notice of the words typed on this document; and all he did was to write on it:

"Wong Ka Chung received H.K.$8,000.00 on behalf of Wong Chan and Lin 30/3/63."

When the document was produced in court (as Ex. F.) it also had the following endorsement:

"Ho Hit-po received $4,000.00 only David Wong " " " "

The first plaintiff said in evidence that he could not remember whether or not these two endorsements were on Ex. F when he endorsed it on 30th March, 1963.

21. About June 1963, the defendants paid the first plaintiff a further $40,000 in part repayment of the $299,792; but no further payments have been made towards the outstanding balance of $251,792.

22. The first plaintiff consulted his solicitors in December 1965; and on 6th December the solicitors wrote to the defendants. Paragraph 2 of their letter reads:-

".......... according to these two agreements you undertook to apply to and obtain from Government the necessary permission for modification of the terms under which the said properties are held so as to convert the same to building land and in the event of your failing to do so and in any case after 6 months from the dates thereof, our client has the option to demand refund of the prices thereof plus interest thereon at the rate of 1% per month as compensation. Our client informs us that he has paid you the sum of $209,184. as the price of the properties Lots Nos. 979 and 1126 in D.D.120 Yuen Long and the sum of $90,608. as the price of the property Lot No.1125 in D.D.120 Yuen Long and you have up to the present failed to obtain the necessary permission from the Government for such modification thereof. Despite our client's repeated requests you have refunded to our client the total sum of $48,000 leaving the balance and interest thereon unpaid. Our instructions are to demand from you payment of the sum of $251,792. being the balance of the prices of the said properties and interest thereon .........."

23. The defendants' solicitors acknowledged this letter on 14th December; but they did not challenge any of the allegations in the letter of 6th December. Four months later, (i.e. at the end of April, 1966), the first defendant wrote a letter addressed to the three plaintiffs enclosing a letter of 27th April from the District Officer, Yuen Long, to the first defendant. In his letter, the District Officer notified the first defendant that he was prepared to recommend to Government the grant of certain building land in exchange for certain areas of agricultural land other than Lots 979, 1126 and 1125. The letter from the first defendant addressed to the plaintiffs was actually received by the second plaintiff; and it reads:-

24. The plaintiffs ignored this letter; and on 11th October, 1966 the first defendant wrote them another letter which reads:-

25. The plaintiffs handed this letter to their solicitors; and the following letter was addressed to Hop Tak Co. on 20th October:-

".......... We are instructed to deny that our clients have agreed to proceed any further for surrender and exchange of the land in the New Territories, and to assert that by reason of your default our clients are no longer bound to do so. As early as on the 6th December 1965 we have written to you on behalf of our clients demanding refund of the purchase price and interest. What is stated in our said letter is a complete answer to your said letter under reply. As a matter of fact, we have issued a writ of summons against you on the 6th October 1966 .................................. and have in the past few days attempted to effect service thereof on you but so far without success."

The plaintiffs threatened to apply for substituted service; but eventually the writ was served on the defendants' solicitors on 2nd November 1966.

26. As I have said, I did not accept any of the evidence given by the two defendants. Under Mr. Swaine's very able cross-examination they were both shown to be utter liars. I therefore do not think it is necessary to analyse their evidence or deal in any detail with their fundamental change of front as shown by their amended statement of defence as compared with their defence as originally filed. Suffice it to say that in their defence as filed on 20th February 1967 they alleged that the two payments of $8,000 and $40,000 (totalling $48,000) was "a loan" to the first plaintiff. This allegation was abandoned in their amended defence filed on the second day of the trial; and in this document it is alleged that the first plaintiff suggested that lots 1125 and 1126 be sold, "with the benefits of conversion, in order to save the capital expenditure required for the payment of premium development etc."; that the parties orally agreed to sell those lots to one Chan U. Chung and his brother; that on the 30th March 1963 the purchasers paid a deposit of $20,000 of which $8,000 was paid to the plaintiffs; that lots 1125 and 1126 were subsequently conveyed to Hop Tak Investment Co. on 7th August 1963 "at the request of the purchasers"; and that "by the said oral agreement and subsequent conveyance the plaintiffs have disposed of their entire interests in the said lots numbers 1125 and 1126 for valuable consideration and the defendants are under no liability to the plaintiffs therefor".

27. The amended defence goes on to say that:-

"With respect to the said lot number 979, the plaintiffs persuaded the defendants not to enter into any firm commitment with Government through the District Office in 1963 because of the boom in land prices during that year in Yuen Long. The plaintiffs were confident that this land boom would continue and refused to allow the said lot number 979 for exchange purposes. However the plaintiffs indicated that they would be prepared to take over a site in Main Street, Yuen Long, if the defendants were successful in arranging for such conversion with the letters B for over 30,000 square feet of agricultural land then acquired by the defendants."

28. I am certain that there is not a word of truth in these allegations. It may be that the defendants deferred the exchange of one or more of the three lots which were the subject matter of the joint venture in the hope that land prices would rise and that a greater profit would be obtained in any eventual exchange for building land. But the plaintiffs knew nothing about this; and there never was any question of a new agreement in regard to "a site in Main Street, Yuen Long".

29. Pursuant to the usual order for discovery, the defendants disclosed certain documents; but they failed to discover correspondence between themselves and the District Officer, Yuen Long. They also failed to discover a number of assignments and mortgages relating to the three lots 979, 1125, and 1126. The plaintiffs' solicitors obtained copies of these documents from the District Officer, Yuen Long, from which it appears that lots 979 and 1126 were purchased by Hop Tak Company on 15th November, 1962. The consideration stated in the conveyance was $80,000, which works out at approximately $4 per sq. foot. The first defendant signed the conveyance on behalf of Hop Tak Co.; and his signature appears to have been witnessed by Ho Hit-po. On 13th December, 1962, Hop Tak Co. mortgaged lots 979 and 1126 to the Far East Bank for $20,000. The first defendant signed the mortgage on behalf of the mortgagors. It further appears that one month before the agreement of 7th February, 1963 was executed, Hop Tak Co. had already purchased lot 1125. The assignment in their favour is dated 4th January, 1963; but the consideration as stated in the conveyance was not $113,000 but $8,493. The first defendant signed the conveyance on behalf of the Hop Tak Co. On 12th March, 1963 the Far East Bank mortgage was redeemed; but on the same day Hop Tak Co. mortgaged lots 979 and 1126 to the Canton Trust & Commercial Bank Ltd. for $40,000. The first defendant signed the mortgage. This mortgage was redeemed on 7th April, 1963. There is also a memorial of a purported sale on 7th August, 1963 of lots 1125 and 1126 by Hop Tak Co. to Hop Tak Investment Co. for $14,721.20 and $32,843.20 respectively. The first defendant signed both conveyances on behalf of the vendors. Also on 7th August, 1963 Hop Tak Investment Co. is registered as having mortgaged lots 1125 and 1126 to The Canton Trust and Commercial Bank Ltd. for $140,000. Ho Hit-po signed the mortgage on behalf of the mortgagors. Finally, on 25th March, 1964 Hop Tak Investment Co. executed a second mortgage in favour of the same bank for $60,000. Ho Hit-po signed this mortgage on behalf of the mortgagors.

30. The plaintiffs were never consulted in regard to any of these transactions, and they knew nothing about them until these proceedings commenced.

31. I have perused the correspondence which passed between the Hop Tak Co. and the District Office from December 1962 to June 1966. I do not think it is necessary to analyse it in any great detail.

32. On 11th December, 1962 Hop Tak Company wrote to the District Office saying that "our partner Mr. Ho had been authorised to negotiate for the conversion of" lots 979, 1126 and 1125 together with some other lot which had not been mentioned in any discussions with the plaintiffs. The first defendant signed that letter. On 4th April, 1963 Hop Tak Company wrote to the District Officer stating that

"Hop Tak Co. will be known as Hop Tak Investment Co. in future and shall appreciate if you will be kind enough to prepare the grant lease accordingly."

This letter is signed by the first defendant. On 21st May, 1963 Ho Hit-po wrote to the District Officer as follows:-

"Enclosed please find plans showing areas of land that we wish to apply for conversion and exchange under two different groups but under my management

On 25th May, 1964, the District Officer wrote a letter to Hop Tak Company which began:-

"......... Lot Nos. 1125, 1126 ........... With reference to my interview with your Mr. Ho Hit-po ..........................."

On 2nd June, 1964, Ho Hit-po wrote to the District Officer as follows:-

"Re Lot Nos. 1125, 1126 ...... I beg to inform you that I have acquired the above lots from Hop Tak Co. since summer last year and they are now registered in the name of Hop Tak Investment Co. ......... with myself being the sole proprietor .........."

On 15th June, 1964 Hop Tak Co. wrote to the District Officer thus:-

".............. Lot Nos. 1125, 1126 ........... We .................. are most anxious to have a nearest date so that we can execute the conditions of exchange ................"

The letter was signed by the first defendant.

On 16th December, 1964, Lau Chan & Ko wrote to the District Officer with reference to lots 1125 and 1126, as follows:-

"We are writing on behalf of our clients, Messrs. Hop Tak Co. to make reference to your letter of the 25th May, 1964 and to enquire from you whether the benefit of the said letter will also be applicable to an existing limited company (Hock Hip Investment Co. Ltd.) incorporated by Mr. Ho Hit-po, the sole proprietor of our clients' firm in 1963 with himself as majority shareholder. This is enquired of you because the name (Hop Tak Co. Ltd.) under which our clients wished to incorporate the new company is not available ...."

In evidence the defendants said that they did not instruct Lau Chan & Ko to write this letter; and it would appear that it was Ho Hit-po who did so.

33. Clearly the two defendants and Ho Hit-po were working hand-in-glove throughout the years 1962-1966. In my view, there never was any distinction between Hop Tak Co. and Hop Tak Investment Co.; and the purported sale of lots 1125 and 1126 from Hop Tak Co. to Hop Tak Investment Co. was fictitious.

34. I now turn to the written Chinese agreements because it is upon these documents that the plaintiffs' action is founded. The translation of the agreement of 6th November, 1962 which is relied upon by the plaintiffs differs in one material respect from the translation relied upon by the defendants. The following is the translation which was put in evidence by the defendants:-

Wong Kar Chung of Party A represents the following shares holders:-

The plaintiffs join issue with the defendants as regards the translation of clausel. The plaintiffs' translation of clause 1 reads in part:-

"Party B shall be responsible to convert the two pieces of land namely lots 979 and 1126 measuring 21,790 sq. ft. into building land within six months ............................."

35. The literal translation of the characters forming the first sentence of clause 1 is:-

"Party B responsible within six months change lots 979 and 1126 numbers two lots total 21,790 square feet convert building land."

None of the characters in this sentence could possibly be translated literally as "apply for modification of the conditions in respect of". The defendants' expert, Mr Chan Sin Cheong, (who was formerly attached to this court as a sworn translator) said that the reason he translated the sentence in this way was that the words "Party B is fully authorised to be agent for Party A in applying for modification (of conditions under which) the land is to be converted" appear in the recital, and that he thought that what the parties meant to say in clause 1 was that the application for modification of the conditions should be made within 6 months, not that Party B was to be "responsible to convert" within 6 months.

36. In translating a Chinese document it is frequently necessary to add words in English in order to render the translation grammatical. A free translation might result in ungrammatical nonsense. But it is not the function of a translator to depart from the plain meaning of the Chinese characters which the parties have chosen to use in order to ascertain what he thinks was the parties' true intention. Interpretation of agreements is the function of the court, not of a translator.

37. On 11th December, 1962, Hop Tak Co. wrote to the District Officer as follows:-

"We wish to inform you that we have purchased lot nos. 1126 and 979 from Mr. Lawrence Cheung. We have also purchased lot no. 1125 and we expect to complete the transaction within a week's time. Our partner Mr. He had been authorised to negotiate for the conversion .................."

The first defendant, who signed this letter, said in evidence that he had no recollection of having written it. Yet, the defendants' case is that in writing this letter they discharged their obligations under the agreement, that is to say that provided they did something within 6 months to set in motion the process of negotiation for conversion, they had fulfilled their obligations. I do not believe that this was ever the defendants' understanding of the oral agreement reached as a result of their discussions with the first plaintiff in El Chico.

38. Having heard the first plaintiff testify, I am in no doubt that his approach to this joint venture was that, provided the defendants could obtain Government approval to the conversion within 6 months, he was willing to put up "the lion's share" of the cost of lots 979 and 1126. I am satisfied that the defendants appreciated this; and I am equally satisfied that the parties gave effect to their intention by the language which they used in clause 1. In my view, the plaintiffs' translation of clause 1 is correct. The defendants' translation is incorrect.

39. As regards clause 3, the defendants take the point that the clause does not entitle the plaintiffs to demand the return of their money upon the expiry of 6 months. They say that it is a condition precedent to the payment of any "compensation" by the defendants that the plaintiffs should request the defendants to purchase the land.

40. In my view there is nothing in this submission. The land was already registered in the name of the Hop Tak Co. The intention of the parties was that if this conversion did not go through within 6 months, the plaintiffs should have their money back with interest at 1% per month.

41. The defendants allege that they actually paid $12 per sq. ft. for lots 979 and 1126 and $20 per sq. ft. for lot 1125. Their allegation is that they inserted $80,000 and $8,493 (and not $261,480 and $113,260) in the assignments of the agricultural lots "in order to save stamp duty" and that this was done with the knowledge of the first plaintiff.

42. In my view, the plaintiff had no knowledge of the figures inserted in the assignments. I did not accept the defendants' evidence that they inserted the lower figures in order to save stamp duty. They did not call the vendor of the lots or even produce receipts for the money which they allege they paid; and I see no reason why I should not assume that the prices paid by them for the agricultural lots were $80,000 and $8,493 respectively.

43. The plaintiffs' case is simply this: that the defendants swindled them out of the difference between the purchase prices of the lots as per the agreements and the consideration shown in the assignments, namely $186,247; that in March 1963 the defendants realised that they could not obtain Government's approval of the conversion within 6 months; that the plaintiffs asked for their money back with interest in accordance with clause 3 of the agreement; but that only $48,000 has been repaid leaving $251,792 still outstanding.

44. There will be judgment in favour of the plaintiffs in the sum of $370,767.06 as claimed in clause 5 of the amended statement of claim, as follows:-

Interest will run at the rate of 1% per month from the date of the writ to date of judgment and at 8% per annum from the date of judgment until date of payment.

45. The defendants filed a counterclaim for "loss of profits" in regard to their dealings with lot 979. The basis of the counterclaim was their allegation that the first plaintiff persuaded them to delay the exchange of this lot in the hope that the land boom would continue and that a greater profit would be made. As I have already said, there is no truth in this allegation and I do not think it is necessary to discuss the counterclaim further, and it is dismissed.

46. The plaintiffs will have their costs of these proceedings, i.e. as regards the claim and the counterclaim.

Representation:

Swaine (T.S. Tong & Co.) for plaintiffs.

Gittins Q.C. & Ignatius Wong (Wilkinson & Grist) for Defendants.