Wong Wai Chung v. The Treasure Island Enterprises Ltd and Others

HCA002299/1976

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Coram: Garcia, J. in Court

Date of Judgment: 28th May 1980

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JUDGMENT

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1. In this consolidated action, the plaintiff, Wong Wai-chung, seeks a declaration against the 5th defendant, Chan & Associates Corporation, that the agreement between him and the said defendant for the purchase of the ground floor of the building known as Tung Lee Industrial Building, 9 Lai Yip Street, Kwun Tong, is void for illegality and unenforceable.

2. The claim against the other defendants, that is, The Treasure Island Enterprises, Ltd., Siu Tai-hou, Chan Hou-bo and Bud Shui Company Ltd, has been withdrawn by the plaintiff at the commencement of the trial, and so also have the said four defendants' counterclaim against him been withdrawn.

3. The plaintiff, Mr. Wong Wai-chung, carries on business primarily as a toy manufacturer trading as Takmay Industrial Co. Ltd. His office is on the 4th floor of the said building. For some time he had wanted to buy the premises occupied by him from the registered owners of the building, Messrs. James S. Lee and Co. (Kowloon) Ltd. but the latter would not sell separate floors or units of the building to individual purchasers. However, the whole building was up for sale in one lot and the price asked for by the owners was $11.5 million. It is apparent that at the time when the offer was made, Mr. Wong was unable to pay that price himself. He therefore arranged with two other persons, Mr. Siu Tai-hou and Mr. Chan Hou-bo, to join him in the enterprise in order to buy the said building and sell individual floors and units to sub-purchasers for a profit. Their individual shares in the joint venture were as follows: Wong Wai-chung 2/5ths, Siu Tai-hou 2/5ths and Chan Hou-bo 1/5th.

4. Following the establishment of the joint venture, a sale and purchase agreement was entered into on 17th September, 1976, between the registered owners of the building and the partners in the joint venture, the consideration for the building being $11.5 million and the completion date of the agreement was to be the 26th day of October, 1976. One week after the agreement was executed, i.e. on 2nd September, 1976, a company by the name of Treasure Island Enterprises Ltd. was incorporated by the partners with each of them subscribing one share in the company and each of them became a Permanent Director of the Company. The company was to act as confirmor in the assignments of the various units of the building to be sold to sub-purchasers. Although the ostensible purpose for incorporating the company was expressed to be a convenient vehicle for conveyancing, nevertheless a perusal of the accounts of the company shows that a possible purpose to be the channelling of all the profits and commissions to be made through sales of the units to the Company so as to avoid the incidence of higher taxation of the partners' personal incomes.

5. Between the 17th day of September, 1976 and 19th October, 1976, a major portion of the building had either been sold to, or taken up by sub-purchasers, each transaction being evidenced by a temporary agreement in Chinese made between the company and the sub-purchaser. However, the ground, 5th and 13th floors of the said building remained unsold or not taken up by 20th October, 1976. On the latter date, the three partners of the joint venture met together at the City Hall Restaurant at about noon and there each of them tendered for the right to buy the three said floors of the building. As a result of that exercise, Mr. Wong was successful in his bids for the ground and fifth floors at $178.00 and $104.00 per sq.ft. respectively.

6. Dealing only with the ground floor, a temporary agreement in Chinese was executed by the Treasure Island Enterprises Ltd. as vendors and Mr. Wong Wai-chung as purchaser of the whole ground floor of Tung Lee Industrial Building at No. 9 Lai Yip Street, Kwun Tong, for the sum of $1,788,010 at $178 per sq.ft. Further sums of $7,500 and $2,000 were expressed in the agreement to be "charges for electricity and deposit for management" respectively. This agreement is dated the 20th day of October, 1976.

7. On the 19th day of October, 1976, an advertisement was inserted in the Sing Tao Wan Pao offering the said ground floor premises for sale. This advertisement was seen by Mr. Glenn Chan, the fifth defendant, and as he was interested in buying the said premises, he telephoned the number mentioned in the advertisement and he had a conversation with Mr. Wong, who then invited him to his office on the 4th floor of Tung Lee Building, 9 Lai Yip Street, Kwun Tong for that purpose.

8. Mr. Glenn Chan is in business as an importer and exporter of paper, and together with Mrs. Catherine King, trades under the name of Chan & Associates Corporation at 9, Ice House Street.

9. At about 10.00 a.m. on 20th October, 1976 he went to see Mr. Wong together with Mrs. King and on arrival at the office they found Mr. Wong alone and there was an exchange of visiting cards. Mr. Wong told them that he was a Director of Treasure Island Enterprises Ltd. and that he had full authority to sell the ground floor of the said building. He also stated that the premises had an area of about 10,000 sq.ft. and that the price was $195 per sq.ft. but no mention of the price for the whole of the ground floor premises was made. They were then taken to the ground floor by Mr. Wong where an inspection was made. There Mr. Wong informed them that the requisite documents were in the offices of Messrs. Yung, Yu, Yuen & Co., solicitors, with a Mr. Tong Wai-ying, a clerk of the said firm, and that if they wished to see those documents they could contact him. Mr. Chan says in evidence that he informed Mr. Wong that he would consider this offer seriously. Immediately after leaving Mr. Wong, Mr. Chan went alone to the offices of Yung, Yu, Yuen & Co. in which firm he had a friend, who is a partner, called Mr. Chan Bing-kuen. Some discussions were then held in the offices of Yung, Yu, Yuen & Co. between Mr. Glenn Chan, Mr. Chan Bing Kuen and Mr. Tong and after obtaining the relevant documents portaining to the said premises, noted that the net usable floor area was 8,922 sq.ft. and at the abovementioned discussions, it is said that Mr. Tong told Mr. Wong that he had full right to deal with the premises and that the transaction must be completed by 25th October, 1976.

10. Following those discussions, he went to consult another friend of his who was a Chartered Estate Surveyor, and there the plan was examined and a price of $1.8 million was arrived at as being the appropriate amount to pay for the said premises. These steps were all taken on the morning of 20th October, 1976.

11. Mr. Wong disagrees with the statement made by Mr. Glenn Chan that their first meeting was on 20th October, 1976. He says that that meeting took place on 21st October because it was not until the afternoon of 20th October that he was successful in his bid for the purchase of the ground floor from the joint venture and from Treasure Island Enterprises Ltd. There is unchallenged evidence that the advertisement offering the said ground floor premises for sale appeared in the Sing Tao Wan Pao on 19th October, 1976 even though on that date the right to sell the ground floor had not yet passed to him. It is also common ground that the telephone number which was inserted in the said advertisement and at which Mr. Wong was contacted had no reference to Treasure Island Enterprises Ltd. The evidence is that he had represented to Mr. Glenn Chan that he was a director of Treasure Island Enterprises Ltd. and that he had even on that date, 20th October, 1976, full right to sell the said premises. Why should it have been necessary for him to have made this statement or for that matter, even Mr. Tong Wai-ying, if his right to sell the said premises for his own account had already been confirmed as he obviously had such a right on the 21st after his successful bids on the 20th? Is he making the statement that he first met Mr. Chan on 21st October, 1976, instead of 20th October, because that would have supported his claim that he was selling the ground floor for his own account and not with the authority of the joint venture or the Company? I believe this to be so and I am inclined to the view that what Mr. Glenn Chan says with regard to this aspect is the more accurate since it is unlikely that he could have done all the things he says he had done within the span of one day.

12. On the afternoon of 20th October, 1976, Mr. Chan went to see a Mr. K.T. Lee of the Metropolitan Finance Co. Ltd. in order to raise a loan for the purpose of buying the said property, and at about 8 a.m. on the 21st October, 1976, he went with Mr. Lee to see the ground floor premises after which the latter agreed to let him have a loan of $1.8 million on the security of the said premises and on his personal guarantee.

13. At about 12 noon that day, he and Mrs. King went to see Mr. Wong again in his office and from there they went with Mr. Wong to a nearby cafe where negotiations took place regarding the price of the property. Mr. Wong says that the price which he asked for at first was $195 per sq.ft. for an area of 10,445 sq.ft. but it was ultimately agreed that the price for the premises would be $1.95 million. On the other hand, Mr. Chan and Mrs. King both say that the price which they had all agreed upon was $1.8 million for the whole of the said premises. Mr. Martin Lee submits that this difference in the price which the parties have testified to is one of the crucial issues of the case because of the special defence to the counterclaim which Mr. Wong sets up, that is, that the difference of $150,000 was to be a secret payment made by Mr. Chan to him for the purpose of evading the payment of stamp duty on this portion of the consideration, and therefore illegal, going to the root of the whole agreement made between the parties.

14. Mr. Lee submits further that Mr. Wong had bid $178 per sq.ft. for the ground floor premises on a gross area of 10,445 sq.ft. and the cost of the property to him would therefore be $1,859,210, so that if the price which he asked of Mr. Chan was $1.8 million, he would suffer a loss of $59,210 which was unreasonable having regard to the fact that from all the sale and purchase agreements in respect of the other units of the building, all such units were sold at a profit. If it were true that the purchase price of the whole premises was $1.95 million on an area of 10,445 sq.ft. the unit price must be $186.69 per sq.ft. The evidence indicates that Mr. Wong had originally asked for $195 per sq.ft. but after the negotiations in the cafe, the final price (as stated by Mr. Wong) agreed upon was $1.95 million for the whole of the premises, and it would appear then that the negotiations so far as Mr. Chan was concerned, even at the price of $1.95 million, did succeed, since he was apparently reducing the unit price from $195 per sq.ft. to $186.69 per sq.ft. The evidence further indicates that at the outset Mr. Wong mentioned that the unit price for the premises asked for would be $195 per sq.ft. and this appears to be common ground. Mr. Chan mentions that the sketch plan shows a net usable area of 8,922 sq.ft. in the premises and he bases the price of $1.8 million on this area. As was pointed out by Mr. Lee, on that basis, a figure of $201.74 per sq.ft. would be the final unit selling price. If that was the price, that is, $1.8 million for an area of 8,922 sq.ft. negotiated upon in the coffee shop as stated by Mr. Chan, the unit price was much higher than the $195 per sq.ft. asked for by Mr. Wong, and it is entirely beyond belief that Mr. Glenn Chan would so easily make a mistake in the unit price or that he had negotiated on the basis that the floor area sold was 8,922 sq.ft. and not 10,445 sq.ft.

15. I therefore come to the conclusion that so far as the price asked for and agreed upon was $1.95 million as stated by Mr. Wong, and not $1.8 million. This finding raises two further possibilities envisaged in the submission of Mr. Lee. As to these, I would refer further to the evidence narrated by Mr. Chan as to what occurred on the 21st October, 1976. That same afternoon at about 3.30 p.m. after the price was agreed upon, Mr. Chan says that Mr. Wong was late in arriving at the offices of Messrs. Yung, Yu, Yuen & Co. but he did turn up and both parties appeared before Mr. Tong to enact a scene which Mr. Lee refers to as more fitting for a marriageceremony, with which description Mrs. King agrees, than for the more mundane formalities for concluding a contract for the sale and purchase of land. It is stated that both parties agreed solemnly in the presence of Mr. Tong that one would buy and the other would sell the ground floor premises of Tung Lee Industrial Building at a price of $1.8 million. No witnesses have of course been called to give corroborative evidence of this event and Mr. Wong denies that this ceremony ever took place and that Mrs. King was not present in the offices of Yung, Yu, Yuen & Co. in the afternoon when he saw Mr. Tong in the company of Mr. Chan, and when the requisite documents were given to Mr. Glenn Chan. There and then, he told Mr. Tong that he had verbally agreed to sell the property to Mr. Chan for $1.8 million, but that such sale was not yet confirmed and would not be so until 25th October, 1976 when the assignment was executed and "before the assignment was signed both parties were at liberty to waive the agreement". He gave an explanation as to why he had mentioned to Mr. Tong that the purchase price was $1.8 million, and not $1.95 million. He says that on the occasion when they had discussed the sale and purchase at the coffee shop (on the 25th October, according to him) Mr. Chan had a request to make and that was that the purchase price which ought to be inserted in the documents (deed of assignment) was $1.8 million, and not to mention the balance of the $150,000 which was part of the consideration since by doing so, he would save some legal expenses and stamp duty. He was told to go to Mr. Glenn Chan's office that afternoon to receive a cash cheque for that amount, and he gave him his visiting card to do so (Exhibit D9). The version given by Mr. Chan is that Mr. Wong asked for a deposit of $150,000 when they were at the offices of Yung, Yu, Yuen & Co. but because he did not have his cheque book with him, and having heard Mr. Tong say to Mr. Wong after handing him a blank receipt form that his receipt would be issued on that form, he had asked Mr. Wong to go back to his office with him, and that was agreed. It is also common ground that Mr. Wong did obtain a receipt form from Mr. Tong, and it has been asked as to why he should have bothered with a receipt at all if what he says is true - that is, that the payment of the $150,000 was an under the table payment. Is not the receipt form superfluous and one which would be more than likely to reveal and suggest the illegality of the payment? I think these questions can best be answered by looking at the receipt itself issued by Mr. Wong, of which I will make further reference later.

16. In any event, Mr. Wong went to Mr. Chan's office in the afternoon and there, according to him, he expected to receive cash or a cash cheque for the $150,000, but instead of being so favoured, he was first asked by Mr. Wong whether he would like to have $1,000 in cash to which proposal he had no objection. He was then handed $1,000 in cash which Mrs. King said fortuitously she had in her handbag on that day, having been paid that sum of money for one reason or another and he was then asked whether he minded having the balance of $149,000 in post-dated cheques. Mr. Wong says further that he had insisted on being paid the balance in cash or by cash cheque but Mr. Chan proposed to him that for the convenience of keeping his company's accounts, Mr. Chan would give him three post-dated cheques to make it appear that the amounts were for payment of premium for transfer of property, installation of electric wiring and for decoration and furniture expenses. Another reason given by Mr. Chan for paying him by means of post-dated cheques was that if Mr. Wong reneged on his oral agreement to sell the said property to him, there would be no guarantee that he would get his money back. In any event it seems that neither party trusted the other, with good reason.

17. Mrs. King had what might be termed a peculiar system of keeping custody of cheques when she received a book of cheques from the bank she would tear some of them out that is, in consecutive numerical order, and place the cheques in between the front cover of the cheque book and the left-over cheques which had not been torn out, so that whenever she wanted to issue a cheque, she would take a blank cheque from the torn-out cheques at random. She says she practises this system because of her penchant for typing the particulars on cheques and it was more convenient if the cheques were already torn out of the book. She never said how much time she could save by doing so, but it seems to me that it was more inconvenient since subsequent to the issue of the cheque, the labour expended on searching for the relevant cheque stub would far execed that used for tearing out individual cheques from an intact book whenever required.

18. However, on that day, 21st, true to form, she took out three cheques from the pile of torn-out cheques (not in consecutive numerical order) and started writing on them. This was contrary to her usual practice of typing particulars on cheques and her reason for doing so that day was that since the cheques were for large amounts, there was less likelihood of error in entering the figures and names, but unfortunately the first cheque she wrote that day was written in error as she says because instead of writing $49,000 ($50,000 less $1,000 in cash) so as to have amounts of $50,000 on the two other cheques, she had written $48 .... . But Mrs. King's thought processes employed in doing this very simple task defy logical explanation or rationality, because following the figure "8" she wrote "200" so that the first cheque she wrote was for $48,200. Her evidence is that she then simply culled a date out of her imagination and had it inserted in the space on the cheque for that purpose, and that was how the first cheque came to be post-dated to 26th October, 1976. The other two cheques had therefore to be adjusted in order to total the sum of $150,000 inclusive of the $1,000 paid over in cash and the amounts written on the other two cheques were accordingly $50,800 and $50,000 respectively to make up that total. Again there was no explanation as to how the dates on the other two cheques had been chosen except that they were just plucked out of thin air. [Exhibits P3B and P3C.]

19. After the cheques were received by Mr. Wong he issued a receipt written by himself in Chinese [Exh. P2] and a translation of the characters [Exh. P2A] reads as follows:-

"[Received from] Chan & Associates Corporation [the sum of dollars] One Hundred Fifty Thousand Only Liu Chong Hing Bank

in addition $1,000 in cash [being in payment]............. [$150,000.00] (sgd.) Wong Wai-chung"

The purpose for which the payments were made did not appear in the receipt set out above but the full contents of Exh. P2 in translation with typewritten words added in English read as follows:-

20. The explanation given by both Mr. Chan and Mrs. King for the additions was that they were not satisfied with the receipt written by Mr. Wong because it did not state the purpose for which it was issued and Mrs. King says that for the sake of good order and for the company's records, she took the receipt to an adjacent room and typed the words in English which are underlined in the above reproduction of Exh. P2. No attempt was made by either Mr. Chan or Mrs. King to ask Mr. Wong to add in writing (in Chinese characters) the purpose for which the receipt was issued before the words mentioned were typed on the receipt. After this Mr. Wong was neither asked to initial nor sign his name against the additional words in English on the receipt. Although Mr. Wong says that he does not read or write English, nevertheless he was said to be satisfied with the additions, according to Mr. Chan and Mrs. King and with what he was told those words meant and he raised no objections since all of them were in a happy mood because this particular stage of the transaction had been carried out. It was also suggested by an answer given by Mrs. King that Mr. Wong had deliberately provided sufficient space at the end of the receipt for the words to be typed in.

21. At the same time the reference number of the file on this particular subject in Mr. Chan's office was also typed on to the receipt by Mrs. King using the same typewriter. This was again for good order as one would expect of a tidy and experienced business woman and was to indicate where the receipt should be filed.

22. A visual inspection of the letters and the numbers typed against the printed "Reference No." shows the type to be of a darker colour than the other words typed out in latter part of the receipt and although Mrs. King had the benefit of consulting typists in her office, during the course of the trial, as to how such a phenomenon could occur when the same typewriter was used at the same time without the typewriter ribbon having been changed as it were in midstream, she could not proffer any explanation as to how this result was achieved. It remained a mystery to her! Of course, no explanation could have been advanced either by Mrs. King or Mr. Chan for this very patent discrepancy. I think the only reasonable inference which can be drawn from this difference in the colour of the typescript is that the Reference Number was typed soon after the receipt was handed over to Mrs. King by Mr. Wong. (She herself says that the receipt was given to her) and the words which appear underlined in the above reproduction of the receipt were inserted much later in my opinion without Mr. Wong's concurrence or knowledge.

23. The explanations and reasons given by both Mr. Chan and Mrs. King for having the cheques drawn up in the way indicated in Exhibits PlA, B and C are in my judgment untenable and were given only to found a basis for the assertion that the payment of the $150,000 was a deposit or advance payment on the purchase price of $1.8 million agreed upon by the parties, especially when this is viewed against the background of later evidence given by both Mr. Chan and Mrs. King.

24. Whilst I do not believe that Mr. Wong could claim that he was lily white so far as the transaction was concerned, nevertheless his evidence of the purpose of the payment of the $150,000 has more the semblance of truth than the evidence given by Mr. Chan and Mrs. King on this particular aspect of the case.

25. Although the post-dated cheques for $149,000 had not been presented because they were not yet due for payment on 25th October, there was nevertheless a payment of $1,000 in cash made to Mr. Wong, but what were these payments for?

26. The answer unfortunately for Mr. Chan is that revealed in the evidence of Mr. Wong. We are told by Mr. Wong that the sum of money, $150,000, was to be deducted from the purchase price of the property, which according to him was $1,950,000, in order to defraud the Government of some stamp revenue and Mr. Wong had fallen in with that suggestion.

27. In order to test his veracity on this matter, and the charge of illegality is a very serious one to make, I would refer to the evidence of Mr. Chan himself.

28. He says that he had gone to see his friend, a Mr. Li, at the Metropolitan Finance Co. Ltd. in order to raise a loan of $1.8 million this sum, according to him and to what he had told Mr. Li, being the full amount of the purchase price of the property - and the finance company, on the security of that property and his own personal guarantee, had been willing to advance him the full amount of the loan against a collateral valued at a similar sum. Assuming that this was true, that is, Mr. Li was willing to grant a loan on the collateral of the property and that he knew Mr. Chan had bought it for $1.8 million without his making a prior valuation, could there be any reason why Mr. Chan should bear further interest on the sum of $150,000, when according to him he had already made a payment of $150,000 deposit on the principal sum assuming that he would have been able to honour the said cheques on their due dates, and there was no evidence that he could not, if the sum of $1.8 million covered the full amount of the loan on his property? As a prudent and experienced businessman, it is inconceivable was he going to ask Mr. Wong for the return of the $1,000 cash and the said cheques upon the $1.8 million cheque being sent over to Messrs. Yung, Yu, Yuen & Co. There was not even in the clumsy typewritten amounts on the receipt any indication that a deduction of the $150,000 would be made from the $1.8 million (if this were the actual agreed purchase price) upon completion of the contract.

29. Mr. Chan has given us an account of how efficient he was in taking all the necessary steps to carry out the transaction even to the extent of seeing a chartered surveyor, and obtaining a loan, all on the same day. Yet he falls down badly when it came to making the required deduction of the deposit he had given to Mr. Wong from the $1.8 million.

30. Apparently nobody else except him, Mrs. King and Mr. Wong had known of the $150,000 deposit. Why was nobody else such as Mr. Li told since he was providing the necessary finance for the purchase? He of all persons would have been interested to know why the full amount of the purchase price had to be borrowed if $150,000 was already deposited by Chan and Associates with the seller. Messrs. Hwang & Co. the solicitors acting for the Metropolitan Finance Co. Ltd. were not told either of this payment yet they would have been interested to know because they could have insisted on a refund of the deposit or have it deducted from the $1.8 million cheque handed over to Messrs. Yung, Yu, Yuen & Co.

31. These are questions for which no satisfactory answers have been forthcoming and I am led to the inevitable conclusion that the sum of $150,000 was a secret payment made to Mr. Wong, either to deceive his partners in the first instance or the Government of revenue. It has been given in evidence by Mr. Wong that he had full authority to sell the property in question without reference to the partners and that there was no question of his deceiving the partners. It would, however, appear that as Treasure Island Enterprises Co. Ltd. were the confirmors, any commission which was received by Mr. Wong would be divided among the three shareholders of the joint venture, even though Mr. Wong had himself full right and title to sell the ground floor to Mr. Chan. This being the case, I am driven to the conclusion that the payment of the $150,000 by Mr. Chan to Mr. Wong was for the purpose of evading the payment of additional stamp duty on the eventual deed of conveyance of the said property.

32. It has been argued that the amount saved in stamp duty was so insignificant that a person buying the property like Mr. Chan would not find it worthwhile to stoop to such a practice, but there is no explanation from the available evidence other than that this was the intention.

33. Mr. Lee has submitted that even if there was no illegality, but as the price was agreed at $1.95 million, there would still have been no agreement because Mr. Chan asserts that the price was only $1.8 million. I am convinced from the evidence on more than mere balance of probabilities that the purchase price agreed upon was $1.95 million and that the receipt which was issued by Mr. Wong to Chan & Associates corporation did not contain the typewritten words when first issued and that such additions were neither known, nor communicated, to Mr. Wong. This indicates that such a receipt which, in my view, was altered by Mrs. King without authority of the plaintiff, cannot form the required memorandum in writing to support an agreement for the sale and purchase of the said property. In the result I grant the declarations sought by the plaintiff claimed against the 5th defendant in paragraphs (j) and (k) of the Statement of Claim in this consolidated action.

Representation:

Mr. Martin Lee, Q.C. & Mr. Philip Lee (Lau & Co.) for plaintiff

Mr. Jackson-Lipkin, Q.C. & Mr. Raymond Faulkner (John Ip & Co.) for 1st, 2nd, 3rd and 4th defendants

Mr. Charles Ching, Q.C. & Mr. Brian Van Buuren (Wilkinson & Grist) for 5th defendant