Chow Ming Sze and Another v. Lau Yuet Shueng and Another

HCA001552/1997

1997, No. A1552

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

Coram: the Hon Mr Justice Findlay, in Chambers

Date of hearing: 5 January 1998

Date of handing down of judgment: 7 January 1998

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JUDGMENT

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Background

1. Miss Chow Fung Lin ( Miss Chow) died intestate on 5 April 1994. The administrators of her estate ( the plaintiffs) are her mother and father.

2. On 13 February1997, the plaintiffs issued to the writ of summons against the defendants. In the statement of claim, the plaintiffs alleged that Miss Chow entered into an agreement in writing in February 1993 to purchase a property at Tai Po (the property) for a price of $1.68 million. Miss Chow paid to the seller the sum of the $50,000 as an initial deposit and the sum of $386,000 by a cheque dated 15 February 1993, making a total of $436,000. Miss Chow fell ill in December 1993. She asked "one of her business partners", Mr Lau Chiep Hei (CH Lau), to assist her to obtain finance to complete the purchase. It is alleged that the defendants, who are the sister and brother of CH Lau, agreed to arrange a bank mortgage in return for a payment by Miss Chow to each of them of $20,000. The agreement was that the property would be conveyed to the defendants who would hold it in trust for Miss Chow. The plaintiffs allege that Miss Chow paid the mortgage instalments from 24 January 1994 until her death. The defendants sold the property on 27 September 1994 for a price of $1.76 million. The plaintiffs allege that the property belonged to the estate, and have demanded from the defendants repayment of the sum of $436,000 and an account. In the prayer, however, the plaintiffs restrict their claim to the payment of the sum of $436,000 paid by Miss Chow.

3. The defendants, through their solicitors, acknowledged service and indicated an intention to defend the action on 5 March 1997. The solicitors asked for some documents from the plaintiffs' solicitors, which were supplied, and some further particulars, which were not supplied. In the meantime, on 12 March 1997, the plaintiffs' solicitors served upon the defendants' solicitors a notice of intention to enter default judgment. The defendants' solicitors did nothing about this notice. There is no explanation from them about this. On 4 April 1997, final judgment was granted to the plaintiffs against the defendants in the sum of $436,000, with interest and costs.

4. The defendants became aware of the judgment in early June 1997. The defendants' solicitors unsuccessfully sought the plaintiffs agreement to have the judgment set aside. On 18 September 1997, the defendants' solicitors discovered that the plaintiffs' solicitors had not filed an affidavit of service as required by Order 19, rule 8A(1)(b). On the same day, the defendants issued a summons seeking an order that the judgment be set aside on the grounds that the defendants had a good defence. On 13 October 1997, the defendants issued another summons seeking the same order, but relying further on the allegation that the judgment had been entered "in contravention of Order 19 r. 8A".

5. On 15 December 1997, Registrar Betts dismissed both summons, with costs to the plaintiffs.

6. The defendants now appeal against this order.

Setting Aside for Irregularity

7. Mr Sham argues that the default judgment entered is irregular because the plaintiffs failed to file the affidavit of service as required by Order 19, rule 8A(1)(b). On this basis, he submits, the defendants are entitled to have the judgment set aside without examination of the merits of their defence.

8. The defendants' solicitors were served with proper notice of the plaintiffs' intention to enter judgment. There is no explanation before me as to why this was ignored. In these circumstances, the failure to file evidence of the service is the merest technicality. The purpose of the filing of evidence is for the purposes of the court, not the defendant. The evidence is to be filed only, not served. There is no prejudice to the defendants. In these circumstances, even assuming that the defendants have sought to set aside the judgment within a reasonable time, it would, in my view, be quite wrong not to condone this minor irregularity. I do so.

9. I must now consider the defendants' case to see whether it has a real prospect of success.

The Evidence

10. On 19 September 1997, the defendants filed an affirmation by Madam Lau Yuet Sheung (Madam Lau) who says that she knows nothing about the arrangements between CH Lau and Miss Chow. She was told to become the registered owner of the property with the other defendant (CC Lau) and hold the property in trust for CH Lau. She understood that CH Lau was applying for public housing and could not hold another property in his name. CH Lau paid the expenses and mortgage payments. When Madam Lau learned of the judgment, she told CH Lau who said he would instruct solicitors to have the judgment set aside. Ch Lau told her "he had put away all relevant documents and papers", but he would retrieve and produce them. Madam Lau says that, "quite recently", CH Lau told her he had retrieved "the bank passbook and a receipt in which entries relating to the payments by him to the deceased and her mother are recorded."

11. On 23 September 1997, CH Lau filed an affirmation. He says that he and Miss Chow were close friends and business associates. In early 1993, he and Miss Chow decided to buy a property. "After some searching", they decided to purchase the property. An initial deposit of $50,000 "was paid on signing" and a "further deposit of $386,000 was to be paid". He says "it was the intention between [them] that we would each contribute half the purchase price of the property". On 11 January 1993, he transferred $50,000 from his bank account to Miss Chow's account. The bank document produced to support this does not do so. The account shows that, on 11 January 1993, CH Lau deposited $20,000 into the account, and withdrew amounts of $50,000 and $30,000, all in cash. On 8 March 1993, he says he withdrew $200,000 in cash from his account, and gave this to Miss Chow. He produces his bank statement showing the withdrawal of this amount. There is no documentary evidence to show that these large sums were paid to Miss Chow.

12. On about 31 December 1993, after Miss Chow had fallen ill, they calculated that if he bought her share of the property he would have to pay her $218,000. He had overpaid her $32,000 on his share and on two occasions in 1993 he had lent her $50,000, so he should pay her $100,000. On Miss Chow's instructions, he paid $100,000 into her mother's account on 31 December 1993. He produces a bank document showing the deposit of a cheque in this sum into the mother's account on this date.

13. CH Lau says that he was applying for public housing at this time so he arranged for the defendants to "take up the property" and apply for a mortgage loan. He paid the mortgage payments. After Miss Chow died, he sold the property.

14. Madam Koon filed an affirmation on behalf of the plaintiffs on 29 November 1997. She produces Miss Chow's cheque stub relating to the cheque paying the sum of $386,000.

15. She says that it was not CH Lau who paid $100,000 into her account on 31 December 1993, but Miss Chow, and produces documentary evidence to support this.

16. CH Lau filed another affirmation on 9 December 1997. In this, he says that he cannot remember the circumstances in which the sum of $100,000 was deposited into Madam Koon's account. He says that, if the cheque was issued by Miss Chow, "I must have either given the deceased the $100,000 by cash or by transfer".

17. He says that his finances and those of Miss Chow were mixed. He paid some of her expenses "and vice versa". He produces some receipts.

18. Madam Koon filed yet further affirmations on 23 and 30 December 1997. She says that CH Lau kept a detailed ledger of expenses he paid on behalf of Miss Chow and produces a copy of this. She also produces paid cheques by Miss Chow in favour of CH Lau dated 31 December 1993 in the sum of $150,000 and dated 4 March 1994 in the sum of $100,000.

19. In a third affirmation filed on 3 January 1998, CH Lau admits the payments mentioned above, but says that he cannot remember if they were meant to cover Miss Chow's expenses as mentioned in the ledger, but they might have been.

The Defence on the Facts

20. The draft defence pleads that the defendants held the property in trust for CH Lau. They say that they "acted under the authority of" CH Lau. The defendants aver that they are no more than agents and trustees for CH Lau. It is odd, in these circumstances, to find that the defence does not raise any defence of substance on behalf of their principal. Very little of the evidence adduced by the defendants of what CH Lau says regarding to the plaintiffs' claim finds its way into the defence. For example, in answer to the plaintiffs allegations that Miss Chow purchased the property and paid $436,000 as part payment, the defendants plead only that they "are unaware of" them. When the defendants do make a substantive averment that "the entire transaction pertaining to the property was arranged and financed by [CH Lau], and that the defendants became parties to the purchase and mortgage of the said property for and on behalf of [CH Lau] who provided the consideration for the purchase and all charges for the mortgage", this is inconsistent with what CH Lau himself says. He says that he and Miss Chow purchased the property together, and they both made a financial contribution. He then bought out Miss Chow.

21. I propose to consider the defendants' defence, for the purposes of considering whether it has a real prospect of success, on the basis of the allegations made in the evidence adduced by the defendants, rather than what is stated in the draft defence.

22. The defendants' case is that CH Lau and Miss Chow bought the property together, and agreed that they would each contribute half the purchase price. The defendants do not explain why the sale agreement is in Miss Chow's name alone. By implication, the defendants accept that Miss Chow paid the sum of $436,000 towards the purchase price, but say that, on 11 March 1993, CH Lau paid $50,000 to Miss Chow, and, on 8 March 1993, he gave her a further sum of $200,000 in cash. The defendants do not explain why it was that CH Lau paid $250,000 rather than $218,000, being half the amount paid by Miss Chow. In December 1993, CH Lau entered into an agreement with Miss Chow that he would purchase her half share of the property. After taking credit for the overpayment of $32,000 and loans to Miss Chow of $100,000, he owed her $100,000. Initially asserting positively that he had, on Miss Chow's instructions, paid this sum of $100,000 into her mother's account on 31 December 1993, and producing a bank document to support this, CH Lau changed his evidence when it was demonstrated that, in fact, this sum was paid by Miss Chow. He then said he must have given this sum to Miss Chow. The strange thing is that, on the very day on which CH Lau says he paid $100,000 to or on behalf of Miss Chow to purchase her share of the property, Miss Chow paid him $150,000. The bank account of CH Lau shows a deposit of $150,000 on 31 December 1993, but no withdrawal of $100,000. And then, about one month before her death, she paid him a further $100,000. The only vague explanation for these payments given by CH Lau is that they might have been to cover Miss Chow's expenses paid by him. He makes no attempt whatsoever to explain why, on the same day, he should pay Miss Chow $100,000 and she should pay him $150,000. CH Lau seeks to give the impression that his relationship with Miss Chow was such that their mutual financial transactions were carried out in an unbusinesslike way, but the uncontradicted evidence is that he kept detailed written records of these matters.

23. In my view, this defence has no prospect of success because it has no prospect of being believed.

The Defence on the Law

24. Even if, however, the defence were based on credible fact, it has no real prospect of success because it does not work in law.

25. The crucial allegation in the defendants' case is that CH Lau purchased Miss Chow's half share in the property in December 1993. If the defendants cannot rely on this alleged agreement as a matter of law, their whole case collapses.

26. The alleged agreement was not, admittedly, in writing. It is, therefore, unenforceable, although not void. Mr Sham argues that the defendants are not seeking to enforce the agreement, but to rely on it as a matter of defence. The law on this point is stated succinctly by Sir Christopher Slade in Take Harvest Ltd. v. Liu and Another [1992-93] CPR 554, at 568E and 569C -

"Their Lordships cannot accept in its unqualified form the proposition that, in cases such as this, an oral agreement is available as a defence in the same way and to the same extent as any enforceable contract. If due regard is to be paid to the statute, the question in any given case must be whether the party who relies on the oral agreement is in substance seeking to enforce it. If he is so seeking, it matters not whether he happens to be plaintiff or defendant in the proceedings or whether, as a matter of formal pleading, he is seeking to enforce the oral agreement by way of claim, defence, counterclaim or otherwise."

". . . the landlord was . . . entitled to receive rent . . . In order to meet that claim, the tenants were obliged to ask and . . . did ask the court to give effect to their rights under the oral agreement. Thus, once again, they were seeking in substance to enforce that agreement . . ."

27. In the case before me, Miss Chow's estate would, on the defendants' own case, be entitled to a half share in the property or a half share in the net proceeds of the sale if the rights of CH Lau under the alleged oral agreement were ignored. In substance, what the defendants are saying is: The estate is not entitled to that half share because Miss Chow sold her share to CH Lau, and we wish to have the benefit of CH Lau's rights under that agreement. That, in my view, is precisely what their Lordships in Take Harvest said law does not permit. The defendants are seeking to enforce, on their own case, the rights of their principal under the oral agreement. Indeed, it is this very mischief that the statute is designed to frustrate; the allegation of rights existing under a sale of land unsupported by any written agreement.

28. This consequence would not, of course, follow if there had been performance of the oral agreement. There is no evidence of any acts by Miss Chow, following the oral agreement, pointing, on a balance of probabilities, to the existence of the contract alleged by the defendants.

The Result

29. In the result, I find that the defendants have not advanced a defence that has any real prospect of success on the facts or in law. It follows that the appeal must be dismissed. There appears to be no obvious reason why costs should not follow the event. Accordingly, I make an order nisi that the defendants pay the plaintiffs costs.

JK FINDLAY

Judge of the High Court
Court of First Instance

Representation:

Mr Anthony Ismail, instructed by Messrs Bough & Co, for the plaintiffs

Mr. Walker Sham, instructed by Messrs Kwan & Kwan, for the defendants.