Fortune Link Ltd v. Grand House Ltd

HCMP 1343/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1343 OF 2009

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BETWEEN

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Before: Hon Reyes J in Court

Date of Hearing: 22 December 2009

Date of Judgment: 22 December 2009

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J U D G M E N T

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I.       INTRODUCTION

1.Grand House agreed to sell, and Fortune Link to buy, House 22 at Villa de la Golfe in Fanling for $7.5 million.  Fortune Link paid a deposit of $750,000.

2.Completion should have taken place on 6 July 2009.  It did not happen because Fortune Link made requisitions.  Fortune Link contends that it was entitled to treat the sale agreement as rescinded, because Grand House did not answer two of those requisitions satisfactorily.  Grand House, on the other hand, says that it sufficiently answered the requisitions and so was entitled to treat Fortune Link’s deposit as forfeited.

3.The issue before me is who is right.  The 2 requisitions relate respectively to the absence of a signature on the DMC applicable to House 22 and to a previous assignment of House 22 in December 2005.

4.Villa de la Golfe is a small house (ding uk) development comprising self-standing units (such as House 22) built on parcels of ding land.  Casco Time Ltd. is the developer of Villa de la Golfe.  For the development, Casco acquired parcels of land in the name of indigenous villagers having ding rights or had parcels of land assigned or transferred to such villagers to hold as nominees for Casco.  Not all of the houses planned for Villa de la Golfe have been built.  For instance, House 17 has yet to be built on the land designated for it.

5.In relation to the first requisition, the complaint is that the DMC for the development lacks the signature of Mr Liu Shi Min (the nominal owner of the land designated for House 17).  Mr Liu was declared bankrupt in November 2009.  It appears that the Official Receiver (as Mr Liu’s trustee-in-bankruptcy) is not prepared to execute any conveyancing document on Liu’s behalf.  Nonetheless, the evidence is that Mr Liu held (and continues to hold) the land for House 17 on trust for Casco.

6.In relation to the second requisition, the complaint is that in the previous assignment Casco (as attorney) purported to transfer House 22 to Golden Phoenix Management Ltd. (as purchaser).  Casco and Golden Phoenix are associated companies and have directors and shareholders in common.  Fortune Link says that there is a risk that Casco benefitted itself without the express consent of the vendor under the assignment.  Note that Grand House acquired House 22 by assignment from Golden Phoenix in December 2007.

II.      DISCUSSION

A.      1^st Requisition: Absence of signature on DMC

7.Mr Benjamin Chain (appearing for Fortune Link) points out that the assignment of House 22 to Grand House was expressed to be subject to and with the benefit of the DMC.  Accordingly, Grand House took the benefits and burdens specified in the DMC.

8.But (Mr Chain submits) since the owner of the land designated as House 17 has not signed the DMC, it follows that the latter is not bound by the DMC.  The owners of other Houses in the development will not be able to enjoy any easements or other benefits over the land for House 17 (such as the uninterrupted passage and running of water, sewage, gas, electricity and other utility services through sewers, drains, and cables).  The owner of the land for House 17, not being a party to the DMC, can simply refuse such benefits to the other owners.

9.All this means (Mr Chain concludes) is that Grand House could not have passed to Fortune Link all the benefits in House 22 that Grand House was supposed to pass.

10.I am not persuaded by Mr Chain’s  submission.

11.I think that Mr C Y Li (appearing for Grand House) is right in his observation that, in the present case at least, where Grand House own House 22 exclusively and there is no question of co-ownership, the DMC is not a document of title.  The DMC provisions are essentially part of a scheme for the entire development.  The provisions of the DMC regulate the use by individual unit owners of the common areas of the Villa de la Golfe development.  At most, the fact that Mr Liu has not signed the DMC may mean (but I do not have to decide this definitively) that the scheme set out in the DMC is not binding on Mr Liu and his successors in title.

12.Mr Chain is concerned about the enjoyment by owners of House 22 of (say) water and electricity coursed through drains and cables under the land for House 17.  But it seems to me unthinkable that the law will allow House 17 to enjoy utility services running through the land of other Houses, without requiring  House 17 to permit a reciprocal enjoyment by other Houses of the utility services running under House 17.  The reality is that the owners of House 17 would need the cooperation of other House owners if House 17 is to be marketable.  The normal principle is that a person cannot take the benefits of a building scheme without also accepting the scheme’s burdens.  The scenario posited by Mr Chain therefore strikes me as fanciful.

13.In my view, Grand House properly answered Fortune Link’s requisition by stating in essence that the DMC was not a title document in the present case and the absence of Mr Liu’s signature was therefore no impediment to completion.

B.      2^nd Requisition: Assignment by Casco to Golden Phoenix

14.Mr Chain argues that there is a real risk that the 2005 Assignment is voidable.  That is because some shareholders and directors of the attorney (Casco) executing the assignment were also shareholders and directors of the assignee.  There is a possibility (Mr Chain says) that the self-dealing rule (that is, the equitable doctrine which prevents a fiduciary or agent from dealing with one’s self) will strike down the assignment upon a complaint by the vendor principal identified in the 2005 Assignment.

15.In my view, in the circumstances of this case, Mr Chain’s concern is equally fanciful.  I do not think that the second requisition was valid.

16.In my judgment, Stone J rightly stated the operative principle in Lo Tai Yam v. Hu Mu Simon and another [1997] HKLRD 588.  There, citing Farrars v. Farrars Ltd. [1888] 40 Ch D 395 (at 409-410) in support, Stone J remarked that, without more, “a sale by a person to a corporation of which he is a member is not either in form or in substance, a sale by a person to himself”.  This is because a corporation has a separate and distinct legal personality from the persons composing it.

17.Of course, where there is additionally evidence of possible wrongdoing (for example, if there is evidence that a sale was at an undervalue), the Court may pierce the corporate veil and have regard to the self-dealing rule.  See, for instance, by way of contrast, Godfrey J in Li Ming-on v. Lucky Apple Ltd. and another [1994] 2 HKLR 111 (at 116) where there was evidence of a sale at an undervalue.  Here, there is no evidence that the 2005 Assignment was at an undervalue and, when making its requisition, Fortune Link did not so suggest.

18.Consequently, Grand House rightly responded to this second requisition by stating that it was unnecessary and irrelevant to a proper completion.

III.     CONCLUSION

19.Grand House adequately responded to Fortune Link’s two requisitions.  In failing to complete, Fortune Link breached the sale and purchase agreement.  Grand House was then entitled to treat Fortune Link’s deposit as forfeited.

20.I shall now hear the parties on costs and consequential orders.

Mr Benjamin Chain, instructed by Messrs Knight & Ho, for the Plaintiff

Mr Li Chau Yuen, instructed by Messrs Joseph Leung & Associates, for the Defendant