Super Keep Investment Ltd and Another v. Wong Kwok Wa and Others

HCMP 1760/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1760 OF 2009

(By the Order of Madam Registrar Au-Yeung made on 7 October 2009)

BETWEEN

________________

Before: Deputy High Court Judge L. Chan in Chambers

Date of Hearing: 22 September 2010

Date of Decision: 24 September 2010

_____________

D E C I S I O N

_____________

1.This is an application by the plaintiffs to stay some of the orders I made on 13 August 2010. My decision was on a number of applications made by the parties. This action concerns two pieces of land and two groups of houses erected on them. They are called “the 1st Land and 1st Houses” and “the 2nd Land and 2nd Houses”.

2.The plaintiffs are claiming these lands and houses from the 1st to 18th defendants.  The 1st defendant used to be a joint venture partner of the 1st plaintiff.  The 2nd plaintiff is the vehicle of the joint venture.  The 2nd to 7th defendants were, before my decision aforesaid, the registered owners of the 1st Land and the 1st Houses.  The 8th to 18th defendants are still the registered owners of the 2nd Land and 2nd Houses.

3.My decision was on a number of applications. One of the applications was by the 2nd to 18th defendants to strike out parts of the statement of claim and the reply on the ground of no reasonable cause of action.  These defendants further ask for summary judgment on their counterclaim against both plaintiffs for want of a reasonable defence.  I allowed part of this application in relation to the 2nd to 7th defendants and the 1st Land and 1st Houses, but I dismissed the part in relation to the 8th to 18th defendants and the 2nd Land and 2nd Houses. 

4.I would have given summary judgment for the 2nd to 7th defendants in relation to the 1st Land and 1st Houses, but I did not do so because they have undertaken to vest their title in the 1st Land and 1st Houses unto a Lau Shau Wo Tso to settle the dispute between the defendants and the Tso.  I accepted the undertaking and did not give judgment in favour of the 2nd to 7th defendants so that they could perform their undertaking, but I did not decide the dispute between the defendants and the Tso.  I have given the reasons for my decision in paragraph 44 to 58 of my decision.  I understand that the 1st Land and 1st Houses have been conveyed to, and the title deeds and documents of the same have also been delivered to the Tso. 

5.The next application was by the 1st defendant to strike out parts of the statement of claim.  I dismissed this summons, and there is no application for stay in relation to this order of dismissal.

6.The 1st defendant issued another summons in these proceedings to vacate the registration from the Land Registry of the joint venture agreement (“JV Agreement”) between the 1st plaintiff and the 1st defendant, the writ and amended writ in HCA1902/2009, which were registered on the 1st and 2nd Lands and the Houses thereon.  HCA1902/2009 was launched by the 1st plaintiff earlier and has been stayed by the Registrar so that the dispute therein could be resolved in these proceedings. 

7.The 2nd to 18th defendants also issued a summons in these proceedings for the same relief.  I allowed these two applications to the extent of the 1st Land and 1st Houses, but not the 2nd Land and 2nd Houses.  However, I have vacated the registration of the JV Agreement as registered on the 2nd Land and 2nd Houses because the plaintiffs are not claiming the performance of the agreement, but only seeking damages for the alleged repudiation of the same by the 1st defendant. 

8.There is also a summons by the plaintiffs seeking to amend the statement of claim.  I disallowed any amendment directed at the 1st Land and 1st Houses as I have disallowed the plaintiffs’ claim on them.  I also did not allow any amendment to plead that the 1st defendant entered into the JV Agreement as agent of the 2nd to 18th defendants.  My reasons are in paragraph 63 to 64 of my decision.  I have also disallowed a proposed claim of unjust enrichment against the 2nd to 18th defendants.  The reason is in paragraph 66 of my decision.  I also disallowed an amendment to put in a new claim of a lien of the 2nd plaintiff to the extent that it seeks to cover the 1st Land and 1st Houses.

9.Finally, there is a summons issued by the plaintiffs to join the Tso as the 19th defendant, and for leave to amend the statement of claim, but there was no proposed amendment in the summons.  I dismissed this summons as well on the ground that there was no useful purpose for joining the Tso in these proceedings. 

10.The plaintiffs have already filed a notice of appeal against the abovementioned orders.  They are now seeking a stay of execution pending appeal.  I have been reminded of the principles for considering such an application as set out in HCA4726/2001 in Star Play Development Limited v Best Fashion Management Company Limited. 

11.In my decision I have considered the undisputed facts in relation to the 1st and 2nd Lands and Houses thereon, and the JV Agreement between the 1st plaintiff and the 1st defendant.  The recitals to the JV Agreement say that the 2nd to 18th defendants had entered into agreements with the 1st defendant, for the 1st defendant to build, at his own costs, the 1st and 2nd Houses on the 1st and 2nd Lands respectively.  The 2nd to 18th defendants had to make available the 1st and 2nd Lands and to provide all documentation for the 1st defendant to accomplish the building task.  The 1st defendant also had to pay the premiums to the government to remove a prohibition against alienation of the 2nd Land and 2nd Houses. 

12.The bargain for the 1st defendant to discharge the obligations to build the 1st Houses for the 2nd to 7th defendants was that the 1st defendant would obtain the 2nd Land and 2nd Houses for his own benefit.  There was no suggestion that the 2nd to 18th defendants had any other obligation to the 1st defendant, save providing the 1st and 2nd Lands and the documentation to facilitate the 1st defendant’s building tasks.  All these are known to the 1st plaintiff and have been recorded in the JV Agreement. 

13.Insofar as the 1st defendant (and the plaintiffs) are concerned, the 1st defendant’s deal was with the 2nd to 18th defendants as a group.  There was no suggestion that the 2nd to 7th defendants had one deal with the 1st defendant, whilst the 8th to 18th defendants had another deal with the 1st defendant.  How the 2nd to 7th defendants are going to share the benefits of the 1st Houses with the 8th to 18th defendants is not the concern of the 1st defendant or the plaintiffs. 

14.The 1st defendant then entered into the JV Agreement with the 1st plaintiff for the purpose of setting up their joint venture vehicle, the 2nd plaintiff, and for the 2nd plaintiff to discharge the 1st defendant’s obligations to the 2nd to 18th defendants, namely to provide the labour and materials to build the 1st and 2nd Houses and to pay the premiums for the 2nd Houses.  The 1st defendant and 1st plaintiff would together share the proceeds of the 2nd Land and 2nd Houses. 

15.The building of the 1st and 2nd Houses have now been completed.  Under the terms of the JV Agreement, the 1st Land and 1st Houses should also be released by the 2nd plaintiff to the 1st defendant, for the same to be returned to the 2nd to 7th defendants. 

16.The plaintiffs and the 1st defendant are now in a row.  The 1st plaintiff alleged that the 1st defendant had made some representations about an access road and the availability of the necessary consents and certificates of exemption for building the houses, but the plaintiffs further alleged that those representations were untrue and resulted in more costs incurred for the building works because of delay, and that the 2nd Houses, without the access road, had a smaller worth. 

17.The 1st defendant, however, alleged that the 1st plaintiff had failed to pay the premiums for the 2nd Houses and was in breach of the JV Agreement.  But the 1st plaintiff also alleged an agreement with the 1st defendant to withhold payment of the premiums for the 2nd Houses so that the 1st defendant could not hold it in breach of the JV Agreement for not paying the same.  The 1st plaintiff now claims that the 1st defendant had repudiated the JV Agreement, which repudiation the 1st plaintiff accepted.  This is a claim for damages, and it is directed to the 1st defendant.

18.The 2nd plaintiff alleged that the 1st defendant had breached his director’s duties to the 2nd plaintiff and is liable to pay damages and to account his profits to the 2nd plaintiff.  There is, however, no allegation against the 2nd to 18th defendants to the effect that they have committed any wrong or done anything to adversely affect the performance of the JV Agreement.  Since their obligation was to provide the 1st and 2nd Lands and documentation, which they did, there was really no room to say that they have breached any obligation to the 1st defendant.  I held in my decision that they were innocent bystanders. 

19.If the JV Agreement should have been performed successfully, then the 2nd to 7th defendants would take over the 1st Land and 1st Houses, together with all the rights entitled thereto, to the exclusion of the plaintiffs and the 1st defendant.  The 1st defendant and the 1st plaintiff would then share the proceeds of the 2nd Land and 2nd Houses through the 2nd plaintiff. 

20.Now there is a dispute between the 1st plaintiff and the 1st defendant on who should be entitled to the 2nd Land and 2nd Houses.  This can have no effect on the 2nd to 7th defendants’ entitlement to the 1st Land and 1st Houses, which they acquired by providing the 2nd Land to the 1st defendant. The 1st plaintiff knew this very well as this has been provided in the JV Agreement.  Though the 8th to 18th defendants are still the registered owners of the 2nd Land and 2nd Houses, I have held that they are only bare trustees holding the 2nd Land and 2nd Houses pending the court’s adjudication of the dispute between the 1st plaintiff and the 1st defendant.

21.I see no reason why the 2nd to 7th defendants should, as a result of the dispute between the 1st plaintiff and the 1st defendant, lose any right or interest in the 1st Land and 1st Houses.  There is also no reason why the 1st and/or 2nd plaintiffs should, as a result of that dispute, have acquired any interest in the 1st Land and 1st Houses which they otherwise would not have.  On this analysis, I held that the 1st Land and 1st Houses, together with their title deeds and documents, should be given to the 2nd to 7th defendants, whilst the 8th to 18th defendants should continue to hold the rights, title and interest in the 2nd Land and 2nd Houses, pending the decision of the court on the dispute between the plaintiffs and the 1st defendant. 

22.I therefore struck out the plaintiffs’ claim for the 1st Land 1st Houses and, in effect, gave summary judgment to the 2nd to 7th defendants for the 1st Land and 1st Houses. I did not formally give them judgment as it was unnecessary and otiose because they had undertaken to vest the title of the 1st Land and 1st Houses unto the Tso.  For the same reasons I vacated the registration of documents in the Land Registry insofar as they cover the 1st Land and 1st Houses. I have also explained the reason for vacating the registration of the JV Agreement from the 2nd Land and 2nd Houses at the Land Registry. 

23.For the same reasons I disallowed any amendment attempting to strengthen the plaintiffs’ claims on the 1st Land and 1st Houses.  I also disallowed any amendment attempting to affix the 2nd to 18th defendants with personal liability that are allegedly owed by the 1st defendant to the plaintiffs, the reason being that the 2nd to 7th defendants are entitled to obtain the 1st Land and 1st Houses and drop out of the picture.  The 8th to 18th defendants are merely bare trustees holding the 2nd Land and 2nd Houses pending determination of the court on the dispute between the 1st plaintiff and the 1st defendant.  I see no reason why they should have any other liability to the plaintiffs. 

24.I have also disallowed the proposed amendment by the plaintiffs to say that the 1st defendant entered into the JV Agreement as agent of the 2nd to 18th defendants.  I held that this could not have been the case as the JV Agreement was for the 1st plaintiff and 1st defendant to agree on how the 1st defendant’s obligation to the 2nd to 18th defendants should be discharged.  I cannot see how the 2nd to 18th defendants should have, through the agency of the 1st defendant, entered into the JV Agreement with the 1st plaintiff in order for the 1st plaintiff to discharge some obligations owed, not by the 2nd to 18th defendants to the 1st defendant, but by the 1st defendant to them.

25.Leading counsel in this application has asked me to consider some individual clauses in the JV Agreement and submitted that these clauses can give rise to a number of equitable remedies as against the 2nd to 18th defendants, and in favour of the plaintiffs.  I cannot agree.  This approach is problematic in that it seeks to look at the individual roots and branches but forgetting about the tree.  The clauses should also not be read in isolation of one another, but should be read in the context of the whole JV Agreement and as part of the agreement.  Once the clauses are read in context and as part of the agreement, it is clear that they cannot make the 2nd to 18th defendants liable to the plaintiffs as alleged. 

26.The approach of leading counsel is also not consistent with the scheme of the development as set out in the JV Agreement and on the basis of the facts known to the 1st plaintiff; namely that the 1st defendant and the 2nd to 18th defendants had agreed whereby the 2nd to 18th defendants would provide the two plots of land for the 1st defendant to build on them, and the 1st defendant would keep one plot with the houses hereon, whilst the 2nd to 18th defendants would get the other piece of land with houses thereon. 

27.I therefore hold that there is no arguable ground of appeal and dismiss this application for stay.  I also make a cost order nisi that the plaintiffs do pay the costs of this application to all the defendants and the Tso.  The Tso has been allowed to intervene for the limited purpose of opposing this application. 

28.The plaintiffs have undertaken to appear before the listing officer on or before Monday, 4 October 2010 to fix an early date for an application before the Court of Appeal for stay of execution of the said orders.  On that undertaking, I extend the temporary stay of execution until after the hearing of the application for stay by the Court of Appeal, or until further order. 

Mr Kenneth Kwok, SC and Mr Liu Man Kin, instructed by Messrs Orrick, Herrington & Sutcliffe, for 1st and 2nd Plaintiffs

Mr Lester Lee, instructed by Messrs Cheung, Chan & Chung, for the 1st Defendant

Mr Lee Yee Hung, instructed by Messrs Leo Cheng & Co., for the 2nd to 18th Defendants

Mr Lee Tung Ming, instructed by Messrs Tam, Pun & Yipp, for the Lau Sau Wo Tso.

Application by the 1st and 2nd Plaintiffs to Court of Appeal for a stay pending the appeal granted. Please refer to CACV195/2010 dated 8 November 2010