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DCCJ 3062/2008
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 3062 OF 2008
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BETWEEN
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NATIONAL RESOURCES PROPERTIES LIMITED |
Plaintiff |
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and
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MA KWOK KEUNG (馬國強) |
Defendant |
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Coram: Deputy District Judge J.Wong (In Court)
Dates of hearing: 16 – 18 May 2011
Date of handing down Judgment: 13 July 2011
JUDGMENT
Introduction
1.The Plaintiff sued the Defendant under a sale and purchase agreement. It asked for, inter alia, specific performance, return of deposit and damages.
The Plaintiff’s case
2.By its Amended Statement of Claim, the Plaintiff said the followings.
(a) Under a sale and purchase agreement (“the Agreement”) dated 27 December 2007, it agreed to purchase and the Defendant agreed to sell the property known as Flat No. 2, 1/F, Block C, Chung Ming Court, No. 1 Po Shun Road, Tseung Kwan O, New Territories, Hong Kong (“the Property”) at $1,280,000.
(b) A sum of $350,000 deposit was paid upon the signing of the Agreement.
(c) Completion was scheduled on 21 June 2008, but the Defendant failed to:
(i) deliver the title deeds,
(ii) pay the premium assessed by the Housing Authority, and
(iii) discharge a charging order (“the Charging Order”) registered by AIG Finance (Hong Kong) Limited.
(d) The Plaintiff therefore claimed, inter alia for:
(i) specific performance of the Agreement, or
(ii) (1) a declaration that the Agreement had been terminated and the Plaintiff was entitled to a lien, and/or
(2) return of the deposit of $350,000 together with interest or restitution of $350,000 on the ground of total failure of consideration, money had and received and/or unjust enrichment, and
(iii) damages to be assessed.
The Defendant’s case
3.On the other hand, the Defendant said in his Re-Amended Defence and Counterclaim of the followings.
(a) The Agreement was a sham. The sum of $1,280,000 was well below the market price. It was a transaction for under value and should be set aside.
(b) The Plaintiff was put to strict proof of having paid the deposit of $350,000 to the Defendant.
(c) In the event that the Court would not hold the Agreement a sham, the Defendant said that it was the Plaintiff who had been in breach of it.
(i) Hang Seng Finance Limited (“the Mortgagee”) delivered all title documents to the Plaintiff or its solicitors, Messrs. Gloria Chan & Co. (“GCC”) on or before 14 December 2007, even before the execution of the Agreement, but no requisition was raised within 7 days thereafter.
(ii) He did make enquiry to the Housing Authority who replied that the premium payable was $846,982, and, in any event, such issue was not raised by the Plaintiff at the material times.
(iii) The Charging Order did not prevent the Defendant to deliver the Property in vacant possession.
(d) The Defendant was not entitled to the relief sought and the Defendant further counterclaimed for:
(i) a declaration that the Plaintiff was in breach of the Agreement by failing to tender payment on completion,
(ii) forfeiture of the deposit of $350,000, and/or
(iii) damages.
The Reply
4.In its Reply, the Plaintiff denied the Defendant’s case and alleged otherwise.
(a) The Agreement was a genuine and bona fide transaction.
(b) (i) When the Mortgagee sent the title deeds to GCC, she acted for the Defendant only, not the Plaintiff. GCC further returned back them on 8 January 2008.
(ii) On or about 9 April 2008, GCC wrote to the Defendant’s solicitors Messrs. K.Y. Lo & Co. (“KYL”) asking for, inter alia, the notice of assessment of premium, but there was no reply.
(iii) The Charging Order went to the root of the title.
(c) KYL did not deliver title deeds to the Plaintiff’s solicitors, despite a letter of 19 June 2008. It evinced an intention that the Defendant did not intend to perform the Agreement, and the Plaintiff accepted such repudiation.
(d) The Plaintiff said that it was ready, willing and able to complete the transaction, but not the Defendant.
(e) The Plaintiff also denied the counterclaim, including that the maximum amount that the Defendant could forfeit, which was not agreed, was 10% of the price only.
The ruling
5.Parties went before me for a trial of 3 days in May 2011. Mr. Kevin Hon of Counsel acted for the Plaintiff, and Mr. George Chu, for the Defendant. Upon consideration of all the evidence authorities and submissions from the parties, I have decided to rule in favour of the Plaintiff.
Preliminary matters
6.At the commencement of the trial, Mr. Chu asked leave to adduce documents. They could be divided into 2 parts, (a) affirmations having been filed by the parties in the proceedings herein, and (b) correspondence among solicitors regarding the subject disputes. Mr. Hon opposed to the same.
7.To avoid wasting of time and costs, I admitted the documents on a de bene esse basis. Upon thought, I agree to allow the application. The Plaintiff will suffer no prejudice. The affirmations have been there all the time. There is no allegation that the correspondence is untrue and it will put this Court in a better position to understand the case. Costs of the application should however be awarded to the Plaintiff.
The Plaintiff’s case is to be accepted
8.3 witnesses came before the Court to testify.
(a) Mr. Chow Chi Fan, the director and manager of the Plaintiff.
(b) The Defendant himself.
(c) Ms. Gloria Chan, the sole proprietor of GCC.
9.With respect, I have no hesitation to find the Defendant an unreliable witness.
(a) The Defendant’s primary defence was that the Agreement was a sham transaction. It is “a transaction in which the parties intended not to create those legal rights and obligations that they then give the appearance of creating” (definition adopted in Lu Ming Hui v Ho Yue Kuen, CACV 121/2010)
(b) However, he gave evidence in the box that he was misrepresented by all others, including Ms. Gloria Chan, to the effect of the Agreement. She told him that it was a loan agreement.
(c) On the other hand, he did so many things which were completely contradictory to such allegation. He could not have possibly done the followings if it was a loan agreement.
(i) On 8 December 2007, he signed an authorization in Chinese to the Mortgagee asking for “redemption” of the Property.
“致: 恒生財務有限公司
物業： 新界西貢將軍澳寶順路1號頌明苑C座1樓2室
按揭人： 馬國強
借款人： 馬國強
按揭貸款號碼： 680-192002-060_________
本人/吾等，馬國強，為上述物業之按揭人/借款人，現授權及委託陳沛賢律師事務所代表本人/吾等處理有關上述物業之贖契事宜及安排辦理有關之贖契手續。敬請 貴公司將上述物業之所有契據文件交予陳沛賢律師事務所以安排辦理。
另敬請儘快告知截至2007年12月21日，本人/吾等共欠貴公司之本金及利息金額，並提供還款結算表。
…….”
(ii) He also applied to the Director of Housing Authority in assessment of the premium payable upon the completion. On 6 February 2008, he was replied that:
“………
In response to your application for assessment of premium under paragraph 1 of the Schedule, I now write to inform you that the Prevailing Market Value, as defined in paragraph 1 of the Schedule, of the captioned property, for the purpose of calculation of premium is assessed by me at $1,850,000 and that the amount of premium payable in respect of the captioned property is $849,982.
I hereby specify that the validity period of this assessment is 2 calendar months from the date of this notice and you are required to pay this premium to the Housing Authority within this specified period.
………”
(iii) The premises adjacent to the Property were and are held by the Defendant and/or his family. It is commonly known as “雙連單位”. The Defendant deposed that he had caused someone to reconstruct the partition wall for the inspection of the Housing Authority.
(iv) One of course should not forget the home-made Defence prepared by the Defendant himself when he received the proceedings. He did not say that he was misrepresented. Instead, he claimed that the Agreement was illegal.
“ 抗辯書
本人對於欠款並無爭議，但本人反對原告公司所要求之強制執行令，原因是有關之買賣協議是不合法的 (見附件由房署發出之傳票) …….”
(Defence dated 22 September 2008)
10.On the other hand, I have no hesitation to accept Ms Chan’s evidence. She deposed in her witness statement that:
“3. With the referral of the Plaintiff by the end of November 2007, the Defendant had instructed my firm to make enquiry with Hang Seng Finance Limited (“Hang Seng”) for the outstanding mortgage amount with Hang Seng.
4. ……..
6. On about 18th December 2007, Hang Seng delivered letters to my firm on (1) preparing release; and (2) requiring full settlement of rates and government rent of the Property. Together with the letters, Hang Seng not only released the outstanding mortgage amount of the Defendant but also enclosed the title deeds of the Property to my firm. ……..
7. The Defendant instructed my firm to make enquiry on the outstanding mortgage amount. I did not take any further action at that time on preparing release or discharge or otherwise deal with the title deeds of the Property.
8. Hence, I was holding the title deeds of the Property on behalf of the Defendant (to the order of Hang Seng) pending the Defendant’s settlement of the outstanding mortgage amount to Hang Seng.
9. I did not have any further information on the negotiation between the Plaintiff and the Defendant; until on or about 20th December 2007 when the Plaintiff requested my firm to act for them in their intended purchase of the Property from the Defendant.
10. As I was told by the Plaintiff that the intended purchase price was more than HK$1 million, I reminded the Plaintiff that I could not act for both sides. On the request of the Plaintiff, I recommended to the Plaintiff Messrs. K.Y. Lo & Co. for handling the transaction for the Defendant. As far as I understand, the Plaintiff passed the said information to the Defendant and reminded the Defendant to seek independent legal representation. I had no further knowledge as to the retainer arrangement of Messrs.K.Y.Lo & Co. nor dealing.
11. On receipt of confirmation of the Plaintiff that Messrs. K.Y. Lo & Co. would be acting for the Defendant in his intended sale of the Property, I caused to issue an offer letter dated 20th December 2007 on behalf of the Plaintiff to Messrs. K.Y. Lo & Co., the solicitors for the Defendant/vendor.
12. ………”
Ms. Chan was indeed the witness of the Defendant. Her written evidence was fully supported by contemporaneous documents and not challenged by both parties.
11.The Defendant deposed that he went before Ms. Chan to execute the Agreement. She told him that it was a loan agreement. Ms. Chan strongly denied the same. I prefer her evidence than those of the Defendant. Not only that the case of the Defendant go against the written record, but I also find it hard to accept that an officer of the Court would take such a risk of misrepresenting a document to someone when she did not take any benefit out of it.
12.As to the Plaintiff’s witness, Mr. Chu asked me not to accept the case of Mr. Chow because he gave conflicting evidence. Upon thought, I refuse to accept such proposition.
(a) There are only minor defects in the evidence of Mr. Chow. They did not affect his credibility as a whole. In the alternative, his evidence must be preferred to than those of the Plaintiff.
(b) In my view, the minor defects were either caused by skilful cross-examination of Mr. Chu or a lapse of memory due to passage of time. Further, the Charging Order involved the issue of priority and was a bit complicated. Mr. Chow was simply not in a position to understand completely Mr. Chu’s questions.
13.Hence, on balance, I find that the Defendant was in financial difficulty in late 2007. He was unable to obtain further finance on his own or out of the Property. Eventually, he managed to enter into the Agreement with the Plaintiff. It was not a loan agreement, but a sale and purchase agreement. The price was lower than the current market because he was not in a position to bargain. However, the Agreement gave him a larger deposit, allowed him longer time to complete as well as an option for him to rescind.
14.The Defendant was well aware of the effect of the Agreement. No solicitor or no one misrepresented the document to him. He took away the deposit. He was unable to exercise the option to rescind. He did not want to sell the Property. He therefore did not contact KYL to complete. He also did not make himself available to be contacted.
15.At the outset, GCC acted for the Defendant to redeem the Property. The title deeds then went to Ms. Chan for the Defendant. However, parties were later separately represented in the conveyancing transaction, GCC for the Plaintiff and KYL for the Defendant. Ms. Chan did return the title deeds on 8 January 2008. Thereafter, they remained in the possession of the Mortgagee.
16.The Defendant did not instruct KYL to proceed with the transaction, including obtaining the title deeds from the Mortgagee, sending the same to GCC, and so forth. It was because he had the option to rescind. However, he could not repay the deposit and had no money to exercise the option. KYL could not contact him and had to reply to GCC that they had no further instructions to the transaction.
17.Counsel confirmed at trial the following Statement of Issues in Dispute.
“1. Whether the Agreement is a genuine sale and purchase agreement.
(a) Whether the Defendant is estoppled from asserting that the Agreement was a sham agreement;
(b) Whether the sale and purchase of the Property for HK$1.28M was a transaction for undervalue;
(c) Whether the Agreement should be set aside as a transaction for undervalue or at all.
2. If the Agreement is valid, whether the Defendant had discharged his duty to show and prove good title as provided in the Agreement.
(a) whether the Defendant had delivered the title deeds to the Plaintiff for its inspection within reasonable time before completion pursuant to clause 10 of the Agreement and/or section 13 of the Conveyancing and Property Ordinance;
(b) whether the Charging Order Absolute constituted an encumbrance and blot on the Defendant’s title to the Property;
(c) whether the Charging Order Absolute could be discovered from the title documents by the Plaintiff;
(d) whether the Plaintiff had waived its rights of requisition and/or precluded from raising the requisition by failing to raise any requisition prior to completion.
3. If the Agreement is valid and the Defendant had discharged his duty to show and prove good title as provided in the Agreement.
(a) whether the Defendant had discharged his duty to give good title to the Plaintiff pursuant to clause 10(a) of the Agreement;
(b) whether the Defendant, by his conduct, evinced and intention that he did not intend to perform the Agreement or at all;
(c) whether the Defendant was, at the material time, ready, willing and able to perform the Agreement.
4. If the Agreement is valid and the Defendant was in breach of the Agreement.
(a) whether clause 40 of the Agreement is a liquidated damages clause or a penalty clause:
(b) whether clause 40 of the Agreement was in breach of section 24(2) of the Money Lenders Ordinance (Cap. 163) and the legal consequences thereof.
5. If the Agreement is valid and the Plaintiff was in breach of the Agreement, whether the Defendant is entitled to forfeit the whole deposit of HK$350,000 and if not, what sum the Defendant is entitled to forfeit.
6. If the Agreement is not valid, whether the Plaintiff was and is entitled to demand the Defendant to return the deposit of HK$350,000 and recover damages suffered by the Plaintiff.”
18.I will provide the following answers.
1. The Agreement is a genuine sale and purchase agreement.
(a) Even if applicable, the Defendant is estoppled from asserting that the Agreement is a sham agreement;
(b) The sale and purchase of the Property for HK$1.28M was not a transaction for undervalue;
(c) The Agreement should not be set aside as a transaction for undervalue at all.
2. The Agreement is valid, the Defendant did not discharge his duty to show and prove good title as provided.
(a) The Defendant did not deliver the title deeds to the Plaintiff for its inspection pursuant to clause 10 of the Agreement and/or section 13 of the Conveyancing and Property Ordinance.
(b) The Charging Order is no longer an issue as Mr. Hon agreed to drop it.
(c) The Charging Order is no longer an issue as Mr. Hon agreed to drop it.
(d) The Plaintiff did not waive its rights of requisition and/or precluded from raising the requisition by failing to raise any requisition prior to completion.
3. The Agreement is valid and the Defendant did not discharge his duty to show and prove good title as provided.
(a) The Defendant did not discharge his duty to give good title to the Plaintiff pursuant to clause 10(a) of the Agreement.
(b) The Defendant, by his conduct, did evince an intention that he did not intend to perform the Agreement or at all.
(c) The Defendant was, at the material time, not ready, willing and able to perform the Agreement.
4. The Agreement is valid and the Defendant was in breach of it.
(a) Clause 40 of the Agreement is a liquidated damages clause, not a penalty clause.
(b) Clause 40 of the Agreement was not in breach of section 24(2) of the Money Lenders Ordinance.
5. Not applicable as the Plaintiff was not in breach.
6. Not applicable as the Agreement is a valid one.
Appropriate relief
19.The Plaintiff asked for specific performance and alternatively damages. Upon thought, I believe that the latter would be appropriate in the circumstances.
(a) By a letter of 23 July 2008, the Plaintiff accepted the repudiation of the Agreement by the Defendant and treated the same as terminated.
(b) As said, the Property and the adjacent one were and are “雙連單位” and residing by the Defendant and his family.
(c) Damages would be sufficient to compensate the Plaintiff in the circumstances.
Conclusion
20.In the end, I made the following declaration/orders.
(a) The Agreement had been validly terminated by the Plaintiff and that the Plaintiff was entitled as from 21st December 2007 (i.e. date of the Agreement) to a lien on the Property.
(b) The Defendant do return to the Plaintiff the deposit of HK$350,000.00.
(c) The Defendant do also pay to the Plaintiff liquidated damages of HK$63,000.
(d) The Defendant do also pay interest to the Plaintiff in respect of the said sums of HK$350,000 and HK$63,000 at the interest rate of 8.353% per annum from 16 July 2008 until today, and thereafter at judgment rate until payment.
(e) The Defendant do bear costs of the Plaintiff in relation to the whole proceedings, including all costs reserved as well as Certificate for Counsel for hearings from 16 to 18 May 2011, to be taxed, if not agreed.
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(J. Wong)
Deputy District Judge |
The Plaintiff was represented by Mr. Kevin Hon of Counsel, instructed by Messrs. Sam Fu & Co.
The Defendant was represented by Mr. George Chu of Counsel, instructed by Messrs. Michael Pang & Co.
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