Best Star Holdings Ltd v. Lam Chun Hing and Others
Read the full judgment text of HCA 409/2008 on BabelCite. This High Court CFI judgment was delivered on 22 February 2012.
1. This is yet another action that concerns the development of “small houses” in the New Territories. A host of legal and factual issues have been raised. The resolution of some of the issues raised in this case requires a careful consideration of the same in the context of, and against the special features peculiar to, the Government’s New Territories Small House Policy (“Small House Policy”). That policy has been described by the Court of Appeal in Chung Mui Teck v Hang Tak Buddhist Hall As
Cites 10 cases
|
HCA 409/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 409 OF 2008 ____________ BETWEEN
____________ Before: Mr Recorder H Wong SC in Court Dates of Hearing: 6-8 and 30 September 2010 Date of Judgment: 22 February 2012 ______________ J U D G M E N T ______________ INTRODUCTION 1.This is yet another action that concerns the development of “small houses” in the New Territories. A host of legal and factual issues have been raised. The resolution of some of the issues raised in this case requires a careful consideration of the same in the context of, and against the special features peculiar to, the Government’s New Territories Small House Policy (“Small House Policy”). That policy has been described by the Court of Appeal in Chung Mui Teck v Hang Tak Buddhist Hall Association Ltd [2001] 2 HKLRD 471 and 473E-I as follows:
2.Because of the concessionary terms and other “significant privileges” afforded to an indigenous villager who is granted permission under the Small House Policy, strict limitations are imposed not only in respect of the design, height and size of the house that is permitted to be built (as pointed out by the Court of Appeal), but also in other respects as well. Of particular relevance to this case is the restriction that is imposed on the indigenous villager to sell, charge, demise, or otherwise dispose of the small house that is built. Such restriction is commonly referred to as the “restriction against alienation”, which is generally included as part of the terms of the relevant land grant, building licence or exchange issued under the Small House Policy. THE NEW GRANTS 3.In this action, the 1st and 2nd defendants are respectively the registered owners of Lot no 2441 (“Lot 2441”) and Lot no 2442 (“Lot 2442”) in Demarcation District No 19, Tai Po, New Territories (in this Judgment, when I refer to Lot 2441 and Lot 2442 collectively, I will refer to them either as “Lots 2441 and 2442” or simply, as “the two Lots”). They are respectively the Grantees under New Grant no 13556 and 13557 dated 6 July 1998 and 30 June 1998 (collectively as “the New Grants”). Under the terms of the New Grants, Lot 2441 and Lot 2442 were granted to the 1st and 2nd defendants respectively in exchange for the surrender of certain old lots (being respectively s A and s B of Lot no 2276 in Demarcation District no 19) referred to in the Second Schedule of each of the New Grants. The premium payable (as set out in the First Schedule) for each of the New Grants was $1,000 only. 4.The terms of the 2 New Grants are similar. Both of them contain an express condition (being Special Condition 6(a)) providing for restriction on alienation, as follows:
5.Sub-clause (a) is subject to sub-clauses (b), (c) and (d) of Special Condition 6. For the purpose of the present case, only sub‑clause (d) is relevant. That sub-clause provides as follows:
6.It is plain from Special Condition 6(a) that the Grantee is restricted from alienating the lot for a specified period, which restriction would expire at the end of 5 years from the date of a letter issued by the District Lands Officer (“DLO”) confirming that the conditions provided under the Grant have been complied with to his satisfaction. The letter issued by the DLO confirming his being satisfied with the compliance is often referred to as the “certificate of compliance”, and will be referred to as such in this Judgment. The restriction against alienation, however, is subject to an important exception provided under Special Condition 6(d). After the certificate of compliance has been issued, the Grantee may apply for consent from the DLO to assign, mortgage or charge the lot, or part with possession of the lot and the building erected thereon, by paying to the Government an amount of additional premium equal to the difference between the amount of premium paid by the Grantee and the full market value of the lot as at the date of the application for consent. Upon the granting of the consent and payment of the premium, the restriction on alienation is removed. In this way, although the avowed purpose of the Small House Policy is to enable male indigenous villagers to erect small houses for their own habitation, a way is open to such villagers to build small houses, not for their own residence, but for the purpose of developing them for sale to third parties, no doubt with a view to profit. Cases are known – and some are reported in the law reports – of indigenous villagers (who never have the intention of building small houses for their own habitation) “co-operating” with developers to build small houses for sale. The types of co-operation may differ in different cases, from the villager simply selling to the developer their right to apply for permission to build small houses pursuant to the Small House Policy (for convenience I will refer to such right as the “indigenous right”, following the use of the term by A Cheung J, as he then was, in the case of Cheung Chi Fai v Wan Hang Ping, HCA 193/2002, unreported, 17 November 2004) to very elaborate scheme of co-operation between the villager concerned and the developer. There can of course be “genuine” cases where the original intention of the indigenous villager was to build a small house for his own habitation, but changed his mind after having built the house and for that purpose sought the consent of the DLO for removal of the restriction against alienation. Whatever might be the situation, where disputes arise which requires the court’s adjudication, each case must be examined on its own facts. In some cases, illegal conduct is revealed by the evidence (eg misrepresentation or misstatement might have been made to the Government at some stage to obtain the grant or building licence), and the court may, depending on the facts, refuse to lend its aid to such illegal conduct by enforcing the agreements between the parties that have been tainted by such illegality. The cases of Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866, Chung Mui Teck v Hang Tak Buddhist Hall Association Ltd [2001] 2 HKLRD 471 and my own judgment in Tiu Sum Fat v Shun Sing Development Ltd [2010] 1 HKLRD 553 are examples where illegal conduct was found. As may be seen below, the issue of illegality is also raised in the present case, but I have concluded, on the evidence before me, that I am unable to find illegality in the present case. This is another example of what I have mentioned above, namely, that each case must depend on its own facts. 7.There are some who take the view that the provisions allowing indigenous villagers to apply for removal of the restriction against alienation are the source of a vice. They take the view that such provisions are open to abuse in that they encourage indigenous villagers to build small houses for sale rather than for their own habitation, thereby frustrating the avowed purpose of the Small House Policy. On the other hand, our Court of Appeal has, in the case of Li Pui Wan v Wong Mei Yin [1998] 1 HKLRD 84, at 90C-E, expressed the following view:
8.I can see arguments both for and against the “virtues” of the provisions, such as those contained in Special Condition 6(d) in the present case, that allow application for removal of the restriction against alienation. For the purpose of this Judgment, it is not necessary for me to express any view in this regard. The issues in this case can be fully disposed of by applying the relevant legal principles, and it is unnecessary, indeed inappropriate, for me to make any comments on the virtues of the provisions, and the arguments for or against their continued retention as part of the terms of the Small House Policy. 9.Before I leave the New Grants, however, I would point out that under General Condition 9(a) of both New Grants, it is provided that “[u]pon any failure or neglect by the Grantee to perform, observe or comply with any of these Conditions the Government shall be entitled to re‑enter upon and take back possession of the lot or any part thereof and all or any buildings, erections and works thereon… without prejudice nevertheless to the rights, remedies and claims of the Government in respect of any breach, non-observance or non-performance of any of these Conditions”. Hence, any breach of the Conditions of the New Grants, including the restriction against alienation, may result in Government’s re‑entry of the lot, in addition to other rights and remedies of the Government in respect of such breach. 10.By 3 letters all dated 10 July 1998 issued by the DLO, Tai Po Certificates of Exemption were granted to the 1st defendant exempting the building to be erected on Lot 2441 from the provisions of the Buildings Ordinance (Cap 121) and the regulations made thereunder in relation to site formation work, drainage works and building works. The exemptions were given pursuant to Sections 5, 6(a) and (b) of the Buildings (Application to the New Territories) Ordinance (Cap 121). Similar Certificates of Exemption were given by the DLO on 13 July 1998 in respect of Lot 2442. These exemptions were subject to certain conditions, which are not relevant for the purposes of the present action. 11.Although the 1st and 2nd defendants are named parties to this action, they did not appear at trial. By an Order dated 3 February 2010 made by Master Lung, the Defence filed by the 1st and 2nd defendants were struck out. I am told that the 1st and 2nd defendants have since failed to attend any of the interlocutory hearings including the pre-trial reviews before Deputy Judge L Chan. As neither defendant appeared, I proceeded with the trial of the action in their absence, pursuant to O 35 r 1(2) of the Rules of High Court. THE LETTER OF INTENT AND MEETING OF 22-5-06 12.On 22 May 2006, the 3rd defendant and the plaintiff signed a Chinese document entitled “Letter of Intent” (“Letter of Intent”). It is apparent from the document itself that a pro-forma provisional agreement for sale and purchase (“PSA”) was used, but the title “臨時買賣合約” [Provisional Agreement for Sale and Purchase] was crossed out and the words “意向書” [“Letter of Intent”] were handwritten on top. However, because a pro-forma PSA was used, the printed words of the document are couched in terms of an agreement. For example, clause 2 of the Letter of Intent contained the written words “立約各方：本合約由以下雙方訂定” [Parties: This Agreement is entered into by the following parties]. Clause 2.1 of the Letter of Intent described the plaintiff as the “Buyer” and clause 2.2 described the 3rd defendant as the “Vendor”. Clause 3 are in the following words “物業： 認購三間丁屋地 (DD 19, Lot no 2441, 2242 & 2243)” [Property: Purchase 3 small house lots (DD 19, Lot no 2441, 2242 & 2243)]. 13.It is not in dispute that the description of the property in clause 3 of the Letter of Intent is incorrect: the proper description should have been DD 19, Lot no 2441, 2442 & 2443. It is not in dispute that what the parties intended to refer to are the Lot 2441, Lot 2442 and another lot being Lot no 2443 in Demarcation District no 19 (“Lot 2443”). 14.The present action does not concern any claim in respect of Lot 2443. That Lot was however included in the Letter of Intent and I will deal with the circumstances relating to this Lot in a later part of this Judgment. In this Judgment, when I refer to Lot 2441, 2442, 2443 collectively, I will refer to them either as “the 3 Lots”, or simply as “the Lots”. 15.Returning for the time being to the Letter of Intent, clause 4 provides that the purchase price was to be HK$5,800,000 and clause 5 provides that “於簽署本合約之同時，須即付臨時訂金港幣五十八萬(HK$580,000)” [Upon signing of this Agreement, an initial deposit of Hong Kong Dollar five hundred and eighty thousand shall be paid]. 16.There is however no provision in the Letter of Intent as to when the balance of the purchase price is to be paid. Indeed those parts of the pro-forma document that are supposed to contain terms regarding the time for payment of further deposit, balance of purchase price, completion date and whether vacant possession would be delivered up to the purchaser are not only left uncompleted, but deliberately deleted. Moreover, in acknowledging receipt of the sum of HK$580,000, the printed words “臨時訂金” [initial deposit] are specifically crossed out and replaced by the words “誠意金” [sincerity money]. And although there are the printed words “此合約必須經買賣雙方簽署方能有效” [This Agreement is valid only after signature by the vendor and the purchaser], the Letter of Intent contains the additional handwritten words providing expressly that “此意向書有效期十四天內” [This Letter of Intent is valid for 14 days]. There is also the further additional handwritten remark stating that “雙方再訂中文認購協議” [The parties shall make a Chinese agreement for sale and purchase]. 17.The Letter of Intent was signed by the plaintiff and the 3rd defendant. Some of the changes made by handwriting, including the replacement of the words “臨時買賣合約” with the words “意向書”, and the addition of the handwritten words “此意向書有效期十四天內” were initialed against by the signatories of the document, no doubt in order to acknowledge their agreement to the changes. 18.The evidence shows, and it is not a matter of dispute, that the signatories of the Letter of Intent are Mr Guo Qigui (“Guo”) of the plaintiff and Mr Ng Yuen Kwong (“Ng”) of the 3rd defendant. It is further not disputed that the Letter of Intent was signed at a meeting held at the offices of Messrs Rene Hout & Co (“Rene Hout”) on 22 May 2006 (“the Meeting of 22-5-06”). 19.At the Meeting of 22-5-06, Guo and his business partners, a Mr 李金順 (translated as “Lee Kam Shun”, hereinafter called “Lee”) and a Mr 孔向鏡 (translated as Hung Heung Keng, hereinafter referred as “Hung”) were present, representing the plaintiff. Ng was present, representing the 3rd defendant. Also present was a person called李志賢(translated as Li Chi Yin, hereinafter referred to as “Li”), who was the estate agent that introduced the plaintiff to the 3rd defendant. According to Guo, on the 3rd defendant’s side, there was also a male person, said to be about 40 odd years old, who was never introduced to him by Ng and who did not speak a word during the whole meeting. This person was subsequently identified by Ng in his supplemental witness statement (filed on the first day of the trial) as a Mr 林玉川 (translated as “Lam Yuk Chuen, hereinafter referred to as “Lam”), who represented a company called Wan Nok Company Limited (“Wan Nok”). 20.Both Guo and Ng have given oral evidence at trial. However, none of Lee, Hung, Li, or Lam has been called by the parties to give evidence. 21.After the Meeting of 22-5-06, Rene Hout representing the 3rd defendant wrote to Tam & Partners, solicitors representing the plaintiff, and furnished to them the title deeds and documents relating to the 3 Lots. 22.I note from the Schedule of title documents attached to the relevant cover letters of Rene Hout that the title documents sent thereunder are few and simple, consisting, in respect of each Lot, the New Grant, the Certificates of Exemption, and 2 letters issued by the DLO, Tai Po. No other dealings or transactions in respect of the Lots are disclosed by the title documents sent to Tam & Partners. This is also consistent with the land searches of the 3 Lots made shortly after the Meeting of 22-5-06, which did not reveal any registered transaction or dealing that affected the Lots (apart from a bankruptcy order made against the registered owner of Lot 2443, dealt with below) between the time of the issue of the New Grant and the Meeting of 22-5-06. THE PLAINTIFF’S PLEADED CASE 23.According to its pleadings, the primary case of the plaintiff is that it had, through the agency of the 3rd defendant, made an agreement with the 1st and 2nd defendants and the registered owner of Lot 2443 to buy from them Lot 2441, 2442 and 2443 at a total price of $5,800,000. This alleged agreement was defined in the latest version of the plaintiff’s Statement of Claim (ie the Re-Re-Re-Re-Amended Statement of Claim, which I shall for convenience refer to simply as the “Statement of Claim”) as “the Original Agreement”. 24.It is pleaded in paragraph 3 of the Statement of Claim that the Letter of Intent sets out the terms of the “Original Agreement”. That paragraph pleads as follows:
25.What is purportedly pleaded in paragraph 3 of the Statement of Claim is plainly wrong. The Letter of Intent makes no reference at all to the 3rd defendant acting as the agent for and on behalf of the 1st and 2nd defendants and the registered owner of Lot 2443, let alone stipulating the same as “express conditions”. There is nothing in the Letter of Intent to suggest that in receiving the payment of $580,000 as “sincerity money”, the 3rd defendant received the same as agent for anybody. Hence, if the alleged Original Agreement was, as alleged by the plaintiff, indeed made by the 3rd defendant as agent for the 1st and 2nd defendants and the registered owner of Lot 2443, it could not be because of anything expressly stated as conditions in the Letter of Intent. Yet there is nothing in the pleading to explain how the alleged agency came about. 26.In paragraph 4 of the Statement of Claim, the plaintiff further pleads as follows:
27.Hence it is the pleaded case of the plaintiff that as agent, the obligation of the 3rd defendant was to procure the registered owners of the Lots to attend the plaintiff’s solicitors to sign “documents that are required for the transfer” of the Lots. 28.Indeed as part of its pleaded case, the plaintiff has made an alternative claim against the 3rd defendant for breach of warranty of authority in that “if the 3rd Defendant had no authority to enter into the Agreement (sic) on behalf of the 1st and 2nd Defendants, the plaintiff says that… the 3rd Defendant expressly or impliedly warranted his authority as agent” (see paragraph 13 of the Statement of Claim) and is hence liable in breach of the warranty of authority. This pleaded case of agency pervades throughout the Statement of Claim and the Re-Re-Amended Reply (which for convenience will be referred to simply as “the Reply”). The witness statement filed by Guo dated 17 November 2009, which he adopted as his evidence-in-chief in these proceedings, sought to provide evidence in line with this case of agency. It is alleged by Guo in his witness statement (and his evidence-in-chief) that at the Meeting of 22-5-06, Ng of the 3rd defendant was representing the registered owners of Lot 2441, Lot 2442 and Lot 2443 in agreeing to sell the said Lots to the plaintiff and in accepting the payment of deposit made by the plaintiff (see, paragraphs 4 and 6 of the said witness statement). 29.It was only on the first day of the trial that Mr K M Chong, counsel for the plaintiff, informed me that the plaintiff would no longer make any claim against the 3rd defendant for breach of warranty of authority. I was told that the plaintiff no longer maintain the case of agency (i.e. that the 3rd defendant had been acting as the agent of the 1st and 2nd defendants) against the 3rd defendant. Be that as it may, no attempt has been made to further amend the Statement of Claim, and on the pleadings, the agency case is still the primary case of the plaintiff. Neither has there been any attempt to change the contents of the witness statement of Guo (nor any attempt to file a new witness statement to replace the one filed dated 17 November 2009). Although a supplemental statement of Guo was filed by the plaintiff on the 2nd day of the trial, that supplemental statement dealt only with matters raised in a supplemental witness statement of Ng (which I gave leave on the first day of the trial) and did not replace Guo’s first witness statement. As pointed out above, when giving oral evidence, Guo adopted his witness statements as his evidence-in-chief. Hence the evidence-in-chief given by the plaintiff’s principal witness at trial is evidence that purportedly supports a case of the 3rd defendant acting as agent for registered owners of the 3 Lots. 30.In its Statement of Claim, the plaintiff pleads that the Original Agreement was subsequently varied to become what the plaintiff defines as the “Varied Agreement” in the Statement of Claim. I will deal with the alleged variation in greater detail in the later part of this Judgment. Suffice to point out at this stage that according to the plaintiff’s pleadings, the alleged Varied Agreement, like the alleged Original Agreement, was allegedly made between the plaintiff and the 1st and 2nd defendants through the alleged agency of the 3rd defendant (see, paragraph 6C of the Statement of Claim). 31.In paragraphs 13D and 13E of the Statement of Claim, the plaintiff pleads an alternative case as follows:
32.It turns out at trial that this alternative case (ie that the Varied Agreement allegedly constituting an “agreement of sub-sale” between the plaintiff and the 3rd defendant, and that the plaintiff has subrogated into the shoes of the 3rd defendant) becomes the main case run by the plaintiff at trial. The alternative case is said (and argued by Mr Chong) to be advanced based upon the principles set out in the case of Ji Shan International Investment Ltd v Resources Main Enterprises Ltd & another [1997-1998] 1 HKCFAR 377, a decision of the Court of Final Appeal. The principles have been referred to by Mr Chong as the “Ji Shan principle” and for convenience I will adopt Mr Chong’s terminology when I refer to the principle enunciated in the Ji Shan case in the discussion below. 33.What however is seriously lacking in the plaintiff’s own pleadings is the absence of any positive allegation that there was any agreement between the 1st and 2nd defendants and the 3rd defendant for the sale of Lot 2441 and Lot 2442 by the former to the latter. It is not known, on the plaintiff’s case, how it is alleged that the 1st and 2nd defendants’ interest in Lot 2441 and 2442 came to be sold to the 3rd defendant; whether any agreement has been made between the 1st and 2nd defendants with the 3rd defendant (and if so, on what terms); and how the alleged Varied Agreement between the plaintiff and the 3rd defendant became an agreement of sub-sale as alleged. In the Prayers pleaded in the Statement of Claim, the plaintiff claims “specific performance of the agreement of sale between the 1st and 2nd defendants and the 3rd defendant”. The reference to an “agreement for sale” between the 1st and 2nd defendants and the 3rd defendant in the Prayers is not easy to understand, when there is no pleading at all of what exactly are the terms of the agreement for sale that is sought to be specifically performed. There is a similar reference to an “agreement of sale” in paragraph 13F of the Statement of Claim, but again there are no pleadings or any particulars of the alleged agreement and its terms. Hence, apart from a bare suggestion that an agreement of sale exists between the 1st and 2nd defendants and the 3rd defendant, nothing is pleaded by the plaintiff of the very agreement for which it seeks specific performance. 34.Neither has the plaintiff adduced any positive evidence at trial to prove that Lots 2441 and 2442 have been sold by the 1st and 2nd defendants to the 3rd defendant. Certainly no written agreement for any sale and purchase of Lot 2441 and Lot 2442 has been suggested at trial as having been made between the 1st and 2nd defendants and the 3rd defendant, and none has been produced in the documents put before this court. It would appear from the submissions of Mr Chong at trial that in arguing this alternative case he was simply relying on the allegations and the evidence adduced by the 3rd defendant, and asking me to draw inferences from the same to find that the 1st and 2nd defendants had sold their interests in the 2 Lots to the 3rd defendant. On the other hand, it is the 3rd defendant’s case that it has made no agreement with the 1st and 2nd defendants at all. Indeed the 3rd defendant’s case is that the 1st and 2nd defendants are not known to it at all, and the 3rd defendant never had any direct dealings with the 1st and 2nd defendants. In these circumstances it is not easy to see how the plaintiff can build a case of “subrogation” based on the 3rd defendant’s own allegations. 35.While it is perfectly understandable that the plaintiff may not have knowledge of what might or might not have transpired between the 3rd defendant and the 1st and 2nd defendants, or indeed knowledge of any dealings in respect of Lot 2441 and Lot 2442 apart from those which might be revealed by the public records (such as the Land Registry), the fact remains that it has chosen to advance a claim for specific performance of an alleged “agreement for sale” between the 1st and 2nd defendants and the 3rd defendant. The burden rests squarely upon the plaintiff to properly plead and prove its case – including in particular the very existence of such an agreement, and the terms thereof. It cannot be right for this court to order specific performance of an agreement without being satisfied that the same exists, or for which the terms are unknown. 36.I have gone to some length to refer to the plaintiff’s pleadings above as I take the view that the pleadings in the present case – and that includes both the plaintiff’s as well as the 3rd defendant’s – are far from being satisfactory. I will refer to the 3rd defendant’s pleadings shortly, in respect of which I also have some difficulties. At trial Mr Chong has levelled various criticisms against the 3rd defendant’s pleadings, and reminded me that I could not make findings of fact that are not pleaded by the parties. I have therefore invited the parties to make further submissions to me on the court’s freedom (for want of a better word), if any, to make findings of facts that might depart from the parties’ pleadings. I have received written submissions from counsel on that question but regret to say that I have not found those submissions particularly helpful. THE 3RD DEFENDANT’S PLEADED CASE 37.I will now leave the plaintiff’s pleadings for the moment, and turn to the 3rd defendant’s pleadings. 38.As pointed out above, the plaintiff has little to say (despite its claim for specific performance of an alleged “agreement for sale” between the 1st and 2nd defendant and the 3rd defendant, which claim is pleaded in any event as an alternative claim only) on what prior dealings there might have been in respect of Lots 2441 and 2442 before the Meeting of 22-5-06. To find out if there had been any such prior dealings, one would have to go to the 3rd defendant’s pleadings. 39.Paragraph 2A of the 3rd defendant’s Re-Re-Re-Amended Defence (which for convenience I will refer to simply as “D3’s Defence”) pleads its case as follows:
40.Pausing here, it may be noted from paragraph 2A of D3’s Defence that according to the 3rd defendant, it had agreed to purchase from Wan Nok the “Rights of Development” of the three lots of land, being Lots 2441, 2442 and 2443. Paragraph 2A(3) purported to define the Rights of Development as the “rights to develop small houses on the three lots”. So pleaded, it is not apparent to me what benefits a purchaser would get by acquiring the “Rights of Development”. If the “Rights of Development” carries no more than a bare right to build small houses on the said lots, it is of no benefit to a purchaser to acquire such rights, for the building of such houses would clearly require the purchaser to incur expenses on their construction, and unless the purchaser should obtain some further right (such as the beneficial interest of the lots and the houses to be erected thereon, or the right to sell the houses and pocket the proceeds), it is difficult to see what exactly the purchaser is acquiring by paying good money for such “Rights of Development”. Yet nowhere in the Defence has the 3rd defendant condescended to pleading what exactly is meant by the “Rights of Development” that the 3rd defendant had agreed to purchase from Wan Nok, and what interest (if any) in the 3 Lots the 3rd defendant might have acquired (or might have agreed to acquire) from Wan Nok. 41.I should also point out that although paragraph 2A(5) of D3’s Defence refers to 3 Development Agreements dated 30 April 1998 (collectively as the “Development Agreements”) made between Wan Nok and each of the 1st defendant, 2nd defendant and Lam Ma Hing, these Development Agreements are never produced by the 3rd defendant. Indeed Ng gave evidence during his cross-examination that he has never seen the Development Agreements. I will return to this point later in this Judgment. 42.Returning to D3’s Defence, paragraph 3 pleads the following:
43.Hence according to paragraph 3, the 3rd defendant’s pleaded case is that it was acting on its own behalf in selling the Rights of Development (whatever that means) to the Plaintiff. I have already pointed out above that the term “Rights of Development” has merely been defined in D3’s Defence as the “rights to develop small houses on the three lots”, and I have difficulty in understanding from D3’s Defence what precisely it is saying the 3rd defendant was purporting to sell to the plaintiff. 44.Paragraph 4 of D3’s Defence goes on to plead “the Real Agreement” as follows:
45.My difficulty with understanding the 3rd defendant’s pleading is not helped by this plea of the so-called “Real Agreement”. Rather the plea in paragraph 4 further confuses me. Whereas in paragraph 3 of D3’s Defence, it is expressly pleaded that Ng made it clear to Guo and Hung that the 3rd defendant was selling the Rights of Development to the plaintiff only, in this paragraph of D3’s Defence it is pleaded that the total price of Lot 2441 and Lot 2442 was agreed to be HK$3,900,000. This seems to suggest that the 3rd defendant was agreeing with the plaintiff to sell to it not only the Rights of Development, but the two pieces of land themselves. The confusion is further aggravated by paragraph 5(1) and (2) of the Defence, which further pleads the 3rd defendant’s case as follows:
46.Quite apart from the fact that, contrary to what is pleaded in paragraph 5(2) of D3’s Defence, the Letter of Intent does not expressly mention “development rights” at all; it is confusing for the 3rd defendant to allege in sub-paragraph (1) that the Real Agreement involves the sale and purchase of the 3 Lots of land, and almost immediately (in the next sub-paragraph) to go on to say that the selling price was a selling price for the development rights. The 3rd defendant’s pleadings are hence rather confusing. 47.Paragraph 5(5) of the Defence pleads a case of novation as follows:
48.I have already pointed out that the Development Agreements were never produced by the 3rd defendant, and it is not alleged or suggested that the same had ever been disclosed to the plaintiff, or that the plaintiff ever had knowledge of their terms. To allege “novation” that have the result of making the Development Agreements contracts between the plaintiff and the 1st and 2nd defendants necessarily raises eyebrows immediately. After all, novation as a possible way of creating contractual relationship requires – as in all cases of contractual relationship – consensus ad idem. How could there be consensus if it is not even suggested that the plaintiff was ever aware of the terms of the Development Agreements? I find it odd, to say the least, that a pleaded case of novation could be advanced that would result in the plaintiff becoming a party to a contract whose terms are unknown – unknown to the plaintiff, to this court, and on the 3rd defendant’s own case, even to itself. 49.It should be clear from what I said above that, as in the case of the plaintiff, I have found the 3rd defendant’s pleadings to be in an unsatisfactory state. At trial, I had inquired with Mr Tommy Ho, counsel for the 3rd defendant, whether there was any intention to further amend the Defence, and the indication given to me by Mr Ho was that he did not intend to amend his pleadings. This being the position, this court has to adjudicate the present matter and resolve the disputes without proper pleadings. I have not found this to be an easy task, particularly when there is a paucity of evidence relating to some of the factual issues raised. The lack of evidence, coupled with the unsatisfactory pleadings, have not made my facts-finding exercise any easier. LOT 2443 50.As pointed out above, no claim is made in respect of Lot 2443 in this action. However, Lot 2443 was included in the Letter of Intent, and some of the conduct of the parties relating to Lot 2443 overlapped with their conduct relating to the other 2 Lots, and some of the circumstances that feature as the factual matrix in this case are common to all 3 Lots. Accordingly, it is necessary for me to deal with Lot 2443 briefly in this Judgment. I would, however, only deal with the same briefly, and only insofar as the same may have some relevance to my resolution of the issues concerning Lot 2441 and 2442 in this case. 51.The registered owner of Lot 2443 is a person called Lam Ma Hing. Lam Ma Hing is the Grantee under a New Grant No 13558. As in the case of 1st and 2nd defendants, Lam Ma Hing have also obtained Certificates of Exemption from the DLO, which were granted to him on 8 July 1998. 52.As noted above, the Letter of Intent included Lot 2443 (although it was wrongly identified as “Lot 2243”). However, it was discovered that Lam Ma Hing had been declared a bankrupt, which led to the eventual abortion of their proposed dealings with that Lot. 53.There is some dispute as to when the plaintiff discovered the bankruptcy of Lam Ma Hing. It is the 3rd defendant’s case that the fact that Lam was a bankrupt was already disclosed by Ng to Guo at the Meeting of 22-5-06. On the other hand, it is the plaintiff’s case that Guo only discovered the bankruptcy in about late May 2006 when he was informed by Tam & Partners of the same. It is the plaintiff’s case that it was only after the Meeting of 22-5-06 that Tam & Partners found out the bankruptcy from the land searches conducted of Lot 2443. Having found out the problem, the plaintiff, through Guo, orally agreed with Ng to vary the Original Agreement (pleaded in paragraphs 2, 3 & 4 of the Statement of Claim, which I have referred to above) to make an alleged “Varied Agreement” as follows (see, paragraph 6C of the Statement of Claim):
54.I would resolve the dispute regarding whether Ng had disclosed the bankruptcy of Lam Ma Hing at the Meeting of 22-5-06 by finding against the 3rd defendant. In my view, if the bankruptcy had been disclosed by Ng to Guo at that meeting, the parties would not have just signed the Letter of Intent without making any separate arrangement for Lot 2443. Guo and his partners, Lee and Hung, would have immediately recognised that that there would be problems arising from the fact that the registered owner of Lot 2443 was an undischarged bankrupt. The evidence before me is that Lee and Hung were experienced in the development of small houses (although Guo claimed himself to be inexperienced). Yet Lot 2443 was included in the Letter of Intent in the same way as the other Lots and no distinction was drawn between Lot 2443 and the other 2 Lots. I find it difficult to believe that if the bankruptcy of Lam Ma Hing was disclosed to the plaintiff in the meeting, the plaintiff would have signed the Letter of Intent in the way it was. 55.It is the 3rd defendant’s case that at the Meeting of 22-5-06, after the bankruptcy of Lam Ma Hing was disclosed, it was agreed between the plaintiff and the 3rd defendant that they would only proceed with the proposed sale (of the “Rights of Development”, according to the 3rd defendant) of Lot 2443 if Lam Ma Hing’s bankruptcy could be discharged in 6 months’ time. According to the 3rd defendant, the total price for Lot 2441 and Lot 2442 was agreed at the meeting at $3,900,000, and the price for Lot 2443 at $1,900,000. Of the total sum of $580,000 (being the sincerity money paid), $200,000 was attributable to Lots 2441 and 2442, whereas $380,000 was attributable to Lot 2443. 56.There is nothing in the Letter of Intent to suggest anything of the sort alleged by the 3rd defendant. If the 3rd defendant’s case were true, I would expect that the parties would make some reference in the signed Letter of Intent to the separate prices attributable to Lots 2441 and 2442 on the one hand, and Lot 2443 on the other. Otherwise I would expect that a separate agreement or letter of intent would be signed to provide for the special situation of Lot 2443. It would be most surprising, if the parties had indeed agreed to what the 3rd defendant claimed to have been agreed, that the Letter of Intent should contain no reference at all of the matters allegedly agreed, and a single price of $5,800,000 was stated as if all 3 Lots would be dealt with in the same way and at the same time. Moreover, when the plaintiff made payment of the sum of $580,000, the payment was made by one single cheque, and no distinction was apparently drawn between payment for Lots 2441, 2442 and Lot 2443. 57.During his cross-examination of Guo, Mr Ho for the 3rd defendant initially scored a point by drawing attention to the different times that Tam & Partners apparently conducted their land searches for Lot 2443 and the other 2 Lots. It was pointed to Guo that the plaintiff’s solicitors apparently chose to conduct a land search of Lot 2443 on the very day of the Meeting of 22-5-06, but not on the other 2 Lots. The point, however, was completely demolished subsequently by the plaintiff producing records of the land searches conducted by Tam & Partners for Lots 2441 and 2442, which were made at the same time as the land search for Lot 2443 ie at around 18:17 on 22 May 2006. In his closing submission, Mr Ho no longer refers to this point. 58.Accordingly I hold that at the Meeting of 22-5-06, the 3rd defendant had not disclosed to the plaintiff the bankruptcy of Lam Ma Hing, and had not reached agreement with the plaintiff at that time for some separate treatment of Lot 2443. Instead I find that it was only later (i.e. in early June 2006), after the plaintiff had found out from Tam & Partners about Lam Ma Hing’s bankruptcy, that Guo orally reached agreement with Ng on the following:
59.At this point I have used the words “the deal” to describe the proposed transaction that the parties intended to effect. I will explain below in greater detail my views on the true nature of the deal, namely the nature of the proposed transaction that the plaintiff and the 3rd defendant intended to effect. 60.As regards the postponement of the deal for Lot 2443 (for 6 months), the 3rd defendant’s agreement to the same is partly evidenced by a letter dated 11 October 2007 sent by the 3rd defendant to the plaintiff. Although that letter was not signed by the plaintiff, Guo during his cross‑examination confirmed that it had been orally agreed that the deal for Lot 2443 would be postponed for 6 months. For the sake of completeness, I would also mention that amongst the documents produced as evidence in this case is a draft Chinese agreement that relates Lot 2443 and refers the said postponement for 6 months to await the possible discharge of Lam Ma Hing’s bankruptcy. That draft agreement was, according to Guo’s oral testimony, prepared by the estate agent Li on 15 June 2006. The document, however, was only signed by the plaintiff but not the 3rd defendant. It is not necessary for me to discuss the circumstances under which the document was prepared, for it is not suggested that the document represented any binding agreement between the parties. 61.On 15 June 2006, the 1st and 2nd defendants did attend the offices of Tam & Partners to sign the documents prepared by them for completion of the deal. I will refer to what happened on that occasion in some details later. 62.On 21 June 2006, Rene Hout wrote to Tam & Partners and requested the latter to return to them all the title deeds and documents relating to Lot 2443. Tam & Partners readily complied with the request on the next day. 63.As already noted above, the 3rd defendant wrote a letter to the plaintiff dated 11 October 2007 that refers to the agreed postponement. According to Guo, the letter was personally delivered to him in Zhuhai, China, by Ng, who was accompanied by a Ms Lee. By that letter, the 3rd defendant alleged that the discharge of bankruptcy would need time to complete, and requested the plaintiff, if it wanted to go ahead with the deal, to complete the same by 15 October 2007. The letter further stated that if the plaintiff did not complete the deal by 15 October 2007, the plaintiff would treat the deal as cancelled and would refund to the plaintiff the deposit of $380,000 previously paid by it. 64.The plaintiff did not complete the deal for Lot 2443. It is not disputed that on about 19 November 2007, the 3rd defendant refunded to the plaintiff the sum of $380,000 by depositing the money into the plaintiff’s account. 65.It is not necessary for me to decide in this action whether or not the 3rd defendant was entitled to treat the deal for Lot 2443 as cancelled. The fact is that the plaintiff has accepted the refund of $380,000 made by the 3rd defendant, and has not made any claim in respect of Lot 2443. DOCUMENTS EXECUTED ON 15 JUNE 2006 66.It is not disputed that on 15 June 2006, the 1st and 2nd defendants attended the offices of Tam & Partners, solicitors representing the plaintiff, and executed various documents (collectively as “the Documents”) prepared by Tam & Partners, as follows: Documents executed by the 1st defendant:
Documents executed by the 2nd defendant:
67.It is also not disputed that neither Ng nor any representative of the 3rd defendant attended the offices of Tam & Partners on 15 June 2006, nor were they required to do so. There was no document prepared by Tam & Partners for the 3rd defendant to execute. The persons present at the time, apart from the 1st and 2nd defendants, was a clerk of Tam & Partners, one Mr 郭玉良 (translated as “Kwok Yuk Leung”, hereinafter referred to as “Kwok”), and other representatives of the plaintiff, including Guo, Lee, and Hung. The estate agent Li was also present. Kwok has given evidence at trial on behalf of the plaintiff. 68.There is however a dispute as to who made the arrangement for the 1st and 2nd defendants to attend the offices of Tam & Partners. It is the plaintiff’s case that it was Ng who made the arrangement. The 3rd defendant’s case is that Ng had asked Lam (of Wan Nok) to make arrangement for 1st and 2nd defendants to attend Tam & Partners. According to Ng, he did not personally know the 1st and 2nd defendants at all. Upon cross-examination, Guo admitted that he did not actually know who had made the arrangement for the 1st and 2nd defendants to attend the offices of Tam & Partners. As regards Ng, he had during his cross examination initially told me that it was Hung who made the arrangement. When further clarification was sought by Mr Chong later (after the court has finished asking Ng certain questions in clarification), Ng clarified that what he meant was that Hung was responsible for making arrangement with the plaintiff’s solicitors (ie Tam & Partners), but on the 3rd defendant’s side, it was through Lam (of Wan Nok) that arrangement was made for the 1st and 2nd defendants to attend. On Ng’s allegation that he did not know the 1st and 2nd defendants personally, no serious attempt has been made by Mr Chong when cross‑examining Ng to contradict his allegation in this regard. On this point, I believe in Ng’s evidence that he did not know the 1st and 2nd defendants personally. Although at one stage there appeared to be some confusion in Ng’s evidence, I accept his subsequent clarification that when he initially mentioned Hung as being the person responsible for making the arrangement, he was referring to the arrangement on the plaintiff’s side; and that the arrangement for the 1st and 2nd defendants to attend the offices of Tam & Partners was in fact made by Lam. This does not mean that Ng played no part at all in the arrangement, for it was he who requested Lam to make arrangement for the 1st and 2nd defendant’s attendance. What Ng did was to perform what he had orally agreed with Guo in early June 2006, namely to procure the registered owners of the two Lots to attend the offices of the plaintiff’s solicitors to execute the necessary documents required by the plaintiff’s solicitors for completing the deal. 69.After the Documents had been executed by the 1st and 2nd defendants, the plaintiff made full payment to the 3rd defendant in the total sum of $3,700,000 (by 3 cheques for the respective sum of $2,540,000, $1,060,000 and $100,000). The relevant cheques were given to Ng at the offices of Rene Hout. 70.There is also no serious dispute that on the same day, the 3rd defendant had made the following payments to Wan Nok by paying its solicitors, Edmond Cheung & Co, in the following manner, namely (a) by transferring a sum of $510,000 into the bank account of Edmond Cheung & Co; and (b) by causing a cheque in the sum of $2,390,000 to be paid to Edmond Cheung & Co. These payments are well-documented and can hardly be disputed. Together with a payment of $300,000 previously made to Edmond Cheung & Co on 26 April 2006 (which payment is evidenced by a copy cheque dated 26 April 2006 produced by the 3rd defendant), the 3rd defendant had paid the total sum of $3,200,000 to Wan Nok. These payments, according to the 3rd defendant’s case, were made to Wan Nok in consideration of its agreeing to terminate the Development Agreements that it had made with the 1st and 2nd defendants back in April 1998 (as pleaded in paragraph 2A(5) of D3’s Defence). I will return to this point later. 71.For the sake of completeness, I would mention that during the cross examination of Ng, Ng was asked to explain certain inconsistencies between his oral evidence in court and his witness statement as to the person who notified him that the 1st and 2nd defendants had executed the Documents in Tam & Partners. In paragraph 11 of his witness statement, Ng stated that he was notified by Guo. In his oral evidence in court, however, Ng said it was Lam who notified him. When asked by Mr Chong to explain this inconsistency, he told me that what was stated in paragraph 11 of his witness statement was actually a mistake. It was in fact Lam who initially told him that the 1st and 2nd defendants had executed the Documents, and upon learning that he caused payments to be made to Wan Nok. Subsequently he was notified by the estate agent Li to attend the offices of Rene Hout to receive the payments for the balance of the price (i.e. the $3,700,000 mentioned above). I accept Ng’s explanation for the inconsistency. I have observed Ng closely when he gave testimony in court. My impression of him was that he was a clumsy witness. However, although I have reservation over certain aspects of his evidence (as shown by my rejection of the 3rd defendant’s case that Ng had disclosed the bankruptcy of Lam Ma Hing at the Meeting of 22-5-06), I am satisfied that overall he was an honest witness and was doing his best to tell me the truth, although sometimes rather clumsily. I am not prepared to hold that merely because there are some aspects of this evidence that I would reject, he is to be treated as an unreliable witness. EVENTS AFTER 15 JUNE 2006 72.What happened after 15 June 2006 is not controversial as far as the plaintiff and the 3rd defendant are concerned. The relevant events may be briefly summarised as follows:
THE ISSUES TO BE RESOLVED – A CLOSER LOOK 73.As the primary case pleaded by the plaintiff is that the alleged Original Agreement and Varied Agreement were made by the plaintiff with the 1st and 2nd defendants (through the alleged agency of the 3rd defendant), in the Statement of Claim the plaintiff’s primary claim is that the 1st and 2nd defendants have breached their agreement (as varied) with the plaintiff. The plaintiff pleads that by failing to transfer their title over Lot 2441 and Lot 2442 to the plaintiff, and by their conduct pleaded in the Statement of Claim (including in particular the alleged unauthorized occupation of the small house erected on Lot 2441, the purported sale of the small house erected on Lot 2442 to various third parties, and the making of the statutory declaration by the 2nd defendant of the loss of title deeds) the 1st and 2nd defendants had acted in breach of the Varied Agreement. 74.Paragraph 11 of the Statement of Claim pleads that by the 1st and 2nd defendant’s conduct, they have evinced an intention no longer to be bound by the Varied Agreement and have repudiated the same. 75.Paragraph 12 of the Statement of Claim pleads expressly that the plaintiff accepted the 1st and 2nd defendants’ repudiation by the issue and service of the writ in this action. As a result, the plaintiff says, it is entitled to “damages amounting to the open market value of Lot 2441 and 2442 including the respective small houses on a vacant possession basis”. 76.I had thought, when I first read this part of the plaintiff’s pleadings, that by expressly electing to accept the 1st and 2nd defendant’s repudiation, the plaintiff must have disabled itself from claiming specific performance. I still take that view, but will further discuss this in greater detail when I consider the plaintiff’s claim for specific performance in the context of the Ji Shan principle. 77.In addition to claiming for specific performance under the Ji Shan principle, the plaintiff also claims against the 1st and 2nd defendants, in the alternative, that it had acquired a proprietary interest in Lots 2441 and 2442 under the doctrine of proprietary estoppel (c.f. paragraphs 12A-12B and Prayer (3) of the Statement of Claim). 78.As against the 3rd defendant, the plaintiff claims specific performance of the Varied Agreement (which, as noted above, is relied upon by the plaintiff as an “agreement for sub-sale” for the purpose of its alternative case based on the Ji Shan principle). In the alternative, the plaintiff seeks to recover from the 3rd defendant the sum of $3,900,000 (with interests) as being “money had and received” by the 3rd defendant “at the expense of the plaintiff” (c.f. paragraphs 13B-13C and Prayer (6) of the Statement of Claim. In this connection, I note that in Prayer (6), the prayer is pleaded as “damages in the sum of $3,900,000 and any interests arising thereof”. Paragraphs 13B-13C of the Statement of Claim, however, couched the claim as being based on “money had received” and “unjust enrichment”. Mr Chong’s closing submission on this claim is also based on unjust enrichment. So I assume that the description of the claim as “damages” in Prayer (6) is merely an inaccurate or imprecise description, and I shall deal with the same as a claim based on unjust enrichment. 79.Mr Chong told me in his closing submission that the claim for unjust enrichment is alternative to the claim for specific performance and proprietary estoppel, so that if this court either grants the plaintiff an order for specific performance, or makes a declaration in its favour based on proprietary estoppel, the plaintiff will not be entitled to recover the money paid to the 3rd defendant as there will not be any unjust enrichment. Given this concession by Mr Chong, in this Judgment I would deal with the issue of specific performance and proprietary estoppel first, for it may not be necessary for me to consider unjust enrichment depending on my judgment on the other 2 issues. 80.As the plaintiff has wholly abandoned its case on agency, the claims for damages are not pursued by the plaintiff at trial, and Mr Chong has made no submission thereon. In any event, no evidence of loss or damage has been adduced by the plaintiff and I would have no hesitation in dismissing the damages claims simply on the basis that the plaintiff has failed to prove the same. 81.As regards the 3rd defendant, I have already referred to certain parts of its pleadings above. The 3rd defendant denies the plaintiff’s claim and says that what it was agreeing to sell was only the Rights of Development (whatever that means). It has also pleaded a case of novation, as I have already mentioned above. In further defence to the plaintiff’s claim, the 3rd defendant raises an issue of illegality. It is pleaded (in paragraph 8A of D3’s Defence) by the 3rd defendant that when applying for consent to the DLO to remove the restrictions against alienation under Special Condition 6(d) of the New Grants, an express or implied representation must have been made to the Government that all conditions under the New Grants had been complied with. That representation must have been false in that if the plaintiff is correct in alleging that the 3rd defendant has agreed to sell Lot 2441 and Lot 2442 to the plaintiff, there must have been a breach of the restrictions against alienation under Special Condition 6(a) of the New Grants. The consent of the DLO was therefore procured by the making of misrepresentation which has the effect of tainting the contract between the plaintiff and the 3rd defendant, and since the parties are in pari delicto, the plaintiff is not entitled to recover any money paid to the 3rd defendant. 82.Finally, in the Reply, in answer to the 3rd defendant’s allegation of illegality, the plaintiff raised an issue based on Article 40 of the Basic Law. As I understand it, what Mr Chong seeks to argue is that Article 40 of the Basic Law, in providing that “[t]he lawful traditional rights and interests of the indigenous inhabitants of the New Territories shall be protected by the Hong Kong Special Administrative Region”, has secured the rights of indigenous villagers to build and erect small houses in the New Territories without subject to any discretion of or any condition imposed by the Government. It is argued that the traditional rights and interests if indigenous inhabitants of the New Territories include the unfettered right on the part of the indigenous villagers to build small houses without any restriction or condition. Hence it is argued that the restrictions against alienation embodied in Special Condition 6 of the New Grants in the present case are unconstitutional and void. For this reason, so Mr Chong argues, there was never any question of illegality in the first place. If Special Condition 6 is unconstitutional and void, the sale of Lot 2441 and 2442 before DLO’s consent was not in breach of any lawful restrictions imposed upon the indigenous villagers. There is therefore no question of illegality to start with. 83.I have pointed out at trial that there is no expert evidence before me as to what were the traditional rights and interests of indigenous villagers immediately before 1898: as pointed out by the Court of Final Appeal in Lai Tai Shing v Secretary for Home Affairs (2007) 10 HKCFAR 655 at 660F: “… the term ‘indigenous inhabitants’ has been commonly understood to refer to persons who in 1898 were residents of villages which existed in the New Territories at that time and to persons who are their male descendants”. 84.I would have thought that the Article 40 issue is a very important issue that requires careful consideration had it not that Mr Chong invites me not to give any substantive judgment on that issue if I should hold against Mr Ho on the issue of illegality on other grounds. He invited me, in that scenario, to simply make a passing reference by noting the Article 40 argument and not give a judgment on that issue. “That would leave the matter open for future argument so that neither party would be bound by an obiter judgment in the future”, according to Mr Chong. As regards my concern that there is no expert evidence before this court regarding the traditional or customary rights of indigenous inhabitants, Mr Chong’s response was that “this is an additional reason why [the plaintiff] invite [me] not to make a finding on Article 40 without expert evidence”. 85.To summarise, the issues that I need to resolve in this action are as follows:
THE WITNESSES AT TRIAL 86.3 witnesses gave oral evidence at trial: Guo, Ng and Kwok. Their oral evidence is relatively short. I have closely observed the demeanour of the witnesses in the witness box. I have already mentioned above my impression of Ng as a clumsy but generally honest witness. Despite my reservation in regard to some aspects of his evidence (namely those which I expressly reject in this Judgment), my overall impression of him as a witness has been favourable. Particularly I would make it clear that although I reject the 3rd defendant’s case that the bankruptcy of Lam Ma Hing was disclosed at the Meeting of 22-5-06, I am not holding that Ng was being dishonest with the court. I think it is more likely that Ng was simply confused about the time and the occasion when the problem of bankruptcy was raised. Overall I prefer Ng’s evidence to that of Guo, whom I think was a more calculating witness, and was not as forthcoming as Ng. I am however mindful that relying merely on my impression of the witnesses’ demeanour to assess the evidence can be dangerous. I have accordingly closely examined the contents of the witnesses’ evidence, and considered the oral testimony against the contemporaneous documents, as well as the inherent probabilities of things (having regard to the background circumstances) in assessing the evidence. I have already dealt with some of the disputes in the evidence in my outline of the relevant events above, and will have to deal with some others in the paragraphs below. A lot of the cross-examination of Guo and Ng is directed to eliciting evidence of the parties’ contractual intention, and I think some of the conflicts in the oral evidence in regard to the question of intention are more apparent than real – Guo and Ng were clearly describing their respective intention from their own perspective. At the end of the day, the issue of contractual intention is to be ascertained objectively and the evidence of witnesses on what they subjectively intended is of limited value. 87.As regards Kwok, I have no hesitation that he was an honest witness, although understandably he was somewhat on guard when questions were asked of him that touched upon the role of Tam & Partners in the transactions. Kwok clearly was very experienced in handling the legal documentations for small house transactions, and must have been keenly aware of the restrictions against alienation in the New Grants and that no sale or disposal of the Lots was allowed without DLO’s consent. He was very frank with the court when he said that in this case, as premium had not yet been paid, it was impossible for his firm (Tam & Partners) to have prepared a sale and purchase agreement or an assignment to transfer the land to the plaintiff – to do so would be to act against the code of conduct of solicitors (“咁如果我地做咗買賣協議咪違反咗嗰個律師守則”). He told me that that was the reason why none of the documents prepared by his firm for execution by the 1st and 2nd defendants were registered and that his firm could not even participate in the Letter of Intent by witnessing the document. I am impressed by Kwok’s evidence, and consider him to be a frank and honest witness. 88.As noted above, none of the other persons who are involved in the dealings concerning Lot 2441 and 2442 has given evidence at trial. Neither Lee, Hung, Li, Lam nor any one from Wan Nok has been called to give evidence. Coupled with the fact that the 1st and 2nd defendants are absent at trial, there is a paucity of evidence on various aspects of the case, particularly in relation to the dealings and/or transactions that had allegedly taken place prior to the Meeting of 22-5-06. I have, for example, no direct evidence at all of the dealings between the 1st and 2nd defendants and Wan Nok, what interest (if any) Wan Nok might have acquired from the 1st and 2nd defendants, and no one giving evidence at trial is able to shed light on the terms of the Development Agreements. As said, the lack of evidence in these regards has not helped in my overall assessment of the evidence in this case. There is much, I believe, that has not been revealed in the evidence at trial; and to help me resolve the issues in this case I have to resort (more heavily than in other cases) to inferences and burden of proof. THE CLAIM FOR SPECIFIC PERFORMANCE 89.I have no hesitation in rejecting this claim, for a number of reasons. No contract between the 1st and 2nd defendants and 3rd defendant 90.First – and this is fundamental – I do not think that the plaintiff has discharged its burden of proof in establishing that there was a contract existing between the 1st and 2nd defendants and the 3rd defendant for the sale of Lots 2441 and 2442, and it is this contract (if it exists) for which specific performance is sought. There is no evidence of the existence of such a contract. The 3rd defendant denies having any contract with the 1st and 2nd defendant, and as pointed out above, it is Ng’s evidence that the 1st and 2nd defendants were not known to the 3rd defendant. I have already held that I believe in Ng’s evidence in this regard. 91.As far as documentary evidence is concerned, there is nothing to indicate that there was ever any written contract between the 1st and 2nd defendants and the 3rd defendant. What has been suggested is that there exists a Development Agreement dated 30 April 1998 between Wan Nok and the 1st and 2nd defendant respectively. I have already pointed out that the Development Agreements have not been produced and Ng’s evidence (whose evidence in this regard again I believe) is that he has not actually seen the same. As neither the 1st and 2nd defendants nor anyone from Wan Nok has given evidence, there is scanty evidence of the contents of the Development Agreements, if they exist at all. The only evidence that suggests the existence of these Development Agreements is that the same were being referred to in 2 agreements signed between Wan Nok and the 3rd defendant, both dated 28 June 2006 (collectively as “the Agreements 28-6-06”). The Agreements 28‑6‑06 were signed between Wan Nok as “the Builder” and the 3rd defendant as “the Company”. The two agreements are on similar terms except that one deals with Lot 2441 and the 1st defendant and the other deals with Lot 2442 and the 2nd defendant. The recitals of the agreement that deals with Lot 2441 state as follows:
The recitals in the other agreement are exactly the same save that the reference to “Lot 2441” is replaced by “Lot 2442” and Lam Yat Hung (ie the 2nd defendant) is referred to as “the Owner”. 92.The recitals suggested on its face that the Development Agreements were made by the 1st and 2nd defendants and Wan Nok, whereby Wan Nok (as the Builder) was granted the “exclusive right to undertake and implement development of [Lot 2441 and Lot 2442, as the case may be] upon the terms and conditions therein contained”. As to what terms and conditions were contained in the Development Agreements, I have no idea and cannot speculate in the absence of evidence. 93.Apart from the recitals cited above, the Agreements 28‑6‑06 provide that upon signing of the same, Wan Nok (i) will procure the 1st and 2nd defendants to terminate the Development Agreements with Wan Nok to the intent that Wan Nok shall cease to have any exclusive right to develop Lots 2441 and 2442 (as the case may be) without any refund of payment or compensation from the 1st and 2nd defendants and (ii) will procure the 1st and 2nd defendants to enter into agreement(s) with the 3rd defendant upon terms as may be agreed between the 1st and 2nd defendants and the 3rd defendant to the intent that the 3rd defendant shall have exclusive right to develop Lot 2441 and 2442 (as the case may be). 94.Further, in each of the Agreements 28-6-06, it was expressly provided that in consideration of Wan Nok agreeing to terminate the said Development Agreements and to procure the 1st and 2nd defendants to enter into agreements in manner aforesaid, the 3rd defendant shall pay to Wan Nok a sum of HK$1,600,000, and that after receipt of the sum of HK$1,600,000 Wan Nok shall have no further interest whatsoever in Lots 2441 and 2442 or any development right whatsoever concerning Lots 2441 and 2442. 95.Mr Chong asked me to infer from the terms of the Agreements 28-6-06 that as Wan Nok had agreed to procure the 1st and 2nd defendants to enter into new agreements with the 3rd defendant, agreements must have been made between the 1st and 2nd defendants and the 3rd defendant for the sale of Lots 2441 and 2442 to the 3rd defendant. I do not think it is right for me to draw such an inference. The Agreements 28-6-06 were signed after the 3rd defendant had already completed its deal with the plaintiff on 15 June 2006, when the 1st and 2nd defendants had already attended the offices of the plaintiff’s solicitors to execute the Documents. Indeed the date of the Agreements 28-6-06 speaks for itself, and there is no evidence to suggest that the same was signed otherwise than on the date that the agreements bear. The Agreements 28-6-06 were, on their face, prepared by Edmond Cheung & Co and witnessed by it, and there is nothing to suggest that the date of the agreements was false. The 1st and 2nd defendants having already executed the Documents on 15 June 2006, the deal between the plaintiff and the 3rd defendant was already completed and the plaintiff had obtained all the signed documentations that its solicitors required for completing the deal. On the 3rd defendant’s part, on 15 June 2006 the 3rd defendant had already received full payment and there was no reason why the 3rd defendant would need to enter into any agreement with the 1st and 2nd defendants. I accept the evidence of Ng that the Agreements 28-6-06 were signed because Wan Nok wanted to have a signed agreement “for taxation purposes” only (as Wan Nok had in fact received a total payment of $3,200,000 from the 3rd defendant). Nothing further needed be done upon the signing of the Agreements 28-6-06, as everything that had to be done was already completed on 15 June 2006. As Ng rightly said, the terms of the Agreements 28-6-06 actually do not reflect reality. This is clearly shown by the fact prior to the signing of the Agreements 28-6-06, the consideration (being $1,600,000 in respect of each Lot) purportedly provided thereunder had already been fully paid (which is contrary to clause 2 of the agreements, which provides for such consideration to be paid upon signing); and the title deeds of the two Lots must have already been released to the 3rd defendant’s solicitors (contrary to clause 3 of the agreements, which provides for the title deeds to be released only after receipt by Wan Nok of the consideration money) or else Rene Hout would not have been able to furnish the same to Tam & Partners in May 2006. 96.In any event, even if one were to take the Agreements 28‑6‑06 on their face value without regard to Ng’s evidence of the circumstances that led to their signing, I do not feel able to draw the inference that Mr Chong invited me to draw. In terms, the Agreements 28-6-06 simply provide that Wan Nok will procure the 1st and 2nd defendants to enter into agreement(s) with the 3rd defendant “upon terms as may be agreed” between them “to the intent that the 3rd defendant shall have exclusive right to develop” Lots 2441 and 2442. This plainly contemplates that fresh terms would have to be negotiated and agreed, so that the 3rd defendant would acquire an “exclusive right of development”. There is absolutely no evidence of any such negotiation between the 1st and 2nd defendants and the 3rd defendant, and having regard to my finding that they do not know each other at all, it is quite impossible for me to infer that not only have they negotiated and reached agreement, but that the agreement reached by them was one for the sale and purchase of Lots 2441 and 2442. 97.Mr Chong submitted that Ng must be lying when he gave evidence that he had never seen the Development Agreements. Mr Chong submitted that as the Development Agreements are referred to in the recitals of the Agreements 28-6-06 – which are agreements signed between Wan Nok and the 3rd defendant – it is impossible that the 3rd defendant does not have possession of the Development Agreements, and impossible for Ng not to have seen them. I do not accept Mr Chong’s submission in this regard. As pointed out above, I accept Ng’s evidence that the Agreements 28-6-06 were merely signed for Wan Nok’s taxation purpose only, and were inconsequential at the time when they were signed. It is perfectly understandable that Ng did not care about what might have been included by Wan Nok’s solicitors in the recitals. 98.Mr Chong also invited me, based on the fact that Ng had been able to arrange the 1st and 2nd defendants to attend the offices of Tam & Partners to sign the Documents, to infer that there must have been an agreement between the 3rd defendant and the 1st and 2nd defendant. I have already found that that arrangement was in fact made by Lam (of Wan Nok), although it was Ng who requested Lam to do so. I do not think that I can infer from this that there was necessarily some contractual relationship between the 1st and 2nd defendants and the 3rd defendant, let alone to infer a contract for sale and purchase between them. No specific performance on a contract whose terms are unknown or uncertain 99.It is well-settled that the remedy for specific performance is discretionary. In considering whether to order specific performance, clearly one of the most important matters that the court has to consider is what exactly are the terms to be specifically performed. Even if, contrary to my holding, some contractual relationship is to be inferred to subsist between the 1st and 2nd defendants and the 3rd defendant, the plaintiff would still have a long way to go to persuade me to order specific performance without satisfying me what exactly are the terms of that putative contract. As the terms of that putative contract have not proved by the plaintiff, I would, in the exercise of discretion, refuse to order specific performance of the same. Interests of third parties 100.As pointed out above, on the evidence before this court, the various floors of the small house erected on Lot 2442 had been sold by the 2nd defendant to third parties through the purported agency of Li Fu Wing. The relevant sale and purchase agreement of the 2nd floor and roof of the small house was purportedly made on 2 February 2008, and the agreement was registered in the Land Registry on 21 February 2008, prior to commencement of this action (and the subsequent registration on 2 May 2008 of the Amended Writ of Summons as lis pendens). Although the other floors were purportedly sold to third parties after the registration of the present action as lis pendens, these third parties have not been made parties to the present action and I have not heard from them. I have no evidence before me as to whether these third parties are innocent purchasers for valuable consideration, or whether they had had notice of the plaintiff’s claim before entering into the relevant sale and purchases with Li Fu Wing, as purported attorney of the 2nd defendant. Li Fu Wing has not been joined as a party to the present action. 101.This court having apprised of the existence of possible third party interests, should be careful in ordering specific performance in the plaintiff’s favour. The third party’s interests may or may not rank prior to that of the plaintiff, and without hearing from the third parties, I cannot possibly decide that question. If third parties have already acquired prior interests in the relevant Lots, it would in my view be wrong to order specific performance. 102.In the circumstances of the present case, where the status of the third parties’ interests is uncertain, and the third parties not having been heard, I would, in respect of Lot 2442 at least, refuse to order specific performance in any event. Plaintiff cannot claim specific performance having accepted repudiation by 1st and 2nd defendants 103.It appears to me that by expressly pleading that it has elected to accept the 1st and 2nd defendant’s repudiation, the plaintiff has clearly shut its own door and disabled itself from making a claim for specific performance against the 1st and 2nd defendants. In my judgment, whether the plaintiff’s case is based on a direct contractual relationship with the 1st and 2nd defendants (in accordance with its primary case as pleaded), or based on the Ji Shan principle (in accordance with its alternative case), by electing to accept the 1st and 2nd defendant’s repudiation, it cannot be open to the plaintiff to seek specific performance against the 1st and 2nd defendants. It is trite law that by accepting repudiation, an innocent party is electing to treat the contract as having come to an end. Specific performance by a party of a contract which he has elected to treat as having come to an end is not permissible. He cannot both have his cake and eat it. 104.Mr Chong however argues that the plaintiff is not having its cake and eat it in that the contract in respect of which the plaintiff accepted repudiation (ie the Varied Agreement) is not the same as the contract which his client is now seeking specific performance (ie the alleged contract made between the 1st and 2nd defendants and the 3rd defendant). He argues that the acceptance of repudiation only relates to the Varied Agreement and the plaintiff is not prevented from seeking specific performance of the contract allegedly made between the 1st and 2nd defendants and the 3rd defendant, which is a different contract. 105.I have already held above that it has not been proved that there is a contract between the 1st and 2nd defendants and the 3rd defendant. However, for the purpose of considering the merits of Mr Chong’s argument in this regard, I shall assume, for discussion’s sake, that there is indeed such a contract. Even on that assumption, is Mr Chong’s argument right? 106.Mr Chong submits that his claim for specific performance is based on the Ji Shan principle, derived from the case of Ji Shan International Investment Ltd v Resources Main Enterprises & Another (supra). In that case, a head vendor contracted to sell a property to a first purchaser (“the head contract”). The first purchaser then contracted to sell the property to a sub-purchaser (“the sub-sale contract”). The first purchaser sought to “sabotage” the transactions as it would incur losses by completing the same. The sub-purchaser tried to save the head contract by offering to pay the balance of the purchase price in return for an assignment to itself. Although the head vendor refused the sub‑purchaser’s offer and insisted that it would only execute the assignment if the first purchaser joined in the assignment, it granted extensions of time to the first purchaser, thereby keeping the head contract alive and time was no longer of the essence. The Court of Final Appeal (allowing an appeal from the Court of Appeal) held that the sub-purchaser was entitled to step into the shoes of the first purchaser and obtained specific performance of the head contract. Although the first purchaser had acted in repudiatory breach of the head contract, the head vendor did not accept the repudiation and the head contract was kept alive. If the contract was kept alive, the sub-purchaser was entitled to enforce it as “[the first purchaser] was regarded in equity as having assigned its rights to [the sub-purchaser] and could not destroy what it had assigned simply by refusing to co-operate” (per Lord Hoffmann NPJ, at 381B). 107.In the Ji Shan case, there is no doubt (unlike the present case) as to the existence that the head contract and the sub-sale contract. Both contracts were alive at the time when the sub-purchaser was seeking specific performance. There was in that case no question of the head vendor committing any repudiation and no question of the sub-purchaser accepting the head vendor’s repudiation. The Ji Shan case is therefore quite different from the present case. 108.I find Mr Chong’s argument to be artificial in the extreme. 109.It must be remembered that the Varied Agreement is pleaded by the plaintiff as a contract made between the plaintiff and the 1st and 2nd defendants, and concluded through the alleged agency of the 3rd defendant. Now that the plaintiff has abandoned its case on agency, it is argued by the plaintiff that the Varied Agreement is a contract made between the plaintiff and the 3rd defendant direct. The plaintiff now wants to argue that because there is a head contract between the 1st and 2nd defendants and the 3rd defendant, the plaintiff, in its capacity now as the sub-purchaser under the Varied Agreement, can step into the shoes of the 3rd defendant to enforce the head contract between it and the 1st and 2nd defendants. 110.One should note the transformation of the status of the Varied Agreement in the plaintiff’s pleaded case and the argument that Mr Chong seeks to make now. In its pleaded case the Varied Agreement was made directly between the plaintiff and the 1st and the 2nd defendants (albeit through the agency of the 3rd defendant), and the plaintiff says that it has already come to an end. In Mr Chong’s argument now, the Varied Agreement (with the same terms) is said to subsist between the plaintiff and the 3rd defendant, and is still alive. And the irony is that the plaintiff wants to step into the shoes of the 3rd defendant to obtain specific performance against the 1st and 2nd defendants – the very same persons who, if they had contracted with the plaintiff direct (as in the plaintiff’s own pleaded case), the plaintiff would not have been able to obtain specific performance. 111.I do not think that such argument is right. In truth and in fact, the same purchaser has accepted the same conduct of the same vendor as being repudiatory. The legal consequence cannot be different merely because in the alternative case of the plaintiff, instead of being a direct purchaser it now claims as a sub-purchaser; and instead of claiming against the 1st and 2nd defendants as its direct vendors, it now claims against them as the head vendors. 112.The Ji Shan principle operates on the basis that the first purchaser is regarded in equity as having assigned its rights in the head contract to the sub-purchaser. What are the rights that are regarded as having been assigned in equity? Clearly the rights deemed to be assigned are the rights of the first purchaser to acquire the property from the head vendor. The rights are regarded as assigned in equity to the sub‑purchaser only because the sub-purchaser was buying the very same property under the sub-sale contract. By stepping into the shoes of the first purchaser, the sub-purchaser seeks to take the benefit of the equity to enforce the right to purchase the property from the head vendor. If the sub-purchaser has, vis-a-vis that head vendor, unequivocally indicated that he is not going to buy the property because of the head vendor’s conduct (which is what an acceptance of repudiation effectively amounts to), I find it difficult to see how he can be allowed to turn around and say that he wants specific performance nevertheless. 113.Equity does not permit a party praying its aid to blow hot and cold. In my judgment, this is precisely what the plaintiff is doing in asking this court to grant specific performance against the 1st and 2nd defendants after it has clearly elected to accept their repudiation. 114.I therefore hold, on this ground as well, that an order for specific performance should not be granted. THE NATURE OF THE TRANSACTION BETWEEN THE PLAINTIFF AND THE 3RD DEFENDANT 115.The above would have been sufficient to dispose of the plaintiff’s claim for specific performance. It is strictly not necessary for me to analyse the nature of the transaction between the plaintiff and the 3rd defendant, a matter which has taken up a lot of discussion at trial. However, as the matter has been canvassed at trial, and in deference to the submissions made to me by counsel, I would briefly state my views on the matter and the various questions that have been raised in connection with that matter. However, my views on the matter do not directly impact upon my decision on the plaintiff’s claim for specific performance, which is based on the reasons that I have given above. Was the Letter of Intent a binding contract? 116.As pointed out above, it is trite law that contractual intention is to be ascertained objectively. Evidence of the subjective intention of the parties is of limited value. 117.As regards the Letter of Intent, Guo gave evidence that it was intended to be a binding contract for the sale and purchase of the 3 Lots. On the other hand, Ng gave evidence that the Letter of Intent was not intended to be a binding contract. In his oral evidence, Ng insisted that the Letter of Intent was not an agreement, and the parties were still in negotiation. 118.I do not think that the Letter of Intent constituted a binding contract between the plaintiff and the 3rd defendant. The fact that the parties deliberately changed the title from Provisional Agreement for Sale and Purchase to Letter of Intent is itself a strong indication that they did not wish to bind themselves to a legally enforceable contract. They have made it clear in the Letter of Intent that they would enter into a Chinese contract for sale and purchase later (that of course is not conclusive in itself, for it is quite possible for the parties to agree to enter into a less detailed binding provisional agreement and agreeing to make a more detailed agreement later), and they have deliberately changed the description of initial deposit in the pro-forma document to call it “sincerity money” instead. All these changes, specifically made in handwriting, must have been made with a purpose. More importantly, the parties had specifically stated their intention that the document that they signed was to be valid for 14 days only. If they intended to create a binding contract for sale and purchase of the 3 Lots, it is difficult to see what reason there could be for limiting the contractual validity to 14 days. Clearly it was not because the parties wanted to make a binding contract for sale and purchase in the meantime and limit the time for completion to within 14 days. If they had intended that, they could have easily achieved that purpose by specifying a time for completion in the Letter of Intent instead of deleting the relevant clauses in the pro-forma document that deals with completion. If the parties had intended to make a simple contract for sale and purchase of land, and intended that the sale and purchase to be completed in the ordinary way, namely by the execution of an Assignment transferring the title to the land, it would have been very simple for the parties to have completed the pro-forma document providing for the signing of a formal sale and purchase agreement, the payment of further deposits, the completion date and the payment of the balance of the purchase price on the completion date. None of these was done. Instead the parties chose to delete those parts in the pro‑forma document that were originally designed for making such provisions. 119.The absence of completion date is a strong indicator that the parties did not want to make a binding contract for an ordinary sale and purchase of land. As Litton PJ observed in the case of Kwan Siu Man v Yaacov Ozer (1997-1998) 1 HKCFAR 343 at 355 C-E :
120.I have no hesitation in concluding that at the Meeting of 22‑5-06, the parties did not intend to conclude a legally binding agreement. They had a measure of agreement on some of the terms of the proposed deal, but they were not as yet ready to bind themselves to a contract. 121.This is in line with the evidence of Guo when he told me that the 3rd defendant was not prepared to let the plaintiff have sight of any documents at all without the plaintiff putting up some money first. I think what happened was that the plaintiff was not prepared at the meeting to decide whether to make a deal with the 3rd defendant, but it was prepared to put down a sum of “sincerity money” (being 10% of the price provisionally agreed by the parties, at $5,800,000) in exchange for the 3rd defendant agreeing to allow the plaintiff’s solicitors to have sight of the title documents. There was a gentleman understanding that if the plaintiff (after its solicitors had had the opportunity of looking at the title deeds) confirmed the proposed deal within 14 days, the price that they provisionally agreed at the meeting would be kept. This is, I think, the reason why the parties wrote on the document the words “this Letter of Intent is valid for 14 days”. 122.After the Meeting of 22-5-06 the plaintiff’s solicitors were furnished with the title documents. They also conducted a land search of the 3 Lots and discovered the problem of bankruptcy of Lam Ma Hing. The plaintiff decided to confirm the deal in respect of Lots 2441 and 2442, and postponed the completion of the deal for Lot 2443 to see if Lam Ma Hing could be discharged from bankruptcy in the next 6 months. In about early June 2006 Guo orally agreed with Ng to proceed to complete the deal for Lots 2441 and 2442 on 15 June 2006, and postponed the deal for Lot 2443. I have already set out my finding in this connection when discussing the circumstances of Lot 2443 above, and I will not repeat it again here. The parties did not in fact sign any agreement despite their indication they made in the Letter of Intent. 123.The fact that the Letter of Intent was, on my finding, not a binding contract necessarily means that it cannot be enforced in itself as a binding contract. However, in D3’s Defence, the 3rd defendant has pleaded that the Letter of Intent evidences the agreement between the plaintiff and the 3rd defendant. I have some doubt about this, but this being the pleading of the 3rd defendant, it is bound by it. I do not think that it matters whether the Letter of Intent evidences the agreement between the plaintiff and the 3rd defendant, given my construction of the Letter of Intent as explained above. Nature of the deal 124.So far I have been using the word “deal” or “proposed deal” to describe the transaction intended by the plaintiff and the 3rd defendant. What exactly did the parties intend to effect by way of their proposed transaction? 125.In my view, the key to understanding the nature of the deal intended by the parties is the restrictions against alienation, which the parties were, in my judgment, keenly aware of at the time when they negotiated their deal. The parties were aware that the Lots, being “small house land”, were subject to the restrictions against alienation, and the Lots could not be sold or transferred until the restrictions against alienation have been removed, but that would not be possible until after the small houses were constructed and consent of the DLO was obtained. In my judgment, although the parties might be talking loosely about the sale and purchase of the Lots, what they intended was to effect a deal whereby the purchaser would acquire what is sometimes called “the building right” or the “right of development” of small house land. The “right of development” or “building right” is, to put it simply, the right to develop the land by building the small house thereon in accordance with relevant land grant (or in some cases building licence issued by the Government), together with the authority from the registered owner to authorize the purchaser to dispose of or sell the house after obtaining DLO’s consent to remove the restrictions against alienation. 126.To avoid breaching the restrictions against alienation, the parties (i.e. the plaintiff and the 3rd defendant) clearly did not intend to effect a sale and purchase of the Lots in the ordinary sense. By ordinary sense I mean that it was not their intention that completion of their deal would be made by a transfer of the legal title of the land to be vested in the purchaser (the plaintiff). The parties knew full well that to do that would be to commit a flagrant act of breach of Special Condition 6, with the consequence of putting the Lots at risk to Government’s re-entry. 127.The intention of the parties is clearly manifested by the way they – and their legal advisers – handled the deal. I would, in this connection, mention the following:
128.For reasons above, I would construe the Letter of Intent, insofar as it purported to describe the “property” as “認購三間丁屋地” [Purchase three small house lots] the parties’ short form for saying “purchase the rights of development of 3 small house lots”. Plainly neither Guo nor Ng was lawyer, and it is understandable that they might talk loosely of sale and purchase of the small house lots when what they actually meant was to refer to the rights of development of the same. In any event, as pointed out above, the contractual intention of the parties are to be ascertained objectively, and the oral evidence of Guo and Ng of their subjective intention is of limited value. Insofar as any part of their oral evidence is inconsistent with my finding above, I reject them as being inconsistent with the objective circumstances upon which I based my finding of the contractual intention of the parties. 129.I would add, for the sake of completeness, that it is clear that the plaintiff and the 3rd defendant had agreed, in early June 2006, that the deal between them would be completed on 15 June 2006. That this was the day agreed for completion is plainly shown by the fact that on that day, after the 1st and 2nd defendants had executed the Documents, the plaintiff promptly paid the balance of the agreed price to the 3rd defendant. Full payment was made without requiring the 3rd defendant to give any undertaking to do anything for further completion of the deal. In particular, the plaintiff was not required to undertake, after it had obtained full payment, to further complete the deal by transferring the title of the land to the plaintiff. No warranties, undertaking, or other guarantees were required from the plaintiff before full payment was made. In my view, the parties clearly intended that the deal between them would be considered fully completed by the 3rd defendant procuring 1st and 2nd defendants to execute the Documents and the 3rd defendant making full payment of the agreed price. As Guo himself admitted in paragraph 6 of his witness statement dated 16 November 2009, the deal would only be considered completed upon the 1st and 2nd defendants’ executing the Documents and the plaintiff paying the balance of the agreed price. Both were performed on 15 June 2006 and the deal was completed on that date. 130.In this connection, I have no hesitation in rejecting Guo’s oral testimony in court when he alleged that the deal between the plaintiff and 3rd defendant was not completed on 15 June 2006 and that Ng had warranted to him that the 3rd defendant would complete the transaction by transferring the title of the Lots to the plaintiff. This plainly was not the case. It is difficult to believe, contrary to what Guo himself said in paragraph 6 of his 1st witness statement, that the plaintiff would have been prepared to make full payment to the 3rd defendant on 15 June 2006 if it was part of the bargain between them that the plaintiff would have such a significant outstanding obligation to discharge after 15 June 2006. If the plaintiff had warranted to procure the transfer of the legal title to the plaintiff after 15 June 2006, it is simply unbelievable that the plaintiff would be so ready to effect full payment in advance of the performance of that obligation, and without requiring the plaintiff to sign some form of undertaking to evidence the warranty allegedly given. 131.I hold that on 15 June 2006, the deal was duly completed and the 3rd defendant has fully performed its side of the bargain. There is no question of failure of consideration on the 3rd defendant’s part and for this reason I consider that the claim for “money had and received” and “unjust enrichment” made by the plaintiff as misconceived. 132.Finally, for the sake of completeness, I would add that, in my judgment, the 3rd defendant’s case of novation has no merits. I cannot see how the case of novation can begin to get off the ground when (i) on the 3rd defendant’s own case (and my finding as well), the 1st and 2nd defendants were not known to the 3rd defendant at all; (ii) the terms of the Development Agreements were not known to the plaintiff, nor to the 3rd defendant itself; and (iii) there is no evidence to establish the necessary consensus ad idem amongst all the parties (namely, the 1st and 2nd defendants, Wan Nok and the 3rd defendant) to the alleged novation. It is difficult to see how there can be a novation between parties who are not known to each other, and for them to purport to agree to novate contracts the terms of which are unknown (at least to some of them) seems to me to be quite impossible. 133.I recognise that my views above on the true nature of the deal have not been pleaded in the parties’ pleadings. As pointed out above, these views do not directly impact upon my decision on the claim for specific performance, which is based on the reasons that I have explained above. The views that I take of the true nature of the deal between the plaintiff and the 3rd defendant is based on the evidence before me, and has been repeatedly pointed out, the question as to what had been agreed is a question of mixed fact and law, and may not be precisely those advanced by the parties. I do not think that in the circumstances of this case I am constrained by the pleadings (which I consider to be unsatisfactory and confusing) to make findings (on what was the true nature of the deal) that do not, in my judgment, reflect reality. In this connection I bear in mind that the ultimate principle is that the trial must be fair. I do not consider that the views that I take on the true nature of the deal would result in any unfairness to either the plaintiff or the 3rd defendant. In this connection, I bear in mind what Mortimer NPJ said in Mak Kan Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552, at §§104-107:
PROPRIETARY ESTOPPEL 134.There are, broadly speaking, two species of proprietary estoppel. Ramsden v Dyson (1866) LR 1 HL 129 is of course the locus classicus for the doctrine of proprietary estoppel, and the principles for the 2 species of proprietary estoppel can be found in the judgments of Lord Kingsdown at 170 (in a dissenting speech which has been accepted as authoritative: see, Tong Tim Nui and others v Hong Kong Housing Authority [1999] 4 HKC 466 at 480C-D) and Lord Cranworth at 140‑141 respectively. 135.Lord Kingsdown’s formulation of the principle is as follows:
This principle, which is grounded upon the promise or expectation made or created by the landowner, enshrines the doctrine for a species of proprietary estoppel which I will refer to as “proprietary estoppel by representation”. 136.Lord Cransworth’s formulation, on the other hand, enshrines the doctrine for a species of proprietary estoppel created by the landowner standing by when a stranger expends money on his land, which I will refer to as “proprietary estoppel by standing by”:
137.As regards the principle of proprietary estoppel by representation, I have no doubt that the same applies to the present case. As rightly submitted by Mr Chong, for this specie of proprietary estoppel to arise, it must be established that:
138.The 1st and 2nd defendants are the registered owners of Lots 2441 and 2442. In my view, by attending the offices of Tam & Partners to execute the Documents prepared by the plaintiff’s solicitors, they have clearly created or encouraged an expectation on the part of the plaintiff that it would acquire an interest in the small houses to be erected by the plaintiff on the two Lots. The whole purpose of signing the General Power of Attorney, the Will, and the letters to the DLO was to facilitate the plaintiff’s construction of the small houses, the making of applications to DLO for removal of the restrictions against alienation, and the disposal of the houses built on their land for profits. Plainly the plaintiff was led to the belief that by expending money on developing the Lots, they would acquire an interest in the houses that they build on the Land. 139.There is uncontradicted evidence before me that the plaintiff has expended money in the development of the Lots 2441 and 2442 including:
140.These expenditures would not have been expended by the plaintiff if it was not under an expectation that it would acquire an interest in the small houses built by them. In my judgment, the plaintiff has clearly established proprietary estoppel (by representation) against the 1st and 2nd defendants. 141.As regards proprietary estoppel by standing by, the plaintiff is, arguably, on less solid grounds. Lord Cransworth’s formulation requires, inter alia, the land owner to have perceived the mistake of the stranger who expends money on the land, and “abstain from setting him right and leave him to persevere in his error”. In the case of Willmott v Barber (1880) 14 Ch D 96, Fry J formulated what are sometimes called the “Five Probandas” that provide a good starting point for considering a proprietary estoppel of this kind (see, Tong Tim Nui and others v Hong Kong Housing Authority, supra, per Rogers JA at 495H-I). At p 105‑106 of his judgment, Fry J expounded the test as follows:
142.It is not clear that all five probandas as formulated under Fry J’s test are fully satisfied in this case. While I have little doubt that the first, second, fourth and fifth probandas are satisfied, I am not as sure with regard to the third probanda – in other words, I have doubts that on the present evidence, the plaintiff has successfully proved that the 1st and 2nd defendants must have known of their own rights which were inconsistent with the right claimed by the plaintiff. 143.I do not, however, consider that the five probandas of Fry J constitute a straightjacket of equity’s jurisdiction (despite Fry J’s remark that “nothing short of this will do”) in providing remedies against unconscionable conduct. As Oliver J observed in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133n, at 151H:
144.Similarly, in the case of Andrews v Colonial Mutual Life Assurances Society Ltd [1982] 2 NZLR 566, Barker J sitting in the High Court of New Zealand, held as follows:
145.In the present case, I am satisfied that even if the plaintiff cannot demonstrate that all five probandas under Fry J’s test have been fully met, it would be unconscionable for the 1st and 2nd defendants now to take advantage of the expenditure incurred by the plaintiff on the development of the small houses, they having stood by and raised no objection to the construction of the small houses. That is so whether or not the 1st and 2nd defendants were aware that their own right was inconsistent with the right claimed by the plaintiff. The unconscionableness is further aggravated by the 2nd defendant appointing the plaintiff’s contractor as his attorney to sell the small house erected on Lot 2442, and the making the statutory declaration that he has lost the title deeds, the contents of which is plainly false. 146.The question remains as to what order I should make. In considering that question, I bear in mind the comment made by Robert Walker LJ in the case of Yaxley v Gotts [1999] 3 WLR 1217 at 1226‑1227 as follows:
147.I am prepared to make a declaration, as sought by Mr Chong, that the 1st and 2nd defendants are respectively estopped from asserting their proprietary right over Lot 2441 and Lot 2442 and the small house erected thereon against the plaintiff. 148.For the avoidance of doubt, the estoppel declared in the preceding paragraph operates against the 1st and 2nd defendants only without prejudice to the rights of any third party who may claim an interest in Lots 2441 and 2442. 149.Mr Chong also asks me make an order directing the 1st and 2nd defendants to assign their legal title in Lots 2441 and 2442 to the plaintiff, and upon default to direct the Registrar of the High Court to authorize the execution of all necessary documents to effect the transfer of legal title to the plaintiff. 150.I have already mentioned my concern about third party interests in this case. It is clearly known that there are possible third parties’ interests for Lot 2442, and those third parties have not been joined or heard in this action. As to Lot 2441, although no third parties’ interests have been disclosed on the present evidence, there has not been any investigation carried out to ascertain if in fact any third party interests exist. In these circumstances, I do not think that it is appropriate for me to make an order at this stage to transfer the legal title of the 1st and 2nd defendants to the plaintiff, without first ascertaining the extent and priorities of third party interests. However, I will give the plaintiff liberty to apply for further orders and reliefs consequential to the court’s declaration of proprietary estoppel. ILLEGALITY 151.In raising the issue of illegality, the 3rd defendant’s case as pleaded in D3’s Defence is limited to alleging that there had been breach of Special Condition 6 of the New Grants, and that in obtaining the Certificates of Compliance and the consent of the DLO to remove the restrictions against alienation, an false representation must have been made to the Government that all conditions of the New Grants have been complied with. 152.At trial, however, Mr Ho for the 3rd defendant sought to adopt a different tact in arguing the issue of illegality. Rather than confining his arguments on alleged misrepresentation at the stage when Certificates of Compliance and DLO’s consent for removal of the restrictions against alienation were applied for, Mr Ho sought to argue that there was a misrepresentation made to the Government at a much earlier stage, namely at the stage when the New Grants were applied for and subsequently obtained by the 1st and 2nd defendants. It was argued that at the time when the 1st and 2nd defendants applied for the New Grants, they must have made a representation to the Government that they were the sole owners of Lots 2441 and 2442 respectively, and that representation must, according to Mr Ho, be false. Accordingly, the New Grants were obtained by the 1st and 2nd defendants by fraudulent misrepresentation and therefore illegally. The Original/Varied Agreement (as alleged by the plaintiff) was tainted with illegality and, relying on my Judgment in the case of Tiu Sum Fat (supra), it is argued by Mr Ho that the plaintiff cannot recover against the 3rd defendant as the parties are in pari delicto. 153.This new argument, in my judgment, is simply not open to Mr Ho to make. No misrepresentation has been pleaded in D3’s Defence in regard to the application for the New Grants, and nothing in the 3rd defendant’s pleadings suggests that the New Grants were obtained illegally in the first place. It would be most unfair to the plaintiff to allow Mr Ho to make this argument without proper pleading. As rightly submitted by Mr Chong, if this new point had been pleaded, the plaintiff might have prepared its evidence differently. For example, the plaintiff might have adduced evidence (if necessary by calling relevant officers of the DLO) on whether there was any need to make statutory declarations to the DLO at the time when the New Grants were applied for; whether in fact any representation was made by the 1st and 2nd defendants as to their ownership of the Lots in question; and indeed whether any such representation, if they had been made, was false at all. 154.In any event, Mr Ho’s new argument is not supported by proper evidence. On the evidence presently before me, there is nothing to show that the 1st and 2nd defendants had made any representation, let alone false representation, to the Government when they applied for the New Grants. No statutory declaration made by them has been produced by the 3rd defendant. The alleged representation is nothing but speculation. 155.More importantly, even assuming that the 1st and 2nd defendants had made a representation to the Government that they were, respectively, the sole owners of Lots 2441 and 2442, there is nothing to show that such a representation was false. On the face of the land registry records, in May 1993 the 1st and 2nd defendants acquired Lots 2276 s A and 2276 s B respectively from Wan Nok at a consideration of $250,000 (it may be remembered that under the New Grants, Lot 2276 s A and Lot 2276 s B were surrendered to the Government in exchange for Lots 2441 and 2442). In each case, there was an Assignment dated 1 May 1993 executed by Wan Nok in favour of the 1st and 2nd defendants, in which the consideration of $250,000 was stated to have been duly paid by the purchaser. The fact that Wan Nok subsequently entered into the Development Agreements with the 1st and 2nd defendants (as referred to earlier in this Judgment) might seem suspicious, but mere suspicion is plainly not enough to prove that the consideration stated in the Assignment as having been paid was not in fact paid; nor is it enough to prove that the 1st and 2nd defendants were not the true owners of Lots 2276 s A and s B respectively. It certainly takes more than mere suspicion to establish fraud. 156.Accordingly, I have no hesitation in rejecting the new argument made by Mr Ho in his closing submission (which argument is not open to him to make in the first place). 157.As to the pleaded case of illegality, in my view there are equally no merits to it. I shall assume, for the sake of simplifying the discussion, that there was a breach of Special Condition 6, as submitted by Mr Ho. Even assuming that there was such breach, the 3rd defendant’s case on illegality has no merits. 158.There is simply no evidence to show that in applying for and obtaining the Certificates of Compliance and the consent to remove the restrictions against alienation, there is any requirement for a representation to be made to the DLO that Special Condition 6 has not been breached. Nor is there evidence of any such representation having been made as a matter of fact. 159.Indeed the Certificate of Compliance itself shows that all that is required for the Certificate to be issued is that the DLO has to be satisfied that all the positive obligations imposed on the Grantee have been complied with. There is no need, on the face of the Certificate of Compliance, for the Grantee to show that he has not committed a breach against the restriction on alienation. This being the case, it is difficult to see why any representation would have been made to the Government that Special Condition 6 had not been breached. 160.It is trite law that mere non-disclosure, in the absence of a duty to disclose (such as that in the case of a contract uberrimae fedei), does not amount to misrepresentation: see Johnson v Nobbs (unreported), UK Court of Appeal, 9 March 1983, and HKSAR v Chan Wai Yip (unreported) HCMA 449/2008, 1 April 2010. 161.In the absence of any evidence of misrepresentation made to the Government, Mr Ho’s argument on illegality cannot get off the ground. A mere breach of the conditions of the New Grants would not have been sufficient to result in illegality. As pointed out by Chan CJHC (as he then was) in Li Pui Wan v Wong Mei Yin (supra) at 90A-B:
162.For reasons above, I have no hesitation in rejecting the 3rd defendant’s submission on illegality. ARTICLE 40 OF THE BASIC LAW 163.As pointed out above, Mr Chong asked me not to make any substantive judgment on the issue of Article 40 of the Basic Law if I hold against the 3rd defendant on the issue of illegality. As the point on Article 40 was raised by Mr Chong only for the purpose of answering the issue of illegality raised by the 3rd defendant, I agree with Mr Chong that it is not necessary for me to decide on the Article 40 point (which raises some questions of fundamental constitutional importance) substantively. Indeed I have great reluctance in deciding a point of such fundamental importance in this case, as I consider that the point requires expert evidence on the traditional or customary rights and interests enjoyed by indigenous inhabitants immediately before 1898 to be properly resolved, and such expert evidence is totally lacking in the present case. UNJUST ENRICHMENT 164.Mr Chong has indicated to me that the plaintiff’s claim against the 3rd defendant based on unjust enrichment is alternative to its claim for proprietary estoppel. He concedes that if I hold in the plaintiff’s favour on the claim for proprietary estoppel, then “…the unjustly enriched money would merge into [the plaintiff’s] interest in land…. [the plaintiff] will not be able to get unjust enrichment against [the 3rd defendant]”. 165.In any event I would have no hesitation in rejecting the plaintiff’s claim for unjust enrichment. As I have pointed out above, in my judgment there is no question of any failure of consideration to ground a claim for “money had and received”. Having fully paid Wan Nok and procuring the 1st and 2nd defendants to execute the Documents required by the plaintiff, the 3rd defendant had duly performed its side of the bargain on 15 June 2006 and there is no question of its having been unjustly enriched. I would hence in any event refuse the plaintiff’s claim for money had and received whether or not I find in its favour on proprietary estoppel. ORDER 166.For reasons above, all the claims made by the plaintiff against the 3rd defendant are dismissed. 167.As against the 1st and 2nd defendants, as indicated above, I make a declaration that the 1st and 2nd defendants are respectively estopped from asserting their proprietary right over Lot 2441 and Lot 2442 and the small house erected thereon against the plaintiff. I give the plaintiff liberty to apply for further orders and reliefs consequential to my finding in its favour on the issue of proprietary estoppel. COSTS 168.Although the 3rd defendant has succeeded in dismissing the plaintiff’s claims against it, it has completely failed on the issue of illegality. Moreover, as indicated above, its pleadings are most unsatisfactory and considerable time was spent at trial on arguments over the 3rd defendant’s pleadings, which would not have been required if the 3rd defendant has pleaded its case properly. In ordering costs, I have had regard to the time spent on the issue of illegality and the 3rd defendant’s pleadings. I would make a costs order nisi as follows:
169.I thank counsel for their assistance in this case.
Mr K M Chong, Mr Aidan Tam and Mr Lester Lee, instructed by Peter WK Lo & Co, for the Plaintiff 1st and 2nd Defendants were not represented and did not appear Mr Tommy Ho, instructed by Kevin Li & Co, for the 3rd Defendant | |||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 409/2008