Kwai Tak Ming v KS Capital One Ltd
Court of Appeal
Civil Appeal No. 132 of 2016
Lam V-P, Cheung JA and Godfrey Lam J
12 June 2017

Nature of transaction – whether outright sale of interest in premises or in nature of secured bridging loan – characterisation of transaction matter of law not fact – specific performance sought by way of counterclaim on basis transaction was outright sale – as judge held it was not outright sale, specific performance rightly refused – whether transaction void for uncertainty (due to integral buy-back element not yet agreed upon) or in truth loan transaction – first instance judgment on claim for rescission based on misrepresentation affirmed

On their face, the agreements which they signed were for the sale by P of his interest in shop premises to D1. P refused to complete. He sued for rescission and damages. D1 counterclaimed for specific performance. Holding that the transaction was not an outright sale but was instead in the nature of a secured bridging loan and that P had entered into the agreements as a result of misrepresentations, the Judge dismissed the counterclaim and gave judgment for P on the claim, declaring that P was entitled to rescind and had rescinded the agreements. Costs were awarded to P. D1 appealed.

Held, dismissing the appeal, that:

(Per Lam V-P, Cheung JA agreeing)

  • Since there was a dispute as to the nature of the transaction, the Court had to – and the Judge was right to – resolve that issue before examining other issues.
  • The characterisation of a transaction was ultimately an issue of law. But the resolution might involve some findings of fact. There was scope for actionable representations of opinion presently held in that regard.
  • On the evidence, the Judge’s holding that the transaction was not an outright sale should be upheld.
  • The Judge was therefore correct to refuse relief on the counterclaim which was put forward on the basis of an outright sale. It did not matter whether the transaction was held to be void for uncertainty (due to the integral buy-back element not yet having been agreed upon) or was held to be in truth a loan transaction.
  • None of D1’s additional points was a real obstacle to the Judge’s holding that the true nature of the transaction was that of a secured bridging loan.
  • The Judge was right to dismiss the counterclaim.
  • On the evidence, the Judge’s decision on misrepresentation, which was the basis on which he gave judgment for P on the claim, should be affirmed.
  • There was no basis on which to interfere with the Judge’s findings on valuation.

(Per Godfrey Lam J)

  • It was unnecessary to decide whether the transaction should be characterised in law as a sale coupled with an option to repurchase or as a loan secured by a mortgage. Whatever the correct legal classification of the transaction, it was plainly very different from a sale and purchase simpliciter.
  • The main ground advanced on the appeal was that the Judge had misunderstood P’s case and had given judgment for him on a false premise. That ground was to be rejected. But if necessary, the Court of Appeal could make express findings on P’s case on misrepresentation, which was implicit in the Judge’s judgment, and affirm the Judge’s conclusion on that basis.

(Per Lam V-P, Cheung JA and Godfrey Lam J agreeing)

  • The submissions made on D1’s behalf in the appeal on costs failed to have regard to the position on costs adopted by the parties before the Judge, namely that costs should follow the event.

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