LAM HUNG v. LAU TIN SHEUNG

DCCJ 4107/ 2018

[2020] HKDC 12

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4107 OF 2018

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DECISION

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Introduction

1.  Each of Mr Lam, the plaintiff, and Mr Lau, the defendant, has an application for my determination. First, Mr Lam by his summons dated 30 April 2019 (“the Judgment Summons”) applies for judgment on admission pursuant to Order 27 rule 3 of the Rules of the District Court, Cap. 336H (“RDC”) and, alternatively, summary judgment pursuant to Order 14 of the RDC.

2.  On the other hand, Mr Lau by his summons dated 11 July 2019 (“the Amendment Summons”) seeks leave to amend his Defence.

3.  This action is just one of those many cases concerning the beneficial ownership of a small house, commonly known as Ting house. The subject property is known as Ground Floor, 184 Yau Ma Hom Road, Kwai Chung, New Territories (“the Unit”). It is part of a 3-storey Ting house (“the House”). It is built on Lot No. 1176, DD No.450, New Territories (“the Lot”) and its construction was completed in 1981.

The background facts

4.  The following matters are evidenced by documentary evidence not in dispute.

5.  By way of background, Mr Lau acquired a Private Treaty Grant from the Government for the lease of the Lot pursuant to his small house concessionary right. It is common ground that Mr Lam, a small house contractor, financed the construction of the House. Mr Lam alleges that the total construction costs amounted to about HK$190,000 (“the Construction Costs”).

6.  On 6 June 1979, a New Grant Number 5666 (“the New Grant”) was granted to Mr Lau whereby the House was assigned to him. As a special condition, Mr Lau was required to pay to the Government an amount of HK$28,000 being the premium (“the Premium”). It is not in dispute that the Premium was indeed paid to the District Lands Office (“the DL Office”).

7.  As with all other similar grants, the New Grant contains certain restrictions on alienation: Clause 4 of the special conditions. These restrictions could be removed upon payment of a modification premium.

8.  There is a written Chinese document dated 28 July 1979 signed by the parties (“the Chinese Agreement”). It was, among other matters, agreed that any modification premium should be paid by Mr Lau and Mr Lam in the following ratio. Mr Lau is to pay to 2/3 and the remaining 1/3 is to be paid by Mr Lam. It was provided expressly that after the completion of construction of the House and the payment of the modification premium, Mr Lau shall unconditionally assign the Unit to Mr Lam and all expenses arising from the assignment should be borne by Mr Lam.

9.  On 26 June 1986, Mr Lau instructed his former solicitors Messrs Liau & Ho (“LH”) to apply to the DL Office for the removal of the alienation restrictions by their letter of the even date. In that letter, Mr Lau indicated his intention to transfer the Unit to Mr Lam.

10.  By its reply letter dated 17 November 1986, the DL Office informed Mr Lau that a modification premium of HK$368,500 (“the Modification Premium”) subject to adjustments in accordance with prevailing market value and an administrative fee of $500 would be charged by the Government for his intended application for modification. 

11.  It should be noted that Mr Lau now denies any knowledge of the contents of the said two letters. He says he never instructed LH to make the application on his behalf.

12.  Mr Lau executed a will dated 19 February 1987 (“the Will”) whereby he bequeathed the legal interest of the Unit to Mr Lam absolutely upon his death subject to the payment of his funeral and testamentary expenses, or estate duty, just debts, and any premium payable to the Government.

13.  Up till now, no Modification Premium has been paid. According to an assertion made by Mr Lau’s current solicitors Messrs. Leung Kin & Co (“LK”) in their letter dated 10 August 2018 (“the 10/8 Letter”), the Modification Premium then stood at HK$6 million. It follows that Mr Lam has to pay HK$2 million and Mr Lau HK$4 million for an application to remove the restrictions on alienation.

Mr Lam’s grounds for judgment on admission

14.  For his application for judgment on admission, Mr Lam relies on paragraphs 7a, 21 and 25 of the Defence. It is noteworthy that Mr Lam merely seeks a final judgment on his claim for the declaration to the effect that the Unit is held on trust by Mr Lau for him absolutely.

15.  In paragraph 7a, Mr Lau admits the contents of the Chinese Agreement. He further avers that in the 10/8 Letter, he admits that Mr Lam is the beneficial owner of the Unit and the assignment of the legal title of the Unit is subject to the provision of the New Grant.

16.  In paragraph 21, the 10/8 Letter was referred to again and its contents including the said admission were repeated.

17.  In paragraph 25, Mr Lau once admits that Mr Lam is the beneficial owner of the Unit and he is holding the Unit on behalf of Mr Lam. Mr Lau highlights that such an admission was made in the 10/8 Letter. He further admits that Mr Lam paid the Construction Costs though he has no idea of the quantum. He avers that he paid the Premium by the loan advanced to him by Mr Lam and he has already repaid Mr Lam a few years after the House was constructed.   

18.  Mr Lam relies on the doctrine of resulting trust in his claim for beneficial interest in the Unit by reason of his payment of the Premium and the Construction Costs. Mr Chen, counsel for Mr Lam, refers to Lau Kwai Kiu v Bian Xintian [2012] 2 HKLRD 954. There, the Court of Appeal upheld the finding of the trial judge that the plaintiff who had paid the premium and the construction costs was the beneficial owner of the property in question pursuant to a common intention constructive trust and/or resulting trust. Mr Chen submits that, by the same token, it is a clear case of resulting trust and Mr Lau actually accepts this.

19.  In his pleading, Mr Lau does not accept that Mr Lam paid the Premium but this is irrelevant to the application for judgment on admission. He does make an unequivocal admission to the beneficial interest of Mr Lam in the Unit.

20.  I cannot take a blinker approach and look at the three paragraphs of the Defence alone. I take note of his other contentions in the Defence including that the date of the payment of the Modification Premium to the Government was not specified in the Chinese Agreement and after the creation of the Chinese Agreement, that the parties orally agreed that the Will should be executed to avoid payment of the Modification Premium.

21.  Mr Lau also avers that it was agreed that during his lifetime he was not required to apply to the Government to remove the restrictions on alienation and pay the requisite Modification Premium. By the Will, upon his death, the Unit would be bequeathed to Mr Lam and no Modification Premium would be payable then.        

22.  Mr Lam further avers that Mr Lam has been using the Unit as a storeroom and office exclusively ever since the completion of the construction of the House.

Analysis

23.  It is abundantly clear that the real controversy between the parties is not the beneficial ownership of the Unit. Mr Lau consistently accepts that Mr Lam is the beneficial owner of the Unit and he merely holds the same on trust for him. The admission was made in the 10/8 Letter, the Defence and indeed Mr Lau’s affirmation in opposition filed herein on 15 May 2019.

24.  Mr Chen submits that before the commencement of this action, Mr Lau retracted his admission to Mr Lam’s beneficial interest in the Unit. He refers to a pre-action letter of LK dated 24 August 2018.

25.  I can discern no retraction in that letter. It was a letter in reply to the letter of Mr Lam’s current solicitors Messrs. Carol Lam & Co. (“CL”) dated 14 August 2018. There, CL indicated that they welcomed the admission in the 10/8 Letter and asked Mr Lau to contact the DL Office to ascertain the amount of the Modification Premium payable without delay. The letter of LK merely stated that they had no instruction to reply to the said letter.

26.  Thus, throughout Mr Lau maintains the same position in regard to the beneficial ownership of Mr Lam.

27.  It is trite that a declaration is a discretionary remedy and the courts do not grant declaratory relief on theoretical or hypothetical issues. A claim for a declaration of right is most hypothetical when that right is not disputed by the defendant, see: Zamir & Woolf, The Declaratory Judgment (4^th Edn. 2011), para. 4-60.    

28.  Mr Chen submits that even at the present stage, Mr Lau, in his eighties, does not deny the beneficial interest of Mr Lam in his lifetime, his successor(s) may do so after his death and hence the declaration sought serves a practical purpose.

29.  I cannot accept his submission. This fear of future disputes has long been rejected as a valid ground for declaratory relief.

30.  Re Barnato [1949] Ch.21 is a case in point. There, the trustees were vested a fund by a testator whose daughter was made the tenant for life of the fund. They wanted to apply the fund to make an advancement to a child of the daughter with her consent but they feared that estate duty might be chargeable on the advancement if the daughter passed away within five years after the advancement was made. The solicitor of Inland Revenue did write to the trustees to state his position on this scenario. They confirmed that estate duty would be levied on the advancement in such an event. The trustees hence commenced an action and asked the court to determine this question. The Commissioners of Inland Revenue successfully struck out the claim. Lord Greene held that the question raised was purely hypothetical and so not proper for a declaration. He had this to say,

“The Crown has made no claim, for the very simple reason that it is not entitled to make a claim. It will be entitled to make some claim, it may be it will think itself entitled to make a claim in the event of the tenant for life dying before the expiration of five years, but the fact that they have expressed an opinion does not, in my opinion, amounts to the same thing as is present in such cases as we have been referred to where an instant claim by the Crown was concerned.”

31.  Mr Lam does very sensibly not seek judgment on admission in respect of the relief that Mr Lau do execute all documents necessary for the transfer of the legal interest in the Unit to him. This is indeed the real dispute between the parties whilst Mr Lam’s beneficial ownership of the Unit has never been called into question.

32.  Mr Chen tries to convince this court of the utility of the declaration sought. He submits that such a declaration is binding on all people and not just Mr Lau. Indeed, it sounds like the real reason for this application. Equipped with the declaration, Mr Lam may conveniently assert his legal interest in the Unit to all others without any payment of the Modification Premium to the Government and before the alienation restrictions have been removed. This, however, cannot a legitimate purpose of a declaration when there is no genuine dispute between the parties. Also this court is wary of opening the floodgates to parties to similar Ting house agreements to apply for declarations by consent and avoid making applications for removal of the alienation restrictions.

33.  In the circumstances, despite the clear admissions in the Defence, I refuse to accede to the judgment on admission application and grant the declaration sought.

Mr Lam’s grounds for summary judgment

34.  Mr Lam seeks both the same declaration and the consequential order that Mr Lau to execute all documents necessary for the transfer of the legal interest in the Unit to Mr Lam.

35.  The pleaded case of Mr Lam is that the parties first entered into an oral agreement in early 1979 which contained his similar terms with those of the Chinese Agreement. He says that the latter evidenced the former.

36.  Mr Chen makes it clear that the legal basis of the claim of Mr Lam for the beneficial interest in the Units is resulting trust in light of his financial contribution and he disavows any reliance on the oral agreement and the Chinese Agreement. Therefore, he submits that no issue of illegality should arise in the plea of resulting trust.

37.  The pleaded case includes a reference to the Will too but nothing further is said about it.

38.  In regard to the allegation of the Will, Mr Lam says in his Reply that it was created pursuant to the suggestion of LH only as an alternative after the parties have been informed of the amount of the Modification Premium payable. He further avers that the Will is not a solution because it can be revoked prior to the death of Mr Lau and since the parties are of similar age, there is every possibility that Mr Lau may outlive Mr Lam. Then the testamentary gift will fail.

39.  The supporting affirmation of Mr Lam makes no reference to the Modification Premium now payable and his willingness to pay his share to remove the alienation restrictions in the New Grant before Mr Lau can validly assign the legal title to the Unit to him.

40.  In his reply affirmation, Mr Lau confirms his admission that Mr Lam is the beneficial owner of the Unit. He even contends that it is absolutely unnecessary for Mr Lam to make a claim in these proceedings that the Unit is held on trust by Mr Lau for him. He reiterates his position that there was another oral agreement reached by the parties in the wake of the Chinese Agreement. The parties agreed that to avoid the payment of the Modification Payment, no application would be made to the DL Office to remove the restrictions on alienation. The Will was then executed and has long been kept by Mr Lam.

41.  I note that there is no mention about any repayment of the alleged loan of HK$28,000 to Mr Lam. In other words, the pleaded case of Mr Lau that it was he who actually paid the Premium is not supported by his own evidence.

42.  On the evidence, it is clear that Mr Lam paid both the Premium and the Construction Costs. By these payments, he is entitled to certain beneficial interest in the House by virtue of resulting trust. However, he is now happy with the beneficial ownership of the Unit only and not the entire House or any other parts of it. It is apparent that his claim for the beneficial interest in the Unit is also based upon his agreement with Mr Lau that he is entitled to the Unit only.

43.  In my view, there is a triable issue as to whether the alleged oral agreement was made to dispense with the need to pay the Modification Premium in the lifetime of Mr Lau to the advantage of both parties and Mr Lau shall upon his death bequeath the Unit to Mr Lam by virtue of the Will. The possession of the Unit and the fact that Mr Lam did not ask for a transfer for the past three decades lend credence to the alleged oral agreement. This allegation is not incapable of belief and cannot be dismissed on paper.

44.  The fact that the alleged oral agreement is not ideal in that it fails to cover the possibility of Mr Lau surviving Mr Lam does not per se negative its existence. A supplemental agreement could be made by the parties to take care of that scenario.

45.  In any event, Mr Lam for the reason given above should not be entitled to the declaration sought. As the pleading now stands, Mr Lam is not entitled to an order to compel Mr Lau to execute any transfer document to assign the Unit to him pursuant to the terms of the Judgment Summons before the DL Office agrees to remove the restrictions on alienation upon payment of the Modification Premium by both Mr Lau and him. Mr Lam cannot now jump the gun, so to speak.

46.  Now I turn to the Amendment Summons. In the Defence, Mr Lau complains about a basement constructed by Mr Lam without his knowledge and he avers that the basement is an illegal structure which may cause him prejudice in any application for removal of the restrictions on alienation and may even invite enforcement action. In his Reply, Mr Lam does not deny the existence of the basement. He just avers that it is not relevant to the present proceedings.

47.  By his proposed amendments, Mr Lau seeks to give further particulars of the basement and to mount a counterclaim arising from the basement. He prays for a mandatory injunction for the removal of the basement by Mr Lam and an order that Mr Lam should indemnify Mr Lau for any future government enforcement action relating to the basement.

48.  Mr Chen validly points out that the proposed amendments do not identify any particular provisions in the Chinese Agreement which Mr Lau alleges Mr Lam to have breached by reason of the construction of the unauthorised basement.

49.  I agree that the alleged repudiation and frustration of the Chinese Agreement are poorly pleaded. However, Mr Lau can be entitled to the relief claimed without any reliance on the Chinese Agreement at all. His proposed counterclaim should not be disallowed in its entirety because of the lack of particulars under complaint.

50.  Mr Chen next submits that the proposed amendments provide no defence to the claim of Mr Lam. Be that as it may, Mr Lau is entitled to make a counterclaim against Mr Lam as kind of an independent action. It is not a requirement that a counterclaim should provide a defence to the main claim. Whether the counterclaim should be struck out or should be ordered to be tried separately under O.15 r.5, RDC at a later stage is a different matter.

51.  Lastly, Mr Chen reiterates that the parties agreed that Mr Lam is the beneficial owner of the Unit and so there is no controversy between the parties. It would only increase costs if the proposed counterclaim is allowed.

52.  I believe I have already explained why I do not think the claim of Mr Lam can be summarily disposed of at this stage despite the agreement that he is the beneficial owner of the Unit. When his claim is still afoot, I see no reason why Mr Lau cannot introduce a counterclaim against Mr Lam arising from the same subject matter.

53.  The basement, prima facie, is against the New Grant in that it may be unauthorized and therefore an enforcement action is not illusory. Before the restrictions on alienation are waived by the DL Office and the legal title to the Unit is transferred to Mr Lam, Mr Lau remains to be the registered owner of the Unit and any enforcement action about the basement would be taken against him. In the circumstances, Mr Lau’s concern about an enforcement action poses a real question and is a controversy between the parties. I see no reason why the proposed counterclaim should not be allowed to be introduced by way of amendment.

Conclusion and orders

54.  For the reasons given, no judgment can be granted against Mr Lau summarily. The contentions of Mr Lau in the Defence should be clear to Mr Lam. I dismiss the Judgment Summons accordingly. Mr Lau must be given unconditional leave to defend.

55.  On the other hand, I allow the Amendment Summons and make an order in terms of paragraphs 1 and 2 thereof.

56.  On the question of costs, for the Judgment Summons, I see no reason for a departure from the general rule of costs following the event. Mr Lam should pay Mr Lau’s costs of and occasioned by the Judgment Summons forthwith, to be taxed if not agreed.

57.  With respect to the Amendment Summons, in paragraph 3 thereof, Mr Lau agrees to pay the costs of the application to Mr Lam. Whilst I would agree that Mr Lam’s costs of and occasioned by the application including the subsequent amendments to the Reply necessitated by the amendments should be borne by Mr Lau, costs of argument of the Amendment Summons should be borne by Mr Lam being the unsuccessful party. In other words, the costs of the entire hearing should be borne by Mr Lam. Such costs should be paid forthwith and should be taxed in the event of disagreement.

58.  These are orders nisi.

59.  It remains for me to thank both Mr Chen and Mr Yeoh for their assistance.