POON FOW HING v. POON KWAI PING CORINNA

HCA 1636/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1636 OF 2014

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DECISION
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INTRODUCTION

1. The plaintiff, also the 1^st defendant by counterclaim (“elder brother”), is the elder brother of the defendant (“younger sister”).  The 2^nd defendant by counterclaim is elder brother’s wife (“sister-in-law”).  The elder brother and sister-in-law are collectively called (“the husband and wife”).

2. This action arose out of a residential flat located at Duke Street, Prince Edward, Kowloon (“the subject property”), now occupied by the younger sister. 

3. The elder brother claims he is the legal and beneficial owner thereof since March 1977, and the younger sister has been occupying the same pursuant to a licence at will granted in about 1978 (together with another sister) and in about 1981/2 (solely).  The said licence was terminated in July 2012 by letter but the younger sister wrongfully remains in the subject property.

4. The above claim is denied.  The younger sister contends that the subject property should constitute part of the estate of the parties’ late father (“the dec’d father”).  She also contends:

(a) the dec’d father having passed away intestate in December 1971, the beneficiaries of his estate should include the elder brother and younger sister (together with their mother (“the dec’d mother”) and their other siblings);

(b) by a family agreement made in February/March 1977, it was agreed the elder brother would use part of the dec’d father’s estate to purchase the subject property for the purpose of (and/or for use as) the residence of the dec’d mother (“the 1977 family agreement”);

(c) accordingly, the elder brother has been holding the subject property on trust for the dec’d mother (and for her estate since her death in August 2004).

5. The younger sister also pleads that the dec’d mother began to reside in Canada in about 1978.  Since about 1979, the younger sister finished schooling in Canada and she returned to Hong Kong.  She resided in the subject property with other family members until 1982 when she began to do so by herself.

6. The younger sister further pleads that the elder brother has given assurances (in late 1990’s and Easter 2001) that the younger sister could continue to reside in the subject property.  The younger sister acted in reliance of such assurance by staying in the subject property and paying for various expenses.  She contends the above constitutes a proprietary estoppel.

7. Finally, the younger sister counterclaims against the defendants (among other things) that:

(1) the elder brother acted in breach of his duties as a trustee of the subject property;

(2) the sister-in-law knowingly assisted the elder’s brother’s said breach.

8. By the time of the hearing, the younger sister’s pleadings are in their re-amended version.  They will be called “the defence” and “the counterclaim” (as the case may be) below for convenience.

THE SUMMONSES

9. It is in the above context:

(a) the husband and wife apply to strike out the counterclaim (“the striking out application”);

(b) the younger sister applied for leave to re-amend her amended defence and counterclaim; leave was granted in March 2014;

(c) in relation to sub-para (a) above, the husband and wife apply for leave to amend the striking out application (seeking also to strike out some parts of the defence) (“the amended striking out application”). In short, this supersedes the striking out application (leave to amend was also given in March 2014).

10. The amended striking out application is based in gist on two main grounds:

(1) the younger sister does not have a reasonable cause of defence in relation to her wrongful occupation of the subject property (or a reasonable cause of action for her counterclaim);

(2) laches (or delay) which has caused prejudice to the husband and wife.

11. As will be further explained below, because the consideration to be given to a defence and a counterclaim is different (especially with regard to sub-para 10(2) above), they will be discussed under separate sub-headings below.

(a) Defence

12. In support of her defence that she has a right to occupy the subject property (which also forms part of the backbone of her counterclaim), the younger sister relies on the history leading to the purchase of the subject property (para 3 to 53, defence and the counterclaim (especially para 60 thereof)).  This can be summarized as follows:

(a) the dec’d father was the family’s breadwinner operating a dyestuff business “和生染料” (“the said business”);

(b) the elder brother began working for the said business in 1968;

(c) from about 1968 to the dec’d father’s death, the said business was controlled by the dec’d father;

(d) since the dec’d father’s death, the elder brother took hold of the said business (which belongs to the estate of the dec’d father).  He did so firstly by registering a partnership, and by 1974, by incorporating a limited company (10% of its shares were in the dec’d mother’s name and each of the elder brother’s 3 brothers also holds 10% of the shares);

(e) further, since the end of 1976, the elder brother has purchased other properties using funds from the said business;

(f) the elder brother therefore has been holding the said business, and the properties purchased using its funds, as a constructive trustee for the estate of the dec’d father;

(g) the 1977 family agreement resulted from a confrontation between the elder brother and the other siblings.  The funds for purchasing the subject property also came from the said business.

13. Based on para 12 above, the younger sister argues that, the elder brother not being the legal and beneficial owner, he has no right to sue her as such an owner (the elder brother’s claim is not put forth as having been brought by the personal representative of the estate of the dec’d father or the dec’d mother).

14. In the course of her submissions during the hearing, the younger sister referred to Tong Kwok Keung v Tong Kwok Kee DCMP 2470/2014 (30 January 2015), especially para 35 to 37 thereof.  Those passages of the decision observed in short that:

(1) in the absence of a grant of representation, a purported beneficiary does not have the locus standi to sue on behalf of the estate;

(2) a litigant suing in his personal capacity (but on behalf of an estate) without joining the personal representative of the estate is irregular and his claim is susceptible to be struck out;

(3) consequently, because the plaintiff’s beneficial interest in the suit property is disputed (he was allegedly the true owner’s nominee only), his Ord 113 (Rules of the District Court (Cap 336H)) application (summary proceedings for possession of land) should be refused.

15. Further to para 6 above (proprietary estoppel) and para 13 and 14 above (procedural objection), the younger sister asserts in her second affirmation she has been authorized by the dec’d mother, and after her death, by the other siblings to occupy the subject property (see also para 42(b) below).

16. Whichever way the younger sister puts her case, it cannot be disputed she is no more than a beneficiary of a trust (be it a trust involving the subject property as part of the estate of the dec’d father, or that of the dec’d mother).  Indeed that has been how her case has been advanced in these applications.

17. The nature of a beneficiary’s interest has been succinctly summarized in Snell’s Equity (2015) 33^rd Ed:

“The main difference is that the beneficiary’s interest does not give him [or her] beneficial rights directly enforceable against the property itself. His [or her] beneficial rights derive from the trustee who owns the property and they are primarily enforceable against him … ” (para 2-002);

“The beneficiary’s interest may be considered from an internal … point of view. Its internal aspect refers to the beneficiary’s right to compel the trustee’s duty to administer the trust according to its terms and the general law. … ” (para 2-003).

18. Once the true nature of the younger sister’s interest is properly analysed in the light of the above quotes, it is immediately apparent that all she can claim for is that the elder brother should act according to the duties arising from his office as the administrator of the dec’d father’s estate, and/or an administrator de son tort of the dec’d mother’s estate (assuming, in the younger sister’s favour, such duties lie with the elder brother and he has breached them).

19. In relation to the subject property, the same analysis also applies to the nature of any interest the dec’d mother (before her death) and the other siblings may have in the subject property.

20. Even assuming somehow the younger sister can argue that the dec’d mother has a better legal title than the elder brother to the subject property, this cannot provide her a reasonable cause of defence either.  As between the elder brother and the younger sister, the former clearly has better title.  The doctrine of “relativity of title” has been stated in Megarry and Wade: The Law of Real Property (2012) 8^th Ed:

“At common law … there is no such concept as an ‘absolute’ title. Where questions of title to land arise in litigation the court is concerned only with the relative strengths of the titles proved by the rival claimants” (para 4-008 thereof).

The alleged authority for the younger sister to occupy the subject property (para 15 above) also suffers from other inadequacies: it has not been pleaded as some kind of legally enforceable agreement (such as a tenancy or a proprietary licence), and was not evidenced in writing.

21. By virtue of the above, the above parts of the defence disclose no reasonable cause of defence.

22. Having so concluded, it is strictly unnecessary to consider the other ground raised in the amended striking out application (laches (or delay)) (para 7(2) above).  I will do so for completeness.

23. The husband and wife complain that the younger sister is guilty of undue delay.  This is said to cause prejudice to them because a potentially important witness, the dec’d mother, passed away in 2004, and thus would not be able to testify for them.  The dec’d mother is said to be able to testify as to:

(1) the dec’d father intended one of the properties to be a gift to the elder brother;

(2) the dec’d father intended the elder brother not to distribute the assets in his estate;

(3) only the sons should be added as partners of the said business;

(4) other matters concerning the family and/or the said business raised by the younger sister.

24. But whatever prejudice may be said to have been caused by the younger sister’s “delay” (in relation to her defence), it can equally be said the elder brother has delayed the commencement of this action. Indeed, there is much strength in the argument that any prejudice to the elder brother in relation to his own claim is self-induced.

25. With the above in mind, I do not consider the alleged delay should be taken into account when exercising the discretion regarding striking out the defence.

26. Finally, as regards the alleged procedural objection, I do not think the objection is open to the younger sister in the context of the amended striking out application.  The short reason for such conclusion is that there is no application to strike out the claim of the husband and wife (in fact, such issue has not even been raised in the defence or the counterclaim).

27. Assuming in the younger sister’s favour that somehow the objection should still be relevant, it is a dispute which is eminently fit for trial because it is a dispute involving law and fact.  If the younger sister’s case should nonetheless be struck out (whether because it discloses no reasonable cause of action or defence), the discretionary power to strike out should not be hampered only because the claim of the husband and wife may be found to be objectionable after trial.

28. Finally, as has been mentioned in para 6 above, the younger sister also relies on the defence of proprietary estoppel.  This part of the defence is however not covered by the amended striking out application.  It will only be mentioned below under “Other Matters” to enable an understanding of this part of the defence and counterclaim.

(b)  Counterclaim

29. The younger sister’s delay in bringing her claim is however highly relevant to whether the discretion should be exercised to strike out her amended counterclaim.

30. The counterclaim raises the following main issues:

(a) the elder brother wrongfully failed to properly administer, or to distribute, the dec’d father’s estate;

(b) the elder brother thereby breached his duties as a trustee which he owes to (among others) the younger sister;

(c) the elder brother fraudulently misrepresented the ownership of the said business;

(d) the elder brother wrongfully failed to give a true account of the dec’d father’s estate;

(e) the elder brother wrongfully made use of assets belonging to the dec’d father’s estate for acquiring properties in his own name.

31. The younger sister was legally represented as early as in 1984 (she attained majority age in 1977).  Her explanation for not suing the elder brother was that she did not want to sue (or upset) the dec’d mother, thereby affecting her health.

32. Her other explanation is that she was unaware of the elder brother’s misdeeds before the elder brother commenced this action.  I agree with the husband and wife this explanation cannot be correct because:

(1) in 1981 or 1982, the younger sister asked the elder brother to distribute the dec’d father’s estate;

(2) in 1984, the younger sister already asked the elder brother to give an account of the dec’d father’s estate;

(3) the younger sister’s former solicitors threatened to sue the elder brother in April 1984;

(4) the younger sister does not deny knowledge of two meetings in 1984 or 1995 where the elder brother allegedly met the siblings and the siblings refused to accept the elder brother’s explanation regarding the dec’d father’s estate;

(5) the younger sister ought to know that in 1995 some of the siblings threatened to sue the elder brother.

33. Consequently, I find that the younger sister is at fault for delaying her counterclaim inordinately.

34. I am also satisfied that the husband and wife have thereby suffered prejudice:

(a) it is conceivable the dec’d mother could have been an important witness (see para 23 above);

(b) the memories of all individuals involved must have deteriorated because of time lapse;

(c) it is possible some documents may no longer be located for the same reason.

35. Having said so, ss 20(1) and 26(1), Limitation Ordinance (Cap 347) provide as follows:

“No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action -

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.”;

“… where in the case of any action for which a period of limitation is prescribed by this Ordinance, either -

(a) the action is based upon the fraud of the defendant;

(b) any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant; or

(c) the action is for relief from the consequences of a mistake,

the period of limitation shall not begin to run until the plaintiff has discovered the fraud, concealment or mistake (as the case may be) or could with reasonable diligence have discovered it.”

(emphasis supplied)

36. Leaving aside whether the younger sister’s pleadings can constitute a proper case of fraud (or fraudulent breach of trust) or deliberate concealment, because the counterclaim essentially alleges that the elder brother has “come off with something he ought not to have” (or has converted to his own use) regarding the estate of the dec’d father and the dec’d mother (see para 30(a), (c) and (e) for example), the counterclaim falls within s 20(1), Cap 347: Liu Wai Keung v Liu Wai Man [2015] 1 HKLRD 490, para 13, 26.

CONCLUSION

37. In relation to the amended striking out application:

(1) para 3 to 53, defence are struck out;

(2) the part relating to the counterclaim is dismissed.

38. The leave to amend application has already been dealt with by another court.

OTHER MATTERS

39. This is what Snell’s Equity says about “proprietary estoppel”:

“proprietary estoppel ‘is based on three main elements … a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance’” (quoting from Thorner v Major [2009] 1 WLR 776, per Lord Walker) (para 12-033).

40. Typically, the representation would include:

(a) an assurance that the claimant would have certain rights over the owner’s land;

(b) consenting to the claimant to undertake construction work either on the owner’s land, or on the claimant’s land in a manner which would in some way affect the owner.

Megarry & Wade: The Law of Property (2012) 8^th Ed, para 16-008.

41. The claimant’s reliance “must be judged at the moment when the person who has given the assurance seeks to go back on it”, and “is not a narrow or technical concept” (Megarry, para 16-013).  Finally, whether it would be unconscionable for the owner to go back on his assurance can only be answered by making a broad enquiry.  See Megarry & Wade, para 16-012 and 16-018.  Such being the tests, these are not issues eminently suitable for summary assessment, such as should be undertaken in the context of an application for striking out a claim.

42. The proprietary estoppel set out in the defence (para 56 thereof) is not a model of clarity:

(1) her payments for the renovation and repairs of the subject property, and her attending meetings of the incorporated owners (some time between 1982 and late 1990’s) seem to have taken place before the elder brother’s assurances;

(2) her conduct (of “managing the affairs” and paying “various expenses”) subsequent to the elder brother’s assurances has not been particularized.

Further, the above has not deposed to (or deposed to in details) in her affirmations (especially the second affirmation).  Finally, such case can be regarded as not entirely consistent with her case that:

(a) the elder brother has acted dishonestly in dealing with the estates of the dec’d father and the dec’d mother (it is inherently unlikely for a dishonest administrator to agree to her occupation of the subject property);

(b) her occupation of the subject property was authorized by the dec’d mother, and (after her death in 2004) by the other siblings (para 4, second affirmation) (if the elder brother has given his assurance (one of which was communicated through the siblings), it would have been inherently implausible for the siblings to give their own consent to the occupation).

43. Having said so, the law requires “plain and obvious cases” before the court should exercise its discretion to strike out pleadings.  The issues mentioned in para 42 above would involve the resolution of factual disputes, which is unsuitable for determination in a summary way.

44. In view of the matters set out above, the husband and wife are correct in not seeking to strike out this part of the defence.

45. The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER NISI

46. There is no apparent reason to depart from the usual rule that costs should follow the event.  The parties are only partly successful in relation to the amended striking out application.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of the amended striking out application (including the costs earlier reserved, and the costs of the hearing) be borne by the parties themselves.