TSE MAN YIU AND OTHERS v. TSE MAN WAI AND ANOTHER

HCMP 2557/2017 &
HCA 2656/2018

[2025] HKCFI 967

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2557 OF 2017

AND ACTION NO. 2656 OF 2018

(transferred from DCCJ 2359/2018)

____________

____________

BETWEEN

(Consolidated pursuant to the Order of Mr. Registrar S. Kwang dated 22^nd March 2019)

____________

_______________

D E C I S I O N

_______________

A. INTRODUCTION

1.  This is a very late application by the Defendants, after pre-trial review, to introduce a defence of illegality.

2.  The parties in this action are family members. P1, P4, P5 and D1 are brothers. P1 (as P2 and P3) is also the Administrators of the estate of their Father and Mother. D2 is the executor and grandson of the deceased grandmother (“Grandmother”).

3.  The Plaintiffs claim against the Defendants interests in the subject property which is under the Home Ownership Scheme (“HOS”). The Plaintiffs’ case is premised on an alleged common intention constructive trust involving, amongst others, Grandmother, Father and Mother.

4.  The pre-trial review took place on 13 January 2025. The 8-day trial will commence, in a month’s time, on 8 April 2025.

5.  On 20 January 2025, the Defendants took out a summons seeking leave to file a re-re-amend consolidated defence and counterclaim (“RRACDAC”) to plead illegality. A month later, after affirmations were filed on both sides, the Defendants took out a second summons on 20 February 2025, seeking leave (i) to rectify 2 clerical mistakes in the draft RRACDAC, (ii) to give more particulars and to identify the statute or public policy that was breached; and (iii) to plead 4 documents (“the 4 Documents”) which the Defendants say are material to their case on illegality and apparently to answer the Plaintiff’s opposition on affirmation.

6.  The Plaintiffs oppose both summonses on the grounds that:

(1) The proposed amendments are useless and fail to raise illegality.

(2) The Plaintiffs will suffer severe prejudice which cannot be compensated by costs.

7.  The Plaintiffs also say that the belated accusations of illegality are made up by D1, just for the sake of derailing the trial, out of desperation to salvage a wholly unmeritorious case.

8.  I have permitted the parties to lodge further submission on the issue of legal aid costs after the hearing. As the Plaintiffs’ further submission was lodged out of time, I have not considered it.

B. LEGAL PRINCIPLES ON AMENDMENT

9.  The Court may allow an amendment “at any stage of the proceedings” under Order 20, r5 of RHC. The principles governing an application to amend pleading are well established and have been summarized by Ng J in Re Hin Pro International Logistics Ltd [2016] 1 HKLRD 1367 at §8:

(1) It is a guiding principle of cardinal importance on the question of amendment that generally speaking, all such amendments ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings.

(2) Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation.

(3) If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest.

(4) Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication.

(5) Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs.

(6) Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize that the primary aim in exercising the powers of the court is to “secure the just resolution of disputes in accordance with the substantive rights of the parties”.

10.  Illegality has to be pleaded: Hong Kong Civil Procedure 2025, Vol 1, §18/8/20. In Sino Favour Development Ltd & Anor v Kan Wai Chung & Ors (unreported, HCA 1517-1521/2005, 17 June 2010) Fung J held at §31:

“The proposed amendment is seriously late, especially when the case has been set down. Be that as it may, good case management should always include the consideration of the attainment of the substantive rights of the parties and the interest of justice, especially when illegality is raised, the Court should be careful to inquire into whether late amendment should nevertheless be allowed lest the Court be unwittingly used as an instrument of fraud.” (underline added)

11.  The Court may disallow an application for amendment where there is unexplained undue delay, vague proposed amendment and doubts over the soundness of the proposed amendment: Hong Kong Civil Procedure 2025, Vol 1, §20/8/21.

C. LEGAL PRINCIPLES ON ILLEGALITY

12.  There are four types of situation which bring illegality into existence: the ex turpi causa maxim should apply only to criminal acts, quasi-criminal acts, non-criminal acts which engaged the public interest (eg dishonesty in the context of civil disputes), and infringements of rules enacted for the protection of the public: Monat Investment Ltd v All Person(s) in Occupation [2023] 2 HKLRD 1311, Yuen JA at §23.5, citing Les Laboratories Servier & Anor v Apotex Inc & Ors [2015] AC 430.

13.  Civil wrongs (not involving dishonesty) do not engage the illegality analysis:

“The UKSC held that the public interest was not engaged

‘in torts (other than those of which dishonesty was an essential element), in breaches of contract, statutory and other civil wrongs [which] offend against interests which are essentially private, not public.’” §23.6 of Monat Investment, citing from Les Laboratoires Servier v Apotex.

D. BASES OF THE AMENDMENT APPLICATION

14.  The Defendants’ principal proposed amendments are in §29A to the draft RRACDAC. They are said to be based on the Plaintiffs’ own case and evidence. The so-called “own case” was the “Common Understanding” that gave rise to the common intention constructive trust is pleaded in §1F of the Re-Amended Consolidated Statement of Claim (“RACSOC”). It was said that during the course of discussions within the family in around 1986, a “Common Understanding” arose among Father, Mother, Uncle Ma and Grandmother, that

“(1) Whilst the Property would be conveyed into Grandmother’s sole name, she was not to contribute to any purchase monies of the Property in any form at all;

(2) Father and Mother would be beneficial owners (as joint tenants) of the Property. They would, through their own means, contribute towards the purchase price of the Property in full, and would carry out improvements to the Property once it had been purchased.

(3) The Property would become the matrimonial home of Father and Mother.”

15.  The Defendants say that this was a case whereby the Grandmother was used as a nominee to obtain the eligibility of the Green Form Subsidized HOS and to acquire the Property for the benefit of Father and Mother (when neither of them would be eligible), but not for the benefit of Grandmother. That contravened the underlying policy of the Green Form Subsidized HOS as set out in the case of Cheuk Shu Yin v Yip So Wan (2012) 15 HKCFAR 344, without citing which paragraph of the judgment.

16.  The Defendants specifically pleaded the 4 Documents in support of the illegality plea:

(1) Grandmother’s Declaration dated 14 April 1987 made to the Housing Authority (“HA”), undertaking that she would reside at the Property in the 10 years following purchase (“the Undertaking”). It is said that based on the Plaintiff’s case the Mother had not resided there in those 10 years.

(2) A legal charge in favour of HSBC dated 4 November 1987 wherein the Grandmother (borrower) was used as a vehicle to make a material misrepresentation to HSBC in order to obtain the mortgage.

(3) Tenancy Agreement dated 14 June 1988 between Mother and HA in relation to the premises known as “Unit 506”, wherein Mother was stated to be the registered tenant, and Father and 2 sons were stated to be the family members and occupants. The Defendants claim that Mother made a material misrepresentation to HA in relation to her eligibility for and occupants of Unit 506 for the purpose of keeping Unit 506.

(4) Income and Assets Declaration Form of the Building Maintenance Grant Scheme for Elderly Owners of Hong Kong Housing Society dated 2 December 2010. The Defendants say that it was a material misrepresentation made by the Grandmother as to ownership to the Housing Society in applying for the building maintenance grant.

17.  According to Mr Law’s submission, the policy in Cheuk Shu Yin that was allegedly breached is said to be §§4-5, Chan PJ:

“4. The Scheme was introduced in 1978 to serve the social purpose of assisting eligible persons to acquire a home when they cannot otherwise afford to do so. An applicant is required to disclose in his or her application the persons with whom he or she would occupy the flat and the total income and assets of the applicant and these occupants which must not exceed a certain limit. The disclosure on the identity of the occupants together with the restrictions imposed under the Schedule and ss.17B and 27A are aimed at ensuring that after acquisition, the flat will actually be occupied as a home for the applicant and his or her family members (although change of the composition of this “household” after acquisition is clearly permitted). The disclosure on this household’s combined income and assets and the time of acquisition is to ensure that the applicant, together with whatever financial support he or she may get from family members (if necessary), is eligible for such home purchase. (In the case of a Green Form applicant, while there is no eligibility requirement, upon a successful application, he or she has to give up the public housing unit he or she is occupying and to stay in the HOS flat and the same statutory restrictions on alienation apply.)

5. The Scheme thus clearly anticipates that the applicant and the family members who would be occupying the flat with him or her may have to pool their financial resources together in paying for the purchase price or making repayments towards any mortgage loan which may be required in the purchase…” (underline added)

18.  Further on, Lord Hoffmann NPJ held that:

“18. As the primary purpose of the scheme was to provide qualified purchasers with a permanent home, the HOS contained restrictions on alienation or parting with possession, intended to prevent the purchasers from realizing an immediate profit by the sale of the flat or an income from letting it to someone else. The objective was both to prevent the purchasers form making a cash profit from having received a discount at the public expense and to ensure that the effect of a sale on the public housing stock was more or less neutral, that is to say, that those who had been sold a flat would not again be candidates for social housing, at least until a substantial period of time had elapsed.” (underlines added)

19.  The Defendants claim that it is clear from the Plaintiffs’ case and evidence that the following illegality would arise:

(1) The Plaintiffs’ case is not one of an applicant’s family members pooling financial resources together for the purchase of a flat as in Cheuk Shu Yin, but of one using Grandmother’s eligibility under the Scheme for the purpose of buying a property for the benefit of Father and Mother (who were not eligible) but not for herself: Leung Ching Wai v Li Yun Lim [2023] 5 HKC 618, DDJ Frances Lok.

(2) Mother could then keep the bigger public housing flats out of 2 Units. If she had to apply under the HOS herself, she would have to surrender Unit 506 to the HA. She made a material misrepresentation to HA in relation to her eligibility for and occupants of Unit 506 for the purpose of keeping Unit 506.

(3) Pursuant to the Common Understanding, the Property was purchased and Grandmother never had any beneficial interest in the Property. The smaller public housing unit was returned to HA upon purchase of the property.

(4) The “entire” Tse family, with the exception of D1 and Grandmother, resided at the Property. Grandmother lived with the 3^rd Uncle in Shui Wo Court. Contrary to the Undertaking, Grandmother had not resided at the Property for the first 10 years after the purchase.

20.  All the illegal acts in the preceding paragraph are said to be criminal or quasi-criminal in nature which violated various statutes.

21.  Mr Law submits that the Plaintiffs’ case bears resemblance to the case of Leung Ching Wai v Li Yun Lim & Anor [2023] 5 HKC 618. In that case, P and D2 (an ex-couple) used the eligibility of D1 (D2’s grandmother) under the HOS to purchase a flat for the benefit for the two of them. Neither of them was an eligible applicant under the HOS. The grandmother was essentially used as a nominee to obtain the flat despite that she was never intended to be a beneficial owner or resident of the flat. The heart of the common intention was to avoid paying any premium to HA.

(1) The Court held that a key aspect of the agreement or common intention giving rise to the claimed equitable ownership was that the eligible purchaser (the grandmother) would not own or reside in the flat at all. As such, the case was not one of “family members pooling resources together for an eligible applicant to purchase a flat” under the Scheme. Instead, the grandmother misused her eligibility under the Scheme to benefit ineligible third parties. (§64)

(2) The grandmother’s Certificate of Eligibility to Purchase together with HA’s nomination to the grandmother were treated by the parties like an option to purchase a subsidized flat. The flat was not used to meet the housing need of the registered tenant of the surrendered public housing unit, but to benefit third parties of that tenant’s choosing. The abuse of the Green Form Scheme was just another kind of “profiteering” of public resources. (§66)

(3) Applying the “range of factors approach” laid down by the Court of Appeal in Monat Investment, the Court rejected the claim of common intention constructive trust on the ground of illegality (§§69-73).

E. ANALYSES

22.  I have asked Mr Law during the oral submission what the impact of establishing the “illegality” is on the claim under common intention constructive trust? He submits that it would make the common intention constructive trust unenforceable and the Plaintiffs should concentrate on the claim based on resulting trust.

23.  I have doubts as to the correctness of Mr Law’s submission. Even accepting for the purpose of argument, on the authority of Leung Ching Wai, that there was a breach of public policy, one asks rhetorically: What would be the consequence? Would HA recover the Property or impose a premium? Would Unit 506 be recovered or financial penalties be imposed on Mother? The proposed amendments are silent on the effect of the breach. Leung Ching Wai cannot provide any clue as the holding of illegality was based on an unpleaded case of illegality.

24.  There is no plea of dishonesty in the proposed amendments. It is questionable that illegality is established for a mere breach of public policy, and the Grandmother is a core player in the alleged illegality.

25.  The following analyses will take the Defendants’ proposed amendment at their highest.

26.  Firstly, the proposed amendments plead that Grandmother was only a nominee, never intended to benefit as an owner or to reside at the Property. That is not part of the Plaintiffs’ pleaded case on the Common Understanding set out in §1F of the RACSOC.

27.  On the Plaintiff’s own case, Grandmother returned to reside at the Property in 2003; she was never ousted (§7A of RACSOC).

28.  On the Defendants’ current pleaded case, D1 did not reside at the Property whilst other members of the Tse Family preferred to reside in the Property because, amongst others, the Grandmother would help take care of the younger brothers of D1. The Defendants did not admit that Grandmother resided elsewhere. The implication is that Grandmother did reside at the Property.

29.  The present case is distinguishable from Leung Ching Wai.

30.  Secondly, the Defendants contend that the Grandmother had violated the 2019 version of s.26(2) of the Housing Ordinance, Cap. 283. The offence was making of a false statement. As pointed out by Mr Ng, the 2019 version of the Housing Ordinance only came into existence 32 years after Grandmother’s wrongful conduct in 1987. The offence was the same but the penalty (in the applicable 1982 version) was different. Presumably the 4 Documents were the false statements. Closer analyses of each of them under the third to sixth limbs below show that there are doubts over the soundness of the illegality plea.

31.  Thirdly, the alleged “false” Undertaking made by the Grandmother to HA was in these terms:

“倘若任何家庭成員包括本人／余等在內，事先未得香港房屋委員會之同意而在上述十年期限內不實際居住或長期繼續居住於上述單位者，本人／余等同意遵照轉讓契約及房屋條例之條款將上述單位售回予香港房屋委員會。”

32.  Hence, the consequence of “breaching” the Undertaking was not criminal prosecution but that HA would have a contractual entitlement to compulsorily buy back the Property from the Grandmother. This was a not even a civil “wrong” and no dishonesty is pleaded in the proposed amendments. The breach would not engage the illegality issue: Monat Investment. One would also expect proceeds of sale to arise from that buy back that would need to be distributed to Grandmother or parties to the Common Understanding.

33.  Fourthly, given §§26-28 above, there is doubt as to whether the Grandmother’s representation to HSBC that she was a beneficial owner was false. In any case, the “victim” to the Grandmother’s alleged false representation was HSBC, not HA. The legal charge in favour of the HSBC had been redeemed in January 2008 and there did not appear to be any loss suffered by HSBC. Any civil wrong (with no dishonesty pleaded) arising out of misrepresentation by the Grandmother is no longer actionable. Still less can it be said that a criminal offence was committed. In Leung Ching Wai, DDJ Frances Lok also left open the conclusion to be drawn on a similar representation in the legal charge.

34.  Fifthly, in respect of the Tenancy Agreement between Mother and HA relating to Unit 506 dated 14 June 1988, the proposed amendments have not pleaded why Mother’s acquisition of a beneficial interest in the Property would preclude her from being eligible as a registered tenant of Unit 506 or to occupy the same. Even if there was a breach of housing policy, what would be the consequence? Would it be recovery of Unit 506? Or financial penalty on the Mother? Any false statement was made by Mother to HA. How would that impact on the Grandmother’s ownership of the Property? The proposed amendments are silent.

35.  Sixthly, the Declaration Form for the Building Maintenance Grant Scheme was signed in 2010, when Grandmother was still the registered owner and she was, on the Plaintiff’s case, residing at the Property. There was no apparent causation between this document and the purchase of the Property, 23 years ago. The material misrepresentation was pleaded as being made to the Housing Society, not HA.

36.  Seventhly, the pleas on violation of statute wholly lack particulars. §29(9) to the draft RRACDAC pleads the following proposed amendments:

“According to the Plaintiffs’ case, the said material misrepresentations to HA, HSBC and Housing Society amounted to “offences of fraud, obtaining property by deception, and/or obtaining pecuniary advantage by deception, contrary to sections 16A, 17 and 18 of the Theft Ordinance; aiding, abetting, counselling, procuring and/or conspiracy to commit the said offences; and/or the offence of conspiracy to defraud, contrary to common law.”

37.  These pleas need only to be stated to be rejected. No dishonesty has been pleaded for any of these offences. Which person was guilty of which offence? Who deceived whom? Who aided and abetted whom? Who were parties to the conspiracy? Section 16A of the Theft Ordinance was not even in force at the time of the alleged wrongful acts.

38.  In summary, the Plaintiffs’ own case and the 4 Documents, whether taken individually or collectively at their highest, could not set up a case of illegality within the terms of Monat Investment. Refusing leave to introduce a half-baked case of illegality would not cause the Court to be used as an instrument of fraud: Sino Favour Development. Given that the illegality plea was doubtful, the proposed amendments should be treated like any other pleas not involving illegality. The next step is to consider delay in the exercise of discretion to allow or refuse the proposed amendments.

F. DELAY IN APPLICATION

39.  This is an extremely late application taken out 2 ½ months before trial. No blame can be laid on Mr Law, who was recently assigned by DLA and promptly indicated that there would be amendment to the defence at the pre-trial review.

40.  The Common Understanding first appeared in the SOC filed on 2 July 2019. The witness statements (which referred to the 4 Documents) were filed in August/September 2020. What were necessary to enable the Defendants to plead illegality were ready 4-5 years before the 2 summonses were issued. Leung Ching Wai was handed down in July 2023. There has been no explanation for the serious delay from the Defendant. Change of counsel is never a good explanation.

G. PREJUDICE TO THE PLAINTIFF

41.  The Plaintiff has identified 2 prejudices if the application is allowed.

42.  Firstly, the Plaintiff would have to conduct inquiry into this new defence and the trial will have to be adjourned.

43.  Mr Law submits that the 4 Documents have been disclosed a long time ago. The Plaintiffs have had more than enough time to study and evaluate them, seek advice and conduct all necessary investigation. The Grandmother and Mother, makers of the 4 Documents have died before action. Mr Law queries what reasonable inquiry is required.

44.  In my view, this is the Defendants’ double standard. They sat on the Plaintiffs’ case and evidence for years before seeking amendment. They themselves have difficulty putting their own amendments in order and hence needed to file the 2^nd summons.

45.  I agree with Mr Ng that the reply has to be amended. By way of example, he has to plead that some Ordinances relied on by the Defendants were not in existence at the time of the alleged wrongful acts. Further, one cannot exclude the need to make enquiries, eg of HA as to the consequences of any alleged breach of policy; or of HSBC as to its reason for accepting a borrower’s statement that she is a beneficial owner. Derailing the trial is inevitable if the proposed amendments are allowed.

46.  Secondly, the Plaintiffs have 2 witnesses aged 81 (wheelchair bound) and 73. Memory lapse and health risk faced by aged witnesses cannot be ignored. Even if their evidence is to be taken by way of deposition, it is not easy to get early dates in the Court’s diary. There is no reason why compliant Plaintiffs should be forced to incur time and costs on the taking of deposition when the trial could have been conducted in one go.

47.  In my view, a further important consideration is this: the Plaintiffs would not be adequately compensated by costs. The Defendants are on legal aid. Even if the Court were to grant leave and impose a summarily assessed costs order or impose a condition for costs to be paid before leave to amend is granted, there is no way the Plaintiffs could have received costs before the trial. This is confirmed by the letter of the Defendants’ solicitors dated 28 February and 3 March 2025. Under section 16C of the Legal Aid Ordinance, DLA’s liability to the Plaintiff is limited to the Defendants’ contribution (which is nil) and DLA may not need to pay the Plaintiffs’ legal costs for the summonses to defeat the claim. The Defendants therefore litigated the amendment application at no cost to themselves, whereas the Plaintiffs’ funds and attention for preparation for the trial are diverted to handling a half baked plea of illegality.

48.  The Court is told that the Property is only of a value of $5 million (which begs the question why this case is not litigated in the District Court). If the Plaintiffs are successful at the trial, the Defendants would recover ¼ interest. If the Defendants are successful, they may be able to receive 100%. According to the respective costs statement for these 2 summonses, the party-and-party costs incurred by the Plaintiffs are about $160,000, whereas those by the Defendants are about $120,000. For the Defendants to incur this amount for such a late amendment is totally disproportionate to the value of the Property at stake. The prejudice to the Plaintiffs in having to handle these 2 summonses is plain for all to see.

H. CLERICAL AMENDMENTS

49.  There are 2 clerical amendments, ie §§16 and 27 to the latest draft RRACDCC. They are not controversial and I allow the same.

I. CONCLUSION

50.  Given the undue delay, without valid explanation, in seeking to introduce a case that does not really support illegality within the terms of Monat Investment, and the prejudice to the Plaintiffs, I exercise my discretion to refuse the amendments, except for the 2 clerical amendments.

51.  Costs do follow the event and be paid by the Defendants to the Plaintiffs, summarily assessed and allowed at $150,000.

52.  A copy of this Decision should be given by the Defendants’ solicitors to DLA.

53.  I thank counsel for their assistance.