CHAN CHI CHING AND ANOTHER v. CHEUNG WING HING DAVID

HCA 1364/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1364 OF 2012

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D E C I S I O N

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Introduction

1. This is an appeal by the defendant against the order of Master de Souza dated 19 November 2013 granting summary judgment in favour of the plaintiffs, whereby the defendant was ordered to, inter alia:

(1)   deliver up vacant possession of the property known as Flat 4 on the 36^th Floor of Block C, Yau Chui Court, Kowloon, Hong Kong (“the Property”) to the plaintiffs within 35 days from the date of the order; and

(2)   the issue of liability of trespass and the assessment of damages be adjourned for a separate hearing for argument.

2. Since the granting of the said order, the defendant is still occupying the Property.  This prompted the plaintiffs to apply for interim payments from the defendant in order to protect their position whilst awaiting enforcement of the order.

3. There is thus also before the court an application by the plaintiffs for interim payments issued pursuant to Order 29, rules 10 and 12(b) of the Rules of the High Court.

Factual background

4. The Property in dispute is a Home Ownership Scheme (“HOS”) flat sold by the Hong Kong Housing Authority to the plaintiffs pursuant to the terms and covenants under the Housing Ordinance, Cap 283 (“HO”).

5. By virtue of section 17AA(1) of the HO, the terms, covenants and conditions as set in the Schedule to the HO are applicable to the assignment by which the Property was assigned to the plaintiffs.

6. The Property is registered under the names of the 1^st and 2^nd plaintiffs. The Property was bought by the 1^st and 2^nd plaintiffs in around November 2010.

7. Unlike other privately owned properties in Hong Kong, a HOS flat is subject to strict occupation, possession and re‑sale restrictions under the HO.  Set against the backdrop of very tight land supply and high housing demands in Hong Kong, these restrictions are intended to ensure that the HOS is not abused by the purchasers of HOS flats.

8. These restrictions and covenants are partly set out in the application form filled in and signed by the plaintiffs at the time of purchase, and the same are also set out in the HO and its Schedule.

9. In this case, the application form for the HOS flat (ie the so‑called Green Form) was filled in and signed under the names of the plaintiffs.  Only the plaintiffs (and the late mother) were the applicants for the HOS flat.

The First Action

10. The plaintiffs in this action on the one hand and the defendant on the other were previously relatives related by marriage.  The 1^st plaintiff is the father of the 2^nd plaintiff, and the defendant is the elder brother of one Cheung Wing‑kam, the husband of the 2^nd plaintiff’s younger sister, Chan Chi‑ling. The marital relationship between Cheung Wing‑kam and Chan Chi‑ling broke down in around April 2011 and they subsequently filed for divorce.

11. In another set of proceedings, HCA 2167/2011 (“the First Action”), the defendant and Cheung Wing‑kam issued proceedings against the plaintiffs herein and Chan Chi‑ling, claiming that they have a beneficial interest in the Property through a family arrangement or agreement, whereby it was allegedly agreed between the plaintiffs on the one hand, and the defendant and his younger brother on the other, that the latter would be responsible for the down payment, mortgage payments and other charges in respect of the acquisition of the Property (“the Family Arrangement”).

12. In return, and as per the alleged Family Arrangement, the defendant and Cheung Wing‑kam claim to be beneficial owners of the Property.

13. The plaintiffs have denied these allegations made by the defendant and his younger brother in the First Action.  A Defence has been filed.

14. In other words, the First Action is essentially concerned with the dispute over the beneficial ownership of the Property. The First Action is still in its early stages, with pleadings closed but discovery yet to be carried out.

Temporary licence for the defendant and his family to stay in the Property

15. It is the plaintiffs’ case that in around October 2011, the defendant and his family were under severe financial difficulty and they had to rent out their own residence.  At the same time, the defendant together with his younger brother Cheung Wing‑kam, requested the plaintiffs to allow the defendant and his family to temporarily stay in the Property.  An ad hoc monthly licence fee of HK$8,730 was agreed to be paid by the defendant and his family to the plaintiffs for the temporary stay.

16. This temporary arrangement continued until July 2011 when the marriage between Cheung Wing‑kam and Chan Chi‑ling broke down.  The defendant and his family have promised to move out of the Property as a result, but despite repeated demands and requests, they have to date refused to do so.

17. On the plaintiffs’ case, the occupation was evidently a temporary arrangement as the defendant and his family do not even have residents cards for the Property.  No application has ever been made to the Housing Authority to change the family members’ composition.

18. The defendant’s refusal to move out of the Property has resulted in these proceedings whereby the registered legal owners of the Property, ie the plaintiffs, claim relief for vacant possession of the Property and damages for trespass against the defendant.

19. The defendant is defending these proceedings on the basis of the Family Arrangement and claims that he (and his younger brother) are the beneficial owners of the Property, hence they are entitled to occupy the Property to the exclusion of the plaintiffs.

20. As can be noted from the Affirmation of the defendant filed in opposition to the summary judgment application, the only basis upon which the defendant claims a right to possess the Property is that he is the beneficial owner of the Property together with Cheung Wing‑kam.

The law in relation to HOS flats and the CFA decision in the Cheuk Shu Yin case

21. In Cheuk Shu Yin v Yip So Wan (2012) 15 HKCFAR 344, the Court of Final Appeal held that the creation of beneficial interests through the kind of family arrangements as alleged in this case (and similarly in the Cheuk Shu Yin case) does create valid constructive and/or resulting trusts which is not prohibited by the non‑alienation restrictions contained in section 17B of the HO or rendered void thereunder.

22. The present legal position: where family members pooled together their financial resources in order to enable the eligible family members to apply for a HOS flat, a court will not deny a beneficial interest to someone who paid the purchase price (or part thereof) in the expectation that he would get one.

Beneficial ownership vs Possession of the Property

23. The five‑year restriction (of non‑sale/non‑parting with possession) obviously still applies to the Property that was only acquired by the plaintiffs in 2010.

24. It is conceded by the plaintiffs that the First Action is concerned with and will resolve at trial the dispute over the beneficial ownership of the Property.

25. However, the issue that the court has to determine in these proceedings is who has the legal right to occupy the Property before the five‑year restriction runs out.

26. In other words, even if the defendant were to be successful in the First Action, what remedy does the defendant have as a beneficial owner of the Property?  Can he say he now has the legal right to occupy the Property to the exclusion of the plaintiffs altogether?

27. The answer is contained in the speech of Lord Hoffmann NPJ in the Cheuk Shu Yin case at paragraph 30:

“… What can the owner of an equitable interest do to enforce his rights? In the ordinary way and apart from statutory restrictions, a person for whom property is held on trust absolutely can terminate the trust and require the trustee to convey him the legal estate. In the case of a HOS flat, however, this remedy is not open to him. An assignment of the legal estate would be unlawful under s 17B. If the equitable owner has only a part beneficial interest, the normal remedy is for him to obtain an order that the property be sold and the proceeds distributed. But he cannot have the flat sold, because this would also be unlawful under s 17B. Nor can he require that the property be let to provide him with an income, because the statutory terms and conditions in Schedule 4 of the Ordinance contain a covenant against parting with possession. Until the expiration of the restriction period, all the equitable owner’s normal means of realizing the value of his interest are barred. So there is nothing which he can do which would interfere with the occupation of the flat by the eligible purchasers to whom it was sold.” (my emphasis)

28. Lord Hoffmann’s reasoning is very clear. Even when a person has successfully claimed to be a beneficial owner of a HOS flat (through family arrangements or otherwise), he or she cannot interfere with the occupation of the flat by the registered owners during the period of restriction.

29. On the other hand, the registered owners (ie the plaintiffs) are equally restricted by the HO to not part with possession of the HOS flat.

30. Thus analysed, the defence run by the defendant based on his alleged beneficial entitlement to the Property is unarguably bad.

The illegality argument

31. At this appeal but not at the hearing below, the defendant argues that the licence alleged by the plaintiffs to have been granted to the defendant is arguably in fact a periodic tenancy, and therefore ex facie illegal.  And since the plaintiffs cannot make out their claim for possession without resorting to the revocation of the “licence”, the court should not lend the plaintiffs any assistance by granting relief in this action.

32. From a common sense point of view, this submission is quite startling as the result is that the illegal occupation of the Property by persons other than the registered owners will be perpetuated during the period of restriction.

33. Fortunately, this point is covered by a decision of the Privy Council in Amar Singh v Kulubya [1964] AC 143.

34. In that case, the respondent, an African, who was the registered proprietor of certain “mailo” lands, purported by three agreements to lease the lands to the appellant, an Indian, but the consent of the governor to the transactions were not obtained as required by the Buganda Possession of Land Law, and section 2 of the Uganda Land Transfer Ordinance.  The result of the omission being that under the above statutes both the respondent and the appellant had contravened the law and committed punishable offences.  On a claim by the respondent, based on his registered ownership of the lands, to possession and eviction of the appellant, the latter pleaded that the agreements by which the lands were leased were illegal in the absence of the necessary consent, and that the respondent could not file an action on them.  The respondent acknowledgedthat the transactions were illegal.

35. It was held that the appellant was not, and never had been, in lawful occupation of the lands and could not rely on the illegal agreements as justifying any right or claim to remain in possession, and without doing so he could not defeat the respondent’s claim.  On the other hand, the respondent required no aid from the illegal transactions to establish his case.  It was sufficient for him to show that he was the registered proprietor of the lands and that the appellant, a non‑African, was in occupation without the consent of the governor, and accordingly had no right to occupy.  Since the respondent was neither obliged to found his claim on the illegal agreements nor, in order to support his claim, to plead or to depend on them, he was not in pari delicto with the appellant.

36. In my view, the same reasoning applies to the present case.  It is sufficient for the plaintiffs to show that they are the registered owners of the Property (which is not in dispute).  The plaintiffs are not obliged to found their claim on the “licence”, and their right to claim possession is based independently of the “licence”.

37. For the reasons stated above, the defendant’s appeal against the order of Master de Souza is dismissed.

Plaintiffs’ application for Interim Payment

38. Order 29, rule 12(b) of the Rules of the High Court is there to enable the court, during the pendency of the action, to order the defendant to make an interim payment to the plaintiffs in respect of his continued use and occupation of the land, whoever should ultimately succeed on the claim for possession of the land itself.

39. From the last sentence of the speech of Lord Hoffmann in the Cheuk Shu Yin case quoted above, the plaintiffs are clearly entitled to possession of the Property during the restriction period, and thus in a position to claim damages for trespass against the defendant.

40. The monthly payment of HK$8,730 is a reasonable sum which, in any event, is a sum that the defendant has agreed to pay.

41. Accordingly, I order the following sums to be paid by the defendant to the plaintiffs by way of interim payment:

(1) HK$8,730 x 11 months (ie from March 2013 to March 2014) = HK$96,030; and

(2) thereafter, HK$8,730 on the 1^st day of each month until further order of the court, or until delivery of vacant possession of the Property by the defendant to the plaintiffs.

42. I further order that the order for possession of the Property against the defendant be stayed for four weeks from the date hereof.

43. Costs of the appeal and the plaintiffs’ summons dated 12 February 2014 be paid by the defendant to the plaintiffs.