TANG WAI CHO v. TANG WAI LEUNG

CACV 116/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 116 OF 2010

(ON APPEAL FROM HIGH COURT ACTION NO. 2207 OF 2007)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Cheung JA :

Background

1.  The plaintiff is the elder brother of the defendant.  He claims that a property known as the Basements of Block A and B, Grand Court, No. 18 Caine Road, Hong Kong (‘the property’), which is registered in the name of the defendant, belongs to him beneficially because he wholly provided for the purchase price of the property in the sum of $330,000. The defendant had subsequently, without the knowledge and consent of the plaintiff, mortgaged the property to obtain credit facilities of $500,000 for his own use.  When the defendant defaulted in repaying the mortgage instalments and the mortgagee issued proceedings, among other things, to recover possession of the property and the balance of the mortgage loan, the plaintiff took over the mortgage repayments and also paid money to redeem the mortgage in the sum of $399,070.79.  The plaintiff further had repaid stamp duties chargeable on the property in the sum of $97,019 due to the failure of the defendant to do so.

2.  The plaintiff seeks, among other things, a declaration that he is the beneficial owner of the property by reason of his full contribution to the purchase price of the property and all incidental costs of the purchase.

3.  The defendant, among other things, denies that the plaintiff had put up the purchase price.

4.  The case commenced before Deputy High Court Judge Carlson on 4 March 2010.  It was listed for five days.  On the third day of the trial, the Judge became concerned with the cognitive difficulties of the plaintiff, which caused him to consider whether a guardian-ad-item was required to be appointed for the plaintiff; accordingly the Judge adjourned the trial to 19 April 2010, and with the consent of the plaintiff he directed that the plaintiff was to be examined by a psychologist.   The psychologist who examined the plaintiff was of the view that the plaintiff could not be classified as a mentally handicapped person.

5.  The trial resumed on 19 April 2010, when once more it took an unexpected turn.  The defendant earlier on 15 April 2010 had issued a summons to be heard on 19 April 2010, seeking to dismiss the plaintiff’s claim on the ground that

(a)   it discloses no reasonable cause of action; or

(b)   it is scandalous, frivolous or vexatious; or

(c)   it may prejudice, embarrass or delay the fair trial of the action; or

(d)   it is otherwise an abuse of the process of the court.

6.  The defendant brother further sought an order to permit him to complete the contract of sale of the property which he had entered with a third party buyer, and to pay the proceeds of sale into Court.

7.  The Judge adjourned the application to 3 May 2010.  Having heard the application the Judge dismissed it.  The defendant appealed against the judgment.  We dismissed the appeal.  We now give our reasons.

Striking out

8.  The focus of the parties in the Court below, and indeed before us, was on the striking out of the plaintiff’s claim.  While there are authorities which support the view that striking out can be entertained even at trial or shortly before it, this Court (Cheung JA and Stone J) in Poon Lai Bing v. Gold Dragon Ltd trading as Club Paris (CACV 136/2007) was of the view that the application in such a late stage should only be entertained in the clearest circumstances.  To lodge a striking out application on the third day of a trial is wholly exceptional.  I expressed my surprise that the plaintiff’s legal advisers allowed such a course to be taken without objection.  In Johnson v. Gore Wood & Co. [2002] 1 AC 1, the defendant applied to strike out an action four years after its commencement on the ground that it was an abuse of process.  The House of Lords reversed the Court of Appeal’s decision to strike out the plaintiff’s claim on that ground.

9.  Lord Bingham (at page 34D) held that :

‘ ….[the defendant’s] failure to take action to strike out over a long period of time is potent evidence not only that the action was not seen as abusive at the time but also that, on the facts, it was not abusive.’

10.  Lord Millett also said (at page 61F) that :

‘ I do not consider that a defendant should be permitted to raise such an objection as late as this. A defendant ought to know whether the proceedings against him are oppressive. It is not a question which calls for nice judgment. If he defends on the merits, this should be taken as acquiescence.’

11.  In my view the same comment applies with equal force to a striking out based on the other well established grounds as well.  In my view one should retain a proper perspective to determine whether the dispute can, in effect, be put to an end by a striking out application in the middle of the trial.  General observations by Courts that striking out can be dealt with at or close to, trial do not provide a ready-made answer that such can or should be done in any particular case.  If grounds for striking out exist then they should be apparent, in the normal course of events, at the close of pleadings, and at the latest after exchange of witness statements.  There is nothing whatever exceptional about the present case, and regrettably this case demonstrates that the striking out application is evidently a complete waste of time and costs.

Illegality and resulting trust

12.  The striking out application was issued because of the plea in the Amended Statement of Claim that :

‘ 7. It was the common intention of Plaintiff and the Defendant that the legal title to the Property being registered in the sole name of the Defendant was for personal reasons due to immigration, tax and matrimonial considerations, and the Defendant was to hold the Property on behalf of the Plaintiff.’

13.  The defendant claimed that this demonstrates the property was registered in his name pursuant to an ‘illegal contract’.  The starting point is that the Court will not lend its aid to a claimant who formed his cause of action under an illegal contract : Tinsley v. Milligan [1994] 1 AC 3.  However, as Lord Browne-Wilkinson observed (at 370C of his judgment), notwithstanding this prohibition, a plaintiff can enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the background to his claim to a property right.  A classic example is that of a resulting trust.  This is what his Lordship said at page 371F-H :

‘ Where the presumption of resulting trust applies, the plaintiff does not have to rely on the illegality. If he proves that the property is vested in the defendant alone but that the plaintiff provided part of the purchase money, or voluntarily transferred the property to the defendant, the plaintiff establishes his claim under a resulting trust unless either the contrary presumption of advancement displaces the presumption of resulting trust or the defendant leads evidence to rebut the presumption of resulting trust. Therefore, in cases where the presumption of advancement does not apply, a plaintiff can establish his equitable interest in the property without relying in any way on the underlying illegal transaction.’ (emphasis added)

14.  The facts of Tinsley precisely illustrate the relevant principle : two women carried on a lodging house business.  They used funds from the business to purchase a property as their residence.  The property was registered in the sole name of the plaintiff, but on the understanding that both were beneficial owners.  The reason for registering the property in the sole name of one of them was to assist in a fraud practised on the social assistance scheme, where the parties had made false claims for social assistance.  Subsequently, the defendant repented and disclosed the fraud.  The parties fell out and the plaintiff claimed possession of the property against the defendant.  The defendant counterclaimed for a declaration that the property was held by the plaintiff on trust for both of them.  The House of Lords by a majority affirmed the decision of the Court of Appeal that the defendant was entitled to the declaration.  Tinsley has been applied by this Court in two recent cases, namely Wong Kwok Learn Baldwin and International Trading Co Ltd [2010] 2 HKLRD 334 and Cheerbond Development Ltd and Tung Kwok Yu [2010] 2 HKLRD 546.

15.  The essential point is that in this present case the plaintiff does not need to rely on the illegal contract to establish his claim precisely because a resulting trust arose as a matter of law when he provided for the entire purchase price.  In so doing, he acquired a resulting beneficial interest in the property.  As the parties are brothers no question of presumption of advancement arises.  In other words, this is a straightforward case of a resulting trust the upholding and enforcement of which does not require reliance upon any alleged ‘illegal contract’.

Executory contract?

16.  Mr. B. K. Ho, counsel for the defendant, argued that the principle in Tinsley is that the Court will not give assistance to the ‘enforcement of executory provisions of an unlawful contract’, per Lord Jauncey of Tullichettle at page 366C-D.  He argued that the unlawful agreement has two ‘executory provisions’ : the first is the transfer of the title of the property into the defendant’s name, and the second is ‘the transfer back of the title to the plaintiff’.

17.  With respect to Mr. Ho, he has entirely missed the point.  The plaintiff has not pleaded that the parties had agreed on any transfer back of title, or that he relies on any such a term.  The relevant part of the Amended Statement of Claim is in the following terms :

‘ 24A. In the premises, by reason of the Plaintiff's full contribution to the purchase price of the Property and all incidental costs of its purchase:

(a)    the Defendant is holding the entire or otherwise such equitable share of the Property upon a resulting trust and/or constructive trust for the Plaintiff; and

(b)    the Plaintiff is entitled to require the Defendant to transfer the Property to the Plaintiff exclusively, or in such share as is equitable.

Alternatively, if the Defendant is not so liable and the Plaintiff is not so entitled, the Defendant is liable to the Plaintiff for damages to be assessed.’

18.  This plea does not mean that there are still terms under the allegedly ‘unlawful contract’ that need to be enforced.  This is simply plea for relief consequent to the establishment of a resulting trust.  Further, Lord Jauncey’s observation (at page 367B-D) provides a complete answer to Mr. Ho’s point:

‘I find this a very narrow question but I have come to the conclusion that the transaction whereby the claimed resulting trust in favour of the respondent was created was the agreement between the parties that although funds were to be provided by both of them, nevertheless the tile to the house was to be in the sole name of the appellant for the unlawful purpose of defrauding the D.S.S. So long as that agreement remained unperformed neither party could have enforced it against the other. However, as soon as the agreement was implemented by the sale to the appellant alone she became trustee for the respondent who can now rely on the equitable proprietary interest which has thereby been presumed to have been created in her favour and has no need to rely on the illegal transaction which led to its creation.’ (emphasis added)

19.  In the present case the plaintiff seeks enforcement of the resulting trust, and not of any allegedly unlawful contract.  This he can do because a trust already was created in his favour when the property was first registered in the name of the defendant.  He thus has acquired an equitable proprietary interest without relying on any allegation of illegality.

Other relief

20.  As to the other relief sought by the defendant, this is what the Judge Selow said : 

‘ I can find no basis for such an order. The Plaintiff wants to keep this property if he were to succeed in the action. The Defendant has rather unwisely entered into his private agreement with the property developer and must live with the consequences of that decision. If the Plaintiff is right and he is the true beneficial owner of the property then he is entitled to keep it for himself. I am afraid all must await the outcome of the trial when the parties’ respective rights will be known.’

21.  I cannot see how the reasoning of the learned Judge can be faulted.

Decision on Costs

22.  Mr. Ho did not oppose the application for the plaintiff to have the costs of the appeal, but resisted the plaintiff’s application to have the costs taxed upon an indemnity basis.

23.  In my view this is an exceptional case and indemnity costs is thoroughly justified.  This is a totally unmeritorious appeal and cause of quite unnecessary delay and disruption to the trial.  To lodge an appeal on a narrow and unmeritorious issue such as this justifies an indemnity costs order.

24.  In view of the two recent reported judgments of this Court on this point, I will further order the plaintiff’s solicitors to show cause by way of written submission to be lodged within 14 days why they should not be personally responsible for the costs of the appeal.

Hon Stone J :

25.  I agree with the judgment of Cheung JA.

26.  With great respect to the learned judge below, who if I may say so handles his cases with care and precision, had it been myself in that situation I would not even have given Mr Ho’s obviously self-serving strike out application the time of day, and simply ordered him to get on with the trial – which, as it happens, already had been unexpectedly interrupted once because of the perception of possible cognitive difficulties on the part of the plaintiff.

27.  There can be no realistic doubt but that this application was wholly unmeritorious, and that the learned judge was entirely right to dismiss it; it clearly was mounted solely because the defendant had entered into a contract of sale with a third party, and naturally wished to avoid the consequence of a potential default.  

28.  Indeed Tinsley, op cit., is entirely supportive of the proposition that any element of alleged ‘illegality’ (and for my part, and without deciding the point, I do not necessarily consider that the allegations in this case automatically justify the invocation of any such public policy plea) is disregarded when such ‘illegality’ as alleged is not relied upon in terms of the relevant cause of action.

29.  As Cheung JA has pointed out, this case never was anything other than a classic ‘resulting trust’ case, with the plaintiff older brother relying on the fact that he had supplied the entirety of the purchase monies for the property, and thus that his younger brother, in whose name the property was registered, thereby held the property on resulting trust for his sibling if the case as to provision of the purchase monies otherwise was established to the satisfaction of the learned trial judge, whose observations that the defendant “must live with the consequences of his decision” to enter into an S&P Agreement with a developer, and further that “all must await the outcome of the trial when the parties’ respective rights will be known” are, with respect, absolutely right.

30.  As to the issue of costs, and the appropriate scale upon which they should be assessed/taxed, Mr Maurice Chan, who appeared for the plaintiff/respondent to the striking out application, submitted that indemnity costs was amply justified in this case because, as he starkly put it, this appeal “was not mounted with any intellectual honesty”.

31.  I am constrained to agree.  There was no merit whatever in the strike out application below, and certainly none that I was able to discern in this appeal.

32.  In my judgment, indemnity costs of this appeal is an appropriate judicial response to an entirely unsatisfactory case.  Whether or not the fault can be laid at the door of the defendant’s solicitors is not an issue upon which presently I am inclined to speculate, given the parlous situation into which the defendant clearly had created.  However, in the circumstances I do not disagree with the view of Cheung JA that in this particular case the solicitors for the defendant should be required to show cause in the manner ordered.