HANMER INTERNATIONAL HOLDING LTD v. HON CHIN CHI AND NOTHER

HCA 2210/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2210 OF 2016

________________________

________________________

_______________

DECISION

_______________

A. Introduction

1.  By a writ indorsed with statement of claim dated 26 August 2016, the plaintiff claims against the defendants for inter alia possession of a property known as Flat A on 4^th Floor and Car Parking Space No 33 on Ground Floor, Lilac Court, No 175 Boundary Street, Kowloon, Hong Kong (“the Property”) and damages for trespass.

2.  On 29 September 2016, prior to the filing of any defence by the defendants, the plaintiff applied for summary judgment against the 1^st defendant for possession of the Property and damages to be assessed.  On the first return date on 12 December 2016, the Master adjourned the summons and gave the usual directions for inter alia the filing of affirmations and that no further affirmations be filed without the leave of the court.

3.  By a summons issued on 17 March 2017, the 1^st defendant applied for leave to adduce a further affirmation, being the 2^nd affirmation of the 1^st defendant, in opposition to the summons.  Whilst I bear in mind the principles on granting leave for late affirmations, the affirmation here was very short (less than two pages), and so I admitted it on a de bene esse basis. I shall come back to this later.

B.   The parties’ respective cases

4.  The plaintiff’s pleaded case, as confirmed by the 1^st affirmation of Pang Ka Kit Alexander (“Pang”), presently the plaintiff’s sole director and shareholder, is as follows:

(1) The plaintiff is a Hong Kong incorporated company and the registered owner of the Property.

(2) The 1^st defendant had occupied the Property as a bare licencee since February or March 2008.

(3) By a letter dated 25 July 2016, the plaintiff through its solicitors gave notice to the 1^st defendant terminating the licence and demanding vacant possession of the Property by 24 August 2016.

(4) The 1^st defendant, however, has refused to deliver vacant possession of the Property and remains in wrongful occupation as a trespasser.

5.  By her 1^st affirmation dated 20 January 2017, the 1^st defendant set out her defence to the plaintiff’s claims as follows:

(1) The plaintiff was established by one Kwan Kim Wan (“Kwan”) in March 2004 primarily for the purpose of investing in properties in Hong Kong and carrying on trading business.

(2) She met Kwan in 1997.  Although she was aware that Kwan was married, they nonetheless entered into a relationship and began to cohabit in 1999.

(3) After the commencement of their relationship, she and Kwan agreed to invest in real estate and small businesses together, and to share the profits equally.  She also agreed to allow Kwan to manage the investments as she was not good at handling financial matters.  Kwan promised to treat her as a family member and she fully trusted him.

(4) In or around 2000, she and Kwan invested in several properties in Mainland China and some small garment and pearl trading businesses.  The investments included her cash contributions.  The properties and businesses were all held in Kwan’s name in accordance with their agreement for him to manage the same.

(5) In mid-2002, with the profits made from their earlier investments, she and Kwan purchased a property in Hung Hom, in which the two of them then cohabited.

(6) Sometime afterwards, she and Kwan were introduced to Pang, who was “a property agent and who advised Kwan to purchase future properties under a company name instead of his personal name for tax saving purposes.”  In March 2004, Kwan told her that they should establish a company for property investment as suggested by Pang and that she “would have 50% interest of the company because this was [their] investment”.

(7) Kwan consequently established the plaintiff for the purpose of buying their next property.  Further, “as Kwan was [her] boyfriend, [she] totally trusted him so that [she] agreed to establish the plaintiff only under his name, but both of them had a common intention that each of [them] would hold 50% interest of the plaintiff”.

(8) Since then, Pang became friends with her and Kwan.  She exhibited a group photograph of her and Kwan together with a number of other individuals, one of which was said to be Pang.

(9) In June 2005, she and Kwan purchased a flat in a development known as Regent on the Hill using the plaintiff as their investment vehicle.  Shortly afterwards, in September 2005, they sold the property in Hong Hum and made a profit of some HK$300,000.  In February 2008, they decided to sell the unit in Regent on the Hill and made a profit of around HK$500,000.

(10) On 28 March 2008, she and Kwan decided to purchase the Property for HK$5.4 million, again using the plaintiff as the investment vehicle and using part of the earnings from the previous investments to pay for the deposit.

(11) “As [she and Kwan] were getting old, when [they] bought the Property, they decided to make it [their] home.  Therefore, at the date of completion of [the Property’s] transaction, Kwan stressed to [her] that [she] was the owner of the property and [she] could renovate the Property as [she] wished.  It was the common intention of Kwan and [her] that [they] would be the only beneficial owners of the Property even though it was held under the plaintiff’s name because this was [their] home.  [She] was in charge of the renovation matters and liaison with the contractor and [she] paid the renovation fees.”

(12) Throughout their cohabitation, she was responsible for paying all the government rates, management fees, repair contribution and repair costs of all of their co-invested properties.

(13) Unfortunately, Kwan was diagnosed with stomach cancer in or around 2013.  She continued to live with Kwan in the Property with the assistance of a male domestic helper until he was admitted to a hospital for medical treatment in 2015.  Kwan died in September 2015.  She continued to reside in the Property after his death, but on 25 July 2016, she received a solicitors’ letter demanding her to vacate the Property.

(14) She was surprised and had no idea that Pang had become the majority controlling shareholder of the plaintiff.  Kwan never discussed with or told her about the transfer of any shares of the plaintiff to Pang.  She was only aware that after Kwan became ill, he asked Pang to assist him in doing some administrative work of the plaintiff.  She therefore challenged the authenticity or propriety of the issue and transfer of the shares of the plaintiff to Pang.

(15) She also exhibited some WhatsApp messages exchanged between herself and one Leung Ka Keung (“Leung”), Kwan’s nephew-in-law.  It is unnecessary to set out the messages in detail here, save for the following excerpts from Leung:

15 July 2016:

「 Hi, 彭太用他兒子名吃了姨丈很多東西

1.   你現在住的樓……」

「 彭先生和彭太是老千, 上次和你見面時你有很多事情說, 你說他們騙了姨丈2.5億, 我估最少也有1億! 」

30 July 2016:

「 彭先生和彭太有黑社會背景, 我們安全嗎? 如果勝出官司, 我們自身最重要……」

(16) The 1^st defendant denies that she is a bare licensee of the Property.  Further, she has been advised by her legal advisers that inter alia she “is entitled to claim [her] 50% interest of the plaintiff” and that “Kwan gave his 50% share of the … Property via the plaintiff to [her].”

6.  By his 2^nd affirmation, Pang responded to the 1^st defendant’s evidence as follows:

(1) Although he met the 1^st defendant on a few occasions, he was not in the photo the 1^st defendant exhibited.  Further, as he was born in 1992, he was only 12 years old in 2004 (being the time that Pang had supposedly advised her and Kwan to set up a corporate vehicle).  He accepted, however, that his father was in the photograph, and that his parents had been acquainted with Kwan for “a very long period”.  Kwan also treated him and his sister informally as his godchildren.

(2) Towards the end of 2014, Kwan approached Pang and told him that he would like to obtain from OCBC Wing Hang Bank (“Wing Hang Bank”) a mortgage loan of HK$7,000,000 by charging the Property, which had been “acquired by Kwan in the name of the plaintiff”.  At the time, the Property was subject to an existing mortgage in favour of Public Bank (Hong Kong) Limited (“Public Bank”) and Kwan was the sole shareholder and director of the plaintiff.

(3) Kwan told him that the desired loan would serve two purposes: first, to discharge or refinance the existing mortgage; and second, Kwan was in need of funds for “his personal and/or business use”.  Pang was “invited to help” Kwan by obtaining the loan in Pang’s name as borrower.  Pang would be responsible to repay the loan himself, but in return, he would be allotted an 80% shareholding in the plaintiff and also be appointed as a director of the plaintiff.

(4) On 17 November 2014, the plaintiff issued 9 new shares, 8 of which was allotted to Pang and the remaining share allotted to Kwan.  On 19 January 2015, Wing Hang Bank granted the loan to Pang, the proceeds of which was utilised to repay the Public Bank loan whilst “the balance was applied as per Kwan’s direction.”  Pursuant to his agreement with Kwan, Pang has been repaying the loan with his own funds.

(5) After Kwan’s health deteriorated about mid-2015, it was agreed that Kwan would transfer the remaining 2 shares in the plaintiff to him and resign as a director.  This was done on 8 August 2015, after which Pang became the sole director and shareholder of the plaintiff.

(6) At the time of discussion of the loan with Kwan, although “Kwan did not specifically discuss with [him] about the use of the Property”, Pang was aware from his mother and/or Kwan that “Kwan had a mistress called ‘Lily’ and surnamed Hon (now identified to be the 1^st defendant), who was allowed to live in the Property.”  However, in July or August 2015, when he and Kwan discussed the transfer of the remaining two shares in the plaintiff to him, the use of the Property was “not raised again” and “it was understood” that once Pang became the sole shareholder and director of the plaintiff, he could make decisions on all affairs of the plaintiff including the use of the Property.

(7) Kwan never informed him of any third party interest in the Property and he believed that the Property was acquired solely with Kwan’s funds injected into the plaintiff or mortgage loans obtained from the bank prior to his involvement.

7.  Leung also filed an affirmation on behalf of the plaintiff, which may be summarised as follows:

(1) As Kwan and his wife, Madam Lam Pou Leng (“Mrs Kwan”), had no children, Leung assisted them in dealing with their business and personal affairs in the past 10 years.  Hence, he came to have knowledge of their affairs;

(2) “At all material times, it was within the knowledge of both Mrs Kwan and [him] that Kwan had affairs [sic] with the 1^st defendant and that Kwan maintained a household for her.  The latest household for the 1^st defendant was maintained in [the Property] ….”

(3) He and Mrs Kwan were aware that the plaintiff was Kwan’s vehicle in acquiring the Property, and it was their understanding that “the changes in share structure of the plaintiff were part of the finance arrangements between Pang and Kwan”.

(4) Although Kwan died intestate, prior to his death, he made a series of arrangements regarding his business and assets after he became aware that he did not have long to live, including inter alia “gifts to the 1^st defendant as well as the transfer of his shares in the plaintiff to Pang”.

(5) Although he wrote the WhatsApp messages exhibited by the 1^st defendant, “the contents of [his] messages sent to the 1^st defendant (in particular, the allegations against Pang and/or his mother) are not what [he] really meant and that the dialogue just followed what the 1^st defendant told [him] previously ….”

(6) He also exhibited a one-and-a-half-page note apparently written by the 1^st defendant in manuscript Chinese on 30 July 2016 and which was sent to Leung by way of a photograph uploaded onto WhatsApp (“the Manuscript Note”).  The note contained inter alia the following passage:

「 我現在住的樓, 關先生說將來會留給太太收租養老, 或作慈善用途. 現我百思不得其解. 真的值得後人心思? 」

C. Principles on summary judgment

8.  The principles upon which the court will grant summary judgment are well established and require little elaboration:

(1) The burden is upon the defendant to show that there are triable issues and to satisfy the court that he has a “real or bona fide defence”.

(2) The defendant’s affidavit must “condescend upon particulars”, and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what his defence is, and what facts are relied upon to support it.  A mere general denial will not suffice.

(3) If the defendant makes an allegation, it must be credible or believable in the light of the evidence before the court.  Whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.

(4) Order 14 is for clear cases, and the court must not embark on a mini-trial on the affidavits.  Unless it is obvious that the defence put forward is “frivolous and practically moonshine”, summary judgment ought not to be applied.

D. Discussion

9.  The 1^st defendant’s case is, in essence, that she has a beneficial interest in the Property and/or the shareholding of the plaintiff by reason of constructive or resulting trusts arising in her favour.

10.  It is not in dispute that Kwan had kept the 1^st defendant as his mistress and that he had maintained a separate household for her, the latest being the Property.  The 1^st defendant’s evidence that she had co-habitated with Kwan for a substantial number of years until shortly before his death was also not seriously disputed.

11.  The principles on common intention constructive trusts in a domestic context were analysed by the Court of Appeal in Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985.  For present purposes, it suffices for me to say that the 1^st defendant has in her affidavit evidence (including in particular the matters I have recited in paragraphs 5(10) – (12) above) raised triable issues that there was an expressed common intention between her and Kwan that she should have a beneficial interest in the Property and further that she acted in detrimental reliance on that common intention.

12.  As to the extent of her intended beneficial interest, if any, including, for instance, whether she and Kwan intended that they should be beneficially entitled to the property as joint tenants, giving her the right of survivorship, or as tenants in common (see eg Luo Xing Juan at §§62 – 63), these will be matters for trial.  I note that on the 1^st defendant’s evidence, Kwan had stressed to her that she was to be the “owner”of the Property and that this was to be their“home”.  In the light of their undisputed relationship and co-habitation, her assertion cannot be said to be unbelievable.

13.  It is correct, of course, that the registered owner of the Property is the plaintiff and not Kwan.  Mr Lau, counsel for the plaintiff, referred me to the decision of the Court of Final Appeal in Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, where Ribeiro PJ held at §§38 – 39 that:

“ Where a constructive trust is alleged to arise on the basis of the parties’ common intention, it is the intention commonly held by the property owner and the claimant regarding their shared beneficial interests in the property that matters. The trust is constituted by the claimant’s detrimental reliance on their common intention and the unconscionability of the property owner departing therefrom.

It follows that Glory Rise’s [the registered owner] ownership of the Property is crucial.  The fact that A and B might form a common intention that they should have shared beneficial interests in C’s property cannot in principle be sufficient to impose a constructive trust on C to hold C’s property on trust for A and B.  C is not party to and does not unconscionably depart from any common intention, so there is nothing to constitute C a trustee for A and B.  If B does not make good his promise, he might attract personal liability to A, but it does not mean that an equitable interest in C’s property is created in favour of A.”

14.  The following distinguishing factors are, however, of significance in the present case:

(1) The 1^st defendant contends that the Property was purchased by her and Kwan in the name of the plaintiff or using the plaintiff as a corporate vehicle for tax saving purposes.  This does not appear to be disputed.  Pang’s own evidence was that the Property “… was acquired by Kwan in the name of the plaintiff”.

(2) In contrast to Luo Xing Juan where the claimant in that case was not even aware that the registered owner of the property was a company (see §§42 and 45 of the judgment), the 1^st defendant states that she was well aware of the circumstances in which the plaintiff was established and that the Property had all along been acquired by and held in the name of the plaintiff.

(3) Moreover, in Luo Xing Juan, the promisor was only a majority shareholder of the company which owned the property, whilst the remaining shares were held by a third party.  In the present case, at the time of the acquisition of the Property, Kwan was the sole shareholder and director of the plaintiff.  It is arguable in such a situation that any arrangement or common intention between the 1^st defendant and Kwan would be binding on the plaintiff under the principle of unanimous shareholder consent: see In re Duomatic Ltd [1969] 2 Ch 365 and Cane v Jones [1980] 1 WLR 1451.

15.  Hence, in the circumstances of this case, the fact that the Property was acquired in the plaintiff’s rather than Kwan’s name is insufficient to deprive the 1^st defendant of a trial of her contention that a common intention constructive trust arose in her favour.  Moreover, if it is established at trial that the plaintiff was bound by such a trust at the time of purchase of the Property, it would remain bound notwithstanding any changes in its shareholding or directorship.  Pang’s lack of knowledge or otherwise as to the existence of the 1^st defendant’s interest in the Property when he acquired his shares in the plaintiff would appear to be immaterial.

16.  Mr Lau raised two further points in his submissions:

(1) First, he criticised the lack of particularity in the 1^st defendant’s affidavit evidence — in particular, the lack of detail as to the amounts of her contributions to the purchase price of the Property, renovation and other expenses, and the lack of supporting documentary evidence.

(2) The existence of detriment in reliance upon the common intention remains a key requirement for common intention constructive trusts in Hong Kong (see Mo Ying at §§6.11 and 6.12).  Whilst I agree that greater detail and supporting documentation could have been provided by the 1^st defendant, in the light of her evidence as a whole, I am satisfied that her case is sufficiently particularised for the purpose resisting a summary judgment application.  The precise extent or sufficiency of the 1^st defendant’s acts (or omissions) of detrimental reliance, if any, will have to be a matter for trial;

(3) Mr Lau also submits that I should reject the 1^st defendant’s evidence as being incredible, having regard to the Manuscript Note which she sent to Leung shortly before the present action was commenced against her.  Although I accept that there is some inconsistency between the face of the note and the case she is advancing now, this is a matter for cross-examination and not a matter which can be resolved on affidavit.

(4) In particular, the Manuscript Note must be viewed in the context of the very serious allegations Leung made against Pang and (it appears) his parents in his WhatsApp messages to the 1^st defendant. Plainly, such allegations do not sit well with Leung’s evidence now as summarised above.  These are matters requiring investigation at a trial so that the meaning of what the 1^st defendant wrote in the Manuscript Note and the circumstances in which she wrote it may be fully examined.

17.  In the light of my view that a viable defence has been raised on common intention constructive trust, it is unnecessary to address in detail the other defences raised by the 1^st defendant.  I would make, however, the following brief observations:

(1) As to the 1^st defendant’s case that she is beneficially entitled to 50% of the shareholding in the plaintiff, it is tolerably clear that even if she were to succeed on such a claim, that would not have amounted by itself to a defence to the present action for possession of the Property.  It is well established that a shareholder has no interest or entitlement to the assets of a company.

(2) The situation might be different if she were able to challenge altogether the validity or authenticity of the issue and transfer of shares of the plaintiff to Pang and his appointment as a director.  In such a case, questions may arise as to whether Pang has the authority to commence the present action on behalf of the plaintiff.

(3) As mentioned above, the 1^st defendant has expressed doubts concerning the authenticity of the transfer of the shares of the plaintiff to Pang.  However, the evidence in her 1^st affirmation in this regard is little more than speculation.  On the other hand, there appears to be a dearth of evidence from the plaintiff as to the amount of the Public Bank loan that Pang is said to have discharged using the proceeds of the Wing Hang Bank loan, or how the remaining balance of the HK$7 million was applied, other than that it was “as per Kwan’s direction.”  This is not unimportant as this forms the apparent basis upon which the shares of the plaintiff were issued and transferred to Pang.

(4) In her 2^nd affirmation, which I admitted de bene esse, the 1^st defendant asserted that Kwan’s signature on the instruments of transfer for the two shares of the plaintiff were noticeably different from his signature on other documents.  In the absence of any cogent supporting evidence, I decline to form any view at this stage as to the merits of that contention.

18.  For the reasons above, I give the 1^st defendant unconditional leave to defend the action.  As the 1^st defendant’s 2^nd affirmation served no useful purpose and did not add anything to her case, I dismiss her summons dated 17 March 2017, with costs to the plaintiff.

19.  Having regard to all the circumstances of the case, including that greater detail could have been provided by the 1^st defendant on her financial contributions and the apparent inconsistency between the Manuscript Note and the case now advanced by the 1^st defendant, I make an order nisi that the costs of the summons dated 29 September 2016 for summary judgment be in the cause of the action.