CHAN KWAN YIN SHIRLEY AND ANOTHER v. WU WING AND ANOTHER

HCA 7718/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7718 OF 2000

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REASONS FOR RULINGS

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1. On 18 August 2004, I dismissed an application by the 1st Defendant for leave to amend the Defence and Counterclaim. The application was to amend by,

(a)	adding the following paragraph,
	"10A.	Further or in the alternative, the Deed of Separation and the 1st Assignment was drafted and prepared by the said Mr Yeung and/or servants or agents of Messrs.Ip & Willis on the instruction of the 1st Plaintiff solely for the purpose of resolving tax complication that the 1st Plaintiff was encountering. The 1st Assignment was not a transaction for good and valuable consideration but was a sham transaction, solely for the purpose of resolving tax complication. The beneficial interest of the 1st Defendant and the 1st Plaintiff were not assigned through the 1st Assignment to the said Leung Yuk Tai."
(b)	adding references to Paragraphs 9, 10 and 10A in Paragraph 12;
(c)	adding a new prayer,
	"(aa)	Further or alternative to (a) above, a declaration that the 1st Defendant and the 1st Plaintiff jointly owned the whole beneficial interest in the land property known as the Remaining Portion of Lot No.1830 in DD 106 in Yuen Long, New Territories in Hong Kong."

2. On 20 August 2004, I granted an adjournment of the trial on the application by the 1st Defendant to facilitate an intended application for ancillary relief concerning, inter alia, the suit property to be brought and, if possible, dealt with together with this action.

3. I now give my reasons for these decisions.

4. Prior to the proposed amendments, the issues pleaded in the Defence and Counterclaim confined to allegations that the 1st Assignment was procured by fraudulent misrepresentation. The alleged representation was pleaded in Paragraph 8(i),

"In or about January 1989, Mr Yeung came to Taiwan to visit the 1st Defendant and informed the 1st Defendant that Mr Yeung was instructed by the 1st Plaintiff to bring along certain documents and to request the 1st Defendant to sign the same for the purpose of resolving tax complications in respect of the business operated by the 1st Defendant and the 1st Plaintiff in the past years in Hong Kong."

5. The Defence went on to plead that the 1st Defendant relied on the representation and signed the documents without any questioning. It is averred that the documents had not been explained to him. In Paragraph 8(k), it is alleged that the representation was false in that the documents executed were a Separation Deed and the 1st Assignment.

6. In Paragraph 9, it is pleaded that Mr Yeung made the representation fraudulently. The legal effects of these allegations, according to the case of the defence, are pleaded in Paragraph 10(a),

"The [1st ]Assignment was void and was and is of no effect as the 1st Defendant was misled into executing the same, the nature and contents of which were essentially different from that which he intended to executed (sic.). The 1st Defendant's mistake as to the nature of the documents was induced by the fraudulent representation of Mr Yeung on behalf of the 1st Plaintiff and therefore the doctrine of Non [est] Factum does apply."

7. Paragraph 10 (b) alleged the 2nd Assignment to be a sham transaction created solely for the purpose of defrauding the 1st Defendant and defeating the 1st Defendant's title to the suit premises.

8. Some background matters were pleaded in Paragraphs 8 (a) to (h) but they did not raise any distinct causes of action. In Paragraph 8(d), it is averred that the whole of the purchase price of $600,000 was contributed by the 1st Defendant when the property was acquired by the 1st Defendant and 1st Plaintiff in 1984. They were then husband and wife.

9. The only substantive prayer in the Counterclaim before the application for leave to amend is the seeking of a declaration that the 1st Assignment "be null and void".

10. I go through the existing pleadings at length because it was contended by Mr Lam, counsel for the 1st Defendant, initially that Paragraphs 8 to 10 already raised the question of beneficial ownership of the property irrespective of the validity of the 1st Assignment.

11. I am of the firm view that Mr Lam was wrong in that regard. In my judgment, as the pleadings stands (viz. without the amendments), the only causes of defence raised in the Defence and Counterclaim to resist the Plaintiffs' claim are fraudulent misrepresentation and non est factum. The attack is focused on the legal validity of the 1st Assignment. There is no plea anywhere in the whole Defence and Counterclaim to assert that irrespective of the validity of the 1st Assignment, the beneficial interest in the property did not pass to Madam Leung in any event.

12. Mr Lam referred to the plea in Paragraph 8(d). Given the relationship of husband and wife, the fact that the 1st Defendant contributed the whole of the purchase price in 1984 is neither here nor there. Paragraph 8(d) is not a plea of resulting trust.

13. More importantly, we are examining the present position as opposed to the situation in 1984. If the First Assignment is held to be valid, whatever interest the 1st Defendant might have in the property prior to the First Assignment had been passed to Madam Leung. The fact that the 1st Defendant had paid the whole of the purchase price in 1984 is neither here nor there.

14. Mr Lam also relied on Paragraph 10(b). Again I fail to see how that sub-paragraph could be read as raising an issue on beneficial ownership irrespective of the legal validity of the 1st Assignment. That sub-paragraph only dealt with the 2nd Assignment. If the 1st Assignment were valid, the 1st Defendant had divested his interest upon its execution.

15. It is significant to note that those acted for the 1st Defendant did not plead that the 1st Assignment was a sham (as in the case of the 2nd Assignment) in the original pleadings. There may be good reasons for that. The case of misrepresentation and mistake pleaded in Paragraph 10(a) premised on the ignorance of the 1st Defendant as to the contents or even the nature of the documents signed by him in 1989 by reason of the matters pleaded in Paragraph 8. On the other hand, a case of those documents being sham transactions must premise on those documents concealing the true intention of the parties to the documents. Before that premise could be established, the 1st Defendant has to show he had a certain agreed understanding with the other parties to the documents that constituted the true intention of the parties which were concealed behind these documents. Thus, there is some inherent inconsistency between the case as pleaded in Paragraph 10(a) and a case of the 1st Assignment being a sham document.

16. Whilst Mr Lam did not abandon his contention that the question of beneficial ownership had already been raised in the existing pleadings (which I hold to be wrong for reasons given above), he decided to make an application for leave to amend. The allegation of sham transaction was raised in the proposed amendments. The application was opposed by Mr Wong.

17. I have discussed the proper approach of the court in dealing with an application for leave to amend at a late stage in the following cases: Man Fong Hang v Man Ping Nam HCA 7935 of 1998, 21 July 2003 and Guangzhou Green-Enhan Bio-Engineering Co Ltd v Green Power Health Products HCA 4651 of 2002, 21 August 2004. The Court of Appeal had also considered the question in Tang Kam Wah v Tang Ming Yat [2003] 1 HKC 532. Whilst the court should grant leave to amend to allow the real issues in controversy to be canvassed when the amendments did not cause any prejudice to the other side that cannot be compensated by costs, the court should take into account all relevant factors in the exercise of discretion. As a matter of common sense, a late application raising a new case for the first time that changes the main focus of the trial is more likely to cause prejudice beyond those that can be adequately compensated by costs and adjournment. Of course, whether such prejudice would actually be suffered (if amendment is allowed) depends on the facts of each case and the court must examine that in the light of the circumstances of the case before it. It must however be recognized that a last minute moving of the goal posts is not in line with the current litigation ethos as reflected in proactive case management and procedural rules for proper and timely disclosure in advance of a case being set down for trial. Lord Griffiths referred to some other relevant factors in relation to such an application in Ketteman v Hansel Properties [1987] 1 AC 189 at p.220.

18. In the context of the present case, the raising of the question of beneficial ownership has significance beyond the dispute pertaining to that issue. The 1st Plaintiff and the 1st Defendant had been wife and husband. In 1992, the 1st Plaintiff had petitioned for divorce in Suit No. 4722 of 1992 in the District Court on the ground of five years' separation. Based on the evidence of the 1st Plaintiff that she had lost contact with the 1st Defendant and reasonable efforts had been made to locate the 1st Defendant, an order dispensing with service of the petition was made on 4 May 1995. By way of ancillary relief, the Family Court ordered $1 nominal maintenance in favour of the 1st Plaintiff on 25 August 1995, the same date when decree nisi for dissolution of marriage was granted. Decree absolute was granted on 3 November 1995. The 1st Defendant said he had no knowledge of the divorce proceedings and he did not appear at any hearings in that suit.

19. Given the wide power of the Family Court to adjust property rights under the Matrimonial Proceedings and Property Ordinance Cap.192 ["MPPO"], it has been held that in general it would not be necessary nor helpful to waste time on investigation as to strict property rights of husband and wife when they have been involved in divorce proceedings, see Fielding v Fielding [1977] 1 WLR 1146n; P v P [1978] 1 WLR 488. Hence, the raising of the question of beneficial ownership might trigger applications under the MPPO for adjustment of property rights in the context of divorce proceedings. If such an application is made, the investigation of strict beneficial interest might be a futile exercise. The divorce suit is not before me at the time of the application for leave to amend.

20. It is therefore wholly unsatisfactory if this court were to allow the issue as to beneficial ownership to be raised in this action without regard to any potential exercise by the Family Court to adjust property rights in Suit No. 4722 of 1992. In an ancillary relief application under MPPO, the focus of the Family Court will be very different from that of a court in ordinary civil litigation concerning strict property rights.

21. The 1st Defendant had not made any application for ancillary relief in Suit No. 4722 of 1992 even after he learnt of the existence of that suit. Mr Lam explained that the 1st Defendant hoped to achieve a resolution of the property rights in the context of this action before resorting to application for ancillary relief under MPPO. In my judgment, whoever advised the 1st Defendant to take such a course must have some misconceptions as to the law. For reasons set out in the cases cited in Paragraph 19 above, if ancillary relief application were viable, it would generally be a waste of costs and time to engage in investigation as to strict property right. The proper course is to seek a property adjustment order under MPPO.

22. Mr Lam contended that the evidence relating to the new plea of beneficial ownership were already included in the witness statements and affirmations. That may be the case in respect of the defence evidence. However, one cannot say the same with regard to the Plaintiffs. Mr Wong indicated that the Plaintiffs would like to locate another clerk involved in the preparation of the 1st Assignment and the Deed of Separation and obtain evidence from him in respect of these documents if the question of beneficial ownership is raised. Given the change in the focus of the case if the amendments were allowed, this court must give the Plaintiffs a reasonable opportunity to prepare their evidence to meet the new case. If the amendments were allowed, the trial would have to be adjourned part-heard.

23. In my judgment, in the circumstances of the present case, if the issue of beneficial ownership were to be raised, it should be considered together with whatever applications the parties might make in the context of MPPO. The determination of one without the other would not achieve finality. There is also a distinct possibility that the court needs not determine the issues on beneficial ownership (as opposed to questions as to the legal validity of the 1st and 2nd Assignments which had to be considered in any event by reason of the interest of the 2nd Plaintiff under the 2nd Assignment) if MPPO is evoked by either party to the marriage. As matters stood on 18 August 2004, I do not think it is appropriate to grant leave to amend to enable the issue of beneficial ownership to be litigated without any consideration being given to the Family Court's power under the MPPO. I therefore dismissed the application for leave to amend on 18 August 2004.

24. On 19 August 2004, Mr Lam sought an adjournment of the trial for two purposes,

(a)	the 1st Defendant intended to appeal against my ruling refusing leave to amend and he wanted to adjourn the trial in the meantime;
(b)	the 1st Defendant intended to make an application under the MPPO in Suit No. 4722 of 1992.

25. I am of the firm view that the first ground cannot succeed. It is well established that an intended appeal against an interlocutory ruling made in the course of a trial should not generally be a ground for adjourning the trial awaiting the outcome of the appeal. Para.20/8/12 at p.352 of Hong Kong Civil Procedure 2004 reads,

"It is highly undesirable that there should be appeals to the Court of Appeal in the course of trials of actions. It is altogether better that matters of an interlocutory nature should work themselves out in the course of the trial without interlocutory recourse to the Court of Appeal before the facts have been completely determined and the trial has been concluded. The Court of Appeal may hear appeals in the course of the trial but only in exceptional circumstances. The reason is not just that it interrupts the trial, although that is usually a sufficient reason, but that if it became the practice to give leave to appeal in the course of a trial, the Court of Appeal will soon be overwhelmed with appeals, many of which might prove academic."

I respectfully agree.

26. Mr Lam contended that this is an exceptional case since the ruling might affect the course of the evidence. Although I recognize that the ruling might affect the course of evidence, I do not think it renders the case exceptional. Mr Lam did not suggest that the 1st Defendant would definitely lose the action if the amendments were not allowed. He intended to proceed with the defence of fraud, misrepresentation and non est factum. This distinguishes the present case from Tang Kam Wah v Tang Ming Yat [2003] 1 HKC 532. As shown in the above analysis, the issue of beneficial ownership might prove to be academic given the viability of applications under MPPO. I therefore would not adjourn the trial if the application for adjournment were confined to Ground (a).

27. However, ground (b) is different. Despite Mr Wong's submissions, I cannot say at this stage that the intended application under MPPO is vexatious or has no prospect of success whatsoever. There were valid criticisms directed against the 1st Defendant, in particular the manner in which the MPPO application was formulated and revised by Mr Lam. Yet I am unable to say that the 1st Defendant must necessarily fail in his MPPO application. Rightly or wrongly, he had been using the property for a number of years and the Plaintiffs had, even on the Plaintiffs' case, allowed him to do so.

28. I should not lose sight of the fact that the real issues between the parties should be the distribution or adjustment of rights over this property. Mr Wong very properly accepted that even if an adjournment is not granted, the judgment in this trial would not finally resolved the disputes between the parties. There is nothing to stop the 1st Defendant from launching a MPPO application. Even if this court were to make an order for possession, it would probably be stayed if there is a pending ancillary relief application in which the 1st Defendant claims relief in respect of the property.

29. Given the evidence set out in witness statements and affirmations, I cannot say at this stage that the 1st Defendant did not make any contribution to the family wealth. Although apparently there is substantial delay on the part of the 1st Defendant in making the MPPO application, the Plaintiffs have not produced evidence before me to show that she had arranged her affairs in the belief that the 1st Defendant would have no further claims over the property. Instead, she let him stay in the property. It is a matter for the Family Court to consider whether leave should be granted to the 1st Defendant under Rule 68 (2)(a) of the Matrimonial Causes Rules (assuming that such leave is necessary) and I certainly should not pre-empt that decision in this Reasons for Rulings. But I am unable to conclude on the material before me that the application for leave must fail.

30. In general, all issues between the parties on a subject matter should be litigated in one trial. At one point, I am minded to consider that given the history of this case, this court should proceed with the trial and resolve the disputes as to the legal validity of the Deed of Separation and 1st Assignment by determining the issues of fraud, misrepresentation and non est factum and leave the parties to litigate under MPPO if either of them should deem fit in a later set of proceedings. The 2nd Plaintiff could also be parties (as intervenor) to the MPPO proceedings, see Tebbutt v Haynes [1981] 2 All ER 238. On reflection, I do not regard that as the correct exercise of discretion. First, the present action would not achieve finality and it serves little practical purpose to have this action resolved in advance. Second, due to time taken up by the interlocutory applications by the 1st Defendant during the trial, there is insufficient time to complete the trial within the time allocated. Given the state of the diary of this court, the case would have to be adjourned part-heard for a lengthy period in any event. Third, once the focus of the parties is directed to MPPO issues, there is a possibility that the issues of fraud, misrepresentation and non est factum may pale into relative insignificance.

31. I therefore reluctantly adjourn the trial on terms on 20 August 2004.