LUNG KA KUEN v. CHU CHUN YUK ALIAS CHU CHUN YUK MARGARET AND ANOTHER

HCA 2832/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 2832 OF 2015

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REASONS FOR DECISION

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Introduction

1.  The plaintiff (“P”) and the 1^st defendant (“D1”)  were the registered joint tenants of a property known as Flat G on 15/F of Block 39, No 16 Pak Tak Street, City One Shatin, Shatin, New Territories (“Property”).

2.  On 8 November 2006 D1 was declared bankrupt (“Bankruptcy Order”), hence D1’s legal title in the Property was vested in the 2^nd defendant (“D2”) as trustee of the property of D1. By an order made on 23 December 2010, D1 was discharged from her bankruptcy.

Procedural history

3.  On 2 December 2015, P commenced the present action against D1 and D2 for the following reliefs:

(a)  a declaration that D1 and/or D2 do hold half equal share in the Property on trust for P;

(b)  an order vesting D1’s and/or D2’s legal interest in the Property in the name of P;

(c)  a declaration that P is entitled to all of the proceeds of sale in the event of the Property being sold together with interest;

(d)  costs; and

(e)  further and/or other relief.

4.  By an affirmation of service filed on 3 August 2016, the process server of P’s solicitors confirmed that the Writ of Summons had been served on D1 and D2.

5.  On 15 December 2015, D2 filed acknowledgment of service giving notice of intention to defend. D1 did not file any notice of intention to defend within the prescribed time or at all.

6.  On 14 January 2016, P filed Notice of Intention to Enter Default Judgment.

7.  On 15 January 2016, D2 wrote to the court with copy to P’s solicitors claiming that (a) the joint tenancy in respect of the Property was severed into tenancies-in-common in equal shares by operation of law upon making the Bankruptcy Order, (b) all property of the bankrupt D1 was vested in D2 on making the Bankruptcy Order by operation of section 58 of the Bankruptcy Ordinance Cap 6, (c) D2 had received 12 proofs of debt claiming for a total sum in excess of $3,000,000, but D1’s estate had less than $200, (d) despite D1’s discharge from bankruptcy her half share in the Property remained with D2,[1] (e) D2 considered P failed to prove his case to D2’s satisfaction, (f) D2 sought assistance from D1’s creditors for indemnity for costs, including adverse costs, before taking up the present action to resist P’s claim, (g) no creditor was willing to provide the necessary funding, (h) D2 was therefore not in a position to defend the present action and no Defence had been filed, and (i) D2 would abide by any direction or decision of the court.

8.  On 1 February and 29 July 2016, P filed his List of Documents and Supplemental List of Documents.

9.  On 29 July 2016, P filed his witness statement verified by his statement of truth.

10.  No affidavit of service was filed in respect of service of P’s List of Documents, Supplemental List of Documents and witness statement on D1 and D2.

11.  On 3 August 2016, P filed a summons seeking default judgment against D1 (for failing to give notice of intention to defend) and D2 (for failing to serve his Defence) pursuant to Order 13 rule 6 and Order 19 rule 7 of the Rules of the High Court (“RHC”) for the reliefs in paragraph 3(a)-(c) above, and costs of the present action to be taxed if not agreed (“Summons”). The Summons was returnable on 18 October 2016 (“Hearing”) before this court.

12.  By a 2^nd affirmation of service filed on 5 August 2016, the process server of P’s solicitors confirmed that the Summons had been served on D1 and D2.

13.  By a 3^rd affirmation of service filed on 14 October 2016, the process server of P’s solicitors confirmed that copies of the skeleton submissions and list of authorities of P’s counsel, hearing bundle, and P’s chronology and dramatis personae had been served on D1 and D2.

14.  On 12 October 2016, D2 wrote to the court confirming his position was as set out in his earlier letter dated 15 January 2016, and he would abide by any direction or decision of the court.

15.  D1 never appeared in the present action and was absent at the Hearing. Ms Chan appeared on behalf of D2.

16.  At the Hearing, I dismissed the Summons and granted no order as to costs in respect of the Summons. I have reserved my reasons for decision which I now give.

Legal principles on default judgment

17.  In an application for default judgment under Order 19 rule 7 of the RHC, the court will not receive evidence and would give judgment according to the pleadings alone, so it is not necessary for the plaintiff to prove the case by evidence.[2] But Order 19 rule 7 of the RHC is not mandatory but discretionary, and the court retains its discretionary power whether to give judgment or to extend a party’s time to plead when it is just to do so.[3] Further, the Statement of Claim must show a case for the order the plaintiff seeks to obtain. Hong Kong Civil Procedure 2017 goes on to say:

“...... it is not the practice of the court to make a declaration of right in default of defence, ...... but where such relief is to be granted without trial or evidence, the right course for the court is not to make a declaration but to state on what footing the relief is to be granted (Wallesteiner v. Moir [1974] 1 W.L.R. 991; [1974] All E.R. 217; per Buckley and Scarman L.JJ.).[4] ......

  The principle that a declaration will not be granted when giving judgment ...... without trial, e.g. where judgment is obtained in default of defence or notice of intention to defend, is a rule of practice and not of law and will give way to the paramount duty of the court to do the fullest justice to the plaintiff to which he is entitled (Patten v Burke Publishing Co. Ltd [1991] 1 W.L.R. 541; [1991] 2 All E.R. 821.)”[5]

“  Where declaratory relief is sought, the court will scrutinize the application for default judgment carefully and will not hastily grant the relief sought ......

  Where declaratory relief is sought, the court expects maximum assistance to be provided in order for the relief to be granted.However straightforward this kind of application may seem, the court should not be expected to deal with the matter on a do-it-yourself basis and rubber-stamp the uncontested application without further ado ......

  The declaratory reliefs to be granted should not be in terms wider than what the plaintiffs are entitled to and what is necessary to do justice o them ......”[6]

18.  In Top One International (China) Property Group Co Ltd v Top One Property Group Ltd, a case not cited by Mr Ngai, counsel for P, Fok J (as he then was) recognised the above principles, but declined to grant default judgment in favour of the plaintiff against the 1^st and 3^rd defendants on its claim for breach of share charge and dishonest assistance in breach of fiduciary duties. The learned judge said:[7]

“83. In my view, notwithstanding Mr Lam’s persuasive submissions, it would not be appropriate to grant the declaratory relief sought by way of default judgment. In the absence of a judgment reached after hearing evidence, a declaration could be based only on unproved allegations and the Court ought not to declare as fact that which might not have proved to be such, had the facts been investigated: Wallesteiner v Moir, p.1029 (Buckley LJ) and Patten v Burke Publishing Co Ltd [1991] 1 WLR 541, 544A (Millett J (as he then was)).”

Legal principles on common intention constructive trust

19.  As will be seen below, the principles of common intention constructive trust are relevant, and the Court of Appeal in Mo Ying v Brillex Development Ltd& anorextensively reviewed the authorities in this area.[8]  As the Property was purchased in joint names, it is only necessary to refer to the following parts of the judgment in Mo Ying:[9]

“5.16  In [Jones v Kernott [2012] 1 AC 776], Lord Walker and Baroness Hale in their joint judgment further elaborated on the applicable principles on disputes in respect of family homes in joint names and family homes in sole name. In respect of joint name homes, the principles are as follows. For ease of reading, I have arranged each of the five principles in separate paragraphs:

[51]  In summary, therefore, the following are the principles applicable in a case such as this, where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage, but without any express declaration of their beneficial interests.

(1)  The starting point is that equity follows the law and they are joint tenants both in law and in equity.

(2)  That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change.

(3)  Their common intention is to be deduced objectively from their conduct:

“the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words and conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party”: Lord Diplock in Gissing v Gissing [1971] AC 886, 906.[10]

Examples of the sort of evidence which might be relevant to drawing such inferences are given in Stack v Dowden [2007] 2 AC 432, para 69.  

(4)  In those cases where it is clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, ‘the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property’: Chadwick LJ in Oxley v Hiscock [2005] Fam 211, para 69.  In our judgment, ‘the whole course of dealing ... in relation to the property’ should be given a broad meaning, enabling a similar range of factors to be taken into account as may be relevant to ascertaining the parties’ actual intentions. 

(5)  Each case will turn on its own facts.  Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were either intended (as in case (3)) or fair (as in case (4)).”

20.  Mr Ngai submitted that to establish a constructive trust to the effect that equity should not follow the law, it is necessary to show (a) there was a common intention between P and D1 that P was to be the beneficial owner of the Property even though it was acquired in their joint names, (b) P altered his position in detrimental reliance upon such common intention, and (c) it was unconscionable for D1 to assert ownership in reliance on her legal title to the Property.[11]

21.  The onus of proof lay on the party seeking to show that equity should not follow the law (ie P in the present context) and to establish (a) the joint owners intend their beneficial interests to be different from their legal interests and (b) in what way.[12] The burden is a heavy one “because it will almost always have been a conscious decision to put the property into joint names, and committing oneself to spend large sums of money on a place to live is not normally done by accident or without giving it thought”.[13]

22.  Mr Ngai relied strongly on Kan Kiu Chor v Fung Shu Fun, the Administratrix of Tang Chuen, deceased where DHCJ Cooney SC held it was a suitable case for the court to depart from the normal practice and to grant the declaration sought in order to do the fullest justice to the plaintiff. Although that case also concerned declaratory relief on the basis that the defendant held the property in question for the plaintiff pursuant to a common intention constructive trust and/or resulting trust as pleaded in the statement of claim, the defendant in that case (a) filed an acknowledgment of service and confirmed she did not intend to contest the plaintiff’s claim, (b) the defendant did not contest the application for default judgment, (c) the defendant actually appeared by her solicitor at the hearing to confirm she indeed held the property in question on trust for the plaintiff, (d) the plaintiff placed affirmation evidence before the court setting out all the evidence in support of the plaintiff’s claim, which included a large number of documents evidencing that the plaintiff financed the purchase of the property in question and subsequent mortgage repayments as well as outgoings.[14]

Discussion

23.  The crux of P’s claim turned on the beneficial ownership of the Property. It was P’s pleaded case that at all material times he was/is the sole beneficial owner of the Property, and the party who solely (a) financed its purchase, (b) paid all its outgoings, and (c) collected/received rent for the tenancies in respect of the Property from 1997 to 2014, and D1 never occupied or financially benefitted from the Property. Thus, P claimed that at all material times D1 held half share in the Property on trust for him.

24.  In her pleadings, P averred as follows:

(a)  Between 1994 and 1995, P and his former girlfriend (who was a real estate agent and D1’s sister (“Sister”)) were “involved in a relationship with each other”.

(b)  In/about 1997, P sought assistance from the Sister to identify a good bargain in the real estate market. On/about 20 May 1997, the Sister represented to P the Property was a good bargain, so P entrusted her to negotiate the purchase of the Property.

(c)  P was given to understand the vendor’s asking price was $2,250,000, and such offer was only valid upon immediate execution of the provisional agreement for sale and purchase (“PASP”).

(d)  P was busy at work and could not attend to execution of the PASP, so the Sister suggested D1 (who was then a housewife with some part-time work) could sign the PASP on his behalf.

(e)  By an agreement between P and D1, D1 agreed to sign any necessary PASP for P with respect to P’s purchase of the Property, and D1 would pay the necessary amount of initial deposit towards the purchase of the Property for P. Pursuant to such agreement, it was the common intention between P and D1 that (i) P would be the sole beneficial owner of the Property even though D1 would also be named as purchaser in the PASP, and (ii) D1’s name would be removed by the time of signing the formal agreement for sale and purchase (“FASP”).

(f)  On/about 20 May 1997, pursuant to the agreement between P and D1 but not otherwise, D1 for P signed the PASP with P and D1 named as the purchaser of the Property, and paid a sum of $50,000 as initial deposit for P’s purchase of the Property.

(g)  On/about 21 May 1997, pursuant to the agreement between P and D1 but not otherwise, P repaid to D1 a sum of $50,000 for the initial deposit payment that D1 made for P.

(h)  In May 1997, P entrusted the Sister with the task of removing D1’s name as purchaser of the Property and proceeding with the purchase of the Property in his sole name, but the vendor refused such request and insisted that P’s purchase of the Property must be in the joint names of P and D1.

(i)  By a further agreement between P and D1, they agreed to become registered joint tenants of the Property and together to hold the entire Property on trust solely for P, so it was the common intention of P and D1 that P would be the sole beneficial owner of the Property.

(j)  On/about 30 May 1997, pursuant to the further agreement between P and D1 but not otherwise, P paid the sum of $175,000 being the balance of the deposit towards his purchase of the Property upon signing the FASP.

(k)  In/about September 1997, pursuant to the further agreement between P and D1 but not otherwise, P secured a mortgage facility in the joint names of P and D1 for the balance of the purchase price towards P’s purchase of the Property.

(l)  On 18 September 1997, the purchase of the Property was completed, and vacant possession was solely delivered to P. On/about the same day, pursuant to the further agreement between P and D1 but not otherwise, D1 executed a power of attorney by deed appointing P as her attorney in respect of the Property.

(m)  At all material times, pursuant to the further agreement between the parties but not otherwise, P had been the party who solely contributed towards inter alia the purchase price, mortgage repayments with interest, management fees, rates, government rent and renovation costs with respect to the Property whilst D1 did not make any payment in respect of the Property.

(n)  In divers periods between 1997 and 2014, P rented out the Property to various tenants, and he was the sole party receiving all rental income arising therefrom.

(o)  On/about June 2008, pursuant to the further agreement between P and D1, D1 declared in writing that she held her half equal share in the Property on trust for P, and at all material times P was the sole beneficial owner of the Property.

25.  Mr Ngai submitted P had clearly pleaded his case as to the beneficial ownership of the Property based on express agreement between P and D1 or common intention constructive trust. He urged the court to consider the common intention objectively from the conduct of the parties as pleaded, eg P was the sole financial contributor in relation to the purchase and occupation of the Property and the sole recipient of the rental proceeds from the Property, and D1 signed the power of attorney and declaration of trust in paragraphs 24(l) and (o) above and did not make any financial contribution towards the Property. It was suggested D1 had never lived in the Property and had no beneficial interest in the Property, and the whole course of dealings in relation to the Property suggested P was its sole beneficial owner.

26.  However, having carefully considered Mr Ngai’s submissions, I am not persuaded this would be an appropriate case for granting declarations and order by default judgment.

27.  First, in contra-distinction to Kan Kiu Chor, D1 did not file any acknowledgment of service, and did not appear to state her stance in respect of P’s present claim. Although D2 did not file any Defence, it was due to the constraints of lack of funding from creditors for indemnity on costs. But D2 did express reservations about P’s case and filed notice of intention to defend. I bear in mind D2 represented third party creditors’ interests.

28.  Secondly, P’s present claim concerned ownership of and beneficial interests in land, which were proprietary rights. Hence, the declaratory reliefs sought would not simply affect P and/or D1, but would affect all future successors-in-title in respect of the Property or those who claim under P. Also, D2 represented third party creditors, and their interests would also be affected by the declaratory reliefs sought. In the circumstances, the effect of the declarations sought had more wide‑ranging consequences than any personal matters as between P and D1.

29.  Thirdly, an essential cause of action on P’s case rested on common intention constructive trust. However, the onus of proof rests squarely on P to prove the existence and scope of such trust, and the burden is a heavy one to show that equity should not follow the law (see paragraph 21 above). This immediately raised the concern Fok J (as he then was) referred to in Top One International (China) Property Group Co Ltd that a declaratory judgment entered without hearing evidence “could be based only on unproved allegations and the Court ought not to declare as fact that which might not have proved to be such, had the facts been investigated” (see paragraph 18 above). In this respect, unlike Kan Kiu Chor no evidence in support of P’s claim was placed before the court (and it was unknown whether P’s List of Documents, Supplemental List of Documents and/or witness statement had been served).

30.  Fourthly, as regards the declarations sought, P asked for inter alia the declaration/order in paragraph 3(a)-(b) above. However, there was no enlightenment in P’s pleadings and/or Mr Ngai’s submissions as to whether the legal title in the Property was held by D1 or D2 (together with P). If the legal title was truly with D1, then the court should not make any declaration against D2 who had no interest in the Property. The vice versa situation also applied. Further, if the legal title was with D1 (who had never appeared in the present action), P had not explained how the legal interest held by D1 would then become vested in the name of P. There was no proposal for ancillary directions, which also brought into question whether the court should grant any vesting order without knowing whether and/or how it would be effectively implemented.

31.  Fifthly, the court is also concerned with the proposed declaration in paragraph 3(c) above. There was no plea that P had any present intention to sell the Property. The court does not understand how such declaration can be made in futuro. Even if the court were prepared to grant the declaration/order in paragraph 3(a)-(b) above, it remained quite impossible for this court to speculate as to the future status of the Property. A simple illustration will demonstrate the impossibility of seeking such declaration. If the mortgage facility referred to in paragraph 24(k) above had not been fully repaid or if P obtained a fresh re‑mortgage of the Property, then how can all of the proceeds of sale in any future sale of the Property be paid to P without taking into account any indebtedness due to the mortgagee?  The propriety and utility of the such declaration in paragraph 3(c) above are highly doubtful.

32.  For all of the above reasons, I dismissed the Summons and granted no order as to costs. Ms Chan very fairly did not seek costs on behalf of D2. However, my conclusion does not mean P cannot obtain the reliefs sought (including declaratory reliefs). It merely means P will have to prove his entitlement to such reliefs after adducing evidence in the usual way.