VIVA STEAMSHIP CO LTD v. CHOW LIM CHOY AND OTHERS

HCA 1722/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1722 OF 2001

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REASONS FOR JUDGMENT

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1. This is an appeal of the 1st to 6th defendants from the decision of a Master given on 8 March 2002. The plaintiff has brought this action to recover vacant possession of a property known as Flat B on 21st Floor and Car Park Space Nos. 17 and 17A on 4th Floor of Hong Kong Garden, No. 8 Seymour Road, Hong Kong ("the Property"), and mesne profits from 28 March 2001 to the date of delivery up of possession. The defendants have filed a defence and counterclaim alleging a resulting trust in favour of Chau Tin Yuen, also known as Chow Din Yuen, deceased ("the deceased") who had provided the money for the purchase of the Property. Alternatively, it is alleged that the plaintiff's title is extinguished owing to adverse possession by virtue of the continuous occupation of the Property by the deceased and his family since 1976. In the further alternative, it is pleaded that the plaintiff is estopped from denying that the beneficial interest of the Property has been vested in the deceased and his estate. After the close of pleadings, the plaintiff issued a summons to strike out the defence and counterclaim under Order 18 rule 19 and the inherent jurisdiction of the court, on the ground that the pleading is frivolous, scandalous, vexatious and an abuse of the process of the court.

2. The Master granted the plaintiff's application and ordered that the defence and counterclaim be struck out. Judgment was entered for the plaintiff against all defendants for damages to be assessed and the defendants were required to deliver up vacant possession of the Property to the plaintiff on or before 8 June 2002. The defendants lodged an appeal against this decision. At the conclusion of the hearing, I allowed the appeal and set aside the order of the Master and these are the reasons for my judgment.

The background

3. The background matters giving rise to the dispute may be given as follows.

4. The 1st, 5th and 6th defendants are the children of the deceased. The 2nd defendant is the wife of the 1st defendant and the 3rd and 4th defendants are their sons. The defendants are sued on the ground that they were the occupiers of the Property at the time of the deceased's death in December 1999. It is the plaintiff's case that the deceased was given a licence to occupy the Property free of charge since 1976, initially as an employee benefit, and upon the deceased's retirement in 1989 until his death. After his death, the plaintiff granted a temporary licence to occupy the Property free of charge to the defendants and that licence was terminated forthwith by a letter of the plaintiff's solicitors dated 27 March 2001. The writ herein was issued on 18 April 2001.

5. The deceased was the nephew of the plaintiff's founder and chairman, Cho Nan Chin ("Cho"). The plaintiff was incorporated in July 1962. It carried on the business of shipping and investment in landed property. It was the holding company of a group of companies consisting of, inter alia, Hong Kong Islands Shipping Co. Ltd. ("Islands Shipping"), which was established in 1967. One of the associated companies of the plaintiff was Hong Kong Atlantic Shipping Co. Ltd. ("Atlantic Shipping"), set up in 1970. The deceased was a shareholder and director of both Islands Shipping and Atlantic Shipping. He had worked for one or more of the companies in the plaintiff's group from 1967 until he retired in 1989. The 1st defendant had also worked in Islands Shipping from 1973 to 1975.

6. The Property was bought in the name of Atlantic Shipping. On 4 May 1974, this company executed a sub-sale agreement for sale and purchase to purchase the Property at HK$590,000.00. On the same day, Atlantic Shipping executed an equitable mortgage of the Property to Wa Pei Finance Co. Ltd. to secure a mortgage loan of HK$400,000.00. The occupation permit of the Property was issued in 1975 and by an assignment dated 21 October 1976, the Property was assigned to Atlantic Shipping. By an assignment dated 29 March 1985, Atlantic Shipping assigned the Property to the plaintiff for HK$1.5 million. On the same day, a legal charge of the Property was executed in favour of a bank to secure facilities of HK$13 million. On 17 May 1995, a fresh mortgage was executed to secure facilities to the plaintiff of HK$15,472,000.00.

7. On 23 February 2001, the plaintiff signed a provisional agreement for sale and purchase to sell the Property with vacant possession at HK$11,680,000.00, with completion to take place on 23 April 2001. The transaction has not been completed due to the plaintiff's failure to obtain vacant possession from the defendants.

The defendants' case on resulting trust

8. The evidence on the provision of the purchase money came from the 1st defendant who claimed to have knowledge of this from what his father, the deceased, had told him. This evidence is hearsay but it is not inadmissible, it merely goes to weight. The 1st defendant is unable to produce any documents showing the provision of the money by the deceased in the 1970s. Again, that is not necessarily fatal, provided that the court is satisfied on his oral evidence that he has clearly proved his case that the deceased had put up the money for the purchase of the Property as a purchaser.

9. According to the 1st defendant, during the 1950s to 1960s, the deceased had worked as a bosun on various vessels and this gave him opportunity to make money buying gold bars from the countries in the Persian Gulf and selling them in places like Singapore and Hong Kong. Because the deceased was illiterate, and that he was not good at handling money, and also as he was working outside Hong Kong most of the time, he entrusted all the money he earned to his uncle Cho for safe keeping. The deceased had an arrangement with Cho that when he was at sea, his family could ask Cho for money when necessary. Thus, the amount of money deposited by the deceased with Cho grew in time.

10. In the 1960s, the deceased stopped going to sea and worked in a wharf. When Islands Shipping was set up in 1967, he joined the company and was allotted 1,000 shares. He did not pay for his shares directly, the share price was taken from the moneys he had deposited with Cho over the years.

11. Two properties were purchased by the deceased in his own name in 1968 and 1971. The first was a property in Bonham Road purchased at HK$52,500.00. The second was a property in Breezy Path at HK$185,000.00. In both instances, the purchase was made without any mortgage loan. It is the defendants' case that the purchases were made with the deceased's own monies. However, the actual payments were made by Cho on behalf of the deceased out of the monies deposited by the deceased. The 1st defendant stated that the deceased did not have a cheque account as he was illiterate.

12. In 1974, the deceased told the 1st defendant that he intended to buy the Property as a residence for the entire family and that he had asked Cho to arrange for the payment of the purchase price. The 1st defendant knew that the money deposited by the deceased with Cho had grown to over HK$400,000.00 since the early 1970s, with further deposits being added from time to time, as he had personally collected the interest on the deceased's deposits on a monthly basis from about October 1973 to about July 1975 and from about June 1977 to the end of 1979 from the account department of Islands Shipping. The deceased told the 1st defendant that Cho agreed to utilise the money deposited by the deceased to effect the purchase. However, Cho had asked him to put the Property in the name of Atlantic Shipping as this could be used as a tax saving device for the company. Cho assured the deceased that the Property would be held by the company on trust for the deceased. The 1st defendant suggested to the deceased that it would be better to put the Property in the deceased's own name, but the deceased decided to do as Cho had suggested.

13. In 1985, at the time when there was a re-structuring of the companies in the plaintiff's group, the 1st defendant learned from the deceased that Cho had informed the deceased as it was necessary to enlist financial assistance from an outside group, Cho would arrange to transfer the Property to another company controlled by him so that the Property would not form part of the assets of the companies to be controlled by the outside group. That was the reason why the Property was assigned to the plaintiff in 1985 and there was no genuine sale of the Property to the plaintiff. Cho also assured the deceased that the Property would be transferred to him as soon as Cho's financial position had improved.

14. After the deceased's retirement from the plaintiff's group of companies in 1989, he had made many requests to Cho to transfer the Property to him. Cho had agreed to do so but this was not done when the deceased passed away in 1999.

Is the defendants' case a myth?

15. I must emphasise that I am concerned with a striking out application. It is not sufficient for the plaintiff to show that the defendants' case on a resulting trust is weak. For the plaintiff to succeed on this application, it is for the plaintiff to satisfy the court that the defence raised is imaginary or a myth and that there is no reasonable evidence capable of supporting the averments so that the court should invoke its power to strike out a defence that is plainly groundless.

16. Mr Colin Shipp, who appeared for the plaintiff, has mounted a vigorous attack on the defendants' case in a number of ways.

17. Firstly, it was submitted that the evidence on the amount of the deposits allegedly held by Cho for the deceased at the material time is so vague that the defendants cannot even say that the amount was sufficient to meet the purchase price of HK$590,000.00. In my view, if there is evidence capable of being believed that the deceased had put up a substantial sum of money towards the purchase price, whether this be HK$400,000.00 or above that sum, the court should not strike out the defence as a declaration may be granted that the estate of the deceased should have a beneficial interest in the Property proportionate to the amount contributed by the deceased towards the purchase price.

18. Next, it was submitted that even if the deceased had provided money towards the purchase price, it is not shown that the deceased had provided the money as a purchaser and not a lender. I was taken to the further and better particulars of the defence in which it is stated that the defendants have no knowledge whether the sum of HK$400,000.00 the deceased had deposited with Islands Shipping was treated by Cho or the deceased as a loan by the deceased to Islands Shipping or otherwise. I do not see this as necessarily detracting from the defendants' case that when the Property was purchased, the deceased had requested Cho (and Cho had agreed) to apply the money he had deposited with Cho to effect the purchase of the Property for the deceased.

19. Then I was asked to look at the "objective" facts, being board minutes of Atlantic Shipping recording a resolution by the directors to purchase the Property with a mortgage loan of HK$400,000.00 from Wa Pei Finance Co. Ltd. and that Islands Shipping was to guarantee the mortgage loan. There was no mention of any trust in the meeting held in March 1974 or in the meeting in October 1976 when a resolution was passed to authorise the directors to execute a legal mortgage of the Property. The deceased was present at these board meetings. Although this may undermine the defendants' case, I do not think one would be driven to conclude that this evidence has rendered the defendants' case so improbable that it should not be sent to proof. Mr Tim Kwok, who appeared for the defendants, has made the point that there is also no mention in any board minutes that the deceased was to be given a licence to occupy the Property as an employee benefit or for life without charge, so one cannot read too much into the fact that there was no mention of a particular matter in a board minute.

20. Likewise, I do not regard the payment of legal fees, rates, government rent, decoration and furnishings, insurance premium, and management fees of the Property by the plaintiff's group of companies to be matters of such significance to render the defendants' case not capable of belief.

21. I was also asked to look at subsequent acts of the deceased being his declaration against his own interest. There are various tax returns signed by the decease in which the Property was stated as staff quarters provided to him and he was assessed for salaries tax on the basis that he had enjoyed the benefit of the quarters. On the face of it, this would appear to undermine the defendants' case. However, I am unable to say at this stage that the defence is a tissue of improbabilities so that it should not go to trial. On the evidence before me, the relationship between the deceased and Cho went back many years. They were involved not just in the plaintiff's group of companies but also in a deposit taking company the licence of which was cancelled. This is not a simple relationship of an employer and employee. In my view, the matters raised in the defence should be investigated at trial.

22. In summary, whether the points made on behalf of the plaintiff are taken separately or cumulatively, I am not satisfied that a plain and obvious case has been made out that the defence of a resulting trust is but a myth or a tissue of improbabilities so that the matter should not go to trial. It is quite impossible for the court to form a view, let alone a firm view, on the affidavit evidence that the defendants' case is wholly incapable of belief.

The defendants' case on adverse possession

23. It is not in dispute that the factual possession of the Property by the deceased and his family is for more than twenty years. What is in dispute is the requisite intention to possess. On behalf of the plaintiff, it was submitted that even if the defendants' evidence as to intention is accepted, there is an inconsistency between their case on resulting trust and their case on adverse possession. Mr Shipp has asked rhetorically: how can you say there is an intention to possess to the exclusion of others if the property is yours already? He further submitted that the animus possidendi includes an intention to possess as well as an intention to dispossess the true owner.

24. Mr Shipp has not shown me any authority to back up his above submission on animus possidendi. I do not think the passages in the judgment of the Court of Final Appeal in Wong Tak Yue v. Kung Kwok Wai & Anr. [1998] 1 HKLRD 241 really support his proposition. Mr Kwok has referred me to Wong Luen Chun & Anr. v. Secretary for Justice [1998] 4 HKC 122 at 129 which provided support for his submission that there is no inconsistency between his case of resulting trust and adverse possession. In that case, Barnett J referred with approval to the English Court of Appeal decision of Hughes v. Cook, 14 February 1994, unreported, in which the court rejected the argument that it is impossible for someone who believes himself to be the true owner to acquire title by adverse possession since such a person cannot, ex-hypothesi, have an intention to exclude the true owner. The court pointed out that the fallacy in the argument "lies in the failure to distinguish between an intention to possess, which is required, and an intention to dispossess which is not. " For the purpose of a striking out application, Mr Kwok has demonstrated to my satisfaction that the defence of adverse possession merits consideration at a trial.

The non-occupying defendants

25. It is pleaded in the defence that the 2nd, 3rd, 4th and 6th defendants do not occupy the Property. Evidence has been filed on behalf of these defendants showing that they had left the Property or left Hong Kong on various dates, before the plaintiff's solicitors served a notice to terminate the licence forthwith on 27 March 2001. It is expressly pleaded in the defence that these defendants "claim no interest in the Property". The counterclaim was only made by the 1st and 5th defendants.

26. Even if the plaintiff disputes that these four defendants have not occupied the Property after the licence was terminated on 27 March 2001, this factual dispute should go to trial. I see no basis for striking out the defence insofar as these four defendants are concerned.

Estoppel

27. Mr Shipp has also criticized paragraph 30 of the defence in which it is pleaded that the plaintiff is estopped from denying that the Property did belong to the deceased beneficially "by reason of the circumstances herein pleaded and the said extraordinarily long lapse of time." For my part, I think this pleading is otiose and adds nothing to the defendants' case on resulting trust. In the exercise of my discretion, I do not think it appropriate to strike out this single paragraph in a piecemeal fashion.

Orders

28. For the reasons given above, I have allowed the defendants' appeal and set aside the order of the Master on 8 March 2002. I ordered that the costs below should be to the defendants in any event, with certificate for counsel. The defendants are also to have the costs of the appeal in any event.