CHUNG YIU KWAN formerly known as CHUNG CHUN LEE v. SECRETARY FOR JUSTICE

DCMP 2652/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2652 OF 2016

----------------------

----------------------

----------------------

----------------------

DECISION

----------------------

INTRODUCTION

1.  This is the plaintiff’s application for a vesting order pursuant to section 45(b)(iii) of the Trustee Ordinance, Cap 29, in respect of a flat in Berwick Street, Kowloon (“the Flat”). 

2.  The registered owner of the Flat is Tak Hing Land Investment and Agency Company Limited (“Tak Hing”).  The company was dissolved and struck off on 17 January 2003 pursuant to section 291(6) of the former Companies Ordinance, Cap 32.  Tak Hing was the developer of the building in which the Flat is located (“the Building”).  It was constructed in the early 1950’s. 

3.  The plaintiff has been residing at the Flat since it was built.  He is now in his late 80’s, having lived there for over 60 years.  He claims that he owns the beneficial interest of the Flat and at the time of the dissolution of Tak Hing, Tak Hing held the legal title of the Flat on trust for him.

4.  Given the dissolution of Tak Hing, the plaintiff now claims against the Secretary for Justice as the sole defendant in these proceedings.  The Secretary for Justice accepts that on the authorities, it is appropriate and proper for the plaintiff to join him as the defendant: see, eg, Fook Tai Investment Company Limited v Secretary for Justice [2013] 4 HKLRD 102 at paragraph 12 and Tam Chi Kwong v Secretary for Justice [2007] 2 HKLRD 373 at paragraphs 7 and 8.

Jurisdiction

5.  A preliminary point on jurisdiction. 

6.  In the originating summons, the plaintiff relies on section 9 of the Partition Ordinance, Cap 352, and section 35 of the District Court Ordinance, Cap 336, as the relevant provisions conferring jurisdiction on the District Court to hear the present case.

7.  At the hearing this morning, however, Mr Tony Ko, counsel for the plaintiff, accepted (correctly) that neither section applies as this application does not concern partition or recovery of possession of land.

8.  Mr Ko relies now on section 36 of the District Court Ordinance as the plaintiff’s application concerns title of the land in question.  The threshold for the rateable value specified in that section not being exceeded, I agree that the court has jurisdiction to hear the case under section 36.

The plaintiff’s evidence

9.  The plaintiff has filed a number of affirmations in support of his application.  There is no opposing evidence filed by the defendant.  This is understandable as the government is not privy to the events that purportedly led to the present application.

10.  The Flat is situated on the third floor and is one of the four flats in the Building.  In the agreement entered into by the Crown and Tak Hing for the sale of the land dated 27 July 1950, a number of restrictions on title were included.  One of them restricted Tak Hing and its successors in title from assigning or otherwise disposing of the Flat, without the written consent of the Land Officer and then only when certain conditions were satisfied. 

11.  This restriction applied for a period of 20 years from the date of the agreement, ie, 26 July 1970.  See Special Conditions (1) and (4).  A mental note should be made of this date as it will come up again in the subsequent dealings between the plaintiff and Tak Hing regarding the Flat.

12.  It seems that in order to “get round” the restriction at that time, ie, to sell the Flat before the government consent was forthcoming, Tak Hing entered into a special arrangement with the plaintiff as follows:-

(a)  In 1953 or 1954 (understandably, the plaintiff does not have an exact recollection of the dates which go back a few decades ago), the plaintiff paid a sum of $15,500 to Tak Hing.  In return Tak Hing allowed the plaintiff and his family to move in the Flat.  No assignment was executed at that point.

(b)  Instead, on 21 September 1954, Tak Hing executed a document entitled “Debenture” and another document entitled “Indenture”.  In those documents, the sum of $15,500 paid by the plaintiff to Tak Hing was treated as a loan advanced to Tak Hing as evidenced by the Debenture. It was therefore a debt owed by Tak Hing to the plaintiff.  For repayment, Tak Hing was to pay to the plaintiff one quarter of the net proceeds of the land 20 years from 27 July 1950 or such earlier date as the sum may become payable in accordance with the terms of the Debenture (eg, if Tak Hing was being wound up).  See clause 3 and condition 7.  Barring any such repayment being triggered, the due date of the loan was scheduled to be 26 July 1970, which is the date on which the restriction on title referred to above would expire.  See clause 1 of the Debenture.

(c)  The Indenture which was executed as collateral to the loan then provided that upon receiving the government consent, Tak Hing would forthwith grant to the plaintiff a lease for a term up to 26 July 1970 at no rent.  Furthermore, the plaintiff was given an option to purchase the Flat. He could exercise such option by giving one month’s written notice and upon payment of the sum of $15,500 together with all costs, Tak Hing would assign the Flat to the plaintiff.  See clauses 1 and 5.

13.  In practical terms, the overall effect of the arrangement is that notwithstanding that the requisite government consent was not yet in place then, the plaintiff was given possession of the Flat and he was permitted to live there (which he did).  Meanwhile, however, he had no legal title, which remained with Tak Hing. 

14.  Further, when the government consent was obtained, Tak Hing would formally grant a lease to the plaintiff, and upon the plaintiff exercising his option and payment of any additional costs, Tak Hing would assign the Flat to the plaintiff.  Hence, the plaintiff would occupy the Flat, first, (it would seem) as licensee; then as lessee (when the government consent was granted or latest when the formal lease was signed); and, lastly, as assignee (when the option was exercised and all the formalities completed). 

15.  Although it was stated that the sum of $15,500 was also to be paid by the plaintiff when he exercised the option, it is evident that no money would change hands (save for the additional costs that became payable for the assignment) since the amount would then be set off against the debt owed by Tak Hing to the plaintiff under the Debenture.

16.  In other words, the arrangement made it possible for the plaintiff to move in to live at the Flat and for Tak Hing to receive the consideration of $15,500 when the government consent was not yet obtained whereas the plaintiff’s title would be “formalised” subsequently.

17.  As commented above, the date that ties in throughout the arrangement is 26 July 1970.  It should then be noted that in theory, under the terms of the Debenture and the Indenture, if the plaintiff did not elect to exercise the option to purchase, two things would follow. First, the sum of $15,500 then became payable by Tak Hing on 26 July 1970.  Second, after that date, the plaintiff would only be able to stay on at the Flat if Tak Hing permitted him to do so as he had no right of his own to stay on.

18.  What happened next, according to the plaintiff’s evidence, is that in about late 1950’s or early 1960’s, Tak Hing sent a letter to the plaintiff informing him that the government approval could be obtained if he paid a premium and legal costs in the sum of about $5,000 and he could exercise the option to purchase “immediately upon payment of the said premium plus legal costs”. 

19.  He duly attended the offices of Tak Hing’s solicitors and made the payment.  He was informed that he needed to go to the solicitors’ offices later for the execution of certain legal documents in order for the title of the Flat to be vested in him.  However, for some personal reason, he did not attend the solicitors’ offices later and the legal papers were therefore not executed in the end.  (He alleged that at that time his relationship with his father was not good and his father feared that once the legal title was transferred to him, the plaintiff would desert him.  The plaintiff therefore promised his father not to proceed with the execution of the legal documents.)

20.  Notwithstanding the legal title not being vested in the plaintiff, he continued to live at the Flat up to now, ie, over a period of more than 60 years. 

21.  As far as Tak Hing is concerned, the company search records reveal that company filings were last made by Tak Hing in 1981 and for more than 20 years after that, no document was filed with the Companies Registry and it was eventually struck off the Companies Register in 2003.  It may be inferred that Tak Hing had been inactive for some time since 1981 and until its dissolution.

The plaintiff’s contention

22.  The plaintiff contends that, first, he had validly exercised the option to purchase the Flat and had made the relevant payments and therefore Tak Hing held the Flat on trust for him; and secondly, the court should exercise its discretion to vest the legal title in the plaintiff under the Trustee Ordinance.

23.  The Secretary for Justice has confirmed in writing and at today’s hearing that he has no objection to the plaintiff’s application and he will not make any claim to any interest which Tak Hing had prior to dissolution as bona vacantia. 

Analysis

24.  The plaintiff’s factual case is disclosed by his evidence and on its face appears to be plausible.  The plaintiff is able to produce copies of rate demand notes and utility bills dating back to the 1950’s in support of his allegation that he has lived at the Flat since then.

25.  However, there is no documentary proof with regard to the payment of $5,000 when the plaintiff allegedly exercised the option to purchase.  Similarly, the letter from Tak Hing’s solicitors with regard to the option is also not produced in these proceedings.  No explanation for the omission is given in the plaintiff’s affirmations. 

26.  Given that the plaintiff has manged to keep a fairly complete record of bills since the 1950’s, it is not easy to understand why the letter and the documents showing the payment (eg, receipts) have not been kept by him.  They are clearly important documents relating to the Flat and concerned a significant sum of money.

27.  Nevertheless, on the whole, I am prepared to accept the plaintiff’s factual case as it is generally consistent.  The significant fact is that the plaintiff has been continuously living at the Flat apparently without any objection from Tak Hing at any time up to its dissolution.  I accept Mr Ko’s submission that if any sum had been owing to Tak Hing, one would expect that Tak Hing, as the developer, would have taken some action in the interim.

28.  The primary question to determine in this application is whether the plaintiff had validly exercised the option to purchase at the relevant time (which the plaintiff cannot pinpoint the date but which he recalls to be around the late 1950’s or early 1960’s).  The difficulty here is that even on the plaintiff’s own evidence, he did not give a one-month written notice which was stipulated as a requirement in the Indenture.

29.  The question is therefore this – does the absence of a written notice prevent the plaintiff from asserting that he had validly exercised his option? 

30.  In my view, the answer is “no”.  The plaintiff’s evidence in this regard, which I accept, is that at the relevant time Tak Hing’s solicitors took the initiative to approach the plaintiff in respect of the option and the plaintiff was told by them that he could exercise his option “immediately upon payment of the … premium plus legal costs”. 

31.  The plaintiff did pay accordingly.  One can reasonably take the view that the contractual requirement for a written notice to exercise the option was not insisted upon by Tak Hing and was, in other words, waived. 

32.  This view is consistent with the subsequent events.  It will be recalled that according to the contractual terms, the plaintiff would need to make two payments upon the exercise of the option: (a) the sum of $15,500, and (b) any additional costs.

33.  The plaintiff’s evidence (which, again, I accept) is that he had paid about $5,000 as additional costs.  The sum of $15,500 did not need to be paid over physically but it would be regarded as paid by offsetting it against Tak Hing’s debt of the same amount under the Debenture. That was the overall effect of the special arrangement made under the Debenture and the Indenture.  In the end, there was no repayment by Tak Hing to the plaintiff of the debt on 26 July 1970.  Meanwhile, Tak Hing had not taken any steps to interfere with the plaintiff’s possession and enjoyment of the Flat.

34.  These matters are only consistent with the fact that Tak Hing had treated the option to have been validly exercised as otherwise Tak Hing could have asked the plaintiff to vacate the Flat (as he had no right to be there) and could have repaid the loan of $15,500.  That did not happen. 

35.  It should also be borne in mind that up until 1981 Tak Hing was still an active company in the sense that filings were made with the Companies Registry till then.  Tak Hing could have taken action to enforce its property right if the plaintiff had not exercised his option to purchase.  Therefore, I hold that the plaintiff had validly exercised the option when he paid the additional costs of around $5,000 to Tak Hing.  He had performed his side of the bargain as far as the option is concerned.  All that remains outstanding was for Tak Hing to complete the formality to assign the legal title to the plaintiff.

36.  It is true that it was for the plaintiff’s own personal reason that Tak Hing did not proceed with the execution of the legal documents.  It remains to be the case, however, that having made the full payment for the exercise of the option, the plaintiff was in a position to compel Tak Hing to convey the legal title to him by assignment.  From that time onwards, Tak Hing, as the legal owner, had held the Flat on trust for the plaintiff and that remained to be the case at the time when it was dissolved. 

37.  Having established the above trust relationship between the plaintiff and Tak Hing and given the dissolution of Tak Hing, I accept Mr Ko’s submission that it would only be fair and proper for the court to exercise its discretion to vest the interest which Tak Hing held in the Flat into the plaintiff.

Order

38.  For the above reasons, I grant the following relief:-

(i) a declaration that the plaintiff is the sole beneficial owner of the Flat;

(ii) a further declaration that Tak Hing held the Flat on trust for the plaintiff at the time of its dissolution on 17 January 2003; and

(iii) an order that the legal estate and all other right, title, benefit and interest held by Tak Hing in the Flat be vested in the plaintiff. 

39.  It has been agreed that the plaintiff should bear the defendant’s costs of the application, which have been agreed in the sum of $26,606.  I make the costs order accordingly.

40.  The plaintiff should pay the costs within 14 days from today.