CHUNG CHUN FAI v. CHAN MAN LUNG AND ANOTHER

HCA 2281/2019

[2021] HKCFI 697

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2281 OF 2019

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D E C I S I O N

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INTRODUCTION

Introduction

1.  This is the Plaintiff’s application to continue the injunction order granted to the Plaintiff by Wilson Chan J on 18 December 2019 as amended on 19 December 2019 and as further amended by Linda Chan J on the return date on 27 December 2019 (the “Injunction”).  Pursuant to the order Au-Yeung J dated 28 August 2020, the application was ordered to be determined by paper.

2.  By the Injunction, the Defendants are essentially restrained from disposing of or otherwise dealing with or diminishing the value of the following properties (the “Subject Properties”):

(1)  Flat 25F Cullinan West II held by the 1^st Defendant (“25F Cullinan West”);

(2)  Flat 46C Cullinan West II held by the 2^nd Defendant (“46C Cullinan West”);

(3)  the proceeds of sale of a unit in the Yoo Residence, purchased on 12 August 2013 in the name of the 1^st Defendant and sold on 29 April 2019, which are held by the 1^st Defendant (the “Proceeds of the Yoo Residence”);

(4)  a taxi with registration number VZ8217 (“Taxi VZ8217”) held by the 1^st Defendant; and

(5)  a Singapore property (the “Singapore Property”) held by the 1^st Defendant.

3.  There is no dispute that the Plaintiff provided all the purchase monies for the purchase of the Subject Properties to be held by the Defendants as legal owners.  The Plaintiff’s case is that the Defendants hold the Subject Properties as trustees for him under a constructive and/or resulting trust for managing the same for the Plaintiff.  The Defendants’ case is that the Subject Properties were outright gifts.

The background

4.  The following background facts are based on the parties’ pleadings or are otherwise incontrovertible.

5.  The Plaintiff and Jessica Chan (“Aunty”) are married to each other.  They have no children.  The 1^st Defendant is the nephew of Aunty.  He was brought up by the Plaintiff and Aunty since he was one-year old as if he were their own son.

6.  In 2016, the 1^st Defendant married the 2^nd Defendant and moved to live in La Maison Vineyard in Yuen Long.  The 2^nd Defendant gave birth to their first son (the “Grandson”) in January 2018.  In around December 2018, Aunty moved out of the matrimonial home in Imperial Cullinan.  She commenced divorce proceedings against the Plaintiff on 18 March 2019.  Towards the end of 2019, the Defendants moved into 46C West Cullinan.  

7.  The Plaintiff used to work in a well-known trading company called C.F.L. Enterprise Ltd (“CFL”) until he retired in 2016/2017.  He has built substantial wealth and purchased properties and assets in Hong Kong and overseas, including the Subject Properties.  He arranged for the 1^st Defendant to work with him in CFL after his graduation from high school in America in July 2013.  The 1^st Defendant quit CFL in 2016 and lived on the monthly payments of $30,000 to $40,000 provided by Aunty until about June/July 2019 when he was employed in one of the Plaintiff’s companies, Best Powerful Development Ltd (“Best Powerful”), to manage the Plaintiff’s properties and rental matters. The Plaintiff paid him $30,000 to $40,000 for his monthly expenses until the Plaintiff commenced the present proceedings in December 2019. 

8.  On 18 December 2019, the Plaintiff obtained an ex parte Injunction against the Defendants.  Between March and August 2020, the Defendants moved out of 46C West Cullinan to Marina Garden in Tuen Mun.  In October 2020, they gave birth to their second child.

The parties’ case about the purchase of the Subject Properties

9.  It is common ground that the Subject Properties were all purchased by the Plaintiff with funds from the Plaintiff or his companies and held in the name of the Defendants.  The dispute between the parties is whether they were outright gifts to the Defendants or were held by them under express agreements as trustees for the Plaintiff.  The parties’ case in respect of the purchase of each of the Subject Properties is summarized below.

10.  According to the Plaintiff, in around 2013, he learned about the development of the Yoo Residence in Causeway Bay.  He discussed with the 1^st Defendant and agreed to purchase a unit in the Yoo Residence to be held in the 1^st Defendant’s name on trust for the Plaintiff as beneficial owner (the “Yoo Residence Agreement”).  Aunty was not involved in the discussion.  The Plaintiff agreed to assume all financial responsibilities in respect of the property; while the 1^st Defendant agreed, inter alia, to manage the property, pay the mortgage over the property from the rental income, and to transfer the surplus to the Plaintiff, if so requested.  Pursuant to the Yoo Residence Agreement, the Plaintiff caused the 1^st Defendant to enter into an agreement to purchase a unit in the Yoo Residence on 12 August 2013.  The property was assigned to the 1^st Defendant as the sole registered legal owner on 16 November 2015.  The Plaintiff paid the purchase price of HK$11,697,060 financed by a mortgage by the 1^st Defendant with the Plaintiff as the guarantor.

11.  The 1^st Defendant’s case is that the Plaintiff and Aunty purchased the property as a gift to him so that he would utilize it to generate income to settle all necessary expenses, to learn how to invest in real estate and to bear responsibility of repaying mortgage.  He could keep the surplus income after making mortgage payments and did not have to account to the Plaintiff.

12.  According to the Plaintiff, in early 2018 he was considering the possibility of moving to Singapore for retirement and became interested in purchasing property in Singapore.  He was concerned about having to travel to Singapore to process the formalities for the purchase.  He discussed with the 1^st Defendant about buying the property in the 1^st Defendant’s name in case the 1^st Defendant would wish to move to Singapore and to facilitate the Grandson’s enrolment to a Singaporean school.  The 1^st Defendant agreed to hold the Singapore Property as registered owner for its management purpose and to re-convey the property to the Plaintiff on the Plaintiff’s instruction (the “Singapore Property Agreement”).  Aunty did not take part in the discussion.  Then, the Plaintiff purchased the property at the price of SGD2,902,240 (equivalent to HK$16,757,822.63) and placed it under the 1^st Defendant’s name as legal owner.  There was a dispute that 2% of the purchase price was paid by the 1^st Defendant.  The property was rented out and the rental income banked into the 1^st Defendant’s bank account in Singapore.

13.  The 1^st Defendant’s case is that the Plaintiff was concerned that one day the 1^st Defendant might wish to migrate to Singapore. Hence, the Plaintiff and Aunty bought the property as a gift to him.

14.  The Plaintiff said that in mid-2018, he decided to purchase 25F Cullinan West and 46C Cullinan West.  Under the developer’s arrangement, to secure a purchase, he had to buy a big and a small unit together.  The Plaintiff discussed with the Defendants and invited them to hold the units to be purchased as legal owners for him.  It was agreed that he would purchase the units without mortgage and allow the Defendants to occupy the larger unit; while the Defendants would manage the units to be purchased for him (the “Cullinan West Agreement”).  Subsequently, the Plaintiff arranged the 2^nd Defendant to hold 46C Cullinan West (the larger unit) and the 1^st Defendant to hold 25F Cullinan West.  These units were purchased at the price of HK$37,691,000 with a discount of HK$4,527,920 and HK$7,598,700 with a discount of HK$1,110,358 respectively.  These units were assigned to the respective Defendants on 11 July 2019. 

15.  The Defendants’ case is that at the time they were living in La Maison Vineyard in Yuen Long while the Plaintiff was living in Imperial Cullinan.  The Grandson was born in January 2018.  The Plaintiff suggested to Aunty and the 1^st Defendant purchasing the two units as gifts to the Defendants as their residence so that it would be more convenient for them to visit the Defendants and their Grandson and to facilitate the Grandson to attend playgroups and better schools in the near future.  The Defendants moved into 46C Cullinan West and rented 25F Cullinan West out.  They never had to account to the Plaintiff for the rental income which was applied towards payment of the property expenses.  They kept the surplus. 

16.  In around March 2019, according to the Plaintiff, he decided to expand his investment into the taxi business.  He discussed with the 1^st Defendant about purchasing two taxis with one to be held in the 1^st Defendant’s name for management purpose.  They agreed that the Plaintiff would assume all financial responsibilities for the taxi to be registered in the 1^st Defendant’s name and retain the beneficial interest and income generated; while the 1^st Defendant would hold the taxi as registered owner (the “Taxi Agreement”).  The Plaintiff purchased the taxi with registration number VZ8217 at the price of HK$5,990,000 with the 1^st Defendant as the registered owner without mortgage and another one under the name of Best Powerful with a mortgage.  At around that time, Aunty had commenced or was about to commence her petition for divorce.

17.  The Defendants’ case is that the Plaintiff bought a taxi with taxi licence in early 2019 for his own investment as he thought it a good time to invest.  A few weeks later, the Plaintiff bought Taxi VZ8217 as a gift to him. Both taxis were managed by Orient Star Motors Limited.  Unlike the income from the other taxi, the income from Taxi VZ8217 was transferred to the bank account of Lung Chun Taxi Company for the 1^st Defendant’s disposal and he had no obligation to account to the Plaintiff for the income.

The Plaintiff’s case of the Defendants’ breach of trust

18.  The Defendants used to account to the Plaintiff for all profits and rental income from the Subject Properties.  Aunty commenced divorce proceedings in March 2019.  Since June 2019 after the unit in the Yoo Residence was sold, the Defendants began to ignore the Plaintiff’s inquiries and kept the proceeds of sale and government’s refund of stamp duty.  The 1^st Defendant avoided answering the Plaintiff’s enquiries.  Despite that the Plaintiff continued to employ the Defendants through Best Powerful, thereby providing him with maintenance for his family.

19.  In October 2019, the 1^st Defendant refused to return the original copy of the vehicle registration document of Taxi VZ8217 which was given to him for the purpose of updating his residential address with the Transport Department.

20.  On 27 October 2019, the Plaintiff had a conversation with the 1^st Defendant. Unknown to him then, the conversation was recorded. In the conversation, he admitted that 46C Cullinan West, the Singapore Property (not inclusive of the rental income) and Taxi VZ8217 (inclusive of the rental income) were gifts to the 1^st Defendant, but not 25F West Cullinan.

21.  In around November 2019, the Plaintiff asked the 1^st Defendant to use the Proceeds of the Yoo Residence to settle renovation costs of 46C Cullinan West and some other properties.  The 1^st Defendant complied only after repeated requests.

22.  In the same month, the Defendants ignored the Plaintiff’s request to mortgage 25F Cullinan West and 46C Cullinan West.

23.  On 23 November 2019, the 1^st Defendant eventually reported the investment of the Subject Properties to the Plaintiff. 

24.  Since early December 2019, the 1^st Defendant blocked the Plaintiff’s WhatsApp and WeChat contacts while the 2^nd Defendant ignored the Plaintiff’s WhatsApp and WeChat messages.  The 1^st Defendant quit the WhatsApp group chats in relation to the management of Taxi VZ8217 and the Singapore Property.  He also instructed the Plaintiff’s property agent not to contact the Plaintiff regarding the Subject Properties.

25.  Feeling that the Defendants were beginning to treat the Subject Properties and the income as their own assets without regard to his rights and interest as the sole beneficial and equitable owner, the Plaintiff commenced the present action and sought the Injunction.

The Defendants’ case

26.  In essence, the Defendants deny that they were in breach of trust as the Subject Properties were all outright gifts from the Plaintiff and Aunty to the Defendants.  Hence, they owe no duty as trustees to the Plaintiff in respect of the Subject Properties and they never gave any account to the Plaintiff in respect of the Subject Properties and their income.  Despite that, the 1^st Defendant voluntarily without consideration agreed to return 25F Cullinan West and the income to the Plaintiff.  He made the concession because he used to be submissive to the Plaintiff who is a dominating person.  Since then, the 1^st Defendant ceased to treat the aforesaid property as his.  He paid the renovation costs of a commercial unit belonging to the Plaintiff and the renovation costs of 32F Cullinan West where the Plaintiff intended to reside after Aunty moved out of Imperial Cullinan.  He requested the Plaintiff to prepare the necessary conveyancing documents to transfer 25F Cullinan West back to the Plaintiff via his solicitors’ letter dated 5 March 2020, but the Plaintiff has not responded.

The Plaintiff’s recent open offer

27.  The Plaintiff’s solicitors wrote to the Defendants’ solicitors on 24 July, 31 August and 7 September 2020 making open offers to deal with the Injunction so as to dispense with the further hearing of the inter partes summons, but to no avail.  The Plaintiff latest proposal is that the Injunction be continued on the following terms:

(1)  the Defendants to continue to manage the Subject Properties, except the Proceeds of the Yoo Residence;

(2)  the Defendants to deposit the Proceeds of the Yoo Residence and income derived from the Subject Properties to an interest-bearing account to be opened and managed by an independent person to be mutually appointed to act as stakeholder;

(3)  the Plaintiff’s right to take issue as to the correctness of the amount to be paid into the stakeholder account is reserved;

(4)  a monthly sum to be agreed between the parties or as determined by the court may be paid out of the stakeholder account as the Defendants’ living expenses; the total amount paid out is subject to the Plaintiff’s right to claim repayment if the action is determined in the Plaintiff’s favour after trial; and

(5)  save and except the above mentioned properties and income therefrom, the Defendants are at liberty to dispose of or otherwise deal with their other additional assets.

These terms would defer the need to re-convey 25F Cullinan West to the Plaintiff and give the Defendants funds for the living expenses.

28.  However, the Defendants rejected the offer.  First and primarily, they believed they had good chance to have the Injunction discharged for material non-disclosure.  Second, they took the view that the Plaintiff’s offer was effectively to re-re-amend the Injunction order by way of solicitors’ correspondence without making a formal application to vary the material terms of the Injunction, thereby depriving them of the chance to respond by affirmation.  It is not permissible for the Plaintiff to do so.  Third, the new offer about drawing monthly expenses is similar to the newly proposed “exception to this order” in the Plaintiff’s counsel’s submission.  Fourth, it is unlikely that the parties could agree on the amount of the Defendants’ living expenses which will necessitate the parties coming to court for interlocutory applications.  Fifth, they consider it unjust for the 1^st Defendant to have to provide free labour in managing the Subject Properties.  They think the terms of the new offer would only invite interlocutory applications on various matters, such as the amount of reasonable expenses and legal expenses to be allowed to the Defendants, and the appointment of stakeholder etc.

29.  In my view, except for the first ground, there is no substance in the Defendants’ objections.  That said, there is nothing to prevent the court in a suitable case from issuing a fresh injunction after discharging the original one for material non-disclosure.

30.  The second ground is just technical.  The parties should not assume that when hearing an application to continue or to discharge an injunction, whether granted ex parte or inter parte, the court will invariably adopt an all or nothing approach.  Even in the absence of an application to amend, the court has wide jurisdiction on its own initiative after hearing the application to discharge the injunction or to continue it on such amended terms as the court thinks fit.  In determining where the balance of convenience lies, the court may, where justice and convenience requires, amend the terms of the injunction to restore the balance or set a new balance on new terms.  The Defendants’ complaints about being deprived of the chance to respond by affirmation and having to provide free labour are frivolous.  It is just part of the give and take for maintaining the status quo without the costs and risk of an adjudication.  There is nothing to prevent them from making counter offer or counter proposal. 

31.  The other objections just reflected an absence of a will to work out some interim arrangements for the purpose of saving costs, pending resolution of their dispute.

The issues

32.  The parties have no dispute about the principles applicable to the grant of injunction generally and proprietary injunction in particular.  The basic principles are set out in American Cyanamid Co v Ethicon Ltd[1]. The court must be satisfied: (1) that there are serious issues to be tried; (2) that damages are not an adequate remedy; and (3) that on the balance of convenience, it is just and convenient to grant the injunction.  Where the injunction sought is to protect proprietary claim for trust property, there is no need to show irremediable damage.  The court will readily find that the balance of convenience favours preservation of the trust property pending trial: Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd & Others[2]. There is also no need to prove risk of dissipation: Zimmer Sweden AB v KPN Hong Kong Ltd and Anor[3]

33.  The Defendants argued that the decision in CY Foundation Group v Cheng Chee Tock & Ors[4] was premised upon a good arguable case having been shown and not applicable to the present case.  In CY Foundation Group, the directors took funds of a company to defend themselves against a section 168A claim.  There was a good arguable case of misappropriation of company’s funds.  In the present case, there is no dispute that the funds used to purchase the Subject Properties were the Plaintiff’s funds.  Though the Defendants have pleaded the defence of outright gift in a family setting with the Plaintiff in the position of loco parentis, the presumption of advancement does not apply because of the lack of blood relations: Snell’s Equity[5]. The presumption of trust is in favour of the Plaintiff.  In my view, the present case is indistinguishable from CY Foundation Group.  Likewise, there is a good arguable case of misappropriation of trust property.

34.  In the alternative, the Defendants argued that they have a good defence of gift and that in deciding whether the court should readily find the balance of convenience in favours of preservation of the alleged trust properties, the court should take into consideration the Defendants’ defence. 

35.  Given that the funds for purchasing the Subject Properties came from the Plaintiff, the Defendants do not oppose the Plaintiff’s application on the ground of “no serious issues to be tried”.  They advanced six different grounds.  The arguments are repetitive.  They all revolve around balance of convenience and the Defendants’ defence. 

THE DEFENDANTS’ GROUNDS OBJECTIONS

(1)  Neither just nor convenient nor necessary to continue the Injunction

36.  The Defendants argued that the Injunction is both unnecessary and redundant.  This is because as the Plaintiff has registered the writ in this action against 25F Cullinan West and 46C Cullinan West (collectively, the “Hong Kong landed properties”) and Aunty has given an undertaking for damages on behalf of the Defendants.  Hence, the Plaintiff’s interests are well secured. It is trite that where a lis pendens has been registered against the title of a property it will render the title defective if it gives rise to a real risk of a successful assertion against the owner’s title: Hong Kong Conveyancing Law and Practice[6]. The registration of documents such as a writ by which court proceedings are initiated would serve as constructive notice of the plaintiff’s claim: Land Law in Hong Kong[7]. Any purchaser from the Defendants or financial institution lending to them on the security of the properties will be fixed with notice of the Plaintiff’s interest.  While I agree with the Defendants that the Hong Kong landed properties will be relatively safe in view of the registration of the lis pendens, there is nothing to prevent an aggressive buyer buying on a bet that the assertion of title will be unsuccessful.

37.  Furthermore, the Defendants’ argument is only applicable to 46C Cullinan West and 25F Cullinan West, but not to the Singapore Property in respect of which no lis pendens has been registered or to Proceeds of the Yoo Residence or Taxi VZ8217.  Without the Injunction, these three Subject Properties will be at risk of dissipation. 

38.  On the other hand, discharging the Injunction in respect of these two properties would give the Defendants no benefit whatever.  They have not identified what prejudice they are suffering or will suffer over and above that caused by the registration of the lis pendens.  But, the Injunction will give the Plaintiff additional protection in that it imposes a personal obligation on the Defendants which is backed by sanction of the court, such as contempt proceedings, in case of breach.  The lis pendens only deters third parties.  It is less effective than an injunction.

39.  As for Aunty’s undertaking, she is expected to receive about half of the family assets now under the name of the Plaintiff and Aunty on conclusion of her matrimonial proceedings.  It should be noted that her undertaking is partly backed by a possible 50% interest over the Subject Properties.  The value of her undertaking is uncertain.  Furthermore, use of third party undertaking may create problems and uncertainties.  As a matter of practice, use of third party undertaking should always be avoided than unnecessarily indulged. 

40.  Not only is the Defendants’ proposal of limited application and does not provide adequate protection for all the Subject Properties, it would give no practical benefit to either party.  It appears that the Defendants’ argument was raised just for the sake of argument.

(2)  Balance of convenience

41.  Subsequent to the filing of the Plaintiff’s 2^nd Affirmation and the 1^st Defendant’s 3^rd Affirmation, the parties proceeded on the basis that the 1^st and 2^nd Defendants had assets in the value of $3,183,787.87 and $1,113,704.46 respectively.  The Defendants’ arguments on balance of convenience are premised on the basis that with the value of their assets they could not maintain their livelihood and living standard pending the conclusion of these proceedings.  If the Injunction is wrongly continued, the disadvantages likely to be suffered by the Defendants would be incapable of being compensated.  The Plaintiff’s undertaking could not provide any adequate remedy.  However, if the Injunction is wrongly discharged, any injury suffered by the Plaintiff would not be irreparable.  Hence, the balance of convenience lies against the continuation of the ex parte Injunction.  The Defendants argued that they would suffer irreparable damage for the following reasons. 

42.  First, they relied on hardship to their children, namely, the elder son born in 2018 and a baby born in October 2020.  With the Injunction in force, the Defendants would have to downgrade their standard of living and lose the choice of enrolling their elder son to private kindergarten in accordance with their wish.

43.  Second, the Defendants argued that they are in need of cash.  The family will suffer a drastic change in living standard until the determination of the whole action which would take probably two or three years.  Excluding the Subject Properties and Proceeds of the Yoo Residence, the Defendants’ assets are mainly antiques and his collection of motor cars and watches.  He would have to sell his collections which he dearly treasures and actualize his insurance policies which mean a lot to him.  Even if he sells all his collections, the sum will be depleted very soon by the family of four.  According to Aunty the 1^st Defendant’s monthly outgoings were at least $68,000.  The legal costs have hitherto exhausted 20% of their assets.  The 1^st Defendant also mentioned about hardship to Aunty, her living expenses and litigation costs.  The hardship to Aunty is, in my view, irrelevant as she has her own assets and access to the Family Court, if necessary.

44.  Third, the Defendants would suffer stress seeing their family assets dropping day after day.  Such stress is incapable of quantification and the damage irreparable.

45.  Pausing here, I think these grounds are more of an exaggeration than real.  I accept that the 1^st Defendant has been tamed by the Plaintiff and Aunty and is unable to lead an independent life without their financial support.  He has been brought up in luxury and used to an extravagant standard of living and way of life.  With his relationship with the Plaintiff turning sour and with the litigation over his head, he is bound to suffer some stress and may have to downgrade his living standard.  With or without the injunction, a litigant is bound to suffer stress of litigation.  The 1^st Defendant did not give an account of his living expenses.  It was only his Aunty who said in her affirmation that the Defendants’ monthly living expenses were $68,000 which is comprised of the following:-

(1)  Outgoings of 25F Cullinan West;  $4,000

(2)  Outgoings of Singapore Property:  $10,000

(3)  Outgoings for Taxi VZ8217:  $4,000

(4)  Defendants’ expenses:  $35,000

(5)  Grandson’s expenses:  $15,000

I view that with some circumspection as Aunty is not expected to have personal information about these expenses and there is no reason why the 1^st Defendant did not testify to that himself. But even accepting Aunty’s evidence, the 1^st Defendant enjoys free accommodation in 46C Cullinan West.  He has a fleet of motor vehicles for his enjoyment.  If his income could not provide him all his needs, he could seek to rely on the “Exceptions to This Order” under the Injunction. 

46.  More recently, the 1^st Defendant moved out of 46C Cullinan West to Marina Garden in Tuen Mun near to Aunty.  That may be a downgrading. But he never complained that the downgrading was unacceptable and caused him stress.  He did not mention about his move.  It was only discovered by the Plaintiff noticing the change in his address in his 3^rd Affirmation.  He would not have moved out for no reasons.  The most probable reason was he rented 46C West Cullinan out to generate income to meet his expenses.  Even in the absence of expert evidence, it would be safe to assume the rental income of such a property would be in the region of $40,000 to $50,000 a month.  Deducting the rent for alternative accommodation, the 1^st Defendant has a surplus of about half that amount.  I accept that the 1^st Defendant may have downgraded his standard of living, but there is nothing to suggest it is to such an extent that he or his family could not live with.  Obviously, he has learned to adjust.  As I have said, faced with the situation, he has to live with some downgrading in his living standard and life style.

47.  Fourth, the Defendants argued that they have a strong or good arguable defence.  Relying on the transcript of their conversation with the Plaintiff on 27 October 2019, they argued that the transcript contains admissions that the Subject Properties were outright gifts or is, at least, some evidence on which the inference of gifts could be drawn.  The Plaintiff was recorded to have said:

(1)  that Taxi VZ8217 was purchased by the Plaintiff to be given to the 1^st Defendant with the rental income to be applied towards his family expenses;

(2)  that 46C Cullinan West was purchased for the 2^nd Defendant and he would not interfere with it; and

(3)  that he only gifted the Singapore Property to the 1^st Defendant but not the income during the Plaintiff lifetime which the 1^st Defendant had to account to the Plaintiff. 

These admissions are strong evidence that Taxi VZ8217 including its income is an absolute gift to the 1^st Defendant and his family; that 46C Cullinan West is an absolute gift to the 2^nd Defendant; and that the Singapore Property is a gift to the 1^st Defendant except for the income before the Plaintiff’s demise.  In the light of this strong evidence, the balance clearly lies in favour of discharging the Injunction at least in respect of some of these three Subject Properties.

48.  Furthermore, the Defendants argued that the Plaintiff would not suffer irreparable damage and prejudice if the Injunction were wrongly discharged. First, lis pendens have been registered against the two Hong Kong landed properties.  The Plaintiff would only be at risk in respect of the Singapore Property, the Proceeds of the Yoo Residence, the income from Taxi VZ8217 and the rental income from 25F Cullinan West and from the Singapore Property.  They also argued that the Plaintiff could have recourse to Aunty’s undertaking.

49.  The Plaintiff argued that the two Hong Kong landed properties and Taxi VZ8217 are unique and their loss could not be compensated by money.  In my view, in the context of balance of convenience, uniqueness in landed property carries less weight than in the context of specific performance for sale and purchase of property.  As for Taxi VZ8217, its value lies in the licence than in the vehicle. It is obviously replaceable by a taxi licence and a taxi of the same make, mileage and condition.  In any event, its loss is replaceable by money.  However, the risk the Plaintiff is exposed to includes, in addition, the Singapore Property and the Proceeds of the Yoo Residence.  There is no dispute that the Defendants have limited resources.  Aunty’s undertaking is of doubtful value.  If the Defendants and Aunty have no means to pay, the damage to the Plaintiff is irreparable, if the Injunction is wrongly refused.  In my view, the balance lies in favour of continuing than discharging the Injunction.

(3)(i) - Breach of duty of full and frank disclosure

50.  The Defendants argued that as the ex parte Injunction was granted without the Defendants having the opportunity to be heard, hence the Plaintiff was under a duty to give full and frank disclosure at the ex parte stage and this duty is a continuous duty which extends to the inter parte stage. 

51.  Mr Liu referred to the 27 October 2019 conversation asserted in the 1^st Defendant’s 2^nd Affirmation in which the Plaintiff made certain admissions.  Mr Liu complained that the Plaintiff still lied in the face of the court that no such conversation ever took place and accused the Defendants and Aunty of joining together to make up the conversation or meeting.  Then, after the 1^st Defendant exhibited the transcript as a result of which the Plaintiff could no longer deny the admissions, he advanced different excuses to explain away his admissions.

52.  With respect to Mr Liu, the continuous duty of full and frank disclosure applies to disclosures made at the ex parte stage but not at the inter parte stage when the defendant is in court and in a position to respond or deny the allegations.  Thus, this continuous duty applies if an applicant has made some disclosures which turn out to be incomplete or false.  He has the duty to inform the court of the true position.  The issue of the 27 October 2019 conversation was only raised by the 1^st Defendant after the ex parte stage.  It was not an issue before the ex parte judge which the judge had to consider in deciding whether to grant the injunction.  It was raised by the 1^st Defendant during the inter parte stage when both parties had their chance to be heard.  Whether there was the conversation is a factual issue to be decided at the inter parte stage.  To extend the duty of full and frank disclosure to factual disputes raised at the inter parte stage would be an unjustified extension of that duty.  To do so would necessarily mean any factual disputes resolved against the applicant would be a breach of the duty which would justify a discharge of the ex parte injunction. I do not think that is the correct position of the law.

53.  Next, Mr Liu said that at the ex parte stage the Plaintiff’s case is founded on trust only.  Now, the Plaintiff made a new allegation of “gifts subject to conditions” which was never raised at the ex parte stage.  He submitted that this is another breach of the duty of full and frank disclosure.

54.  With respect, it is difficult to see how this argument fits into the duty of full and frank disclosure.  The duty relates to what was relied on and presented to the judge at the ex parte stage.  If an applicant has three grounds in support of his application for injunction but he only presented one ground which was sufficient for the ex parte judge to grant the injunction and he could justify continuation of the injunction on that ground at the inter parte stage, there was no breach of the duty.  The relevant principle is: if an applicant advanced a certain ground and obtained an ex parte stage on that ground, he may not at the inter parte stage rely on some other grounds, if his original ground fails.  This is how the duty of full and frank disclosure operates.  But the applicant is not estopped from raising some other grounds which he had not presented to the ex parte judge, if it becomes necessary to argue for a re-grant.  Since the defendant would be in court at the inter partes stage, there is no issue of unfairness.  For reasons as I shall discuss in paragraphs 68 to 71 when considering the Defendants’ defence, the Plaintiff is able to justify the Injunction based on his proprietary claim.  There is no substance in this complaint.

(3)(ii) - Material non-disclosure 1

55.  Still struggling with the 27 October 2019 conversation, Mr Liu attacked from a different perspective.  This time, his complaint is that the Plaintiff ought to know or foresee that the Defendants would rely on his admissions made during the conversation as a defence to his claim.  Thus, by withholding the information about the conversation, the Plaintiff was in breach of paragraph 32(4) and 32(5) of Practice Direction 11.1.

56.  Despite his initial denial, the Plaintiff admitted the alleged admissions, but gave an explanation of the factual circumstances when the meeting took place, including his physical condition and his motive behind the alleged admissions.  He gave a different construction to the alleged admissions. He also made an important point that the alleged admissions were not contemporaneous statements made at the time of the alleged making of the gift. I repeat my observations in the preceding subsections that these are factual disputes raised in the inter partes stage and do not qualify as material non-disclosure.  However, as I shall explain in the subsection below, what underlies the conversation or admissions may be a material subject matter for disclosure at the ex parte stage.

(3)(iii) - Material non-disclosure 2

57.  The Defendants complained that the Plaintiff downplayed the love and care which he and Aunty showed to them and the Grandson who was then two and half years old.  Their case is that the Plaintiff and Aunty had no children and treated the 1^st Defendant as their son and part of their family.  They argued that it was because of the love and care which the Plaintiff and Aunty had for the 1^st Defendant which led to the purchase of the Hong Kong landed properties.  However, in his affirmation in support of the ex parte Injunction, the Plaintiff merely gave an unemotional account that out of sympathy he supported the 1^st Defendant’s living and educational expenses since he was around one-year old and let him hold the Subject Properties on trust for the Plaintiff; but in breach of trust the Defendants refused to follow the Plaintiff’s directions. 

58.  The Plaintiff denied that his failure to use the word “love” or “care” amounted to material non-disclosure.  He said it was just a choice words and he had indeed mentioned about his care for the 1^st Defendant in teaching him and finding employment for him.  In fairness to both parties, I quote what the Plaintiff said in his affirmation hereunder:

“I am married but during the marriage, my wife and I had no child. The 1^st Defendant was in fact the son of my wife’s elder brother. At that time, I was told that my wife’s elder brother was unable to raise the 1^st Defendant, mainly due to his financial inability. Out of sympathy, I agreed to financially support the 1^st Defendant’s living and educational expenses since he was around 1 year-old. The arrangement was that I would provide money to my wife who would use the money to settle the expenses of the 1^st Defendant directly and subsequently provide cash to the 1^st Defendant when he reached adulthood. During all these years, I always addressed the 1^st Defendant as “Lung Lung”, which (sic) the 1^st Defendant addressed me as “姑丈”. The Defendant is now around 30-years old.”

59.  The Plaintiff’s 1^st affirmation excluded the familial context in which the alleged trust was created.  The above passage carries the impression that the Plaintiff only supported the 1^st Defendant financially because his father was impecunious.  There was no mention that he and Aunty personally brought up the 1^st Defendant as if he were their child and as part of their family which is the picture now painted by the affirmations filed by both parties.  I agree with the Defendants.  The Plaintiff did downplay the true relationship between him and the 1^st Defendant.  Indeed, there was also no mention of this love and family environment in the Plaintiff’s written skeleton submission presented to the ex parte judge.  The familial context in which the alleged trust was created suggests the likelihood that the Subject Properties were gifts to the 1^st Defendant by the Plaintiff in his position as loco parentis.  The Plaintiff could not have overlooked this familial context.  He could not have been unaware of a possible defence of gift.  This possible defence had not been brought to the attention of the ex parte judge.  This is truly material non-disclosure.

(3)(iv)  Material non-disclosure 3

60.  The Defendants also complained about material non-disclosure as to where the balance of convenience lies.  They argued that the Plaintiff failed to draw to the ex parte judge’s attention to the financial disparity between they and the Plaintiff.  While the continuation of the Injunction will preserve the status quo of the Subject Properties, it will greatly and unjustly distort the living standard and cash flow of the Defendants.  This ground is basically a repetition of Ground (2) under a different heading. The inconvenience and downgrading of the Defendants’ living standard have been exaggerated.  There is no substance in this ground.

(4)  Not “just” to continue the Injunction

61.  The Defendants argued that the effect of the Injunction is to maintain the status quo of the Subject Properties at the expense of the Defendants who had to bear the costs of maintaining them and the outgoing expenses.  It is also unfair to require the Defendants to offer free labour to maintain the Subject Properties, if the Plaintiff wins at trial.

62.  While there is some truth in the Defendants’ argument, it is very one-sided.  The Injunction only restrains disposal of the Subject Properties but does not require the Defendants to maintain them and pay their outgoing expenses.  In addition, the Defendants did not mention that they were enjoying free accommodation at 46C Cullinan West.  In monetary terms, the value of the use of that accommodation is very substantial.  Besides, paying maintenance and outgoings is the costs of their using the accommodation.  There may be room for improvement on the terms of the Injunction, the inadequacy of the terms is a reason for variation but not for discharging the Injunction in its entirety.

63.  Furthermore, it is only in the open offer that the obligation to maintain the Subject Properties was suggested.  But that is part of the total package which gives the Defendants the benefit of using the income from the Subject Properties.  The package may not be perfect or ideal from the Defendants’ point of view, but it was open to negotiation.  In any event, the Defendants have rejected the open offer.  The offer is irrelevant.

(5)  Damages are adequate to the Plaintiff and are secured

64.  This is just another repetition of Grounds (1) and (2) which I have rejected.

(6)  Plaintiff’s application was made mala fide

65.  This is a wholesale repetition of all the grounds, particularly Grounds (1) and (2) with a focus on the Plaintiff’s intention to punish the 1^st Defendant for taking side with Aunty and to limit Aunty’s resources for the divorce proceedings.  Except for the issue of material non-disclosure, these grounds are not strong by themselves.  I fail to see how they could support an already very speculative purpose.

Conclusion

66.  For the above reasons, I am satisfied that there was serious material non-disclosure on the part of the Plaintiff when applying for the ex parte Injunction.  Accordingly, the ex parte Injunction shall be set aside.  However, having heard arguments on the merits at the inter parte hearing, I think a re-grant should be considered.

RE-GRANT

Introduction

67.  The starting point for considering a re-grant is that the Plaintiff’s claim is proprietary in nature; that the Subject Properties were all purchased with the funds of the Plaintiff; and that there is no dispute there is a serious issue to be tried.  In the circumstances, the consideration boils down to balance of convenience.  In weighing the balance, the strength and weakness of the defence has a strong bearing.

The defence

68.  Apart from his and Aunty’s assertion, the Defendants’ case of gift is supported by the Plaintiff’s admissions in respect of three of the Subject Properties made during the conversation on 27 October 2019:

(1)  that Taxi VZ8217 was purchased by the Plaintiff to be given to the 1^st Defendant with the rental income to be applied towards his family expenses;

(2)  that 46C Cullinan West was purchased for the 2^nd Defendant and the Plaintiff would not interfere with it; and

(3)  that the Plaintiff gifted the Singapore Property to the 1^st Defendant but not the income during the Plaintiff lifetime which the 1^st Defendant had to account to the Plaintiff. 

The Plaintiff does not dispute the authenticity of the recording and transcript.  Effectively, he admitted that Taxi VZ8217 and 46C Cullinan West are outright absolute gifts; and that except for the income during his lifetime, the Singapore Property is also a gift.  His admissions are against his own interest.  They have probative value.  However, the Plaintiff gave explanations as to why he said what was recorded and gave his interpretation of what was said. Those explanations have to be considered in assessing the weight to be attached to the admissions. 

69.  On the other hand, the Plaintiff’s claim is proprietary in nature and there is no dispute that he paid the price for the purchase of the Subject Properties.  I repeat my observations in paragraph 33, namely:

(1)  that there is no blood relations between the Plaintiff and the 1^st Defendant, though the Plaintiff acted as loco parentis;

(2)  that the presumption of advancement does not apply;

(3)  that the presumption of trust is in favour of the Plaintiff;

(4)  that the burden of proving gift is very high; there must be a clear and distinct act of gift and evidence of intention; and

(5)  that the value of the Subject Properties is very substantial.

70.  The burden of proving gift is very high.  The more valuable the alleged gift, the heavier is the burden.  The value of the Subject Properties is very substantial.  There is nothing to suggest the Plaintiff was suffering ill-health or in imminent danger of his life at the time of the bequests.  His purchase of the Subject Properties appears to be part of his long term investment strategy.  The presumption of trust is in favour of the Plaintiff.  Though the relationship between the Plaintiff and the 1^st Defendant is very close and the Plaintiff has no child of his own, it may be a little unconvincing to suggest that the Plaintiff intended to make outright absolute inter vivos gifts of the Subject Properties and put them beyond recall.  While the admissions are a strong piece of evidence in support of the defence of gift, the Plaintiff has an explanation and his own interpretation for the admission. This is not the occasion for mini trial on affidavit evidence.  All in all, the admissions are not that strong enough as to water down the Plaintiff’s case of trust for the purpose of these interlocutory proceedings.  In the circumstances, the re-grant boils down to balance of convenience. 

Balance of convenience

71.  The major thrusts of the Defendants’ argument are that the prohibition against disposal of the Subject Properties is unjust and unnecessary; and the financial disparity between they and the Plaintiff.

72.  I repeat my observations in paragraphs 36 to 40 about the Defendants’ “unjust and unnecessary” arguments.  The lis pendens could only protect the Hong Kong landed properties, but not the Singapore Property, Taxi VZ8217 and the Proceeds of the Yoo Residence.  Besides, they are not backed by personal sanction against the Defendants.  The Defendants could offer no evidence of the prejudice they are suffering or would suffer over and above that caused by the lis pendens which they have no complaint.  Even assuming there is a good defence in relation to 46C West Cullinan, the Singapore Property and Taxi VZ8217, 25F West Cullinan and the Proceeds of Yoo Residence would be unprotected without an injunction.  Protection for 25F West Cullinan is particularly justified as the 1^st Defendant now accepts that it ought to be returned to the Plaintiff.  Hence, the circumstances favour a re-grant of the Injunction to protect particularly at least two of the five Subject Properties.

73.  I repeat my observations in paragraphs 41 to 49 about balance of convenience and financial disparity.  Those grounds are exaggerated and unreal. The present position is that the Defendants have adapted to a downgrading of their living standard with their move out of 46C Cullinan West to rented accommodation which helped to alleviate their financial problems.  Still, the 1^st Defendant intimated that he wanted to sell some of the Subject Properties, in particular Taxi VZ8217.  That is clear evidence of risk of dissipation.

74.  In the event that the Injunction is wrongly continued, the damage to be suffered by the Defendants is not irreparable and the Plaintiff is good for damages.  In fact, the Defendants’ argument of disparity operates against them in the sense that they are not good for damages.  I would not count on Aunty’s undertaking because of the uncertainties in the value of her assets.  Besides, use of third party undertaking should be avoided if possible.  Hence, if a re-grant of the injunction is wrongly refused, the damage to the Plaintiff will be irreparable. 

75.  It is the Plaintiff’s admission that 46C Cullinan West was purchased for the 2^nd Defendant to be used as the Defendants’ home.  It would therefore be just and convenient to allow the Defendants to have the benefit of their downgrading so that they may use the rental income from that property pending conclusion of these proceedings.  It is also the Plaintiff’s admission that the income from Taxi VZ8217 is for the Defendants’ family expenses.  Hence, it would also be just and convenient to allow them to have the use of the income from the taxi. 

76.  Viewed in the round, as the defence is not that strong enough as to water down the Plaintiff’s proprietary claim and having regard to the defence and the change in circumstances, I think a new balance should be struck by re-granting the injunction subject to provisions being made for payment by the 1^st Defendant of outgoings of 25F West Cullinan and the Singapore Property and for the 1^st Defendant to be allowed to use the rental income from 46C West Cullinan and Taxi VZ8217 net of their outgoings.  The Defendants’ outgoings thus reduced would be sufficient to set off the rent payment for their alternative accommodation.  It would be convenient for these outgoings to be paid from the rental income from the Singapore Property.  The rental income from Taxi VZ8217 and from 46C West Cullinan net of their outgoings would comfortably provide for the Defendants’ outgoings at a level which is sufficient to maintain their current standard of living.  Since these variations are based on information provided by Aunty which is not supported by documentary evidence, I allow the parties liberty to apply.

77.  Accordingly, I re-grant an injunction on similar terms subject to the following variations:-

(1)  that the Defendants may use the rental income from 46C Cullinan West and Taxi VZ8217 net of their outgoings;

(2)  that the Defendants may use the rental income from the Singapore Property solely for payment of its outgoings and the outgoings of 25F West Cullinan; and

(3)  there be at liberty to apply.

In this way, the Subject Properties will be protected and the livelihood of the Defendants will be maintained at a standard they are willing and able to live with.  If the court’s decision turned out to be wrong, the Plaintiff is good for damages.

COSTS

78.  The Defendants are successful in setting aside the ex parte Injunction but unsuccessful in resisting a re-grant of the injunction.  They should be regarded as overall unsuccessful.  In fact, except for the argument on the Plaintiff’s failure to bring the ex parte judge’s attention to the possible defence of gift, their arguments are frivolous and exaggerated.  Had they accepted the open offer, they would even have been better off in that they do not have to downgrade their living standard.  On the other hand, the Plaintiff should be penalized for material non-disclosure.  In the circumstances, it is more appropriate that the parties should bear their own costs of the ex parte application and this hearing than to leave the costs to the event. Accordingly, I make a costs order nisi that there be no order as to costs of the ex parte application and this hearing.