TSUI HOI PAN v. WONG CHUN LING AND OTHERS

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JUDGMENT

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Godfrey, J.A. :

Introduction

1. This is the plaintiff's appeal against an order of H.H. Judge Li (sitting as a deputy judge of the Court of First Instance of the High Court) made on 26 May 1999, by which the judge ordered that the plaintiff's action be dismissed, unless within 21 days from 26 May 1999, the plaintiff applied for leave to amend the statement of claim and such leave was granted. The ground upon which the judge made this order was that the plaintiff's action as pleaded was bound to fail.

2. The defendants seek to have this court affirm the judgment below on the same ground, and they say that the plaintiff's action is an abuse of the process of the court and ought to be dismissed on that ground too.

The facts - the plaintiff's case

3. The facts which gave rise to the proceedings below, as pleaded by the plaintiff, may briefly be stated as follows.

4. The plaintiff, wishing to borrow money on the security of certain properties which I may describe as the "Tung Chau Street property" and the "Fuk Wa Street property", was anxious to obtain a bank loan for the purpose. The bank was unwilling to make such a loan to the plaintiff. The plaintiff accordingly enlisted the help of the 1^st defendant, to whom the bank was willing to grant the necessary loan as the purchaser of the properties. The fact that the plaintiff was to remain the beneficial owner of the properties was not disclosed to the bank. Accordingly, the properties were assigned by the plaintiff to the 1^st defendant, ostensibly but not in fact for value. The bank made the necessary advances to the 1^st defendant for the purpose (so it believed) of acquiring the properties. Subsequently, the plaintiff paid off the advances from the bank out of the rents and profits of the properties, and now calls for their reconveyance to him.

The facts - the defendants' case

5. The defendants do not accept any of this and say that the assignment of the properties to the 1^st defendant in each case was indeed for value.

6. The Fuk Wa Street property was subsequently assigned by the 1^st defendant to the 2^nd defendant; by the 2^nd defendant to the 3^rd defendant; and by the 3^rd defendant to the 4^th defendant. They all deny any obligation to reconvey the properties to the plaintiff.

The law

7. A defendant is entitled to apply to the court to strike out, or have dismissed, an action brought against him by a plaintiff if he, the defendant, can show that the action is bound to fail, or that it has been launched in abuse of the process of the court. The question is whether the defendants have shown so in this case.

The grounds for striking out or dismissal

8. In the present case, the plaintiff's action is said to be vulnerable on three grounds.

The first ground: estoppel by deed

9. First, it is said that the assignments made by the plaintiff in favour of the 1^st defendant were on the face of them assignments for value, and in these circumstances the plaintiff is estopped from now asserting contrary to their terms that the assignments were not made for value.

10. The judge below accepted this. Subject as already mentioned, he dismissed the plaintiff's action on this ground (and on this ground alone). In this court, the defendants have not seriously sought to support the judge's judgment on this ground, quite rightly, because as between immediate parties who know all the circumstances, there can be no estoppel by deed. If the facts are as the plaintiff has pleaded, there is no objection to his asserting the existence of an implied, constructive or resulting trust, merely because of the fact that the assignment to the 1^st defendant, on the face of it, appears to be an assignment for value. The law does not allow an instrument such as the assignments here to be used as an instrument of fraud: see, e.g. Booth v. Turle (1873) LR 16 Eq. 182. If the plaintiff is able to establish a case on an implied trust, the doctrine of estoppel by deed will not assist the 1^st defendant. It is well-settled (see, e.g., Halsbury's Laws of England, 4^th edition, 1992, vol. 16, title "Estoppel", paragraph 1020) that there is no estoppel by deed in favour of a person knowing all the circumstances.

11. But the matter does not rest there. The defendants argued two further points before the judge, which I may describe shortly as "the resulting trust point" and "the illegality point", on which the judge declined to make any order in favour of the defendants. They therefore now claim that this court should strike out or dismiss the plaintiff's action on one or other or both of these two additional grounds.

The second ground - the resulting trust point

12. In my judgment, it is at least arguable that, in the circumstances pleaded in this action by the plaintiff, the 1^st defendant did come to hold these properties upon an implied trust for the plaintiff. It is impossible to describe the plaintiff's claim as incontestably bad, or one which is bound to fail.

13. The defendants, however, suggest that the plaintiff cannot now raise this point, because for him to do so in this action would be an abuse of the process of the court. They say that because, in an earlier action in which the plaintiff had based his claim against the defendants on an express trust, a recorder of the Court of First Instance, Mr. Kenneth Kwok, S.C., struck out the plaintiff's action. In the course of doing so, he pointed out that the plaintiff might have a claim based upon what he called a resulting trust, but that the plaintiff had not pleaded it. The recorder said :-

14. The defendants, founding themselves on this history, claim that the issue of implied trust is res judicata and that the plaintiff cannot be allowed to raise the point in the present action. I am unable to accept that argument. It is plain that the issue has never been canvassed on its merits by any court at all, and that it would be an injustice to the plaintiff to drive him from the judgment seat without having had that opportunity. Of course, as a general principle, it is the duty of a litigant to bring forward his whole case in one action, and he cannot complain if, having failed in his action, another action brought by him on different grounds but covering the same subject matter is treated as an abuse of the process of the court. But that is not at all this case.

15. For these reasons, accordingly, I regard the implied trust point as open to the plaintiff in the present action. He was, as it seems to me, encouraged by the remarks of the recorder in the first action to raise the question in a fresh action. This is not the sort of situation which can or should be met by the plea of res judicata.

The third ground - illegality point

16. The bank, say the defendants, was deceived by the plaintiff's conduct into making an advance to a person whom they thought was the 1^st defendant but was, in truth, the plaintiff. That was, they say, the obtaining by the plaintiff of a pecuniary advantage by deception, and consequently a matter which might well attract the attention of the criminal law. That may well be so. But this is an action in which the plaintiff seeks only to rely on the proposition that the 1^st defendant held the properties on trust for the plaintiff. He does not, in any way, need to rely on the alleged illegality in order to establish his case. The fact that the reason why he assigned the properties to the 1^st defendant has been mentioned in his pleadings and, no doubt, will come to be mentioned again in evidence at any trial of the action, is, in my judgment, neither here nor there. It is the defendants, not the plaintiff, who seek to rely on the alleged illegality to rebut the presumption of implied or resulting trust which will apply if the assignment to the 1^st defendant was not for value.

17. I would borrow the words of James L.J. in Haigh v. Kaye, (1872) 7 Ch. App. 469, a case in which the facts were not entirely dissimilar from our own :-

The defendant was unsuccessful, and was ordered to reconvey the estate to the plaintiff.

18. Here, the defendants seek to rely on the alleged illegality. That will be open to them at the trial of the action, but the alleged illegality is not one on which the plaintiff needs to rely in order to found his own action. That being so, the case is governed, in my judgment, by the recent decision of the House of Lords in Tinsley v. Milligan, [1994] 1 A.C. 340 which Lord Browne-Wilkinson, at p. 371, defines what he calls "the crucial question" as follows :-

19. But the case of Tinsley v. Milligan was decided by a majority, the House dividing by three to two. There are Australian authorities in which that case has not been followed. The point which the defendants wish and are entitled to take, that the conduct of the plaintiff in relation to the bank is sufficient to defeat the plaintiff's action against the defendants, is a point of some difficulty. It is wholly unsuitable to be disposed of without a proper examination of all the underlying facts and without a full consideration of the principles of law involved. For these reasons, I would, for my part, reject the suggestion that at this stage, upon this interlocutory application, the plaintiff's action ought to be struck out on this ground of illegality.

The 2^nd, 3^rd and 4^th defendants

20. I now deal separately with the cases of the 2^nd, 3^rd and 4^th defendants. These defendants were not parties to the arrangement said to have been made between the plaintiff and the 1^st defendant. Insofar as any of them claim under assignments made by the 1^st defendant, they are entitled to say :-

21. In answer to such an assertion, however, the plaintiff is entitled to reply :-

22. This matter of notice is, as it seems to me, a matter raised on the pleadings and which ought to be tried. It is true that the particulars relied on by the plaintiff for his plea that the defendants other than the 1^st defendant took with notice of the plaintiff's interest are scanty and it may be that, at the trial of the action, these defendants will be able to defeat the plaintiff's claim that they took with notice. But they are enough. I take just one example. The plaintiff says that the 4^th defendant was aware when it took its assignment that the premises assigned to it were occupied by a tenant, and that tenant was a tenant of the plaintiff, accounting to the plaintiff for his rent. If it be the case that the plaintiff was indeed in receipt of the rents and the profits of the property, and the 4^th defendant could, after making proper inquiries, have discovered those facts, it may be that the plaintiff will succeed in establishing his case that the 4^th defendant must be treated as having taken its assignment with notice of the plaintiff's claim. I say nothing more about this, because these are matters which have to be gone into at trial. I mention it only as an example of the sort of difficulty which prevents this court, as it seems to me, from ruling, at this stage, that there is nothing at all to be tried, and that therefore the plaintiff's action should be dismissed.

Conclusion

23. For the reasons I have endeavoured to state, it seems to me that on none of the grounds on which they rely, that is to say, the estoppel by deed ground, the resulting trust ground, or the illegality ground, can the defendants say that they have demonstrated that the plaintiff's claim is incontestably bad, and that his action is bound to fail; or that there is here an abuse of the process of the court.

24. I would accordingly allow this appeal, and express the hope that a renewed application by the plaintiff for legal aid, which he has so far been refused, might succeed if that refusal was based on a pessimistic appreciation of the chances of success of the plaintiff's case. I say nothing of course about the other duty of the legal aid authorities, to consider the matter of the plaintiff's means, into which we have not gone. I need say no more save that I am, for my part, grateful to the various counsel on the side of the defendants who have argued very fairly against the plaintiff in person the points of some difficulty with which we have been concerned on this appeal. The defendants must pay the plaintiff's costs, here and below, of their ultimately unsuccessful applications.

Mayo, J.A. :

25. I agree and add nothing further.

Rogers, J.A. :

26. I agree.

27. I wish to add a few words on just one or two of the points.

28. First, in relation to the illegality, it is said that the illegality arises because the bank was deceived into granting a loan when the Plaintiff still retained an interest in the property. But that can only be, if the Plaintiff had a claim which was good against the bank. On the facts as at present pleaded, in the statement of claim, the circumstances have not been asserted where it could be said that the Plaintiff could have asserted a right which would have been good against the bank. It would have to have been alleged, for example, that there were tenants in the premises of which either the bank was aware and did not make inquiries or had made inquiries and was told that they were tenants of the Plaintiff and therefore agreed to the situation. In those circumstances, simply because it was alleged that the property was conveyed and no consideration had been paid to the Defendant and the Defendant had obtained a loan, the benefit of which was passed on to the Plaintiff, does not of itself, it seems to me, dictate that there was illegality.

29. The second point arises from the Tinsley v. Milligan case to which Godfrey, J.A. has already referred. In my view, it is not a necessary part of the Plaintiff's case that the Plaintiff should plead the illegality if illegality there be. He can plead simply lack of consideration. It was said on behalf of the 4^th Defendant that the Plaintiff's story might not be credible or "hang together" to the extent that it would be believable if he did not plead the circumstances which would include what is alleged to be illegal. But the credibility of the Plaintiff in giving evidence is not a matter before this Court today.

30. The second point which appears to me to arise is that the facts as pleaded, in particular, the payment by the Plaintiff of the sums to redeem the mortgages taken out by the 1^st Defendant on the two properties would, it seems to me, give rise to complicated questions. It seems to me that the Plaintiff could plead his case on the facts disclosed to give rise to an equity, again, without relying upon the facts which are alleged to give rise to illegality.

31. In conclusion, I would simply echo the words of Godfrey, J.A. The Plaintiff, it seems to me, clearly, in this case, needs proper legal advice and assistance in the preparation of his case. On the face of it, it seems a pity that legal aid was not granted to him. The sooner the factual matters are tried and decided, the better because it seems that much of the consternation which this action has generated from the point of view of the Defendant, stems from their view of the facts of the case.