WAH SUN INVESTMENTS LTD v. WEALTHY BASE PROPERTIES LTD

HCA 3046/2016

[2021] HKCFI 3595

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3046 OF 2016

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DECISION

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1.  This is an application by the 2^nd Defendant (supported by the 1^st Defendant)  to strike out the Amended Statement of Claim.

2.  As to the grounds in support of the application, although the Summons refers to no reasonable cause of action, the affirmations and skeleton submissions filed on behalf of the 2^nd Defendant show that he is not relying on this ground; rather the 2^nd Defendant’s application proceeds on the basis that Plaintiff’s claims as set out in the Amended Statement of Claim are bound to fail and he relies on evidence to that end.

3.  The Plaintiff’s pleaded claims are that:-

(1)  The Plaintiff acquired (inter alia)  9 lots of land in Demarcation District 51, known as Shek Wu San Tsuen located between Sheung Shui and Fanling, in 1992 for the purpose of developing what is known as “ting houses” under the Government’s “Small House Policy” in the New Territories.

(2)  To that end, the Plaintiff assigned the 9 lots to various indigenous villagers in 1993 for them to apply for building licences, and these villagers held the lots on trust for the Plaintiff.

(3)  Since 1995, the Plaintiff’s “ting house” development project was put on hold.

(4)  Meanwhile, the 9 lots appeared to have been charged as security for loans which the Plaintiff obtained from Winland Finance Limited (“Winland”). This transaction resulted in dispute, and litigation was commenced in 2003.

(5)  Between late 2012 to April 2013, Albert Lau of the Plaintiff and the 2^nd Defendant had discussions to the effect that the Plaintiff should not develop the lots in its own name given its ongoing litigation with Winland, instead the lots should be developed in the name of the 2^nd Defendant who is said to have good relationship with Winland.

(6)  To that end, it is said that in April 2013, an oral agreement was entered into between the Plaintiff (acting by Albert Lau)  and the 2^nd Defendant that (i)  the 2^nd Defendant would set up a company to hold the lots for the Plaintiff for developing the same; (ii)  the 2^nd Defendant would manage the development of the lots for the Plaintiff; and (iii)  the Plaintiff would remunerate the 2^nd Defendant if the development was complete (“Agreement”).

(7)  Thereafter, the 1^st Defendant was incorporated on 16 April 2013 with the 2^nd Defendant as sole shareholder and director, and in April and May 2013, the villagers holding the 9 lots assigned the same to the 1^st Defendant.

(8)  The Plaintiff claims that:-

(a)  First, it was the agreement or common intention between the Plaintiff, the 1^st Defendant and the 2^nd Defendant that (inter alia)  the 1^st Defendant would hold legal title of the lots for the Plaintiff and the Plaintiff would have the beneficial interest. In other words, the Plaintiff relies on common intention constructive trust.

(b)  Alternatively, the assignment by villagers to the 1^st Defendant in 2013 was without consideration. On that basis the Plaintiff relies on resulting trust.

4.  The 2^nd Defendant denies the Agreement, and avers that the 1^st Defendant had paid for the lots in the 2013 assignments.

5.  As to the 1^st Defendant, shortly before the commencement of this action in November 2016, the 2^nd Defendant transferred all shares in the 1^st Defendant to one Mr Philip Cheng at par.  Sometime in August 2018, Mr Cheng is said to have transferred all of 1^st Defendant’s shares to one Mr Ng for HK$5,500,000.  The 1^st Defendant essentially adopts the same position as the 2^nd Defendant.

6.  There is no dispute on the law on striking out, namely (inter alia)  (i)  striking out is for clear cases; (ii)  there is to be no trial on affirmation; and (iii)  disputed facts should be assumed in favour of the Plaintiff. The threshold is a high one.

7.  The 2^nd Defendant takes 2 points – (i)  the Agreement or common intention plea is bound to fail; and (ii)  the contention that the assignments were made without consideration is also bound to fail.

8.  First, the 2^nd Defendant is essentially asking the court to make findings of fact on the very issue in dispute. Striking out is not normally the appropriate procedure for achieving such end.

9.  Second, given the documentary evidence before the court, it is impossible to say the Plaintiff’s case on (i)  common intention or (ii)  the assignments were without consideration is bound to fail. I note the following:-

(1)  The land search shows that the Plaintiff acquired the lots in 1992 for valuable consideration.

(2)  The 1993 assignments to the villagers included a series of documents, in addition to the assignment itself, namely (i)  a “Chinese agreement” (which is not available before the court, but is described in the powers of attorney executed by the villagers as an assignment of all of the villagers’ rights to developing “ting houses” which the Plaintiff would develop at its own cost); (ii)  a deed of trust (also not available); (iii)  minutes (presumably of the Plaintiff but also not available); (iv)  a power of attorney in favour of the Plaintiff for development of the lot into “ting house” and disposal thereof; and (v)  an application by the villager for a building licence from the District Lands Office. This suite of documents is generally known to be involved in “套丁” situations.

(3)  None of the villagers had in their possession the title deeds to the lots – hence each made a statutory declaration in April 2013 when effecting the assignment to the 1^st Defendant deposing that they had lost the title deeds, presumably to complete the chain of title.

(4)  Despite the lapse of 10 years, the consideration for each lot allegedly paid by the 1^st Defendant to each villager in 2013 was largely the same as the stated consideration in 1993, in most cases rounded up to nearest hundred thousand.

(5)  Although the stated consideration for each lot differs, in all sales and purchase agreement the 1^st Defendant had with villagers, the bulk of the consideration was said to have been paid before the sale and purchase agreement was even entered into, leaving only HK$50,000 to be paid immediately upon signing of the sale and purchase agreement. The Plaintiff says that this HK$50,000 was the only amount paid to each villager in 2013 as “tea money” or sweetener for them to complete those steps.

(6)  Despite the 2^nd Defendant having filed evidence, there is no evidence showing that the bulk of the consideration had in fact been paid in 2013, there are just a signed document given to the 1^st Defendant’s solicitors saying that the consideration had been settled without referred to the solicitors.

10.  The law on common intention constructive trust is well settled: see Coleman J in Lam Ka Kui v Choi Yuen Ling [2020] HKCFI 2647; HCA 537/2017 (unreported, 23 October 2020), §§8-16. On the common intention element, the focus is on the intention of parties at time of acquisition of asset, to be assessed by a holistic approach having regard to context, as well as inherent probabilities in light of surrounding circumstances: Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327, §§1.4, 1.6. It is essentially question of fact.

11.  As such, it is wholly inappropriate to suggest the contested question of fact can or should be dealt with on a strike out.  In any event I am not satisfied based on above that the Plaintiff’s case on common intention constructive trust or resulting trust is bound to fail.

12.  Third, the 2^nd Defendant’s suggestion that the court cannot decide the common intention allegation in the absence of the villagers involved is without basis. The 2^nd Defendant clarified at the hearing he is in fact referring to the absence of the villagers’ testimony before the court. I do not accept that to be a valid criticism either. In many cases of common intention constructive trust one of the parties said to be privy to the agreement or common intention would have been deceased, lost capacity or not available, but that never posed a problem for the court. The court’s assessment of such question of fact is guided by (i)  the burden of proof; (ii)  well-established legal principles; and (iii)  the evidence before it. In any event, the presence of the villagers is not necessary since they have already dropped out of the title picture and are not affected by outcome of this action one way or the other.

13.  Accordingly the strike-out summons is dismissed with costs, to be paid by the 1^st Defendant and the 2^nd Defendant to Plaintiff, to be taxed if not agreed. The costs include the costs of the summons issued by the Plaintiff on 12 November 2021 to adduce further evidence, which was not opposed and which I have acceded to at the hearing.