XCHRX METROPOLITAN FINANCE CORPORATION LTD. v. LAU CHI SHING AND OTHERS

HCMP7635/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.7635 OF 1999

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J U D G M E N T

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Appeal

1. This is an appeal brought by the 2nd defendant against the order of the Registrar dated 30 March 2001 striking out the defence of the 2nd to 4th defendants on the ground that it disclosed no reasonable cause of defence; striking out a copy affirmation of Mr Chan Ah Fat of 30 June 1998 filed in HCMP No.3904 of 1996 ("Mr Chan's affirmation" and "Mr Chan" respectively) attached to the said defence on the ground that it was evidence and not pleading; and ordering the 2nd to 4th defendants to deliver to the plaintiff vacant possession of G/F and 2/F of No.47 Hoi Pa Resite Village, Cheung Pei Shan Road, Tsuen Wan, New Territories ("the Property").

Background

2. The background facts may be summarised as follows.

3. On 10 December 1999, the plaintiff commenced the present proceedings by way of originating summons against Mr Lau Chi Shing ("Mr Lau") under a legal charge in respect of the Property registered with the Tsuen Wan New Territories Land Registry on 6 July 1996 by Memorial No.TW1067448 ("the Legal Charge"). On 31 August 2000, the 2nd to 4th defendants were granted leave to join as defendants and the plaintiff's claim against them was ordered to proceed as if it had been begun by writ. The master also made an order of possession against Mr Lau upon the plaintiff's undertaking not to enforce the same until the final determination or disposal of its claim against the 2nd to 4th defendants ("the Possession Order").

4. Pursuant to directions, the parties then filed and served pleadings. In its Statement of Claim filed on 21 September 2000, the plaintiff referred to the Legal Charge and the Possession Order, alleged that since a date unknown to the plaintiff, the 2nd to 4th defendants had occupied and possessed the Property without its prior consent thus trespassing the same, and claimed for vacant possession against them.

5. The 2nd to 4th defendants all acted in person. In their defence dated 9 October 2000, they made a number of points. First, the 2nd defendant was Mr Chan's wife. The 3rd and 4th defendants were their sons. Mr Chan died on 20 August 1998. Secondly, the family used to live in No.69 Hoi Pa Village, Tsuen Wan, New Territories, which was reclaimed by the Government for the purpose of constructing the MTR. In exchange, the Government agreed to build a new house on Cheung Pei Shan Road. Thus, in April 1984, the family moved into and had since lived in No.47 Hoi Pa Resite Village, Cheung Pei Shan Road, Tsuen Wan. In 1984, the first floor of the house was sold. The family continued to occupy the ground floor and 2nd floor. Thirdly, in 1985 or 1986, Mr Chan came to know Mr Au Bing Kai ("Mr Au") who later asked him invest in the business of a Pak Shun Restaurant, which Mr Chan did. The sum he invested was $50,000. Fourthly, in about August 1993, Mr Au told Mr Chan that the restaurant business was in financial difficulty. He asked Mr Chan to lend him the Property in order to bail out the restaurant business. Mr Chan reluctantly agreed. The agreement reached between them was that for the first six months, Mr Au would pay the monthly instalments to the bank. He would then return the Property to Mr Chan, who would then continue to repay what he used to repay before lending the Property to Mr Au. Fifthly, Mr Au failed to give the Property back to Mr Chan after the six months as agreed despite repeated requests. Finally, Mr Chan, upon Mr Au's persuasion, had signed some documents in English that he did not understand. Mr Au told him that they were related to the "borrowing" of the title deed of the Property. Mr Chan had never signed any document relating to the sale of the Property in any solicitor firm or received any money from any person. It was the defendants' belief that the "borrowing" of the title deed was a fraud.

6. Attached to the defence was Mr Chan's affirmation. As noted, it was filed in HCMP No.3904 of 1996, which was an action commenced by Mr Lau against Mr Chan, his family and other persons for vacant possession of the Property. According to the documents exhibited to Mr Lau's supporting affirmation, the Property was vested in Mr Chan by virtue of New Grant No 6258. Mr Lau himself acquired the Property from Best Talent Investment Limited ("Best Talent") on 6 June 1996 at a price of $3,700,000. Suing in the capacity as the registered owner, Mr Lau alleged that Mr Chan and other occupiers were trespassers. That action did not proceed any further presumably because it had been over taken by the present proceedings. In his affirmation, Mr Chan described the events in greater details. He said that he drafted an agreement in Chinese dated 1 September 1993 ("the Chinese agreement") to reflect what he had agreed with Mr Au concerning the "lending" of the Property. Both of them had signed on it. According to the Chinese agreement, Mr Chan agreed to change the name of the Property to Mr Au's for $3.2 million for six months from 1 September 1993 to 28 February 1994. But it was also recorded that Mr Chan had in fact not received any money from Mr Au. After the six months period, Mr Au would sell the Property back to Mr Chan at the same price. No further change in name of sale of the Property was permissible without Mr Chan's consent. A copy of the agreement together with the English translation had been exhibited to his affirmation.

7. Mr Chan further deposed that in about June 1996, Mr Lau had visited the Property and said that he had purchased it and demanded Mr Chan's family to move out. Mr Chan refused. On or about 3 August 1996, Mr Au telephoned Mr Chan. Mr Au told Mr Chan that he would send him some tenancy agreements. Mr Chan should sign on them as if the Property had been let to him since 1993. Mr Chan refused and asked Mr Au to return the Property to him as soon as possible. A few days later, Mr Au caused to be delivered to Mr Chan two tenancy agreements and a rental receipt book. Mr Chan did not sign on any of these documents. Copy of these documents had been exhibited to his affirmation. Mr Chan said he had later caused a land search to be made on the Property. As a result, two copy documents were retrieved and they were exhibited to his affirmation. The first document was a sale and purchase agreement dated 13 August 1993 registered under Memorial No.917765. According to this agreement, Mr Chan had purportedly sold the Property to Best Talent. But Mr Chan said he had never signed this agreement. In fact, he had never seen it before the land search. He had not received the deposit of $200,000 as mentioned in it. The second document was the ensuing assignment dated 6 September 1993. Mr Chan recognised the 4th page of the assignment. It was Mr Au who brought along this page for him to sign. When he signed on it, no other signatures were there. Mr Chan had never seen the assignment before except this page. Contrary to what was purportedly stated there, he did not sign the page in the presence of the solicitor. Nor was the contents interpreted to him. Mr Chan had not received the purported purchase price of $3,200,000.

8. On 30 March 2001, upon the plaintiff's application, the learned Registrar made the order as set out in paragraph 1 above. Pursuant to the letters of administration dated 9 April 2001, the 2nd defendant was appointed the administratrix of Mr Chan's estate. She now appeals against the order of the learned Registrar but her sons do not.

The 2nd defendant's submissions

9. At the hearing before me, the 2nd defendant was assisted by her son, the 4th defendant. She had previously filed a written submission. In short, she relied on the matters already stated in the defence and Mr Chan's affirmation. She further made the point that neither Mr Lau before completion of the purported sale of the Property to him by Best Talent or thereafter nor the plaintiff prior to the execution of the Legal Charge had come to inspect the Property. Had they done so, they would found out that she and her sons had at all material times been occupying the Property. She accepted that neither Mr Lau nor the plaintiff was a party to Mr Au's fraud or had actual knowledge of the same.

The plaintiff's submissions

10. Mr Liu, counsel for the plaintiff, submitted that the defence itself did not disclose any reasonable defence in that it failed to disclose how in law the 2nd defendant was entitled to possess the Property and that her interest in the Property, if any, was binding on the plaintiff. He also submitted that Mr Chan's affirmation was not a pleading. The learned Registrar was therefore correct in striking out the defence and the affirmation.

11. Counsel further contended that taken at its highest, what the 2nd defendant sought to rely on did not amount to a defence in law. First, even assuming what Mr Chan had said in his affirmation was true, the defence did not explain if the 2nd defendant had any interest in the Property. Alternatively, even after Mr Chan's death on 20 August 1998, his interest in the Property, if any, became vested in the 2nd defendant, such interest did not bind the plaintiff. Counsel submitted that Mr Chan's interest in the Property was subsumed in the Chinese agreement, which had not been registered. The Legal Charge, from which the plaintiff derived its interest in the Property, was properly registered and therefore took priority over the Chinese agreement. In this connection, counsel relied on section 3(2) of the Land Registration Ordinance and the unreported judgment of Yuen J in Li Sze Fat v. Cheng Ka Leung Tommy, HCA No.14280 of 1998, 13 April 2000.

Striking out Mr Chan's affirmation

12. I will first deal with Mr Chan's affirmation.

13. Under Order 18, rule 7(1), Rules of the High Court, every pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim or defence, as the case may be, but not the evidence by which those facts are to be proved.

14. I fully appreciate that the 2nd to 4th defendants are acting in person. It is unrealistic to expect them to fully and strictly comply with all the rules. But it does not mean that there is a different set of rules when a party or both parties before the court are acting in person. The Rules of the High Court with its full force still apply and the parties, whether acting in person or otherwise, are expected to follow it while tolerance may be given to the party who is in person where the particular circumstances justify it. But when the default of the rules is fundamental, the mere fact that a party is acting in person is in itself simply no excuse and does not entitle him to a more generous treatment.

15. In my view, it is a fundamental requirement of the rules that evidence should not be pleaded; otherwise confusion may arise and the important functions of pleadings would be rendered nugatory. Appending Mr Chan's affirmation to the defence as if it was part of it or proof of the matters contained in it is clearly not permissible. The affirmation should therefore be struck out and the learned Registrar was right in doing so.

Striking out the defence

16. I now turn to the defence. Under Order 18, rule 19(1)(a) of the Rules of the High Court, a defence may be struck out if it fails to disclose any reasonable defence. In an application to strike out on this ground, no evidence is admissible : Order 18, rule 19(2). The court will consider the allegations contained in the defence if it discloses any reasonable defence, that is, any defence with some chance of success. The mere fact that the case is weak and not likely to succeed is no ground for striking it out : see Hong Kong Civil Procedure 2001, para.19/19/7 at p.289.

17. The main complaint as disclosed in the defence was the alleged fraud committed by Mr Au on Mr Chan. However, there is no allegation whatsoever of how Mr Lau or the plaintiff was in any way affected by it. On the pleadings alone, I do not see any reasonable defence at all. The learned Registrar was right in striking it out.

Any defence disclosed?

18. That is, however, not the end of the matter, for the learned Registrar proceed to enter judgment against the 2nd to 4th defendants for vacant possession of the Property. The question that I need to consider next is whether, on the materials now before the court, judgment should be entered against the 2nd defendant for vacant possession of the Property or leave should be given to her so that she could properly plead her defence. This in turn depends on the question whether on the materials now before me, she has a reasonable defence in the sense as described in paragraph 15 above. (I need not consider the position of the 3rd and 4th defendants as they do not appeal against the learned Registrar's order.)

19. In order to raise a reasonable defence, the 2nd defendant has to show, on the materials before me, that arguably :

(1) she has an interest in the Property in equity; and

(2) the plaintiff's legal interest in the Property as a registered mortgagee is subject to her interest in equity.

20. It is apparent that any interest that the 2nd defendant might have that would be binding on the plaintiff must be derived from her late husband, Mr Chan when upon his death on 20 August 1998, part of his interest in the Property, if any, was devolved upon her : see section 4 of the Intestate's Estates Ordinance, Cap. 73. It however begs the question : At the time of his death, did Mr Chan have any interest in the Property that would bind the plaintiff?

21. It is Mr Chan's contention that any purported sale of the Property to Mr Au was in fact a "loan" of the same to him. In short, either the sale was not intended to be genuine or alternatively, six months after the sale, Mr Au had to re-sell the Property to Mr Chan at the same price, although in fact for both transactions, no purchase money need to be paid. On either analysis, it is certainly arguable that Mr Au would be holding the Property on a resulting trust or constructive trust for Mr Chan if it were in fact transferred to him. I note that the Property was purportedly sold to Best Talent and not Mr Au. However, it was Mr Au who signed the sale and purchase agreement and the ensuing assignment. For present purposes, I will therefore assume that Best Talent was just a vehicle to effect the transaction. Accordingly, it is arguable that Best Talent was holding the Property on a resulting trust or constructive trust for Mr Chan. It was an unwritten equity and hence not registrable. The provisions in the Land Registration Ordinance would not bite.

22. But Mr Chan proceeded to reduce his agreement with Mr Au in the form of the Chinese agreement. There, Mr Au expressly agreed that after six months of the sale, he would transfer the Property back to Mr Chan at his own expenses. I accept Mr Liu's submission that Mr Chan's interest arising from the unwritten equity had been subsumed by the Chinese agreement. There was no other interest which is not contained in the Chinese agreement and which might have survived extraneously of it. The Chinese agreement was therefore a registrable document but not properly registered : see Li Sze Fat, supra.

23. That being the case and in the absence of any evidence to suggest that the plaintiff was not a bona fide purchaser, section 3(2) of the Land Registration Ordinance applies. As against the plaintiff, the Chinese agreement was therefore absolutely null and void to all intents and purposes. The Legal Charge took priority. Mr Chan did not have any interest that would bind the plaintiff at the time of his death. It follows that the 2nd defendant does not have any interest in the Property that would bind the plaintiff either.

24. In light of the above, it is not necessary for me to deal with the other points raised by the 2nd defendant.

Conclusion

25. For the foregoing reasons, I am not satisfied that on the materials before me, the 2nd defendant is able to show any reasonable defence. The learned Registrar was correct in entering judgment for vacant possession against her.

26. This appeal therefore fails. I dismiss it accordingly with an order nisi that costs be to the plaintiff, to be taxed if not agreed. The costs order nisi will become absolute after 14 days of the handing down of this judgment.