WONG PUI CHIU v. WONG MAN LUNG AND ANOTHER

DCCJ 4065/2023

[2024] HKDC 1127

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4065 OF 2023

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BETWEEN

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REASONS FOR DECISION

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1.  This was the hearing of the plaintiff’s summons dated 27.2.2024 for default judgment (“the Summons”). The Summons was taken out under Order 19 rule 7 of the Rules of the District Court (“RDC”). The ground is that the defendants failed to serve a defence.

2.  The writ of summons and the statement of claim, which claim for (i) declaration regarding interest in real property and (ii) order for conveyance, transfer and/or assignment of interest in real property, were served on the defendants. On 13 October 2023, the defendants respectively filed acknowledgements of service of writ of summons stating that they do not intend to contest the proceedings.

3.  At the end of the hearing I granted order sought in the Summons with slight amendments, with reasons for my decision to be handed down on a later date. Below are the reasons for my decision.

Background and P’s pleaded case

4.  The case concerns the property and premises known as 2^nd Floor including the balcony and the Roof thereof of No 270 Ha Che, Pat Heung, Yeung Long erected on Sub-section 1 of Section A of Lot No 1034 in DD 111 (“the Property”).

5.  Regarding the parties:

(1) the Plaintiff (“P”) is the father of the defendants in this action;

(2) the 1^st Defendant (“D1”) is the elder son of P, who was a student with no income until about mid-2020 when he graduated from university;

(3) the 2^nd Defendant (“D2”) is the younger son of P.

6.  D1 and D2 are the registered legal owners of the Property. The circumstances of acquisition of, and beneficial ownership to, the Property is the core issue of this case.

7.  Prior to the acquisition of the Property, P in 2008 acquired in his own name and with his own resources another property situate at and known as Flat A on 14^th Floor of Kwai Wah Building, No 11 Tai Long Street, Kwai Chung, New Territories, Hong Kong (“the Kwai Wah Flat”). According to P, the Kwai Wah Flat was used as the family home.

8.  According to P as pleaded in his Statement of Claim (“SOC”), the following were the circumstances and understanding regarding the purchase of the Property:

(1) in around mid-late 2017, P wished to find a larger home for the family. He thus sold the Kwai Wah Building, which yielded sale proceeds of around HK$3.2M (“the Proceeds”);

(2) by around August 2018, P decided to use the Proceeds to purchase the Property;

(3) in the hopes of leaving open the possibility of himself applying for public housing/Subsidized Home Ownership Scheme flat in the future, P did not want to use his own name to purchase the Property;

(4) P, the wife, D1 and D2 (“the Family”) therefore orally agreed and/or understood that:

(a) The Property shall be purchased using D1 and D2’s names[1] as tenants-in-common in equal share with assistance of a mortgage loan;

(b) P being the true purchaser and owner of the Property would be responsible for payment of downpayment, balance of purchase price, mortgage instalment repayments, decoration, fixture/fittings/furniture and all other costs and expenses incidental to the purchase of the Property.

(“the Agreement”)

(5) From September 2018 to February 2020, conveyancing documents were arranged for sale and purchase of the Property from the vendor, with D1 and D2 named as purchasers for the price of HK$4.85M. The purchase price was paid (i) using funds of P and (ii) financed by way of mortgage loan in the amount of HK$2.875M with D1 and D2 as mortgages and D1 as borrower (“the Mortgage”). D1 and D2 thereafter became legal title owners of the Property. The Family thereafter moved into the Property;

(6) Pursuant to and in reliance the Agreement, to his detriment, P paid for inter alia repayment instalments of the Mortgage, decoration, fixture/fittings/furniture and all other costs and expenses incidental to the purchase of the Property. Specific pleas were made as to the source, timing, amount, destination and purpose of P’s payments.

9.  Relying on the above, P pleads a primary case of common intention constructive trust[2], seeking:

(1) A declaration that D1 and D2 hold their respective interest, title and/or share of and in the Property on trust for and on behalf of P;

(2) An order that D1 and D2 do jointly and severally convey, transfer and/or assign all of their interest, title and/or share of and in the Property to P.

10.  P also pleaded his reasons for the commencing this action:

(1) In 2022, it was discovered that D1 was having a gambling problem and heavily in debt, and P and his wife helped D1 pay off part of his gambling debts in the tune of around HK$1M;

(2) In 2023, P and his wife found D1 resumed his gambling habits, losing money in the tune of HK$1.5M;

(3) P feared that D1 might used the Property to settle his gambling debts, and demanded D1 and D2 to convey the Property back to P. D1 wrongfully refused.

Legal Principles- default judgment under O 19 r 7

11.  As P seeks default judgment against D1 and D2 for (i) declaration and (ii) injunctive relief, O 19 r 7 of the RDC applies. The principles applicable are trite. The court will not receive evidence and would give judgment according to the pleadings alone, so it is not necessary for the plaintiff to prove the case by evidence. Facts on which the plaintiff’s claim is based on pleadings are deemed to be admitted. See: Hong Kong Civil Procedure 2024 (“HKCP”) Vol 1 at §19/7/11; Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 at §27, per Ma J (as he then was).

12.  But O 19 r 7 of the RDC is not mandatory but discretionary, and the court retains its discretionary power whether to give judgment or to extend a party’s time to plead when it is just to do so. Further, the Statement of Claim must show a case for the order the plaintiff seeks to obtain. HKCP Vol. 1 further reads at §19/7/13, 19/7/20:

“…the court retains its discretionary power whether to give judgment or to extend a party’s time to plead when it is just to do so…It may, for instance, where there are matters affecting other parties waiting to be decided, order the motion to stand over until trial…

It is not the normal practice of the court to make a declaration without a trial… However, this is only a rule of practice which should not be followed when the plaintiff had a genuine need for the declaratory relief and justice would not be done if such relief were denied…

Where declaratory relief is sought, the court will scrutinize the application for default judgment carefully and does not hastily grant the relief sought…the court expects maximum assistance to be provided in order for the relief to be granted. However straightforward this kind of applications may seem, the court should not be expected to… rubber-stamp the uncontested application without further ado.”

13.  In particular, where the claim is one for proprietary relief, Hon Coleman J in Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2551 analysed how the court exercises its discretion at §§30-33:

(1) In the exercise of discretion, the Court will consider all relevant factors, including whether the plaintiff has established a strong and obvious case for proprietary relief on the face of its pleading, and where the claim is proprietary, whether there would be any prejudice to the plaintiff’s property and rights. The importance of a claim to proprietary relief arises because of the distinction from a merely personal claim. An order for payment, without more, would only put a plaintiff in the position of an unsecured judgment creditor. But a declaration of a proprietary interest will secure that interest;

(2) In Kan Kiu Chor v Fung Shu Fun (HCA 1902/2015, 6/4/2016, Recorder Cooney SC, unrep.), a declaration on a CICT was granted on the basis that (a) there was an acknowledgement of service, (b) the defendant did not contest the summons, (c) there was evidence in support of the claim and evidencing financing of the purchase by the plaintiff in previous affirmations filed, and (d) there was genuine need for declaratory relief;

(3) In Lung Ka Kuen v Chu Chun Yuk HCA 2832/2015, 18/10/2016, DHCJ Marlene Ng, unrep.), declaration was denied. This was on the basis that (a) there was no acknowledgement of service, (b) the claim, concerning interest in land, would affect other parties’ rights as the 1^st defendant was already bankrupt and the 2^nd defendant the official receiver representing interests of third-party creditors had expressed reservations on the application; (c) unlike in Kan, there was no evidence before the Court indicating strength of the case; and (d) declaration sought went beyond the scope in any event and included future events.

Legal principles- Common intention constructive trust

14.  Principles concerning common intention constructive trusts are well established and succinctly summarized by Coleman J in Lam Ka Kui v Choi Yuen Ling [2020] HKCFI 2647 at §§8-12:

(1) Where a common intention constructive trust has arisen, ownership in the property is split into legal ownership and beneficial ownership. The trustee holds the legal title on trust for the beneficiary: see, for example, Luo Xing Juan Angela v Estate of Hui Shui See Willy, deceased [2009] 12 HKCFAR 1 at §38;

(2) Where a constructive trust is alleged to arise on the basis of the parties’ common intention, it is the intention commonly held by the property owner and the claimant regarding their shared beneficial interests in the property that matters. The trust is constituted by the three elements of (1) the common intention, (2) the claimant’s detrimental reliance on their common intention, and (3) the unconscionability of the property owner departing from it;

(3) The burden of proving each element of common intention, detrimental reliance and unconscionability is on the person seeking to show that the beneficial ownership is different from the legal ownership. The focus is on the intention of the parties at the time of acquisition of the asset. Contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event;

(4) Common intention can be expressed or implied. It can be deduced or inferred objectively from the parties’ conduct. As a matter of common sense, it is easier to infer such an intention prior to the acquisition of property which results in an obvious change in legal ownership (rather than after such an acquisition where there is no change in legal ownership and a change in beneficial ownership is not otherwise apparent);

(5) In Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 at §§2.3-2.4, Cheung JA identified two situations where a common intention constructive trust may arise.

(a) The first is where at any time prior to acquisition, or exceptionally at some later date, there is an agreement, arrangement or understanding reached between the parties on how the property is to be held beneficially. The finding of such an agreement or arrangement can only be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been;

(b) The second situation is where there is no evidence to support a finding of an agreement or arrangement on the beneficial ownership of the property, and the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention on the beneficial ownership of the property and as the conduct relied on to give rise to a constructive trust. In this situation, direct contributions to the purchase price by the party who is not the legal owner, whether initially or by mortgage instalment payments, will readily justify the inference necessary to the creation of a constructive trust.

Analysis

15.  From the summary of the pleadings outlined above at paragraphs 6 to 9, I am satisfied that, on the pleaded case in the SOC, P might be entitled to the relief sought in the Summons for title and interest over the Property. The requisite elements for establishing a common intention constructive trust, with D1 and D2 as trustees holding in favour of P as beneficial owner, are present.

16.  This is however not the end of the Court’s consideration. As observed by Coleman J in Cheung Sai Lon, the Court is no rubber-stamp and would need to assess, considering all relevant factors, whether in the overall exercise of discretion it is appropriate to grant such relief without a trial. Where the claim is proprietary in nature, one such relevant factor is that identified in Cheung Sai Lon at §33 and Lung Ka Kuen at §28, namely that a declaratory relief over proprietary rights would not simply affect the parties in the action, but may affect third-party creditors.

17.  As P pleads on SOC, D1 has incurred gambling debts and might use the Property to settle the same. At the hearing, I queried whether this Court should, as in Lung Ka Kuen, be concerned of effects on interests of potential creditors of D1 in this Action.

18.  In reply, Mr Lam, counsel for P, submitted to the effect as follows:

(1) In an O 19 r 7 application, P is in effect applying ex-parte, and would have a duty of full and frank disclosure owed to the Court. P’s legal representatives, as officers-of-the-court, do make such undertaking that they have made full and frank disclosure;

(2) Legal representatives of P have sought to be detailed in the SOC. The reason why no plea was made regarding any potential creditors of D1 was because there is nothing in their hands to suggest there are existing creditors of D1 which may be affected by this application;

(3) Legal representatives of P have made recent land searches over the Property and can confirm there are no charges over the Property by any creditors of D1. The Writ [3] for this Action had been registered in the Land Registry as a lis pendens against the Property. As at the date of the hearing, no such third-party creditors of D1 have reached out to P regarding this Action;

(4) If and insofar as there may be future third-party creditors of D1 who wish to contest the validity and/or otherwise set-aside any eventual judgment I make, there will be legal recourse, including inter alia as a transaction at an undervalue within 5 years of bankruptcy under sections 49, 51 of the Bankruptcy Ordinance (Cap 6); or as a disposition to defraud creditors under section 60 of the Conveyancing and Property Ordinance (Cap 219).

19.  In light of submissions and undertaking by those representing P, despite my initial query as to interests of potential creditors of D1, I am satisfied that judgment should be granted having taken into account all relevant factors. In particular, I take into account that this case is closer to Cheung Sai Lon and Kan Kiu Chor (where declaration is granted) than that in Lung Ka Kuen (where declaration is not granted):

(1) There is acknowledgment of service with D1 and D2 both confirming they do not contest the Action;

(2) Although unlike the case in Cheung Sai Lon[4], no “evidence” as such had been filed in support of P’s claim (since the same is not required in an O 19 r 7 application), P has made specific and concrete pleas as to inter alia the background and reasoning for the Agreement, as well as how P acted in reliance down to specific amounts of payment with details etc. In other words, P’s SOC is not bare bones but contained substance indicating the strength of P’s case;

(3) Although the plea as to D1’s gambling debt does raise a potential of third-party interests being affected, this remains a mere potential. No such creditors have come out to intervene despite the registration of the Writ as lis pendens against the Property under the names of D1 and D2. Whilst it is unclear whether P does bear the duty of full and frank disclosure as such as suggested by those representing P, the legal representatives of P have made such undertaking which this Court has recorded and does consider in its exercise of discretion;

(4) In any event, there would be recourse available to any such third-party creditors of D1 if it transpires they wish to contest this Judgment;

(5) P, on his case, is a victim of D1 his son’s breach of the Agreement and understanding, and could lose the Property which served as the home of the Family due to D1’s gambling habits. The later a judgment is obtained by P, the more likely his interest may be severely prejudiced.

Conclusion

20.  Given the above, and taking into account all the relevant factors, I am of the view that the present case is a suitable case to depart from the normal practice and grant the declaration and injunction sought by P. Accordingly, I made the following orders:

(1) A declaration that D1 and D2 did at all material times held and do hold their respective interest and/or title and/or share of and in the Property on trust for and on behalf of P on constructive trust;

(2) D1 and D2 do take all necessary steps to transfer, convey and/or assign their respective legal title and interest in the Property to P within 14 days;

(3) There be liberty to apply for further directions for the purpose of carrying the above order into effect; and

(4) D1 and D2 do pay P costs of this action including the costs of the Summons, with certificate for counsel, to be taxed if not agreed.

21.  Lastly, I am thankful for Mr Lam, counsel for P’s assistance, which is particularly necessary in applications of this nature.