YEUNG, ABRAHAM v. SUN KING KAI

HCA 413/2015

[2019] HKCFI 424

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 413 OF 2015

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(By Original Action)

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(By Counterclaim)

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DECISION

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1.  The plaintiff (“Yeung”) commenced the original action on the ground of adverse possession of the properties which are registered in the name of Kong Tuen (or Duen) Yee (“Kong”). Kong passed away in 1966 leaving a will. The defendant (“Sun”) is the executrix of the estate of Kong. Sun resists the claim, and counterclaims for possession of the properties against Yeung and any other occupier of the properties unknown (the 2^nd defendants by counterclaim). On the basis that the properties were and are subject to an alleged charitable trust set up by Kong, Sun also joined the Secretary for Justice as a party (the 3^rd defendant by counterclaim).

2.  Yeung applies for security for costs against Sun.  By the time of the hearing of the application, the case has reached the stage where the case has been directed to be set down for trial.

The dispute

3.  Kong was a movie actress, well known then by the name of梅綺. The properties in question consist of two flats situated on the 5^thFloor of Nos 5 and 7 Soares Avenue, Kowloon, which are adjacent to each other.  Kong was the registered owner of the properties.

4.  Kong passed away on 17 August 1966, leaving a will.  Probate in respect of her estate was granted on 31 August 1968 to Sun as the executor named in her will.  Sun was and is ordinarily resident in the United States of America.  She is over 80 years old.

5.  Yeung’s case is that since 1996, he has been occupying and residing at the properties to the exclusion of the world at large.  On the ground of adverse possession of the properties in excess of 12 years, Yeung through his solicitors wrote to Sun on 12 February 2015, stating that Kong’s estate has been barred from recovering the properties from him.  He requested for the transfer of the properties to him or legal action would be instituted.

6.  On the following day, Yeung’s solicitors sent a further letter repeating the same assertion and request.  They added that the title of Kong’s estate in the properties has been extinguished pursuant to section 17 of the Limitation Ordinance, Cap 347 (“LO”).  Later in the same month, Yeung commenced the present action.

7.  By pleading, Sun denies the claim of adverse possession or the loss of right to recover the properties on the following grounds:

   (1)   The properties were and still are subject to a charitable trust created by Kong in the 1960s, whereby the properties were devoted to use for the purpose of the advancement of Christianity, including as a church for congregation, preaching the Gospel, studying the Bible and scriptures as well as relieving and healing the sick and poor spiritually.

   (2)   Yeung, as well as the co-workers, officers and members of his church, had knowledge about the purpose and use of the properties as aforesaid, and did in fact use the properties as such at least up to the end of 2014.  Until then, Yeung did not have the requisite animus possidendi nor factual exclusive possessionof the properties.  Further, possession of the properties by Yeunguntil then was not adverse, successive or continuous as alleged or at all.

   (3)   It was only when Yeung asserted rights over the properties on the ground of adverse possession and commenced this action effectively in breach of trust in early 2015 when the right of action by Sun to exclude Yeung and to recover the properties from Yeung accrued.

   (4)   Further or alternatively, Sun contends that the beneficiaries of the charitable trust are the members of the public at large who are collectively entitled to use and to occupy the properties for the purpose of the trust from time to time.  By virtue of sections 10 and 22 of the LO, her right of action is not time-barred.

8.  In her pleadings, Sun set out the following background giving rise to ground (1) above[1]:

   (1)   By a Chinese writing dated 30 July 1964 signed by Kong to take effect at 0:15 am, Kong declared herself to be trustee of the first of the two flats in question, which was used for preaching the Gospel and for the members of her church by the name of the Church of Hong Kong.  That would last until it was God’s will that the flat should be sold, but the proceeds of sale must not be used for any other purpose except for purchasing a better venue for similar purpose.  Kong purchased the second flat to accommodate the expansion of the church by the end of 1965.  The two flats were joined as one for her ministry.  These were well known amongst her co-workers, church members and congregation then.  The same was also disseminated through her book “生命證道集” distributed by “基督靈恩佈道團” amongst Christians in Hong Kong.

   (2)   By her will, Kong appointed Sun and another as the executors, and bequeathed the properties to them together with five others absolutely as joint tenants.  Before and after making the will,she admonished Sun and the other joint tenants that they must look after the properties as trustees and use the same for the purpose mentioned above.

   (3)   In the premises, Sun, as the executor of Kong’s estate, has at all times held the properties as trustee for the purpose of the charitable trust established by Kong.

9.  As to ground (2) above, Sun’s pleaded case is as follows[2]:

   (1)   Sun left Hong Kong to settle in the USA in 1975.  Ruth Cheung (“Ruth”), daughter of Kong and leader of the church then, was entrusted with the keeping of the keys to the properties.  In 1979, Ruth, together with some members of the church, began to congregate elsewhere, while three of the joint tenants of the properties and about 20 members of the church continued to congregate at the properties. Madam Liu Lai Chun (“Liu”) was one of them.

   (2)   Eventually, Liu became the remainder, who was entrusted with the keys to the properties and became in charge of the congregation there.  She later renamed the congregation as the Christ Disciple’s Church (基督信徒教會).  The joint tenants of the properties, the co-workers, officers and members of the church then all knew that the properties should continue to be used for the purpose established by Kong as before.

   (3)   In 1994, Yeung joined the congregation at the properties as pastor of the church.  With the permission of Liu, Yeung also started to reside and serve the church at the properties.  Prior to her death, Liu entrusted to Yeung with the running of the church and the use of the properties for such purpose as before.  Yeung therefore had knowledge of the purpose of the trust and the use of the properties for such purpose.  It was in those circumstances Liu passed the keys to the properties over to Yeung.  Since then until at least 2014, Yeung had indeed used the properties in the name of the church pursuant to that arrangement.  Yeung is said to have admitted that on a couple of occasions in recent years.

10.  As to the accrual of her right to recover the properties from Yeung mentioned in ground (3) above, Sun referred to the events occurring in early 2015 that precipitated the commencement of this action[3]:

   (1)   Essentially, at about the end of 2014 and early 2015, it became known that a potential purchaser was interested in purchasing the properties as part of a redevelopment scheme.  An offer of about HK$10 million for each of the properties was made.

   (2)   Yeung was motivated by personal financial gain to try to sell the properties as his, and lodged his claim of possessory title to the properties and this action toward such end.

   (3)   For the above reasons, Yeung has acted in breach of the charitable trust, and he and all those occupiers of the properties in his connection that are unknown to Sun have disqualified themselves as beneficiaries under the trust.  On this basis, any licence or permission for them to access to or to occupy or use the properties became liable to be revoked, and was so revoked upon the service of Sun’s counterclaim.

   (4)   It was on this basis when Yeung and the occupiers in his connection are said to have become trespassers of the properties, so that Sun may exercise her right to recover possession from them.  Such right of action is thus not time- barred.

11.  Sun claims for possession and injunction against Yeung and any occupier of the properties in his connection unknown to her.  Her claim for damages for trespass has been abandoned.

12.  In reply, Yeung pleaded how he came to possess the properties and manage the church service there.  He apparently accepted that the management of the church at the properties was indeed handed over to him in September 1996, though, according to him, without mention of the properties[4].

Security for costs

13.  By letter to Sun’s solicitors dated 29 October 2015, Yeung through his solicitors requested Sun to pay security for costs, including counsel fees, up to the close of pleadings in the estimated sum of HK$468,000.  The request was made on the ground that Sun, who is counterclaiming in this action, is ordinarily resident overseas.  Sun through her solicitors refused such request in writing on 5 November 2015.

14.  This action proceeded, and the question of security of costs was let lie until more than two years later when Yeung made his request in writing to Sun in February 2018.  This time, the amount requested was HK$4 million, including counsel fees, for costs up to trial.  The parties ensued in correspondence within that month before Yeung took out this application on 28 February 2018.

15.  The skeleton bill filed in support of this application adjusted the amount of security sought to HK$3,661,100.

16.  The principles governing the application for security for costs were rehearsed in the parties’ correspondence and referred to in submissions.  Without setting out exhaustively what counsel submitted in detail, I think the principles in operation in the present case may be summarized in the following few paragraphs.

17.  Order 23, rule 1(1)(a) of the Rules of the High Court provides that where on the application of a defendant to an action, it appears to the court that the plaintiff is ordinarily resident out of the jurisdiction, then if, having regard to all the circumstances of the case, the court thinks it just to do so, it may order the plaintiff to give such security for the defendant’s costs of the action as it thinks fit.  Sub-rule(3) provides that for the purpose of this rule, references to a plaintiff and a defendant shall be construed as those to a plaintiff and a defendant in the case of a counterclaim as well.

18.  In the present case, Sun, being the plaintiff by way of counterclaim and ordinarily resident out of Hong Kong, is prima facie caught by the above provision.  Nevertheless, an order for her to pay security for costs of her counterclaim may be made only if, having regard to all the circumstances of the case, it is just to do so.  This is the unfettered discretion of the court.

19.  The mere making of a counterclaim does not put the defendant in the position of the plaintiff for the purpose of Order 23, rule 1.  The question is whether the counterclaim is a cross-action or merely operates as a defence.

20.  Where a defendant set up a counterclaim which arose out of the same transaction as the claim, and was in substance, though not technically,in the nature of a defence to the action, the court may refuse to order the defendant to give security for costs of the counterclaim, if this is just and fair as between the parties in the circumstances of the particular case: see Neck v Taylor [1893] 1 QB 560; Elegant Jump Limited v Tribune Bridge Limited & Anor, HCA 14037/1999 (10 November 2000) at pp 10 – 11; Lai Jianping & Anor v ABN Amro Bank NV [2013] 3 HKC 571 at 576.

21.  In this respect, both parties also referred to the summary of the principles explained in Ai Zhong v Metrofond Ltd [2010] 1 HKLRD 213 (at §22).  The court should consider the following matters[5]:

   (1)   What is fair and just in all the circumstances.

   (2)   Whether ordering security for costs would effectively prevent the defendant from pursuing a claim which is based on all of thesame matters that would be canvassed when defending the claim.

   (3)   Whether the counterclaim is a cross-action or merely a defence. In particular, (i) whether the claim by the plaintiff and the cross- claim by the defendant raise essentially the same issues and are going to be fully litigated anyway so far as one can tell, and (ii) whether there is any marked discrepancy in size between the amount claimed in the action and the cross-action.

   (4)   Whether the costs incurred by the defendant for the purposes of the defence is effectively better regarded as costs for prosecuting the counterclaim.

   (5)   Whether the order would effectively require the defendant to give security for costs only for defending himself from the plaintiff’s claim.

   (6)   Where both the plaintiff and the defendant can be viewed as attackers, the treatment of both parties in security for costs should be the same.

22.  Sun also complains about delay on the part of Yeung in makingthe present application.  As to this, delay per se does not suffice in denyingan application for security for costs, and the court has to consider the prejudice of the delay to the plaintiff: see Peconic Industrial Development Ltd v Chio Ho Cheong HCA 16255/1999 (26 October 2005).  Late application, in particular when the trial is imminent, per se constitutes real prejudice to a plaintiff, since the plaintiff is being put in a position of having little or no choice but to put up the security in order not to abandon and waste all the work done and costs incurred in preparing the trial: see Peconic Industrial Development Ltd (above); Waddington Ltd v Chan Chun Hoo Thomas & OrsHCA 3291/2003 (7 May 2013) (at §33); Haifa International Finance Co Ltd v Concord Strategic Investments Ltd HCA 4442/2003 (7 March 2014) (at §§3 – 5).

23.  Merit of the case is not irrelevant, though detailed investigation into the merit for the present purpose will not be justified unless the party resisting the application for security for costs manages to demonstrate that it has a high degree of probability of success: see China Smart Properties Ltd v Manson Holdings Ltd HCA 13913/1997 (12 March 2002) (at §7).

24.  Each case turns on its own circumstances.

The arguments

25.  Yeung’s contention is that the counterclaim of Sun exceeds thescope of her defence and constitutes an independent action against him.  He argued that in defence of his claim, Sun could have focused on challenging his alleged factual possession and animus possidendi.  Mr Chan, appearing for Yeung, submitted that Sun could have simply put his client to strict proof.  Instead Sun brought in the assertions in respect of the charitable trust, and for such purpose the Secretary for Justice as a party, for the purpose of her counterclaim.  In other words, Yeung is saying that the contentions of Sun in respect of the charitable trust are extraneous to the defence and made solely for the purpose of the counterclaim.

26.  I do not agree with Yeung.

27.  Central to Sun’s denial of Yeung’s exclusive factual possession,or more significantly his alleged unequivocal animus possidendi of possession,of the properties adverse to their registered owner and the world at large is the precisely the existence of the alleged charitable trust created by Kong.  Yeung is said to have no requisite intent to possess the properties adverse to owner of the properties and the world at large because of his knowledge about the charitable trust and his possession and management of the properties with the permission of Liu pursuant to the purpose of the trust for the benefit of the congregation there at all material times.

28.  The contentions of Sun as to fact are such that until at least the end of 2014, Yeung had been using the properties apparently in line with the purpose of the charitable trust known to him.  It was also in the circumstances that Sun took the stance that there was until then no basis for her to question Yeung’s use of the properties.

29.  Yeung made the point that a charitable trustee holding the title to a trust property is not immune from the operation of adverse possession. In other words, it is argued that even assuming the charitable trust in respect of the properties alleged by Sun existed, Yeung could still obtain possessory title on the ground of adverse possession that serves to extinguish the charitable trustee’s legal title in the trust property.

30.  It is not apparent at this stage if this contention, as a matter of principle, will be disputed.  It is also unclear whether sections 10 and 22 of the LO, as pleaded (§7(4) above), has any relevance to that, as not much was said about this ground of defence during submissions.  However, what is apparent is that the contentions in respect of the charitable trust started by Kong and the continued use of the properties, including that by Yeung with knowledge, pursuant to the trust are relied on as the factual basis for disputing the allegations that Yeung possessed the properties as hisown with the animus possidendi to the exclusion of their owner and the world at large—the pre-requisites to the establishment of the fact of adverse possession in the first place.

31.  Whether the trust existed, and exists, of course is a question offact to be determined upon consideration of all the circumstances of the case:see Ma Wah Yan & Anor v Dharma Realm Buddhist Association, Inc & Ors HCA 1190–1193/2007 (3 August 2016); and on appeal, CACV 179/2016 (2 March 2017).

32.  In her defence, Sun specifically refers to and relies on the events between the end of 2014 and early 2015, which changed the above situation and Sun’s position towards Yeung[6]. These events are pleaded in the amended counterclaim.  Again, these are factual contentions that founded Sun’s perception of the intention of Yeung, or its change, in respect of his occupation of the properties.  It was upon these events that Yeung is said to have manifested his intention of no longer occupying the properties in line with the charitable trust.  Viewed as conduct in breach of trust, Yeung and any persons who may be occupying the properties in his connection, but unknown to Sun, are said to have become trespassers of the properties.

33.  The alleged charitable trust is the foundation and the abovementioned factual contentions form the substance of Sun’s denial of the alleged exclusive possession and the requisite intent on the part of Yeung as to adverse possession of the properties during the relevant period.  This distinguishes the present case from any given case where the registered owner of the property in question may defend his or her interest in the property by no more than putting the claimant to proof.  Sun has a positive case to run in defence, and there is no legitimate basis for expecting her to confine herself to putting Yeung to proof of his case.  Putting aside their merits, I do not see how these factual contentions could be said to be extraneous to her defence.

34.  Is Sun’s counterclaim a cross-action in any way separate and independent from the substance of the defence?  I think not.

35.  What the counterclaim introduces is the legal basis for Sun’s claim, namely, that it is an implied condition of the charitable trust that persons within the class of beneficiaries under the trust, or those granted thelicence or permission to enter upon the properties, shall not do or attempt todo anything that may, or may threaten to, deny the trust or to defeat, frustrate or obstruct the purpose of the trust[7]. As far as the factual contentions in the counterclaim are concerned, Sun repeats her defence.  Particulars of the events concerning Yeung and persons in his connection since the end of 2014, which are expressly referred to and relied on in defence, are set out[8]. By reason of the events since the end of 2014, Yeung and persons in his connection are said to have acted in breach of the charitable trust[9], and have disqualified themselves as beneficiaries under the trust as well as their licence or permission to enter upon and to use the properties[10].

36.  Even without the counterclaim, the trial of the substance of the defence would have had to canvass the same factual contentions.  Alternatively, the factual contentions in the counterclaim are clearly intertwined with those made in defence, so that Sun does not stand out as the attacker as opposed to a defendant by relying on those contentions.

37.  The relief sought by Sun in the counterclaim is substantially consequential and corollary to his contentions in defence against Yeung’s claim.  The joining of any person in occupation of the properties in Yeung’s connection but unknown to Sun collectively as a defendant in the counterclaim does not change that.  Nor does the joining of the Secretary for Justice, being the guardian of the beneficiaries of charity, as a defendant in the counterclaim rightly or wrongly[11].

38.  As to delay, Sun highlighted the following circumstances:

   (1)   Yeung first requested for security for costs in October 2015. Then it was one for a sum of HK$468,000 for his costs up to the close of pleadings. Mr Chan now submitted that this was a grossly premature request.  In any event, Sun then rejected the request with full reasons set out.  Since then, Yeung has not raised the topic of security for costs again.  The parties proceeded, and incurred costs.  By December 2017, the parties have already filed their respective witness statements.

   (2)   The 2^nd case management conference was scheduled to be heard on 17 January 2018. It had to be adjourned because of the grant of legal aid to Yeung.

   (3)   On 14 February 2018, which was more than two years since the topic of security for costs was last dropped, Yeung through his solicitors demanded security in the sum of HK$4 million for costs up to the trial.

   (4)   On 31 July 2018, the master directed that this case be set down for trial.

39.  It is incumbent for Yeung to explain why he chose to make such demand and application in the above manner: see Senior Honor Ltd v Lee Ki Kuk & Ors HCA 4043/2001 (14 November 2003).  According to Yeung, he had insufficient financial resources to also pursue the demand for security for costs until he was granted legal aid.

40.  I am not at all impressed by the explanation.  It was not that Yeung was unrepresented until the grant of legal aid.Yeung proceeded with the various steps in this action with the assistance of solicitors and counsel all along[12].  Yeung’s skeleton bill of costs suggested that he has afforded substantial costs without legal aid.

41.  If it was ever a conscious decision of Yeung to let further steps be taken and costs be incurred (by both sides) instead of avoiding that by anearly application for security for costs, he took the risk that the consequence of his decision may work against him.

42.  It is of course the burden of Sun to establish the consequential prejudice as a result of the delay.  Having said that, I need not go further on this, in view of the above discussion in respect of the interaction between the defence and the counterclaim. Nor am I prepared to dive into the merit of the case in detail for the present purpose.  Yeung’s denial of Sun’s contentions is noted.  Suffice it to say that the factual contentions of Sun are not without supporting evidence that will be led in the trial[13].

43.  There is much to say about the quantum.

44.  In October 2015, Yeung projected his costs up to the close of pleadings to be HK$468,000.  He now projected his costs up to the trial to be about HK$3.7 million.  Yeung seems to suggest that 70% of his costs were and would be incurred distinctly for the purpose of defending the counterclaim.  In other words, his projected full costs of this action up to the trial would be over HK$5 million.

45.  Considering Yeung’s skeleton bill and Sun’s list of objections, and for a 10‑day trial (as opposed to 14 days projected by Yeung), I agree the sum of HK$2.7 million proposed by Sun would be reasonable costs.  Further, any security should be confined to the costs of defending the counterclaim, but not answering the defence.  As nearly the same extent of the factual contentions for the purpose of the counterclaim is canvassed by the defence, which Yeung would have to deal with in his claim in any event,the net costs attributable to his defence to the counterclaim should be relatively minimal.  There is basis for Sun to argue that this should not exceed 5% of the total costs of Yeung.  This also adds to the reluctance of the court to exercise discretion to order security for costs of such scale.

Conclusion and order

46.  Considering all the circumstances, I do not consider it just to grant the present application.

47.  Yeung’s application is dismissed with costs to Sun, to be taxed,if not agreed.  For the avoidance of doubt, I give certificate for counsel. Yeung’s own costs shall be taxed in accordance with legal aid regulations. The costs order is nisi, and shall become absolute without further order, in the absence of application in 14 days to vary.