HO LAI LEI AND ANOTHER v. MANG WAN KWAN SIMON AND ANOTHER

HCA 2147/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2147 OF 2015

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D E C I S I O N

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1.  This is the Plaintiffs’ application for a preservation order for the sale proceeds in the sum of $3,880,000 to be paid forthwith into court or otherwise secured to the satisfaction of the court.

2.  The 1st Plaintiff commenced the present action against the Defendants on 15 September 2015 seeking, inter alia, an order that the sale proceeds of a flat in Kowloon (“the Property”) in the sum of HK$3,880,000 (“the Sale Proceeds”) or a portion thereof be paid by the Defendants to the 1st Plaintiff.  In this hearing, the 1st Plaintiff’s husband has applied to join as an additional plaintiff and so he is now the 2nd Plaintiff in these proceedings.

Background

3.  The 1st Defendant is the elder son of the Plaintiffs.

4.  The 2nd Defendant is the 1st Defendant’s ex-wife and the former daughter-in-law of the Plaintiffs.  On about 18 October 2010, the 1st Defendant purchased the Property in his own name in the sum of HK$1,180,000.

5.  It is the Plaintiffs’ case that the Plaintiffs and the 1st Defendant made an agreement in August or September 2005 (“the Agreement”) in the presence of the 2nd Defendant or with her knowledge that:

(a) the Plaintiffs would sell their only property in Hung Hom purchased in the name of their younger son (“the Younger Son”);

(b) the Plaintiffs and the Younger Son would move to the Property to reside with the 1st Defendant; and

(c) the Plaintiffs would make mortgage instalment repayments and pay the other expenses in respect of the Property on the condition that they would have beneficial ownership of the Property upon making the mortgage repayments, and the Property would not be sold without their consent.

6.  It is the Plaintiffs’ case that in reliance on the Agreement:

(a) the Plaintiffs sold their property in Hung Hom;

(b) they paid the mortgage instalments in respect of the Property;

(c) they spent money on the repairs, maintenances and improvements of the Property;

(d) they spent about $60,000 for installing a modular structure on the podium of the Property; and

(e) they and the Younger Son moved to live in the Property whilst the 1st Defendant moved to live in the modular structure installed on the podium. 

7.  The Younger Son moved out in 2008 upon his marriage. 

8.  In 2010, the podium of the Property was sealed off by the government for safety reasons.  Thereafter, the 1st Defendant moved out of the Property to live in a flat rented by the 2nd Defendant in Tin Fu Building, Ma Tau Wai (“the Tin Fu Flat”), leaving the Plaintiffs in occupation of the Property.

9.  On or about 10 October 2010, the 1st and 2nd Defendants married and they lived together in the Tin Fu Flat.  It is the Plaintiffs’ case that the Defendants had never occupied the Property, or treated the Property as their matrimonial home.

10.  On or about 11 April 2011, the 1st Defendant transferred the legal title of the Property to the 2nd Defendant.  It is the Plaintiffs’ case that the transfer was made for no consideration.  There was also a new mortgage to cover the Property.  The Plaintiffs did not make further mortgage instalment repayments after April 2011.

11.  The 2nd Defendant petitioned for divorce in December 2011.

12.  The Plaintiffs knew about the matrimonial proceedings in early 2012, and they had also written a letter to the court about their alleged beneficial interest in the Property.

13.  In the matrimonial proceedings, FCMC 17291/2011, Deputy District Judge Grace Chan held on 15 October 2013 that:

(a) the 1st Defendant had paid all the mortgage instalments by himself in respect of the Property from about 2001 to 2011; and

(b) vacant possession of the Property be given to the 2nd Defendant, the Property be sold with the Sale Proceeds, after deducting the relevant expenses and legal costs, be distributed to the 2nd Defendant and the 1st Defendant in the ratio of 8:2.

14.  Because of such order, the Plaintiffs were required to deliver vacant possession of the Property.  It is the Plaintiffs’ case that they were evicted by the Bailiff out of the Property in May 2014.

15.  On or about 21 May 2014, the Plaintiffs sought to join in the matrimonial proceedings as third parties, on the ground that the Plaintiffs had beneficial interest in the Property.  The application for joinder was resisted by the 2nd Defendant and was dismissed by Deputy District Judge Grace Chan on 11 July 2014.

16.  On or about 5 January 2015, the Property was sold for $3,880,000 and the sale was completed in the following month.

17.  The 1st Plaintiff commenced the present proceedings against the 1st and 2nd Defendants on 15 September 2015 to claim for, among other things, a declaration that the Sale Proceeds or a portion thereof as the court shall determine are held by the Defendants on trust for the 1st Plaintiff.

18.  The 1st Plaintiff took out the present application for preservation order relating to the Sale Proceeds on 18 September 2015.  The summons first came before me on 25 September 2015. In that hearing, the 1st Defendant voluntarily agreed to pay a sum of $240,000 received by him from the sale of the Property into court.  I therefore gave directions for the filing of affidavit in respect of the application against the 2nd Defendant.

19.  In her affirmation, the 2nd Defendant gives a different account about the ownership of the Property:

(1) she was responsible to pay the mortgage instalments of the Property after the marriage;

(2) the 1st Defendant cheated her by telling her that the Property was transferred to her as a gift, whereas the true purpose of the transfer was to enable the 1st Defendant to obtain a new mortgage loan to repay another loan owed by him to a finance company;

(3) she did cohabit with the Plaintiffs in live in the Property after about 2006;

(4) she moved out of the Property in 2006 when she found out that the 1st Defendant by that time had an affair with another woman;

(5) the Plaintiffs sold their own flat in Hung Hom in order to repay the debt owed by the Younger Son; and

(6) she did not know anything about the Agreement as alleged by the Plaintiffs.

20.  After the sale of the Property in January 2015, the 1st and 2nd Defendants obtained the respective sum of $484,656.37 and $1,938,625.46 as the net sale proceeds.

Merits of the application

21.  The 2nd Defendant opposes the application based on the following three grounds:

(1) the 1st Plaintiff husband (now the 2nd Plaintiff) is a necessary party to the proceedings and it would be wrong for the 1st Plaintiff to proceed with the proceedings without joining her husband;

(2) it would be an abuse of process for the Plaintiffs to re-litigate the same subject matter which had already been decided in the matrimonial proceedings to the effect that the 2nd Defendant would obtain 80% of the Sale Proceeds of the Property,  whereas the Plaintiffs could have applied to intervene in the matrimonial proceedings much earlier, and they are therefore precluded from re-litigating the same subject matter because of the principle of res judicata in the wider sense; and

(3) there was delay on the part of the Plaintiffs in making the application.

22.  In the course of submissions, there are some debates as to whether the principles relating to the granting of interlocutory injunction are also applicable in the application for preservation order (see: Johnson v Tobacco Leaf Marketing Board [1967] VR 427 and Samtani v Samtani [2012] 4 HKLRD 872). 

23.  Mr Cheung, counsel for the Plaintiffs, submits that in the application for preservation order, it is not necessary for the court to conduct an enquiry into the merits of the case.  Neither should the court conduct the balance of convenience exercise.  Put it simply, the American Cyanamid principles are not applicable.  The ultimate test is that according to the fact of each case, whether the court sees that as between the plaintiff and the defendant, there is something which ought to be done for the security of the property (Chaplin v Barnett (1912) 28 TLR 256, which was adopted by Gowans J in Johnson v Tobacco Leaf Limited Marketing Board, supra at p433).

24.  Despite the difference between the tests for the granting of interlocutory injunction and preservation order, I would still dismiss the Plaintiffs’ application mainly on the ground of delay. 

25.  In most preservation order cases, there is dispute between the parties about the ownership of the subject matter.  The main purpose of obtaining a preservation order before the trial is to preserve the subject matter, otherwise the subject matter may either be destroyed, tempered with or disposed of by the parties.  If the parties have genuine fear or concern that these things may happen, they should go to the court to seek assistance without delay.  In particular, if the subject matter is money, the party should act promptly because money is a liquid asset which can be disposed of very easily.

26.  In the present case, the Plaintiffs knew that the 2nd Defendant was claiming for the ownership of the Property as early as March 2012.  They also knew about the matrimonial proceedings and yet they did nothing to protect their right or to commence legal proceedings to claim for beneficial interest in the Property.

27.  As pointed out by Deputy District Judge Grace Chan in the decision refusing the application for joinder dated 11 July 2014 (para 4), the Plaintiffs clearly knew about the ancillary relief proceedings involving the Property, and yet they did not apply to join in the proceedings much earlier.  It was only after the Family Court gave the decision in the ancillary relief proceedings that the Plaintiffs applied to join in the proceedings.  The judge concluded that it was too late.

28.  The Plaintiffs did not appeal against the decision refusing joinder.  Knowing full well that the 2nd Defendant was going to sell the Property soon, the Plaintiffs did not take any step to protect their interest.  If the Plaintiffs were really concerned about the security of the subject matter, she should have acted by that time.  Once the sale proceeded, it would be difficult to trace into the proceeds of the sale.

29.  The Plaintiffs claimed that they knew nothing about the sale of the Property until July 2015.  However, when they were evicted out of the Property back in May 2014, they should have known that the Property would be sold soon.  Even for a layman without the benefit of legal advice, they should act promptly to protect their interest in the Property.  Yet they did nothing. 

30.  Further, the Legal Aid certificate produced to the court shows that the Plaintiffs had obtained legal representation and proper legal advice at least in the matrimonial proceedings back in March 2015, yet nothing had been done to ascertain the status of the Property until July 2015.  This should not have happened if the Plaintiffs had genuine fear or concern about the Property as a security.

31.  At this stage, the court has no idea as to the whereabout of the Sale Proceeds: whether the 2nd Defendant still keeps the Sale Proceeds or whether she has used the money for something else. However, as there is a decision from the Family Court to the effect that the 2nd Defendant is entitled to 80% of the net Sale Proceeds, it would be natural for the 2nd Defendant to dispose of some of the Sale Proceeds.

32.  There is also another factor weighting against the granting of the preservation order.  It is not clear from the Plaintiffs’ case whether they are entitled to 100% beneficial interest in the Property and what percentage of shares they enjoyed in respect of the Property.  According to the Plaintiffs’ pleaded case, the Plaintiffs contributed a total sum of $264,507 as mortgage repayment.  In such circumstances, there is some uncertainty as to what percentage of shares of beneficial interest that the Plaintiffs enjoyed in respect of the Property.  

33.  Furthermore, the Plaintiffs have obtained part security in the sum of $240,000 paid by the 1st Defendant.  Although such security may not provide full protection to the Plaintiffs, it provides some security for the Plaintiffs in respect of their claim.

34.  Having considered: (1) the substantial delay on the part of the Plaintiffs in failing to take steps to preserve the Property or the Sale Proceeds as security; (2) there was an existing judgment in favour of the 2nd Defendant in the matrimonial proceedings; (3) there is uncertainty about the exact beneficial interest alleged by the Plaintiffs in respect of the Sale Proceeds; and (4) the Plaintiffs obtain part security in the sum of $240,000, it would be unfair and unjust for the court to make a preservation order against the 2nd Defendant in relation to net proceeds of sale.

35.  Based on the aforesaid reasoning, it would be quite unnecessarily for the court to consider the other grounds of objection.  At the 2nd Plaintiff has already applied to join in as an additional plaintiff, the objection based on the non-joinder of parties now becomes academic.  Whether the Plaintiffs are precluded to commence further action against the 2nd Defendant based on the principle of res judicata in the wider sense is a complicated issue.  If the 2nd Defendant claims that she has a good argument on such issue, she should take out a separate striking out application and the court can then deal with the argument in more details.  I would therefore reserve such issue for further argument in the future.

36.  For the above reasons, I dismiss the Plaintiffs’ application for preservation order against the 2nd Defendant.