TANG WING HUNG ALBERT FORMERLY KNOWN AS TANG SHUN TAI v. LAW CHAU FAT

HCA 929/2015

[2018] HKCFI 2127

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 929 OF 2015

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REASONS FOR DECISION AND DECISION ON COSTS

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1.  There was no dispute that plaintiff (“P”) was an indigenous villager of Tsz Tin Tsuen, Tuen Mun, New Territories (“Village”), but D was not an indigenous villager although he lived in the Village.

2.  By the statement of claim, P claimed he was/is the registered owner of the property known as No.95 Tsz Tin Tsuen, Tuen Mun, New Territories (“Property”).

3.  P claimed that by an oral licence agreement made on 1 June 1995 with the defendant (“D”), possession of the Property was given to D as licensee for a term of 10 years for a lump sum licence fee of $950,000 (“Licence Agreement”), and that it was agreed that if P returned the full licence fee to D, then D would have to deliver vacant possession of the Property to P even though the licence term had not expired.

4.  P claimed that on the same day as he made the Licence Agreement he signed a Chinese agreement for sale and purchase in respect of the Property (“CASP”) with no completion date to secure repayment of licence fee by P to D in case of early termination of the licence agreement and not for any other purpose, but it was agreed that the CASP shall have no effect upon expiry of the licence term.

5.  On 25 May 2010, P was adjudicated bankrupt.

6.  List C1 in P’s statement of affairs dated and signed by P on 16 April 2010 made no mention of the Property and/or chose in action being the right to recover possession of the Property upon expiry of the aforesaid licence term as part of P’s assets.

7.  P claimed the licence term expired on 31 May 2005, but D did not deliver vacant possession of the Property to P.

8.  P claimed that on/about 17 June 2010, D registered or caused to be registered the CASP with the Land Registry against the Property.

9.  In/about May 2014, P was discharged from his bankruptcy.

10.  On 28 April 2015, P commenced the present action against D to recover vacant possession of the Property, to vacate the registration of the CASP from the Land Registry, and to claim for damages.

11.  D denied P’s claim. D averred he and P used to live near each other in the Village. P built a 3-storeyed small village house at the Property which under the government grant had restrictions against alienation (“Restrictions”), and lived there with his family. D claimed that in/about 1995 P’s brother (who acted as P’s agent) told D (who was then interested in buying a property) that P was looking for a buyer for the Property which P intended to sell as P was heavily in debt. D claimed P knew (as imputed from the fact the estimated value of premium in 1995 for removing the Restrictions was over $1,000,000) D did not have the financial resources to pay such premium, so P’s brother (as agent for P) and D entered into a collateral agreement that D would purchase the Property but need not remove the Restrictions until D had enough money to pay the premium. It was said that by the CASP P sold the Property with right to occupy the front/back yards to D for $950,000 with provisions to the effect that (a) upon request P would assist D to effect and perfect change in ownership of the Property, and (b) D shall have the right to use/occupy the front/back yards of the Property.

12.  D claimed that solicitors were engaged to handle the transaction. On 7 June 1995, D paid $950,000 to such solicitors. On 8 June 1995, P delivered a general power of attorney and last will and testament to D via solicitors. On 15 June 1995, vacant possession of the Property was delivered to D, and since then D was in occupation of the Property. D claimed he later received the title deeds of the Property. D further claimed he did not have sufficient financial resources to pay the premium for removal of the Restrictions (which was estimated to be $2,000,900 by 8 December 1999).

13.  D further claimed that on/about 19 January 2010, P attempted to cause a loan acknowledgment letter to be registered against the Property in the Land Registry. On/about 15 June 2010, D registered the CASP against the Property in the Land Registry. D remained in occupation of the Property, but complained that since mid-2014 P tried to (a) evict him, (b) through his agents blocked the back yard of the Property and (c) threatened D by whatsapp messages, and P registered an agreement for sale and purchase dated 27 October 2014 against the Property at the Land Registry.

14.  D counterclaimed for a declaration that P was a constructive trustee holding the Property on trust for him (on the basis that since 7 June 2005 D became the beneficial owner of the Property and P was a trustee holding the legal title for D’s benefit, so P was estopped from denying D’s interest in the Property), an order that P shall assist D to complete and comply with all procedures/formalities for perfecting change of ownership and vesting of the Property in D, an order that P shall remove the container in the backyard, and for damages to be assessed.

15.  P denied D’s allegation and averred that the CASP was void or voidable for illegality, and its enforcement would be contrary to public policy as its execution would be against the Restrictions, and D knew no prior consent of the District Officer had been obtained and no additional premium had been paid when he signed the CASP.

16.  At the 2^nd pre-trial review (“PTR”) on 31 August 2018, I raised with the parties, both of whom were then legally represented, the question of P’s right to sue (ie the right to bring his claim in the present action), which was a different question from (a) the sufficiency of pleaded particulars in respect of P’s substantive cause of action, and/or (b) the substantive merits of such cause of action.

17.  At the 2^nd PTR, I adjourned such PTR to 11 September 2018 for P to show cause why P’s claim ought not to be struck out. P filed Notice to Act in Person on 3 September 2018, and is now self-represented.

18.  In my view, P’s right to sue (ie the right to bring his claim) turned on his pleaded claim, and not on a debate between P’s substantive cause of action and D’s substantive defence. In considering P’s locus standi, I should consider whether P had the right to sue on the basis of his own pleaded case, and it is unnecessary to consider the merits of the defence. This was because if P did not even have the right to bring his claim as he pleaded to court, his claim would have been a non-starter and ought to be struck out irrespective of the merits of the defence. Where a party has no locus standi to bring his claim as framed by him, the court will not allow the action to proceed and debate on the merits of his claim. The court’s decision to strike out a claim for lack of locus standi is not a decision on the merits of the claim or defence for the court has not adjudicated on such matters.

19.  Whilst these matters are trite and obvious, it is necessary to restate them in view of the submissions by Mrs Chan, counsel for D, which I will discuss below.

20.  Turning first to P’s claim, the essential basis of such claim rested in the following matters: (a) P was/is all along the registered and beneficial owner of the Property, and (b) the licence in respect of the Property had expired in 2005 whereupon a right of action arose in favor of P to sue D for recovery of possession of the Property and for damages.

21.  The right of action in (b) above was a chose in action. Thus, even on P’s claim, his registered and beneficial interest in the Property and his right of action being a chose in action were his properties/assets that came within his bankruptcy estate. In considering section 58 of the Bankruptcy Ordinance Cap 6 (“BO”), Kwan JA in Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255, 1262-1263 held as follows:

“21. The legal principle established by the above cases and the relevant statutory provisions is that, upon the making of a bankruptcy order, the property of the bankrupt shall vest in the Official Receiver, who will hold the property first as provisional trustee and then as trustee. If a person other than the Official Receiver is appointed as provisional trustee or trustee, the property shall forthwith pass to and vest in the person so appointed (s.58). The property of the bankrupt vested in the Official Receiver shall include the bankrupt’s right to sue in respect of certain causes of action at the commencement of the bankruptcy, namely on the day of the bankruptcy order (ss.2, 43(1) and 30), with the exception of rights of suit involving claims for damages for personal injuries and defamation (Chung Kau v Hong Kong Housing Authority [2004] 2 HKLRD 650, paras.6-8). The cause of action in the present case already existed by the time of the making of the bankruptcy order. It was purely related to a financial dispute and did not involve personal injuries or defamation. Therefore, the right of action was vested in the Official Receiver.

22. The property vested in the trustee in bankruptcy is not returned to the bankrupt upon the automatic discharge of the bankruptcy order.  Although the discharge releases a bankrupt from all the bankruptcy debts (subject to s.32(1), 32(3)-32(8)), it has no effect on the functions (so far as they remain to be carried out) of the trustee and the operation of the provisions of the Bankruptcy Ordinance (s.32(2)).  Consequently, following the discharge of the bankruptcy order, the trustee is still under a duty to complete the administration of the bankrupt’s estate, including realising all realisable property vested in the trustee and distributing the proceeds to the creditors (Gosden v Dixon; Re Balhorn, ex p Official Receiver (1981) 39 ALR 223).  As for the bankrupt, notwithstanding the discharge of the bankruptcy order, he is still under a legal duty to continue to assist the trustee in completing the administration of the estate, including realising the property vested in the trustee and distributing the proceeds to the creditors (s.30A(8); Re Balhorn, ex p Official Receiver; Re Waters (1874) LR 18 Eq 701).”

22.  These principles are reiterated in Wan Po Jun Mary Pauline v Au Yeung Yee Man [2017] 1 HKLRD 94, 99-100.

23.  In such circumstances, P had no right to even bring his pleaded claim because on his own case both the Property and his chose in action being the right to sue would have become vested in the Official Receiver or his Trustee-in-Bankruptcy upon his being adjudicated bankrupt. Since such properties would not re-vest in P upon discharge, he could not commence or maintain his present claim at all as such property interests (including the right to commence his claim) were vested in the Official Receiver or Trustee-in-Bankruptcy. In short, P was the wrong party to commence the present action. In my view, P’s claim must be struck out because on its best pleaded basis P has no right to sue at all.

24.  I now turn to Mrs Chan’s interesting argument that I ought not strike out P’s claim, and that I should let P’s claim and D’s counterclaim to proceed to trial. Mrs Chan submitted it was D’s stance that the beneficial interest in the Property was with D and not with P, which contradicted P’s stance that he was the owner of the Property, so from D’s perspective P had locus standi to bring his claim and D could not apply to strike out P’s claim. Mrs Chan went further to submit that if the court should strike out P’s claim for lack of locus standi, it would be tantamount to acceptance of P’s case, ie P had beneficial interest in the Property. On such basis, Mrs Chan argued that the court should not make summary determination of such matter, which was not permitted under the legal authorities (although none was cited). It was suggested that the best course was let P’s claim and D’s counterclaim proceed to trial, so that (a) if the court held P had no beneficial interest in the Property after trial, P’s failure to tell the Official Receiver or Trustee-in-Bankruptcy about such alleged interest would be irrelevant, but (b) if the court held P had beneficial interest in the Property after trial, as P did not have the right to bring his claim, the court would simply not grant the order he sought. Mrs Chan emphasised it was only after trial that the court could decide whether P had locus standi or not.

25.  In my view, such arguments are misconceived, and reflected misunderstanding that conflated the issue of lack of locus standi on the basis of P’s claim and the substantive debate between parties’ respective case. I reiterate my observations on the distinction between the right to bring claim and the substantive merits of a cause of action. They are separate matters. In dealing with the issue of locus standi, the court is dealing with the former and not the latter. This is even more important in this case because P as ex-bankrupt had no right to even start the action at all. In the absence of re-vesting of the relevant properties, it was only the Official Receiver or Trustee-in-Bankruptcy who could start the action. There was nothing in the BO that would allow a bankrupt or ex-bankrupt to start action on his own, let alone bring the matter to trial. As P could not even cross this first hurdle, so there was no need even to consider whether his claim had any merits or not. Here, the position was compounded by the fact that on P’s case his claim to recover possession of the Property and to seek damages was a chose in action that was also vested in the Official Receiver or Trustee-in-Bankruptcy, which claim was not maintainable by P at all irrespective of the merits of the defence.

26.  In my view, P’s claim is plainly liable to be struck out. So at the adjourned PTR on 11 September 2018, I ordered that P’s claim be struck out for want of locus standi.

27.  With such conclusion, Mrs Chan applied for costs of and occasioned by Ps’ claim including costs of the 2^nd PTR (which only dealt with the above issue rather than other general case management matters) and of the adjourned PTR on 11 September 2018.

28.  Whilst I bear in mind the usual principle of costs following event, especially in a case when the claim was struck out for lack of locus standi, Order 62 rule 5 of the Rules of the High Court required the court in exercising its discretion on costs to take into account various factors, including (a) the underlying objectives set out in Order 1 rule 1 of the RHC, and (b) the conduct of all the parties.

29.  In my view, P who did not have the locus standi to bring his claim must be liable for costs. But the question is whether P should be liable to D for all of D’s costs in respect of his claim. Mrs Chan suggested it was D’s stance that he and not P was the beneficial owner of the Property that led D to decide not to raise the issue of locus standi, especially when there was dispute of facts on the question of beneficial ownership of the Property. But given my ruling above, the vitality or otherwise of P’s locus standi did not turn on any factual dispute, but on the undisputed fact of P’s bankruptcy and P’s claim which was obvious from the beginning of the action. Indeed, it was D who pleaded the fact of P’s bankruptcy and subsequent discharge (see paragraph 17(a) of the Amended Defence and Counterclaim), so D who was all along legally represented must have known of the legal implications that flowed from such bankruptcy and discharge.

30.  It was apparent from Mrs Chan’s written submissions (see paragraph 24 above) that notwithstanding awareness of the legal implications that flowed from P’s bankruptcy and discharge D made a considered decision not to challenge P’s locus standi. Indeed, even when this court raised the subject at the 2^nd PTR (thus giving D the opportunity to reconsider his position), D maintained his stance which was evident from Mrs Chan’s submissions set out in paragraph 24 above. In my view, it would have led to savings in terms of time, effort and costs in relation to P’s claim if an earlier attempt had been made to deal with the issue of P’s locus standi rather than to leave the matter to the late stage of PTR, especially when D was alive to P’s bankruptcy and subsequent discharge, so the parties could focus their attention on D’s counterclaim. This would have been much more in line with the underlying objectives of cost-saving efficiency, effectiveness and proportionality.

31.  Mrs Chan next argued that even if the challenge to P’s locus standi in respect of his claim had been taken earlier, there would not have been much savings in costs since the proceedings in respect of D’s counterclaim would mirror the parties’ respective contentions in P’s claim. However, at the stage, I am only concerned with liability for costs, and not quantum of costs which is a matter for the taxing master. On the question of liability for costs, I am unable to say that there would be no extra costs incurred at all for P’s claim that was outside the parameters of D’s counterclaim. This is sufficient basis for the court to exercise its discretion to determine liability for costs in respect of P’s claim. However, I hasten to add that the above observation does not in any way fetter the taxing master’s discretion and decision on assessing taxed costs pursuant to any costs order that I make.

32.  Taking into account the above matters and all the circumstances of the case in respect of P’s claim, I consider that D should be entitled to half of the costs of and occasioned by P’s claim. I therefore order P to pay half of D’s costs of and occasioned by P’s claim in the present action, which costs included (a) costs of and occasioned by the 2^nd PTR held on 31 August 2018, (b) half of the hearing time of the adjourned PTR held on 11 September 2018, and (c) all costs reserved in respect of P’s claim, to be taxed if not agreed.

33.  Should P require translation of this judgment into punti language, he can contact my clerk to arrange an appointment for a court interpreter to verbally translate this judgment to him at the High Court Building at a mutually convenient time.