LAU TIM FAT AND OTHERS v. LI BANG YUEN AND OTHERS

cacv 335/2006 AND CACV 422/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no S. 335 of 2006 AND 422 OF 2006

(on appeal from HCMP NO. 1117 of 2004)

______________________

______________________

J U D G M E N T

______________________

Hon Rogers VP:

1.  These were 2 appeals.  One was from a judgment of Yam J given on 30 August 2006 and the other was from an order of Deputy High Court Judge Muttrie given on 24 November 2006.  The main focus of these appeals is the appeal from the judgment of Yam J who was dealing with an application by the applicant to be joined as the 4^th defendant in this action.  The matter before Deputy High Court Judge Muttrie, on the other hand, was an application on the part of the applicant for a stay of the judgment in the action previously made by Deputy High Court Judge Muttrie himself, pending the appeal from the judgment of Yam J.  Yam J refused the applicant permission to join as 4^th defendant and Deputy High Court Judge Muttrie granted the stay pending the first appeal.  At the conclusion of the hearing of these appeals judgment was reserved which we now give.

Background

2.  The 14 plaintiffs in this action claimed a declaration that they were entitled to immediate and exclusive possession of the land comprising Lots 19-28 in D.D. 455 registered in the Land Registry in Tsuen Wan in the New Territories.  Initially there were only two named defendants but on his application the 3^rd defendant was also joined.  A statement of claim was ordered to be served and that was filed on 5 January 2006.  The matter came before Deputy High Court Judge Muttrie on 22 March 2006 on an application by the plaintiffs for judgment in default of defence.  The 1^st and 2^nd defendants did not appear.  The 3^rd defendant appeared by counsel who asked for an adjournment because he had been unable to obtain instructions.  The judge, noting the delay which had occurred since the commencement of the proceedings and the total failure of any of the defendants to put in any defence, granted the order sought by the plaintiffs.  He did so, however, with the proviso which was inserted as paragraph 7 of his order that:

“Such Judgment as the Plaintiffs are entitled herein shall not be enforced pending determination of the Summons taken out herein by Mr. Chu Pak Hei dated the 6th February 2006.”

3.  That proviso had been put in because some six weeks prior to that hearing the applicant had made application to be joined as the 4^th defendant.  That application was supported by evidence which was both written and supported by exhibits which were all in Chinese.  The judge noted that he was unable to follow the basis of the applicant’s application and hence he made the order preserving the position of the applicant.

4.  The applicant’s application to be joined as 4^th defendant came before Yam J on 30 August 2006.  He refused that application on the basis that the applicant claimed to be the subtenant of the 3^rd defendant but that since judgment had been entered against the 3^rd defendant, the 3^rd defendant’s interest, if any, had been terminated and, hence, the applicant had no interest.  That reasoning would appear to ignore the intent of paragraph 7 of the order of Deputy High Court Judge Muttrie.

5.  When the matter came before Deputy High Court Judge Muttrie on the stay application, he appreciated that the default judgment could be set aside if merit could be shown and he granted the stay on the basis that the applicant should be in a position to attack the default judgment if he could.  Quite rightly, it seems to me, he granted the stay in view of the upcoming appeal.

6.  With regard to the default judgments I would observe that the notes in the White Book state at 19/7/20:

“It is not the normal practice of the court to make a declaration without a trial, particularly where the declaration is that the defendant in default of defence has acted fraudulently.  However, this is only a rule of practice and should only be followed when the plaintiff can obtain the fullest justice to which it is entitled without the declaration he seeks.  This rule of practice does permit limited exceptions.”

7.  The court is always wary of granting declarations where third party rights may be involved.  It is for that reason that the court will normally require evidence, even if there is no defendant present, in order to substantiate the correctness of granting the particular declaration.  In this instance I can well understand the judge’s approach in that he wished to ensure that the matter proceeded without any further delay, in circumstances where there appeared to be no viable defence and where he considered he could make an order which would protect the applicant in his application to join as the 4^th defendant.  It was clearly his intention that the order that he was making should not prejudice the applicant’s application to join as a defendant.  It would appear that that was indeed the effect of the order that he made.  Regrettably, the judge below refused the applicant’s application on the basis of the termination of any interest that the 3^rd defendant may have had.

8.  Before proceeding further, it is right to note that it is clear from searches which have been carried out at the Lands Registry that some of the sections of the Lots which were the subject of the action would appear to be owned by Success Chart Development Ltd (“Success”) either alone or in common with one or more of the plaintiffs.  Whether or not Success could seek to set aside the default judgment is not one of the issues on this appeal.

9.  On this appeal the applicant relies upon the argument that because of an agreement between Success and the plaintiffs, the plaintiffs were not, in any event, the owners of the land but held whatever interest they had in the Lots on trust for Success.  In this respect reliance was placed upon a memorandum of agreement dated 9 November 1993 which provided that the plaintiffs would enter an agreement with the company by the name of Winker Development Ltd, which was apparently connected with Success, and the plaintiffs declared that:

“The beneficial owner of Lots 19-28 for the development of small houses is Success Chart Development Ltd.”

The agreement continued:

“For the sake of facilitating the application to build small houses, our names will be registered in the Land Registry as registered owners of various parts of Lot 19-28.  We clearly understand that we are not the actual owners and therefore we cannot and will not exercise the powers of the registered owners.  We will, for example, not to receive any rent or benefits from the tenants of Success Chart Development Limited nor disturb them like making application to the Court for recovery of possession of land.”

10.  What, in effect seems to be the upshot of that part of this agreement is that Success would develop the land and, in effect, be the owners but use would be made of the plaintiffs’ names in order for permission for the erection of the houses to be granted.  The agreement even goes on to say that the plaintiffs would each be paid $550,000 for their pains in this regard.  This agreement thus has all the appearance of being an illegal contract contrary to public policy.

11.  Even if it were to be assumed that an agreement of this nature were enforceable, it is by no means clear that Success did indeed become the beneficial owner of the various lots.  Nevertheless, reliance is then placed on a tenancy agreement between Success and the 3^rd defendant.  Under its terms that tenancy agreement came to an end on the 30 October 2006.  It also provided that the 3^rd defendant should not sublet or transfer his interest in that agreement to any other party.  Nevertheless, it is the applicant’s position that it is the subtenant of the 3^rd defendant and he claims title through this agreement.  In pursuance of that he claims to have been able to run a car park on the lots ever since.

12.  In answer to the first objection namely that the tenancy agreement between Success and the 3^rd defendant provided that there should be no subletting and the second objection that in any event that the tenancy agreement came to an end on 30 October 2006 reliance is placed on various documents which have been signed by Max Chan Sai Kit who was a director of Winker Development Limited.  Before turning to those documents it has to be said that no agreement has been produced between the applicant and either Success or the 3^rd defendant, no agreement has been produced relating to the period after 30 October 2006 and no written evidence of rental payments, whether in the form of receipts or otherwise, has been produced despite the fact that Deputy High Court Judge Muttrie had asked if it existed and to be shown it.  The written statements by Mr Max Chan Sai Kit are simply that and hence are, at best, hearsay.  Furthermore, at least one of the documents purports to give evidence contradicting the terms of the tenancy agreement that had been made some 5 years earlier.  In summary, therefore, I regret that the applicant has shown no basis for establishing any existing right to make use of the various lots whether for car parking or otherwise.

13.  In the circumstances I would dismiss the appeal CACV 335 of 2006 for reasons other than that which the judge below gave.  In doing so I would observe, again, that the default declaratory judgment may well be vulnerable to an attack by a party that has a legitimate interest in attacking it.

14.  With regard to CACV 422 of 2006 I would not be disposed to allow the appeal on the basis argued by Mr Chang, on behalf of the plaintiffs.  In my view Deputy High Court Judge Muttrie had every justification for granting the stay pending appeal CACV 335 of 2006 but that appeal having failed the stay must now be removed.  I would also make an order nisi of costs in favour of the plaintiffs.

Hon Le Pichon JA:

15.  I agree.