WAN PO JUN MARY PAULINE v. AU YEUNG YEE MAN representative of the estate of AU YEUNG WING HONG

HCA 1478/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1478 of 2009

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D E C I S I O N

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Introduction

1. This is the defendant’s appeal against a decision of Master J Wong, dated 4 December 2015, dismissing the defendant’s application, dated 8 January 2015:

(1)  To strike out the plaintiff’s Defence to Counterclaim; and

(2)  For summary judgment on the Counterclaim for vacant possession of Flat A, 42/F., Tower 1, Harbourfront Landmark, 11 Wan Hoi Street, Kowloon (“the Property”).

2. Under Order 58 of the Rules of the High Court this appeal is a rehearing and I shall treat the matter as though it came before me for the first time.

Background

3. Mr Au‑yeung Wing Hong (the “Deceased”) died on 11 April 2008.  In his will he left his estate to his son and daughter.  The Property is one of the assets included in the Schedule of Assets.  Probate was granted to the defendant, his daughter, the sole executor.

4. The plaintiff claims she was the co‑habitee of the Deceased and had been living with the Deceased’s family in the Property since 2003.  The plaintiff was aggrieved by the will and a series of litigation between the parties ensued.  In this action, commenced on 25 June 2009, by Writ and Statement of Claim drafted by the plaintiff, the plaintiff claims a half share in the Deceased’s estate, including an entitlement to use and occupy the Property, in which she currently resides.

5. As a result of the series of litigation the plaintiff incurred liabilities to pay the defendant’s costs.  She failed to pay and, on 11 April 2011, she was made a bankrupt and her present action was stayed.

6. The defendant commenced action DCCJ 3315/2011 against the plaintiff to recover possession of the Property.  His Honour Judge Leung stayed that action so that the defendant could bring her claim for possession as a counterclaim in this action.  The defendant then obtained leave in HCB 144/2011 (the bankruptcy petition regarding the plaintiff) to proceed with her Counterclaim and, subsequently, amended her Defence in this action to include her Counterclaim.  The trustee in bankruptcy took a neutral position regarding the leave application.

7. The leave was subject to the following conditions:

(1)  No judgment or order obtained by the Applicant in said Action (other than judgment or order for possession of the Property) shall be enforced against the Bankrupt without leave of the Court; and

(2)  The Applicant shall not apply for any order for costs personally against the Official Receiver or the trustee in bankruptcy in the said Action.

8. By her Amended Defence, dated 14 May 2014, the defendant denies that the plaintiff has any interest in the estate, including the Property.  By her Counterclaim the defendant asserts that the Plaintiff resided in the Property under licence from the Deceased, which was revoked by the Deceased and the defendant and, in any event, was revoked automatically upon the Deceased’s death.  The defendant seeks vacant possession of the Property.

9. In an Amended Reply, dated 14 July 2014, drafted by counsel, the plaintiff denies that she resided in the Property under licence and claims to be a beneficial owner of the estate’s assets.  She claims her beneficial interest through a resulting trust and by constructive trust.  In her Defence to Counterclaim, the plaintiff, relying on her beneficial interest, denies that the defendant is entitled to vacant possession.

10. With the plaintiff’s action stayed and with the leave given in HCB 144/2011, the court has before it only the Counterclaim and Defence to Counterclaim.  As a counterclaim is, in effect, a separate action, I am able to deal with it without regard to the plaintiff’s claim.

11. The plaintiff’s bankruptcy was discharged on 11 April 2015.

12. The hearing before the Master was on 19 October 2015.  The Master reserved judgment.  On 30 October 2015, the Master wrote to the parties seeking further assistance and clarification.  In particular, the Master wanted to find out from the trustees in bankruptcy whether the trustees would consent to the plaintiff using the rights vested in the trustees to defend the Counterclaim because, notwithstanding the discharge from bankruptcy, all the rights of the plaintiff in the present proceedings still vested in the trustees.  The Master wrote:

“… this Court hereby respectfully asks for clarification from the OR/trustee‑in‑bankruptcy … as to whether they allow and consent (sic) the plaintiff to use the rights still vested in OR/trustees to defend for (sic) the counterclaim … .”

13. By letter, dated 2 November 2015, the trustees advised:

“… we allow and consent (sic) the Bankrupt to use the rights vested in us, if any, to defend for (sic) the counterclaim in HCA 1478 of 2009.”

14. By letter, dated 5 November 2015, the defendant’s solicitors wrote to the trustees:

“We note that ‘the rights still vested in OR/trustees to defend for (sic) the Counterclaim’ as mentioned in the letter from the Court dated 30^th October 2015 could include 2 distinct rights:‑

(1) litigation right to defend the Counterclaim (‘Litigation Right’); and

(2) property rights (including, in particular, the Bankrupt’s alleged beneficial ownership in [the Property] (‘Property Rights’).

We take it from your letters … that you have consented to allow the Plaintiff … to use the Litigation Right to defend the Counterclaim …, as distinct from the Property Rights.

We would be grateful if you could specify whether you also consent to allow the Plaintiff to use the Property Rights to defend the Counterclaim (e.g. by re‑assigning/re‑vesting the same to the Plaintiff or howsoever).”

15. The trustees replied by letter, dated 6 November 2015:

“We are of the view that all property of the Bankrupt (the Plaintiff) acquired before the date of the bankruptcy order shall be vested upon us as trustee‑in‑bankruptcy including those mentioned in the pleadings of the present proceedings … . However, for various reasons and as we have repeatedly mentioned, we have decided not to take up the main claim of the present proceedings and we do not agree to release or assign the relevant right of action regarding those properties to the Bankrupt.”

16. To which the defendant’s solicitors replied by letter, dated 6 November 2015:

“In the said paragraph of your letter, it is stated, inter alia, that you ‘do not agree to release or assign the relevant right of action regarding those properties to the Bankrupt’ (underline added). By using the words ‘right of action’, it seems that you might be referring to the Litigation Right … .

We would be grateful if you could specify whether you consent to allow the Plaintiff to use the Property Rights to defend the Counterclaim (e.g. by re‑assigning/re‑vesting the same to the Plaintiff or howsoever).”

17. The trustees replied by letter, dated 6 November 2015:

“We regret that we are unable to assist you on the specify (sic) question raised by you which is based on your classification of rights into Litigation Right and Property Right.

However, we can confirm that we have not assigned or released any property including those mentioned in the pleadings of the present proceedings … to the Bankrupt.”

18. It is reasonably clear from the exchange of letters that:

(1)  The trustees allow the plaintiff and consent to her using the rights vested in them to defend the Counterclaim;

(2)  The trustees have decided not to proceed with the plaintiff’s claim and will not release or assign that right of action regarding the Property to the plaintiff; and

(3)  The trustee has not assigned or released any property to the plaintiff, such that the trustees have not assigned or released the beneficial interest in the Property to the plaintiff.

The striking out application

19. The grounds for striking out under Order 18, rule 19 include that the pleading discloses no reasonable defence.

20. It is only in plain and obvious cases that the court should exercise its summary powers to strike out a pleading.  The court should not decide difficult points of law in striking out proceedings.  If the court does not think the matter to be clear beyond doubt, there should be no striking out. Disputed facts are to be taken in favour of the party whose pleading is sought to be struck out.  Where the court comes to the conclusion after full argument that the case is plainly and obviously one for striking out, it should not decline to do so on the ground that the issues are difficult or complicated. It is for the party seeking to strike out to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail.  A reasonable defence means a defence with some chance of success when only the allegations in the pleading are considered.  See: Hong Kong Civil Procedure 2016 Vol 1, paras 18/19/4, 18/19/6.

21. The defendant’s submission is:

(1)  Taking the disputed facts in favour of the plaintiff, even if one accepts that the plaintiff had a beneficial interest in the Property, that interest now vests in the trustees;

(2)  The plaintiff’s defence rests upon her having a beneficial interest in the Property;

(3)  Given that the plaintiff’s beneficial interest in the Property now vests in the trustees, she has no defence.

22. In support of the defendant’s submission her counsel, Mr Paul Leung, relies on the principle that upon the making of a bankruptcy order, the bankrupt’s property will vest in the Official Receiver, who holds the property first as provisional trustee and then as trustee in bankruptcy.  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.  The property vested in the trustee in bankruptcy is not returned to the bankrupt upon the automatic discharge of the bankruptcy order.  All of this is the effect of s.12, s.32 and s.58 of the Bankruptcy Ordinance, Cap 6.  See: Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255, paras 21, 22.

23. In Cheung Wing Kwan Tommy supra, the plaintiff commenced proceedings but the defendants applied to strike out the claim on the ground that the plaintiff did not have locus standi, which rendered the proceedings frivolous, vexatious or an abuse of process. The main ground of the defendants’ application was that the plaintiff did not have a right to sue because such right vested in the Official Receiver as trustee in bankruptcy.  The judge at first instance allowed the defendants’ application and struck out the claim.  The Court of Appeal refused leave to appeal, agreeing that the right of action vested in the Official Receiver.

24. In the present case, the court is not concerned with the plaintiff’s right to sue (the plaintiff’s claim has been stayed) but with her right to defend the Counterclaim.  Nevertheless, the position of a bankrupt as defendant is no different to that of the bankrupt as plaintiff.  In Heath v Tang [1993] 1 WLR 1421, Hoffmann LJ (as he then was), delivering the judgment of the court, stated, at p 1424E–G:

“In cases in which the bankrupt is defendant, there is of course usually no question of the cause of action having vested in the trustee. Unless the defence is set‑off … the bankrupt will not be asserting by way of defence any cause of action of his own. But in cases in which the plaintiff is claiming an interest in some property of the bankrupt, that property will have vested in the trustee. And in claims for debt or damages, the only assets out of which the claim can be satisfied will have likewise vested. It will therefore be equally true to say that the bankrupt has no interest in the proceedings. …”

25. In response, Ms Dora Chan, the plaintiff’s counsel, argued that the Counterclaim is a claim concerning a personal right to occupy the Property and she relied on an exception to the principle set out in Cheung Wing Kwan Tommy supra, which exception is that a bankrupt retains the right to continue any proceedings relating to claims which are personal to him.  See: Chung Kau v Hong Kong Housing Authority & ors [2004] 2 HKLRD 650, para 8, applying Heath v Tang at p1423.

26. Claims which are “personal” are claims which relate to the bankrupt’s body, mind or character without immediate reference to his rights of property: Chung Kau v Hong Kong Housing Authority & ors supra, para 8.  Examples provided in Chung Kau v Hong Kong Housing Authority & orssupra, are claims for damages for personal injuries and defamation and an appeal against an injunction against a bankrupt to curtail a nuisance said to have been committed by him.  In Chung Kau v Hong Kong Housing Authority & ors supra, Ma CJHC (as he then was) observed, at para 9:

“I recognize there may of course be many situations in which it may not always be easy to draw the distinction [between personal claims and those involving a bankrupt’s property]. Equally difficult are those hybrid claims involving both a bankrupt’s person and his property … .”

27. In support of her submission that the defendant’s claim for vacant possession concerns the plaintiff’s personal right to occupy the Property, Ms Chan relied on Kemmis v Kemmis [1988] 1 WLR 1307.

28. In Kemmis v Kemmis supra, a bank held a mortgage over a property called “no 59”.  The judge at first instance set aside the mortgage and dismissed the bank’s claim for possession of no 59.  The bank successfully appealed, the Court of Appeal deciding that the judge was not entitled to set aside the mortgage but the Court of Appeal refused the bank’s consequential relief of possession.  Purchas LJ stated, at p 1325C–E:

“For the reasons set out in this judgment I have come to the conclusion that the judge was not entitled to set the mortgage aside … . Accordingly, it becomes necessary to consider what, if any, consequential relief the bank is entitled to in the presence of the beneficial interest in no. 59 enjoyed by Mrs. Welland. This is an overriding interest falling within section 70(1)(g) of the Land Registration Act 1925. Moreover, this is an interest which gives her personal right to the occupation of the whole of no. 59. Although an order for possession could be made against the wife in whom, it has been held by the judge, there is no proprietary interest in no. 59, this would be of no avail to the bank during the lifetime of Mrs. Welland.” (emphasis added)

29. Mr Leung countered Ms Chan’s submission by submitting that the plaintiff’s personal right to occupy derives from a beneficial interest, such that, if there is no beneficial interest, then there is no personal right to occupy.

30. I agree with Mr Leung.  As Purchas LJ stated, the beneficial interest gave Mrs Welland a personal right to occupy.  It must follow that, if there is no beneficial interest, there is no personal right to occupy.  To put the point in another way, adopting Chung Kau v Hong Kong Housing Authority & ors supra, the plaintiff’s personal right to occupy the Property is achieved only by immediate reference to her beneficial interest in the Property.  I add that, as such, the plaintiff’s claim is not a hybrid claim, in which a personal claim stands together with a property claim but without immediate reference to the rights to property.

31. In order to defend the Counterclaim successfully, the plaintiff must establish that she has a beneficial interest in the Property but she cannot establish such an interest because any such interest she may have had is vested in the trustee.  Hence, she has no defence.

32. Ms Chan referred to the trustees’ letter, dated 30 January 2015, advising the plaintiff’s solicitors:

“Since leave has been granted to the Defendant to proceed with the counterclaim in HCA 1478 of 2009 against the Bankrupt, we are of the view that the Bankrupt has the right to defense (sic) the counterclaim by herself. We are not in a position to comment on matters relating to the counterclaim.”

33. Ms Chan submitted that that letter indicates that the trustees take the view that the plaintiff’s defence to the Counterclaim is based on a personal right.  However, whatever might be the trustees’ view, it is for the Court to determine this application.

34. A further point taken by Ms Chan was that the trustees’ consent is all that is required for the plaintiff to continue with her defence.  Ms Chan referred to Cheung Wing Kwan Tommy supra, at para 15, in which Kwan JA referred to the Official Receiver’s consent to a claim or assignment of a right of action:

“… the Official Receiver’s Office wrote to the Court, clearly stating its position that the Official Receiver would not consent to Mr Cheung’s claim or assign the relevant right of action to Mr Cheung unless the Office was satisfied that the claim was meritorious and that there was sufficient security to pay all necessary costs of the claim and to indemnify the liability to pay the defendants’ costs should the claim fail .”

35. The Court of Appeal considered that the Official Receiver had every reason not to consent to Mr Cheung’s claim or to assign the right of action to Mr Cheung.

36. The trustees have consented to the plaintiff using “the rights vested in us, if any,” to defend the Counterclaim.  It is unclear what rights the trustees consider the plaintiff may use, but it is not any interest in the Property because the trustees have stated expressly that they have not assigned or released the Property to the plaintiff.

37. Putting the uncertainty to one side, I do not consider that the consent given by the trustees assists the plaintiff in any event because the issue is whether the plaintiff has a defence, not whether she has locus standi.  As I have concluded above, unless the trustees have assigned the beneficial interest in the Property (which is the basis of the defence to the Counterclaim), the plaintiff does not have a defence.

Disposition regarding the strike out application

38. I have had the benefit of full argument.  The law is clear and it is settled.  I consider this is plainly and obviously a case for striking out.

39. For the reasons given above, my conclusion is that, because the plaintiff’s beneficial interest in the Property (assuming she had such an interest) vests in the trustees in bankruptcy, which interest the trustees have not assigned to the plaintiff, she has no defence.  Accordingly, I order that the appeal be allowed, the plaintiff’s Defence to Counterclaim be struck out and judgment be entered for the defendant on the Counterclaim.

Summary judgment

40. Turning to the defendant’s application for summary judgment on the Counterclaim.  Mr Leung characterized this as the defendant’s fall‑back position.

41. For this application, different considerations apply.  One does not proceed on the assumption that disputed facts are taken in favour of the plaintiff.  Rather, once the defendant has established a prima facie case for possession on the evidence, the burden is on the plaintiff to adduce credible evidence in support of her defence; she must condescend to particulars, she must show that there are triable issues and a real or bona fide defence to the Counterclaim.

42. As the defendant is the executrix of the estate owning the Property she has established a prima facie case for possession.

43. The defendant submitted that the plaintiff has failed to overcome her threshold.  The defendant refers to inconsistencies between the Statement of Claim, the Amended Defence to Counterclaim and the Reply before it was amended.  However, the Statement of Claim and the original version of the Reply were drafted by the plaintiff, whereas the Amended Defence to Counterclaim was drafted by counsel.  The Statement of Claim cannot be amended because the action has been stayed.  I do not consider that, in these circumstances, any inconsistencies are such as to warrant summary judgment; the reasons for the inconsistencies, which may be revealed at trial, should be considered.

44. The defendant also submitted that the plaintiff’s case regarding resulting trust and common intention constructive trust is not supported by any credible evidence.

45. The plaintiff’s case is that she lent money to rescue the Deceased’s failing business when they were a couple.  The purchase price for the Property came from joint assets of the Deceased and the plaintiff and it was their common intention that the Property be beneficially co‑owned by the couple.

46. In my view, the plaintiff’s affirmation has dealt specifically with the plaintiff’s claim for vacant possession and she has stated clearly and concisely what her defence is and the facts relied on to support it.  Whether the defence is supported by any credible evidence is a matter for trial.

47. However, given my conclusion above that the plaintiff has no interest in the Counterclaim proceedings and no defence to the Counterclaim, it follows that summary judgment could be ordered but it is unnecessary to do so because I have ordered that judgment be entered in the strike out application.

Costs

48. As the defendant has been successful, I make an order nisi that the plaintiff pay the defendant’s costs of and occasioned by the defendant’s summons and the appeal, to be taxed if not agreed.  The plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations (Cap 91A).