ZHAI JIN CHENG v. WANG LIJUN AND ANOTHER

HCA 1845/2019

[2023] HKCFI 1039

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1845 OF 2019

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R E A S O N S    F O R    J U D G M E N T

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INTRODUCTION

1.  At the hearing on 13 April 2023, I granted an order substantially in terms of the reliefs sought by the plaintiff (“P”) in his Summons dated 14 February 2023 (the “Summons”), by entering judgment in favour of P against the 1^st defendant (“D1”). Here are my reasons.

PROCEDURAL BACKGROUND

2.  The present action (HCA 1845/2019) was commenced by a writ dated 4 October 2019 taken out by 2^nd defendant (“D2”) (being the original plaintiff prior to reconstitution of action) against D1 (being the original defendant prior to reconstitution of action) for a sum of money arising from a default in repayment of loan.

3.  A default judgment against D1 in favour of D2 was granted on 11 September 2020 for the sum of RMB 47,433,533.78 with interest. To enforce the default judgment, D2 obtained a Charging Order to Show Cause dated 7 October 2020 and a Charing Order Absolute dated 1 December 2020 (collectively the “Charging Orders”), whereby (among 2 other properties) a property known as Flat P on 14^th Floor, Hong Kong Mansion, No.1 Yee Wo Street, Hong Kong and held by D1 as registered owner (the “3^rd Premises”) stand charged as a result of the default judgment.

4.  To enforce the Charging Orders, D2 commenced proceedings under Order 88 of the Rules of High Court (“RHC”) by way of Originating Summons in HCMP 100/2021 after which P was notified of the Charging Orders against the 3^rd Premises.

5.  It is P’s primary case that the 3^rd Premises has been held by D1 on common intention constructive trust for P, such that D1 did not hold any beneficial interest in the 3^rd Premises which may form the subject matter of the Charging Orders. Accordingly, P applied by way of Summons dated 29 December 2021 in this action to intervene to stop the enforcement of the Charging Orders.

6.  Pursuant to the Order of Master S H Lee dated 11 January 2022, it is ordered inter alia that:

(1)  Leave be given to P to intervene in this action seeking to discharge the Charging Orders granted in D2’s favour against D1 over the 3^rd Premises on the ground that D1 held no beneficial interest of the 3^rd Premises capable of being the subject matter of the Charging Orders (the “Issue”);

(2)  There be a trial of the Issues with parties reconstituted as follows:

(a)  The intervener as the plaintiff in the Issue (i.e. P);

(b)  The original defendant as the 1^st defendant in the Issue (i.e. D1); and

(c)  The original plaintiff as the 2^nd defendant in the Issue (i.e. D2).

7.  By such Order, Master S H Lee also gave directions for the preparation of pleadings, discovery and witness statements. In pursuance of such directions, P filed his Points of Claim on 9 February 2022 whilst D2 filed her Defence on 1 April 2022, followed by P’s Reply on 11 May 2022. D1, however, did not file any Defence.

8.  By the Order of DHCJ H Au-Yeung dated 29 September 2022, the Issue between P and D2 has been completely and permanently resolved and the trial of the Issue between P and D2 has been withdrawn. As a result, the only outstanding dispute is between P and D1.

9.  By the Summons, P applies for judgment against D1, on the basis of D1’s default to serve a Defence under Order 19 rule 7 of the RHC. Among others, P seeks as a primary case a declaration that the 3^rd Premises are held on common intention constructive trust by D1 for P. In the alternative and as a secondary case, P seeks a declaration that P has acquired an indefeasible possessory title to the 3^rd Premises (by adverse possession) and D1’s title to the 3^rd Premises has been extinguished.

P’S CASE

10.  The relevant facts in support of P’s case have been pleaded in P’s Points of Claims and supported by various affirmations filed for P.

11.  P’s claim is that the 3^rd Premises has been held on a common intention constructive trust (alternatively a resulting trust) on the “Common Intention” as defined in P’s Points of Claim. Further or alternatively, P was in adverse possession of the 3^rd Premises.

12.  Insofar as common intention constructive trust is concerned, its constituent elements are succinctly summarised by the Honourable Mr Justice Coleman in Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2551 at §16:

“16. Where a constructive trust is alleged to arise on the basis of the parties’ common intention, it is the intention commonly held by the property owner and the claimant regarding their shared beneficial interests in the property that matters. The trust is constituted by the three elements of (1) the common intention, (2) the claimant’s detrimental reliance on their common intention, and (3) the unconscionability of the property owner departing from it.”

13.  In this regard, P’s pleaded case may be summarised as follows:

(1)  In around 2007 to 2008, on the request of D1 who was a fellow countryman, relative and friend to P, P agreed with D1 that D1 would borrow the identity of the registered owner of the 3^rd Premises, that is P would transfer the name (i.e. legal title) of the 3^rd Premises to the D1, for the reasons that D1’s daughter, Miss Wang Run (“Ms Run”), needed a property in Hong Kong for her marriage and D1’s borrowing this identity would be beneficial for Miss Run to find a good wedding match and her welfare in marital matters.

(2)  Further, P and D1 orally agreed inter alia that in such a transfer of name, D1 would not obtain any beneficial interest in the 3^rd Premises, D1 would hold the 3^rd Premises on trust for P, the relevant stamp duty and transaction fees concerning the transfer were to be borne by D1, D1 would not pay any consideration for the transfer, and after the completion of the marrying of Miss Run, D1 would return the identity of the registered owner of the 3^rd Premises to P.

(3)  The above Common Intention was reached in the presence of Mr Kau Ma Hing (“Mr Kau”) who later arranged the logistical matters to give effect to the Common Intention and the transfer in around 2008. P has also informed his friend, Madam Wai Wang (“Madam Wai”), of the Common Intention in 2008.

(4)  By a Sale and Purchase Agreement dated 30 September 2008 and an Assignment dated 25 October 2008 (the “Agreements”), P transferred the legal title of the 3^rd Premises to D1. Notwithstanding the wording in the Agreements, D1 did not pay any consideration and likewise P did not receive any consideration.

(5)  Therefore, a common intention constructive trust giving effect to the Common Intention arises.

(6)  In detrimental reliance of the Common Intention, P did not receive or demand to receive any consideration under the Agreements and P allowed D1 to borrow the identity of the registered owner of the 3^rd Premises.

(7)  In the circumstances, it is unconscionable and inequitable for D1 to depart from the Common Intention and deny P beneficial interest thereunder.

(8)  Further or alternatively, as D1 did not pay any consideration for the transfer, the 3^rd Premises are held on resulting trust by D1 for P.

(9)  After entering into the Agreements, D1 has never possessed the 3^rd Premises in any way. Instead, P has used the 3^rd Premises up to 2009 and, since 2009, P has granted a licence to Madam Wai to reside in the 3^rd Premises.

(10)  Some time before or in 2017, the marrying of Miss Run was completed. On multiple occasions, P demanded D1 to transfer back the legal title of the 3^rd Premises to P but D1 refused or failed to do so.

(11)  On 18 May 2018, P met with D1, and D1 drafted, signed and printed his fingerprints on a Chinese letter of undertaking confirming that the 3^rd Premises were temporarily borrowed by D1 from P and were then occupied by P, and undertaking to transfer the 3^rd Premises to P after the procedures concerning D1’s daughter (i.e. Miss Run) were completed (“Letter of Undertaking”).

(12)  The Letter of Undertaking constitutes clear and unequivocal representation on the part of D1 that the 3^rd Premises were held on trust by D1 in favour of P. In detrimental reliance on the same, P did not immediately start legal action against D1.

(13)  In the further alternative, as P has been in continuous and exclusive possession of the 3^rd Premises without the consent or permission of D1 since 2008, P also claims a possessory title of the 3^rd Premises.

(14)  In the premises, P seeks various (alternative) declarations against D1.

14.  P has filed various affirmations in support of her case. Further, Mr Kau has made an affirmation in support as he was present in the gathering in which the Common Intention was reached. Madam Wai has also made an affirmation confirming the Common Intention as related to her by P.

SERVICE OF DOCUMENTS

15.  I have considered the Affirmations of Service filed for P. I am satisfied that:

(1)  service of the Writ to this action was effected on D1 on 18 November 2019, an acknowledgment of Service by D1 was filed on 8 May 2020, but no Defence was served by D1 on D2 (the original plaintiff in this action);

(2)  service of the Points of Claim was effected on the last known addresses of D1 on 10 February 2022, but no Defence was served by D1 on P; and

(3)  service of the Summons was effected on the last known address of D1 on 14 February 2023.

16.  I am also satisfied that the service is regular and D1 has defaulted in filing a Defence in opposition to the Points of Claim. Accordingly, P is entitled to seek default judgment pursuant to Order 19 rule 7 of the RHC against D1.

BASIS FOR DEFAULT JUDGMENT

17.  The principles on applications for default judgment under Order 19 rule 7 of the RHC are well-settled. As remarked by the Honourable Mr Justice Coleman in Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2551 at para. 30:

“30. In such an application, the Court cannot receive any evidence, but must consider whether to give judgment according to the pleadings alone. The statement of claim must show a proper case for the order the applicant seeks to obtain, and the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim only, and only if the pleaded facts give rise to the relief sought.”

18.  As for declaratory relief, although it is not the normal practice for the Court to grant a declaration without going to a trial, it has been recognized by the Court that this is only a rule of practice rather than a rule of law. A declaration could be granted by the court on the basis that there is a genuine need for such relief to proprietary claim and on the merits of the case: see Hong Kong Civil Procedure 2023, Vol. 1, para. 19/7/20. The position is neatly summarised by the Honourable Mr Justice Coleman in Cheung Sai Lon v Cheung Sai Ha (supra) at paras. 31-34:

“31. However, the power to give such default judgment is discretionary. In the exercise of that discretion, it is to be recognized that it is not the normal practice of the Court to make a declaration without trial. This is not a legal or inflexible rule, but rather a rule of practice, which need not be followed when the plaintiff has a genuine need for declaratory relief and justice would not be done if such relief were denied.

32. Even on what might appear to be straightforward applications, the Court does not act as a ‘rubber-stamp’ merely because of the uncontested nature of the application. In each case, it is necessary to consider whether the declaratory relief is properly made out on the pleading, and whether it is appropriate in the overall exercise of discretion for such relief to be granted without a trial.

33. In the exercise of the discretion, the Court will consider all relevant factors, including whether the plaintiff has established a strong and obvious case for proprietary relief on the face of its pleading, and where the claim is proprietary, whether there would be any prejudice to the plaintiff’s property and rights. The importance of a claim to proprietary relief arises because of the distinction from a merely personal claim. An order for payment, without more, would only put a plaintiff in the position of an unsecured judgment creditor. But a declaration of a proprietary interest will secure that interest.

34. As to what constitutes a genuine need for relief in the context of an application for default judgment involving a claim upon CICT [i.e. common intention constructive trust] or resulting trust, Mr Deng has drawn my attention to two cases.

(1) In Kan Kiu Chor v Fung Shu Fun (unreported, HCA 1902/2015, 6 April 2016, Recorder Cooney SC) a declaration on a CICT was granted on the basis that: (a) there was an acknowledgement of service; (b) the defendant did not contest the summons; (c) all the evidence in support of the plaintiff’s claim was in fact already before the Court and filed in previous affirmations; (d) large numbers of documents evidencing the plaintiff’s financing of the purchase of the property had been provided; and (e) there was a genuine need for declaratory relief and justice would not be done if relief was denied.

(2) In Lung Ka Kuen v Chu Chun Yuk (unreported, HCA 2832/2015, 18 October 2016, DHCJ Marlene Ng) the Kan case was distinguished on the basis that: (a) there was no acknowledgement of service; (b) the claim concerned interest in land that would affect other parties’ rights, and where in the particular case the first defendant was bankrupt and the second defendant was the official receiver, representing the interests of third-party creditors, and who expressed reservations as to the claim; (c) while the court is to look only at the pleadings, there was evidence already before the Court in the Kan case which indicated the strength of the case; and (d) the declaration sought went beyond the scope in any event, including future events.”

19.  Based on P’s Points of Claim and having regard to all the evidence in support of P’s claim which was already before the court, I am satisfied that D1 holds the 3^rd Premises on a common intention constructive trust for P. In particular, I take into account the following:

(1)  P’s plea of the Common Intention which is corroborated by the account of Mr Kau (who was present in the gathering) and Madam Wai (who, though not privy to the Common Intention, was informed of the same back in 2008 – its being inherently improbable that P would tell a lie to Madam Wai back in 2008 and waited for over 10 odd years to take legal action against D1).

(2)  P’s plea that P did not receive any consideration from D1 notwithstanding the wording of the Agreements.

(3)  P’s plea that the 3^rd Premises remain occupied by P (whether by himself or through his licensee Madam Wai) since entering into the Agreements in 2008 to date.

(4)  P’s plea of the Letter of Undertaking drafted and signed by D1 and printed with D1’s fingerprints.

(5)  P’s plea of detrimental reliance on the Common Intention and the representation in the Letter of Undertaking, and P’s further plea that it is unconscionable and inequitable for D1 to depart from the Common Intention.

20.  Since I am with P on P’s primary case of common intention constructive trust, it is not strictly necessary for me to consider P’s alternative cases of resulting trust or adverse possession. I also understand from Mr Cheung for P that P does not pursue such alternative declarations if the court finds in favour of P’s primary case.

21.  As regards the question whether there is genuine need for relief, in my view, the present case is closer to the circumstances of the Kan case referred to by the Honourable Mr Justice Coleman in para. 34 of Cheung Sai Lon v Cheung Sai Ha (supra). Having considered the matter, I accept that there is a genuine need for the declaration of a proprietary interest, taking into account in particular the following:

(1)  Despite valid and regular service of legal processes, D1 has never appeared or in any way responded to the legal processes and proceedings since 8 May 2020. It seems apparent that D1 is evasive and would not appear to contest the proceedings. It would be an unnecessary use of court time, and a waste of expenses, to order a trial.

(2)  The relevant evidence has been filed before the court. Even if looking only at the Points of Claim, P has specifically pleaded corroborating facts (including the knowledge of Mr Kau and Madam Wai) and a written Letter of Undertaking, which lends support to the strength and merits of P’s pleaded case.

(3)  The relief sought is proprietary relief, and there is no suggestion that any third-party interests would be affected. Indeed, the only third party interest used to be that of D2, but the issue as between P and D2 was already resolved pursuant to the Consent Order of DHCJ H Au Yeung dated 29 September 2022.

(4)  On the pleaded facts, P is a victim of the abuse of trust by D1, who took advantage of P’s trust and the transfer of the legal title of the 3^rd Premises to D1’s name, and has prejudiced the position of P by borrowing a large sum of money from D2 as registered owner of the 3^rd Premises, and subsequently defaulting the loan.

(5)  Each day without relief, P is unable to recover the legal title of his property, and unable (or otherwise less capable) to recover rental income or derive fruits from his property rights such as mortgaging his property to obtain liquidity, and is therefore severely prejudiced.

(6)  On the whole, P’s case seems to be strong and, absent any attempt by D1 to contest the proceedings and where significant (albeit not necessarily complete) evidence has been filed, there is no real benefit or purpose in requiring the claim relating to the 3^rd Premises to go through the interlocutory process to a trial. I am further satisfied that there is a genuine need for relief and that justice would not be done if the relief were denied to P.

DISPOSITION

22.  In the premises, I accede to P’s application for default judgment (including declaratory relief) against D1.

23.  In the Summons, P further seeks a vesting order under section 45 of the Trustee Ordinance (Cap. 29), or an order that D1 do transfer back the legal title of the 3^rd Premises to P with authority conferred on P’s solicitor to execute the necessary conveyance pursuant to section 25A of the High Court Ordinance (Cap. 4).

24.  Pursuant to section 45(g) of the Trustee Ordinance (Cap. 4), the court may make a vesting order “where land or any interest therein is vested in a trustee whether by way of mortgage or otherwise, and it appears to the court to be expedient”. Further, pursuant to section 2 of the Trustee Ordinance (Cap. 4):

“trust (信託) does not include the duties incident to an estate conveyed by way of mortgage, but with this exception the expression trust (信託) and trustee (受託人) extend to implied and constructive trusts, and to cases where the trustee has a beneficial interest in the trust property, and to the duties incident to the office of a personal representative, and trustee (受託人) where the context admits includes a personal representative, and new trustee (新受託人) includes an additional trustee;” [emphasis added]

25.  In view of the foregoing, I am prepared to make a vesting order as the 3^rd Premises were vested in D1 as constructive trustee for P (under common intention constructive trust), and it appears to me expedient to make such vesting order on the facts, which would also dispense with the need to make alternative orders under section 25A of the High Court Ordinance (Cap. 4). I note further that in Cheung Sai Lon v Cheung Sai Ha (supra), the Honourable Mr Justice Coleman similarly made a vesting order based on common intention constructive trust.

26.  Further, I accede to the relief of costs of this action and HCMP 100/2021 sought in the Summons, and have conducted summary assessments on a party and party basis after reviewing P’s Statement of Costs for such proceedings.

27.  Accordingly, I have granted an order substantially in terms of the reliefs sought by P in the Summons as follows:

(1)  P be at liberty to enter judgment against D1 for:

(a)  A declaration that P is the sole beneficial owner of the 3^rd Premises;

(b)  A declaration that D1 has held the 3^rd Premises on a common intention constructive trust for the benefit of P;

(2)  The entire legal and beneficial estate, title, rights, interests and shares of and in the 3^rd Premises be vested in P absolutely;

(3)  Costs, including all costs reserved, incurred by P in this claim and in HCMP 100/2021 being the proceedings taken out by D2 to enforce the Charging Orders to be paid by D1 to P:

(a)  For HCA 1845/2019, be summarily assessed at HK$175,000; and

(b)  For HCMP 100/2021, be summarily assessed at HK$160,000.

28.  It remains for this Court to thank Mr Cheung and Ms Leung for P for their submissions and assistance rendered to the court.