CHEN YUET WA EVA v. CHAN HO HEI

DCCJ 5081/2020

[2021] HKDC 665

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5081 OF 2020

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DECISION

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Introduction

1.  This is the plaintiff’s application for default judgment pursuant to Order 19 rule 7 of the Rules of the District Court (Cap 336H).

2.  In this action, the plaintiff issued the Writ of Summons together with the Statement of Claim (“SOC”) on 21 September 2020.  The sealed copy of the Writ of Summons together with the SOC and the prescribed forms of acknowledgment of service were served on the defendant by inserting the same through the letter box of the defendant’s usual and last known address (“Address”) on 23 September 2020. 

3.  So far the defendant did not file any acknowledgment of service or defence.

4.  On 4 March 2021, HH Judge Harold Leong granted an ex parte interlocutory injunction and a Mareva injunction against the defendant (“Ex Parte Orders”).  On 12 March 2021, the return date for the Ex Parte Orders, HH Judge Kent Yee ordered that the Ex Parte Orders be continued until final judgment or further order from the court. 

5.  The plaintiff’s Notice of Intention to Enter Judgment and the Summons for the present application were sent by prepaid ordinary post on the Address on 11 March 2021 and 23 March 2021 respectively.  Neither the Notice nor the Summons had been returned through dead letter service.

6.  The defendant did not appear at the hearing of this application on 17 May 2021.  Having considered the affirmation of service of the documents mentioned in the previous paragraph and the fact that the court had issued a Notice of Hearing to the defendant on 10 May 2021, I was satisfied that due notice had been given to the defendant that the hearing of the plaintiff’s application was fixed on 17 May 2021, and the hearing was proceeded with in his absence.

The plaintiff’s pleaded case

7.  The plaintiff is the mother of the defendant.  

8.  The present action concerns the beneficial ownership of the property known as Flat C on the 4^th Floor of Tower 1 (Hoi Sing Court), South Horizons, No 1 South Horizon Drive, Hong Kong (the “Property”).

9.  In or about June 2010, it was agreed between the plaintiff and Madam Lo Fung Chi (wife of the plaintiff’s brother) (“Madam Lo”) and/or mutually understood and/or intended by them that:-

(1) The plaintiff would be responsible for all the repayments of the mortgage loan, including interest and other miscellaneous expenses in respect of the Property; and Madam Lo would not be required to pay any expenses;

(2) The plaintiff would be responsible for all the expenses for the purchase of the Property, and Madam Lo would not be required to pay any expenses;

(3) The Property would be used by the Plaintiff exclusively;

(4) The Property would be held and registered in the sole name of Madam Lo, who agreed to hold the Property on trust for the plaintiff and that Madam Lo would have no interest in the Property whatsoever.

     (hereinafter referred to as the “First Trust Agreement”)

10.  In performance of the First Trust Agreement:-

(1) On 9 June 2010, Madam Lo (as purchaser) and Chau Yun Kwong and Lim Julie Y (as vendors) entered into an agreement for sale and purchase of the Property at the consideration of $4,260,000.

(2) The initial and further deposits of HK$426,000 for the purchase were paid by the plaintiff through Madam Lo.

(3) The plaintiff further paid the balance of purchase price, estate agent’s commission, stamp duty, legal costs and miscellaneous expenses in respect of the purchase of the Property.

(4) On 9 August 2010, an assignment was executed in favour of Madam Lo.  On the same date, Madam Lo (as borrower) executed a legal charge (“2010 Mortgage”) in favour of Wing Hang Bank Limited (as lender).  Since then, Madam Lo became the registered owner of the Property.

(5) The monthly repayments of the 2010 Mortgage were all paid solely by the plaintiff. 

(6) The Property was solely used by the plaintiff and Madam Lo had never resided at the Property.

11.  The plaintiff avers that by virtue of the First Trust Agreement, the Property was at all material times held by Madam Lo on an express trust and/or resulting trust and/or constructive trust on behalf of and/or for the benefit of the plaintiff absolutely.

12.  In or about September 2014, as the relationship between the plaintiff and her brother (ie husband of Madam Lo) went sour, it was agreed amongst the plaintiff, Madam Lo and the defendant and/or mutually understood and/or intended by them that:-

(1) Madam Lo would assign and transfer her legal interest of the Property to the defendant.

(2) The plaintiff would be responsible for all the transfer of legal interest of the Property from Madam Lo to the defendant, and neither Madam Lo nor the defendant would be required to pay any expenses.

(3) The plaintiff would continue to be responsible for all the repayments of the mortgage loan, including interest and other miscellaneous expenses, and the defendant would not be required to pay any expenses.

(4) The property would continue to be used by the plaintiff exclusively.

(5) Madam Lo would cease to be the registered owner of the Property.

(6) The Property would then be held and registered in the sole name of the defendant, who agreed to hold the Property on trust for the plaintiff and that the defendant would have no interest in the Property whatsoever.

     (hereinafter referred to as the “Second Trust Agreement”)

13.  In performance of the Second Trust Agreement:-

(1) On 2 September 2014, the defendant (as purchaser) and Madam Lo (as vendor) entered into an agreement for sale and purchase for transfer of legal interests of the Property at the consideration of $6,200,000.  The plaintiff executed the agreement as lawful attorney of Madam Lo.

(2) The deposit of $3,000,000 for the said transfer was paid by the plaintiff.

(3) The plaintiff further paid the stamp duty, legal costs and miscellaneous expenses in respect of the transfer of the Property.

(4) On 6 January 2015, an assignment was executed in favour of the defendant.  On the same date, the defendant (as borrower) executed a mortgage in favour of The Hongkong and Shanghai Banking Corporation Limited (as lender) (“2015 Mortgage”).  The 2010 Mortgage was redeemed.  Since then, the defendant became the registered owner of the Property.  The plaintiff executed the assignment as lawful attorney of Madam Lo.

(5) The monthly repayments of the 2015 Mortgage were all paid solely by the plaintiff. 

(6) The Property was solely occupied and used by the plaintiff and the defendant had never resided at the Property.  From 2019 onwards, the Property was rented out and the rental payments were made to the joint bank account of the plaintiff and the defendant.

(7) Upon the plaintiff’s demand and request, the defendant executed certain legal charges and mortgages in favour of various banks and finance companies. These were and have been paid solely by the plaintiff through the joint bank account of the plaintiff and the defendant.

14.  It is the plaintiff’s case that by virtue of the Second Trust Agreement, the Property has been held by the defendant on an express trust and/or resulting trust and/or constructive trust on behalf of and/or for the benefit of the plaintiff absolutely. 

15.  By a letter dated 14 September 2020, the plaintiff through her solicitors demanded the defendant to transfer the legal title to the Property back to the plaintiff.  However, the defendant has failed and/or refused to respond to such demands.

16.  The plaintiff therefore commenced the present action and sought declaratory relief against the defendant that the plaintiff was and is at all material times the sole beneficial owner of the Property and that the defendant has been holding the Property on trust for the plaintiff.  The plaintiff also sought an order that the defendant do forthwith assign and transfer his legal interest of the Property to the plaintiff and execute all necessary instruments do all other acts as may be necessary to effect the transfer.

17.  At the hearing, Ms Ma On Ki, counsel for the plaintiff, clarified to the court that although the plaintiff had pleaded express trust as a basis for her claim, for the present application she would primarily rely on the principles of common intention construction trust and resulting trust.

Common intention constructive trusts

18.  The principles concerning common intention constructive trusts have been summarised in a recent judgment of Coleman J in Cheung Sai Lon v Cheung Sai Ha [2020] HKCFI 2552 at §§15-17:-

(1) Where a common intention constructive trust has arisen, ownership in the property is split into legal ownership and beneficial ownership.  The trustee holds the legal title on trust for the beneficiary (citing Luo Xing Juan Angela v Estate of Hui Shui See Willy, deceased [2009] 12 HKCFAR 1 at §38).

(2) 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 (i) the common intention; (ii) the claimant’s detrimental reliance on their common intention; and (iii) the unconscionability of the property owner departing from it.

(3) The burden of proving each element of common intention, detrimental reliance and unconscionability is on the person seeking to show that the beneficial ownership is different from the legal ownership.

19.  The first situation where common intention constructive trust may arise is where at any time prior to acquisition, or exceptionally at some later date, there is an agreement, arrangement or understanding reached between the parties on how the property is to be held beneficially.  The second situation is where there is no evidence to support a finding of an agreement or arrangement on the beneficial ownership of the property, and the court must rely entirely on the conduct of the parties both as the basis from which to infer a common intention on the beneficial ownership of the property and as the conduct relied on to give rise to a constructive trust.  In this situation, direct contributions to the purchase price by the party who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust: Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 per Lam V-P at §§2.3-2.4

Resulting trusts

20.  Regarding resulting trust, there are academic debates on which of the two doctrines on resulting trust is to be preferred.  The first view is that a resulting trust is in response to the absence of any intention on the part of the person providing the purchase price to benefit the recipient (the lack of intention analysis).  The second view, which is different from the first doctrine, is that a resulting trust arose from the presumed common intention of the parties (the positive intention analysis): Primecredit (supra) at §§2.6-2.7.

21.  Between constructive trust and resulting trust, at least in a domestic context, if it is possible to resolve the matter by reference to common intention, there is no need to resort to resulting trust: Primecredit (supra)at §1.3.

Default judgments

22.  The principles applicable to default judgments are well established:-

(1) 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.

(2) 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.

(3) 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.

(4) 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.

     See: Cheung Sai Lon (supra) at §§30-33

23.  In Kan Kiu Chor v Fung Shu Fun (unreported, HCA 1902/2015, 6 April 2016, Recorder Cooney SC), which also concerns an application for default judgment involving a claim upon constructive trust, a declaration on a common intention constructive trust was granted on the basis that: (i) there was an acknowledgement of service; (ii) the defendant did not contest the summons; (iii) all the evidence in support of the plaintiff’s claim was in fact already before the court and filed in previous affirmations; (iv) large numbers of documents evidencing the plaintiff’s financing of the purchase of the property had been provided; and (v) there was a genuine need for declaratory relief and justice would not be done if relief was denied. 

24.  In Cheung Sai Lon (supra), also an application for default judgment based on common intention constructive trust and resulting trust, Coleman J granted the declaratory relief sought in respect of the landed property on the basis that: (i) on the pleaded case, the plaintiff might be entitled to the relief sought by the summons in relation to the property; (ii) the pleaded case appeared to be strong, (iii) there was a genuine need for relief, (iv) justice would not be done if the relief were denied to the plaintiff, (v)  absent any attempt to contest the proceedings and where significant (if not all) relevant evidence has been filed in support of a previous interlocutory injunction application, there was no benefit or purpose in requiring the claim relating to the property to go through the interlocutory process to a trial.

25.  On the other hand, in Lung Ka Kuen v Chu Chun Yuk (unreported, HCA 2832/2015, 18 October 2016), DHCJ Marlene Ng (as she then was) distinguished the Kan case on the basis that: (i) there was no acknowledgement of service; (ii) the claim concerned interest in land that would affect the rights and interests of other parties, who expressed reservations as to the claim; (iii) 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 (iv) the declaration sought went beyond the scope in any event, including future events.

Analysis

26.  Applying the legal principles in respect of common intention constructive trusts and resulting trusts to the plaintiff’s pleaded case, I am satisfied that the plaintiff has established her claims on the basis of the SOC. 

27.  For common intention constructive trust:-

(1) At the time prior to acquisition of the Property, there was an agreement, arrangement or understanding reached between the plaintiff and the defendant that the plaintiff would retain beneficial ownership of the Property and the defendant would hold the Property on trust for the plaintiff: SOC §5.

(2) Such common intention is supported by the parties’ conduct such as (i) the defendant never resided at the Property and the Property was solely occupied and used by the plaintiff (and/or her licensees and/or tenants): SOC §6(g); and (ii) the set up and use of a joint bank account of the plaintiff and the defendant for repayment of mortgages: SOC §6(h)(ii).

(3) By reason of the plaintiff’s payment of deposit, related expenses and the mortgage repayments of the Property in performance of the agreement or understanding between the plaintiff and the defendant, the plaintiff has detrimental reliance on their common intention.

(4) It would be unconscionable for the defendant to depart from the common intention.

28.  For resulting trust, under the Second Trust Agreement, it was the common intention that the defendant would have no interest in the Property whatsoever and this indicates that there was no intention on the part of the plaintiff to benefit the defendant.  Further, the defendant has never resided at the Property.  It seems to me therefore that a resulting trust is established on either of the two doctrines.

29.  The next issue to be decided is whether the court should exercise its discretion and grant the declaratory relief sought.  Having considered the relevant authorities and the evidence previously filed with the court in support of the applications for interlocutory injunctions, I accept Ms Ma’s submission that the present case is similar to the plaintiffs’ in Kan Kiu Chor and Cheung Lai Lon and there is justification for granting the declaratory relief sought:-

(1) Although there is no acknowledgement of service from the defendant, the various affirmations of service identified that the defendant lives at the Address.  In particular, the Address was used by the defendant in a mortgage loan facility letter dated 18 December 2014 and the defendant’s sister had on 5 March 2021 confirmed that the Address is the defendant’s current address when she answered the door at the Address.  As mentioned above, the defendant has been given due notice of the present proceedings.

(2) On the face of the pleading, the plaintiff’s case appeared to be strong.

(3) A significant amount of relevant evidence has been filed in support of the application for the interlocutory injunctions, and so is before the court.

(4) One of the matters that supported the plaintiff’s application for the interlocutory injunctions was that there was a purported sale and purchase agreement dated 12 January 2012 which appeared in the Land Register in respect of the Property.  However, this should not bar the plaintiff’s claim here as the registration of the sale and purchase agreement was withheld and there is no suggestion that the purported sale of the Property has gone through.  So long as the contract for the sale of land remains uncompleted, the vendors would not be inhibited from making assignment of their beneficial interest: Jerome v Kelly (Inspector of Taxes) [2004] 1 WLR 1409 at §32.  Moreover, I note that (i) the defendant was required under the Ex Parte Orders to inform the purported purchaser of the existence of the orders, and (ii) the Ex Parte Orders were registered following their grant and it was expressly provided that the defendant or anyone notified of the order might apply to the court to vary or discharge the order.  The fact that neither the defendant nor any third party has sought to vary or discharge the Ex Parte Orders, or contest or intervene in these proceedings seems to support the plaintiff’s entitlement to the relief. 

(5) As the defendant never indicated any attempt to contest these proceedings, there is no benefit or purpose in requiring the claim to go through the interlocutory process to a trial.  It would be a waste of time and costs to do so.

(6) The plaintiff is unable to recover the Property unless the relief is granted.  The plaintiff is prejudiced and she has a genuine need for the declaratory relief sought.

Disposition

30.  The plaintiff’s application for default judgment is allowed and I make the following order:-

(1) Final judgment be entered in favour of the plaintiff against the defendant in default of acknowledgment of service and defence in these proceedings for:-

(a) A declaration that the plaintiff was and still is at all material times the sole beneficial owner of the Property;

(b) A declaration that the defendant, as the registered owner of the Property, was and has been holding the Property on trust for the benefit of the plaintiff;

(c) Notwithstanding the injunction order made by HH Judge Yee dated 12 March 2021, an order that the defendant do forthwith assign and transfer his legal interest of the Property to the plaintiff; and that the defendant do execute all necessary instruments and do all other acts as may be necessary for such transfer;

(d) There be an order nisi that costs of this action be paid by the defendant to the plaintiff, with certificate for counsel, to be taxed if not agreed.  This costs order nisi shall become absolute 14 days after the date of this judgment.

31.  I thank Ms Ma for her assistance to the court.