SHUN ON FINANCE LTD v. WONG FUNG KWAN AND ANOTHER

DCMP 1428/2016

[2022] HKDC 1095

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO.1428 OF 2016

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BETWEEN

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DECISION

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1.  There are 2 applications taken out by the plaintiff before the court: i) Summons to seek leave for appeal against the Judgment of this court on 25 March 2022 (“the Judgment”) (“Summons for Leave to Appeal”); and ii) Summons to vary costs order nisi between the plaintiff and the 1^st defendant (“Summons to Vary Costs”).

Summons for Leave to Appeal

Legal principles

2.  The legal principle is trite under District Court Ordinance (Cap.336) Section 63A(2)(a):

“Leave to appeal shall not be granted unless the judge, the master or the Court of Appeal hearing the application for leave is satisfied that—

(a) the appeal has a reasonable prospect of success; or

(b) there is some other reason in the interests of justice why the appeal should be heard.”

Grounds of appeal

3.  From the draft Notice of Appeal, there is effectively one ground of appeal, that the court has erred in holding that estoppel by deed did not apply in the present case to bar the 2^nd Defendant from asserting the existence of a constructive or resulting trust in the Property (as stated in paragraph 107 of the Judgment).

4.  The background of this case relevant to this ground of appeal is that:

a) The 2^nd defendant has assigned the Property in favour of the 1^st defendant in 2007 for HK$1M (paragraph 86 of the Judgment);

b) The court accepts the 2^nd defendant’s evidence that, as a result of her advancing age, she assigned the Property to the 1^st defendant so that the 1^st defendant may manage it on her behalf during her lifetime, and although the assignment provided for consideration, the 1^st defendant did not pay any (paragraph 89 of the Judgment);

c) The 1^st defendant then made a loan agreement with the plaintiff secured by the Property, but almost immediately, she was scammed out of the loaned sum so was unable to repay the plaintiff; and

d) In the current claim, the plaintiff sought to recover the loan from the sale proceed of the Property and the court found that the 2^nd defendant has beneficial interest in the Property by way of a constructive trust.

5.  Thus the ground of appeal concerns whether the plaintiff can raise the doctrine of estoppel by deed to stop the 2^nd defendant from asserting a beneficial interest in the Property.

Considerations

6.  First of all, the 2^nd defendant submitted that the estoppel is a matter that must be pleaded (White Book 2022 paragraph 18/8/15).

7.  However, the 2^nd defendant did not raise an objection during the trial, but did sought to argue the point during trial.

8.  I need not go into the details of the legal principles regarding points of objection not taken at a lower court. I need not find for the arguments raised by either parties but suffice to say I do not find the objection raise by the 2^nd defendant now would render the plaintiff’s appeal having no reasonable prospect of success.

9.  The argument advanced by the plaintiff is that the estoppel by deed should operate such that the 2^nd defendant, having executed and registered the Deed of Assignment which expressly stated and represented to the world that she had assigned all her legal and beneficial interest in the property for valuable consideration, could not now argue as against the plaintiff that she in fact maintained a beneficial interest in the Property (or the sales proceed of the Property) and essentially that the statements in the Deed were false and misleading.

10.  The plaintiff relied on Tsang Chuen v Li Po Kwai [1932] AC 715. In that case, the respondent executed a deed of assignment to 2 parties one of whom was his son who then mortgaged his half interest in the property to the appellant bank. The respondent brought an action claiming to be entitled to the property freed from the mortgage, submitting that the transaction, as per Chinese custom, did not involve any money transfer and was not intended to confer any beneficial interest to the son. The lower courts found for the respondent on the basis of a resulting trust, but the Privy Council allowed the appeal and held, inter alia, that the respondent was:

“…estopped as against the appellant, who took his registered mortgage in reliance on that memorial, from denying its correctness in any essential particular.” (Lord Blanesburgh at 730)

11.  The 2^nd defendant’s argument, which this court has approved in the Judgment, was that there were 2 questions to be resolved: i) was there a trust over the Property with the 1^st defendant as the trustee and the 2^nd defendant as the beneficiary; and if the answer is “yes”, then ii) whether the plaintiff had notice (especially constructive notice) of the trust.

12.  The 2^nd defendant submitted that the first question regards a question in personam between the trustee and the beneficiary, and as the court finds a common intention constructive trust (paragraph 93 of the Judgment), the second question, the in rem issue of notice, arose. The well-established principle is that beneficiary’s equitable title takes precedence and the trust binds the world save and except against a bone fide purchaser for value without notice. This court found that the plaintiff was deemed to have constructive notice: it has failed to inspect the Property which would revealed the occupation of the Property “inconsistent with the title offered by the vendor”. (Paragraphs 101 to 103 of the Judgment).

13.  The 2^nd defendant argued that estoppel by deed does not apply to the issue of trust which is a matter between the trustee and the beneficiary: that law does not allow the deed to be used as an instrument of fraud as between the trustee and the beneficiary. As such, the deed cannot be relied upon to deny the existence of the trust by an outsider.

14.  The 2^nd defendant relied on Re Yip Yam Yu Alex [2019] HKCFI 75, HCB 3926/2015, 11.1.2019, at paragraph 23:

“With respect, the mere fact that an assignment, on the face of it, appears to be an assignment for value is no objection to asserting the existence of an implied, constructive or resulting trust. If the party is able to establish a case on an implied trust, the doctrine of estoppel by deed will not assist the other side…”

15.  In my view, the deed of assignment was one essential element of how this trust was established: a transfer of the legal title. It would be very strange if an outsider third party can rely on this deed entirely so its own duty to investigate the title is somehow dispensed with, and the matters concerning constructive notice is somehow wiped off as a result of estoppel by deed. This appears to me to be going against the very basic principle of equity and trust.

16.  Nevertheless, the Privy Council decision in Tsang Chuen appears to stand and therefore I think there must be a reasonable prospect of success in the appeal. Moreover, there is a good reason in the interest of justice to allow leave for appeal in order that this legal question may be settled definitively.

Summons to Vary Costs

17.  As I allow the leave for the appeal and the result of which would likely have an implication on the cost order, I think that this summons should be adjourned to be decided after the determination of the appeal.

Order

18.  The plaintiff do have leave to appeal against the Judgment on the grounds set out in the draft Notice of Appeal attached to the Summons for Leave to Appeal.

19.  The costs of the Summons for Leave to Appeal be in the cause of the intended appeal. The 2^nd Defendant’s own costs be taxed in accordance to the Legal Aid Regulations.

20.  The Summons to Vary Costs be adjourned to be decided after the determination of the appeal with costs of the application reserved.