CHEUNG SAI LON v. CHEUNG SAI HA AND ANOTHER

HCA 2218/2019

[2026] HKCFI 1150

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2218 OF 2019

________________________

________________________

JUDGMENT

________________________

A. Introduction and Background Facts

1.  This action concerns the beneficial ownership of the various properties and the sales’ proceeds or rental income arising therefrom.

2.  The parties to this action are all family members.  Cheung Hung Kwong, (“Father”) was at all material times married to Chung Suk Yee (“Mother”) and together they had four children:

(1)     Cheung Sai Man (“Sai Man”), the eldest son, born on 18 August 1966;

(2)     Cheung Sai Lon (the Plaintiff, “P”), the second son, born on 6 May 1970; and

(3)     Cheung Sai Ha (the 1^st Defendant, “D1”) and Cheung Sai Kuen (“Sai Kuen”) (collectively, “Ds”), twin daughters, born on 10 December 1972.

3.  Father was a male indigenous villager and the village elder of Tai Shui Hang, Shatin, New Territories (“Tai Shui Hang Village”).  Naturally, his sons, Sai Man and P are also male indigenous villagers of Tai Shui Hang Village.

4.  Father had moved to the United Kingdom (“UK”) at the age of 22 in 1961 and worked as a cook in various Chinese restaurants and subsequently in his own takeaway shops. 

5.  In around 1987, Father acquired a Chinese takeaway shop in Kent (“Takeaway Shop”) and operated his own Chinese takeaway business. By then, the family had all moved to the UK and helped at the Takeaway Shop (save for Sai Man who had a job at another restaurant and only helped out at the Takeaway Shop for a few months in 1992) and lived at the flat above the Takeaway Shop. 

6.  Whilst initially, D1 and Sai Kuen helped out at the Takeaway Shop when they did not have school as kitchen assistants, upon their graduation from secondary school, they worked full-time there and were paid weekly by Father.  Their wages gradually increased to £200/week.  P, had dropped out of school around at age 17 in 1987 and worked full-time at the Takeaway Shop in the front at the counter.  According to D1, he was paid wages of £400/week by Father.  However, according to P, he was not paid a regular wage as Father and him had started the takeaway business together and they shared the profits (around £500-600/week).  P’s case is that he was not simply the counter cashier, as alleged by D1, but he was also responsible for assisting in the kitchen, inventory control, finances and accounts of the takeaway business.[1]

7.  In around 1992, Mother was diagnosed with cancer and it was decided that the family should return to Hong Kong.  Although the takeaway business was profitable, in around 1992-1993, the Takeaway Shop was sold.   

8.  According to P, upon the sale of the Takeaway Shop, Father shared the proceeds of the sale with P (of the amount £96,000 which he later corrected as £196,000 in his Supplemental Witness Statement (“P’s SWS”)) and gifted £24,000 each to D1 and Sai Kuen.[2]  This is denied by D1 and Sai Kuen.

9.  With his share of the sale proceeds, savings, cash gift from his grandfather, and profits from currency investment speculation in the GBP, at 22 years old, P claims that he had around HK$4.5M by the end of 1992-1993.

10.  In around 1992, Father, Mother, P, D1 and Sai Kuen relocated to Hong Kong.  Father retired to care for Mother.  Fortunately, Mother eventually recovered and Father remained in retirement.  They all lived at the ancestral home at House No. 35 in Tai Shui Hang Village (“House 35”).

11.  In around 1993, Shop Nos. 54 and 55 on 1^st Floor, Fu Fai Gardens, Shatin, New Territories (collectively, “FF Shops”) were acquired in the name of Father for the following consideration:

(1)     HK$2.5M for Shop No. 54; and

(2)     HK$1.97M for Shop No. 55.

12.  P claims that there was an agreement and/or common understanding between P and Father that each would contribute 50% of the costs, each shall have 50% interest in FF Shops and, notwithstanding Father shall be the registered owner, P’s 50% share would be held on trust by Father. P’s share of the rental income was to be used for maintenance of Father and Mother.[3] 

13.  It is P’s case that out of the total consideration of HK$4.47M for the purchase of FF Shops, he contributed HK$2,351,694, slightly more than 50% of the acquisition price.  The reason why FF Shops was held in Father’s sole name was because Father, who was then retired, would manage FF Shops.  P claims that he contributed to the purchase in the following manner:

(1)     On 27 May 1993, by a withdrawal of £20,000 from P’s sole name Yien Yieh Commercial Bank (“YY”) Multi Currency Account (“P’s YY Multicurrency A/C”) to Father;

(2)     On 7 June 1993, by a withdrawal of £20,000 from P’s YY Multicurrency A/C to a YY joint account of Father and Mother;

(3)     On 22 June 1993, by a withdrawal of £60,000 from P’s YY Multicurrency A/C to Father’s YY personal account (“Father’s YY A/C”); and

(4)     On 1 July 1993, by a withdrawal of £103,019.25 from P’s Kwangtung Provincial Bank account to Father’s YY A/C.[4]

14.  On the other hand, Ds’ case is that P was only 23 years old and did not make any monetary contribution as alleged or at all.  FF Shops were purchased in Father’s sole name using Father’s own money.  From 1987 to 1992, Father would time to time remit his earnings back to Hong Kong.  Since the business of the Takeaway Shop was lucrative and profit margins were high, for savings or to avoid investigation by the tax authority, Father would also remit money to P’s sole name bank account and/or the joint bank accounts between Father and P but the monies belonged to Father beneficially and P was holding them on trust for Father.[5]

15.  On 9 November 1995, Father and P were granted approval for construction of a small house at Tai Shui Hang Village on Lot No. 935 in D.D. 196 (“Lot 935”) and Lot No.936 in D.D. 196 (“Lot 936”) respectively.

16.  On 16 July 1996:

(1)     Father was granted permission to build on Lot 935 by New Grant No. 12763 upon which House No. 72 was built (“House 72”);

(2)     P was granted permission to build on Lot 936 by New Grant No. 12764 upon which House No. 71 was built (“House 71”); and

(3)     Sai Man was granted permission to build on Lot No. 937 in D.D. 196 by New Grant No. 12765 upon which House No. 70 was built (“House 70”).

17.  P claims that he and Father agreed or came to a common understanding that P would pay for the purchase and construction of House 71 and House 72, split into 3 units each.  It was agreed and the common intention of P and Father was that P would be the beneficial owner of both houses and although all rental income belonged to P, Father would be entitled to withdraw up to two units’ rental amount to be deposited into a joint account in the name of P and Father for his and Mother’s maintenance (“the Authorised Withdrawals”). Pursuant to and in reliance on the agreement and/or common understanding, P paid for the construction of both houses by transferring and paying a sum of at least HK$2,544,780.[6]

18.  On the other hand, Ds’ case is that Father paid for the construction of House 70, House 71 and House 72, and any transfer of monies by P to Father was not for the purpose of acquisition and construction of the three Houses.  It was the intention of Father and common understanding of all members of the family that Father would help to pay for the costs to acquire the land and construct a small house for each son.  Sai Man and P agreed to assign the rental income of one of the three flats in each House to Father as repayment by instalment of the lands and construction costs paid by Father.  Father intended to assign/transfer the beneficial interest to House 72 in equal shares to Sai Kuen, D1 and her two daughters as their home and the rental income generated therein for their maintenance after Father passed away.  Whilst it is admitted that Father and P agreed that the rental income would be deposited into a joint account in the name of P and Father, this was because the bank had started e-banking services in 2000 and Father can ask P to check the balances easily on the internet.[7]

19.  House 71 and House 72 were completed sometime in 1998.  After their completion, the whole family lived in House 72.  From 2009 to 2016, Father, Mother, P, D1 and Sai Kuen lived at House 35.  P and Mother moved to G/F of House 71 in 2016-2018.

20.  On 18 February 2008, Father executed a will naming D1, Sai Kuen and D1’s daughters as beneficiaries (“the Will”).

21.  On 13 November 2009, Shop No. 54 and Shop No. 55 were sold at the consideration of HK$2M and HK$1.8M respectively (collectively, “FF Shops’ Proceeds”).  P’s case is that FF Shops were sold in breach of trust and without P’s knowledge and authorisation[8].  

22.  On the other hand, Ds’ case is that Father, as the sole legal and beneficial owner of FF Shops, was entitled to sell his property without the consent, authorisation and/or approval of P who has no beneficial interest therein.  Since there had been no appreciation in value of FF Shops over the years and rental income generated remained low, Father under the advice of estate agents put the shops on the market for sale for a long time before eventually deciding to sell them.[9]

23.  On 13 May 2011, the property known as Ground Floor of No. 93 Tai Shui Hang, Shatin, New Territories (“TSH Shop”) was purchased in the joint name of Father and D1 at a consideration of HK$4.78M.  P’s case is that TSH Shop was purchased with FF Shops’ Proceeds of which 51.65% were held on trust for P.[10]

24.  In particular, P claims that FF Shops’ Proceeds were wrongfully transferred to D1 for her to acquire TSH Shop.  P also claims that as P was the 51.65% or alternatively, 50% beneficial owner of FF Shops which Father was holding such interest on trust for P, Father as trustee owed various fiduciary duties to P (i.e. duty to act in good faith, duty of loyalty to act in the best interest of P, not to make any benefit or gain or secret profit and not to act for personal advantage and to avoid any conflict of interest).  However, wrongfully and in breach of trust, the sale of FF Shops and acquisition of TSH Shop were for the purpose of defeating the said trust and/or were in material breach of fiduciary duties owed to P.  The particulars of breach pleaded are:

(1)     P had not provided any consent, authorisation or approval to sell FF Shops at a loss or at all;

(2)     P was not informed FF Shops had been sold;

(3)     There was no reasonable or valid reason to sell FF Shops at a loss and at gross undervalue;

(4)     There was no reasonable or valid reason to hastily dispose of FF Shops by assigning the property to agents at an undervalue who were able to quickly sub-sell within weeks pocketing windfalls exceed usual 1-2% commission fee for real estate agents; and

(5)     FF Shops’ Proceeds were transferred to D1 and subsequently used by D1 to purchase TSH Shop in the joint names of Father and D1 as joint tenants.[11]

25.  P claims that D1 dishonestly assisted Father in the alleged breach of trust or alternatively, knowingly received the FF Shops’ Proceeds which were the proceeds or traceable fruits of FF Shops’ Proceeds carried out in breach of trust.  P seeks to trace and recover from Father and/or D1 the FF Shops’ Proceeds.[12]

26.  On the other hand, Ds’ case is that all payments for the purchase of TSH Shop were made from D1’s sole name bank account.[13] Furthermore, under the joint tenancy, TSH Shop vested on D1, as the surviving joint tenant, upon the death of Father and D1 is the 100% beneficial owner.[14]

27.  On 8 March 2018, Father passed away having been diagnosed with cancer in July 2016.

28.  On 11 May 2018, D1 and Sai Kuen obtained the grant of probate in their capacity as named executrixes in the Will.

29.  Furthermore, P claims upon the death of Father, P discovered HK$2.3M was withdrawn by Father, in breach of trust, from the joint rental account in the joint names of P and Father (“Joint Rental Account”) and deposited into D1’s account from 2013 to 2018 (“the Unauthorised Withdrawals”).  The Unauthorised Withdrawals were wrongful and in breach of Father’s fiduciary duties owed to P because:

(1)     The Unauthorised Withdrawals were made on top of and in addition to the Authorised Withdrawals;

(2)     There was no valid or reasonable explanation to withdraw the sums in such amounts and in such frequency and to benefit D1; and

(3)     There was no valid consideration by D1 to entitle her to receive such monies.[15]

30.  P claims inter alia that D1 knowingly received the Unauthorised Withdrawals and/or had constructive knowledge of the Unauthorised Withdrawals and hence is a constructive trustee for P or was unjustly enriched by the Unauthorised Withdrawals.[16]

31.  On the other hand, Ds’ case is that the alleged HK$2.3M withdrawal made by Father during October 2013 to February 2018 from the Joint Rental Account were in fact rental generated from 1/F and 2/F of House 72 which solely belonged to Father to which P, being co-signatory of that account was fully aware but never complained or raised query about them during Father’s lifetime.[17]

32.  After relocation to Hong Kong, Father earned passive income from the rental incomes of his properties including FF Shops, TSH Shop, House 35 and House 72 as well as rental income of one flat of House 70 and House 71.  On the other hand, P has been unemployed since 2000 and his only income is the rental from House 71.  The withdrawal of HK$26,000-30,000 from the Joint Rental Account was for P’s own maintenance and not the Authorised Amount as alleged.[18]

33.  Furthermore, P claims that HK$1.073M was missing from rental income that was not deposited into the Joint Rental Account (“Missing Rental”) in breach of Father’s fiduciary duties owed to P[19].  P claims that D1 knowingly received the Missing Rental and/or dishonestly assisted Father to breach his fiduciary duties and as such D1 and Father are constructive trustees for the Missing Rentals.  Alternatively, it was claimed D1 was unjustly enriched by the Missing Rental and should make restitution or pay damages in lieu.[20]

34.  Ds’ case is that, D1 has not deposited the Missing Rental into her personal account or D1 and Father’s joint account as alleged, and has no knowledge as to its whereabouts.[21]

35.  Ds therefore claim that by virtue of the Will, D1 and Sai Kuen are the legal and beneficial owners of all properties in the estate of Father including House 72 and are entitled to their rental income. They counterclaim:

(1)     An account and the amount of remaining balance of House 72’s rental income in the sum of HK$241,500 and Joint Rental Account; and

(2)     Damages and/or loss of rental income from 1 November 2020 (as the tenants of House 72 moved out from the rumour that Ds were trespassing or letting the flats illegally) to be assessed.[22]

B.     The Issues (broadly framed by P)

36.  As submitted in P’s Opening Submissions, the key factual issues in dispute between the parties are as follows:

(1)     Who is the true owner of the source of funds used to acquire the FF Shops and Houses 71 and 72?

(2)     Was there an arrangement or agreement between Father and P that P would be the 50% owner of FF Shops?

(3)     Was there an arrangement or agreement between Father and P that P would be the beneficial owner of House 72 and that Father was authorised to withdraw up to two rental units’ worth of rent per month from Father and P’s Joint Rental Account?

(4)     Whether Father was entitled in any event to withdraw HK$2,300,000 which represents his share of rental income from House 72?[23]

C.     Applicable Legal Principles

C1.     Common Intention Constructive Trust and Resulting Trust

37.  There is no dispute between parties on the applicable legal principles.  Counsel (Mr Deng for P and Mr Ko and Miss Lam for Ds) were agreed that the applicable principles were summarised by Coleman J in Lam Ka Kui v Choi Yuen Ling[2020] HKCFI 2647 and authorities cited therein.  I would gratefully adopt the principles as set out in §§8-13 & 15:

“8. 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: see, for example, Luo Xing Juan Angela v Estate of Hui Shui See Willy, deceased [2009] 12 HKCFAR 1 at §38.

9. 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.

10. 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. The focus is on the intention of the parties at the time of acquisition of the asset. Contemporaneous conduct is inherently more likely to be a reliable indicator of intention, to be given greater weight, than are words and conduct after the event.

11. Common intention can be expressed or implied. It can be deduced or inferred objectively from the parties’ conduct. As a matter of common sense, it is easier to infer such an intention prior to the acquisition of property which results in an obvious change in legal ownership (rather than after such an acquisition where there is no change in legal ownership and a change in beneficial ownership is not otherwise apparent).

12. In Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 at §§2.3-2.4, Cheung JA identified two situations where a common intention constructive trust may arise. The first 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 finding of such an agreement or arrangement can only be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. 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 mortgage instalment payments, will readily justify the inference necessary to the creation of a constructive trust.

13. A resulting trust arises by virtue of the plaintiff’s contribution in money or in some other way towards the property’s acquisition. Equity holds the legal owner to be a trustee of that property for the plaintiff in an appropriate share, giving effect to the parties presumed intention. Particularly in a domestic context, but also generally, if it is possible to resolve the matter by reference to common intention, there is no need to resort to resulting trust.

…

15.      Reference can also be made to Stack v Dowden [2007] 2 AC 432, where at §§68-69 it was emphasised that an intention to have beneficial interest different from legal interest in property is unlikely, and the task of showing that should not be lightly embarked upon.  It was recognised that, in family disputes, strong feelings are aroused when couples split up which can often lead the parties, honestly but mistakenly, to reinterpret the past in self exculpatory or even vengeful terms.  If a difference is to be found between the beneficial and legal interest, clear evidence will be required.  Unequal contributions to the purchase price of property will not likely be enough to move away from the starting point that equity follows the law.”

C2.   Assessment of witnesses

38.  The court’s approach in assessing the credibility of a witness’ evidence is also not disputed.  These were helpfully summarized in HuLan v David Golden[2023] HKCFI 873 by Deputy High Court Judge H Au-Yeung (as he then was) at §36:

“When I consider the credibility of various witnesses who had given evidence in court, I shall take the following matters into account:

(1) Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) The court will also attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

(4) The court should consider a witness’ motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5) It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6) On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(7) While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.”

D.     The Witnesses

 D1.    P’s witness

39.  Only P testified for himself at trial.

40.  Whilst his evidence will be further discussed when analyzing the issues later on, in this section I will give some examples of instances where his oral evidence was inconsistent with his pleaded case and/or his witness statements which undermined his credibility.  For example:

(1)     It is P’s pleaded case that P is and was the sole beneficial owner of House 72 and Father had held House 72 on trust for P[24].  However, in oral testimony his evidence was that he was the owner upon Father’s passing away[25];

(2)     P had stated in his 1^st Affirmation dated 28 November 2019 at §11[26] that when the Chinese Takeaway business was wound up, he and Father split the proceeds but cannot recall the exact amount of money given to him.  However, in the 2^nd Affirmation dated 2 February 2021 at §57[27] and P’s WS dated 6 June 2022, §30[28], he was able to recall that he received £96,000 of the proceeds of the sale of the Takeaway Shop.  In P’s SWS, §5(2)[29], he then stated that his share of the proceeds previously stated as £96,000 was a typographical error and the amount should be £196,000.  However, in his oral testimony, he further said that £196,000 comprised both his share of the sale proceeds and share of his profits from the Chinese Takeaway business[30];

(3)     As for the profit sharing ratio, in the 2^nd Affirmation at §55[31], and P’s WS at §15[32], he stated that the ratio was 2/3 for Father and 1/3 for him and Father would obviously take more than him.  In P’s SWS at §5(2)(a)[33], he then said that the £196,000 distributed to him by Father was equivalent to half of the Chinese Takeaway business.  In oral testimony, he said initially the sharing ratio was 1/3 for him but as the business picked up and he stated to take up more part in the business for the latter period Father said they would share the profits 50-50[34];

(4)     The first time the exact amount of the cash gift from his grandfather was mentioned was in P’s SWS at §5(3)(a) [35] to be HK$688,000 (which he said he had a very vivid recollection of the event but did not explain if so, why he did not mention this earlier) and that it had grown to £74,319.  In re-examination[36], he first mentioned the £74,519.21 deposit in P’s YY Multicurrency A/C was this gift from grandfather[37]; and

(5)     In respect of the land premiums for House 71 and House 72 in RASOC, §14(1)[38], P’s 1^st Affirmation, §35(1)[39] and P’s WS, §62(1)[40], he stated that he paid from his Hang Seng Bank Account but only in P’s SWS at §10[41] did he say that after seeking specific discovery against Ds it was disclosed that the bank account was a joint account between Father and him.  

41.  Apart from the internal inconsistency in P’s evidence, his evidence was also inconsistent with the contemporaneous documents or undisputed background facts.  For example, P’s case was that he was the true sole owner of House 72, and he was the 50% owner of FF Shops.  However, he was not the registered owner of these properties.  Whilst in cross-examination[42] he tried to explain why FF Shops were not put into his and Father’s name, to the effect that it was risky at his age when he was not married, and there were tax savings for Father etc., these were all never mentioned in his affirmations or witness statements.  It is also contrary to the tenancy agreement of Shop No. 55 where Father was named the Landlord[43].  Whilst P explained that he worked long hours between 1993 to 2000 as a foreign exchange dealer and could not devote time to manage the FF Shops, there is no reason why his father could not manage the shops or collect rent even with the addition of his name as Landlord.  Besides, by the time of that tenancy agreement of Shop No. 55 and the tenancy agreements of House 72, P was no longer working but in none of the tenancy agreements was P stated to be the landlord.  Rather, it was Father (save for one tenancy signed by D1) who was named the landlord[44]. Even if on P’s case he suffered from mental depression in 2008 (but this is unsupported by any medical certificate) there is no good reason why he did not take over tenancy matters between 2000 and 2008.

42.  Furthermore, whilst the rentals from both House 71 and House 72 were paid into the joint account in P and Father’s name, P’s evidence was that Father had kept the account’s passbook and he himself did not check the account regularly or often.[45]  The fact that Father was in control of the passbook and P hardly checked what would be substantial amounts of money said to belong to him and which was his only source of income is incompatible with P’s case.

43.  Overall, I did not find P a reliable and credible witness.

D2.   Ds’ witnesses

44.  D1 and Sai Kuen were the only two witnesses for Ds.

45.  I did not find their evidence to be hugely shaken by cross-examination save that they maintained that they did not notice that P had become withdrawn in around 1999 or 2000 and suffered from mental depression in 2009[46] which was inconsistent with D1’s 1^st Affirmation where it was said P suffered from serious mental depression and began to hide himself inside his bedroom after his girlfriend from Mainland China left him[47]. 

46.  Furthermore, as both D1 and Sai Kuen frankly admitted, Father did not discuss finances or investment plans with them and as to source of funds for the various acquisitions, they had no direct knowledge but only drew their conclusion from the documents and what they observed[48], I would place more reliance on the contemporaneous documents and undisputed background.

E.      The Issues (as formulated by this court having regard to the Agreed Joint Statement of Issues in Dispute and the Closing Submissions) and My Findings

E1.    Whether P had around HK$4.5M by the end of 1992-1993 from which he was contributed HK$2,351,694 (just over half of the purchase price) to acquire FF Shops

47.  As already mentioned, P’s case in this aspect of the case had transformed over time and was internally inconsistent which undermined his credibility.

48.  Inherently, as a matter of common sense, it is improbable at such a young age, being a college drop-out and having worked at the Takeaway Shop for only about a year (on P’s case) without having contributed to the capital, Father would agree to share profits with him as opposed to paying him wages.  This is so even bearing in mind that he worked full-time and was the son whereas D1 and Sai Kuen started off working part-time and were daughters who did not need to save as much money.  However, this was already reflected in the large discrepancy in their weekly wages.  Moreover, given that the Takeaway Shop was sold following Mother’s diagnosis and the decision to relocate to and retire in Hong Kong when Father was relatively not elderly, it is inherently improbable that Father would not have kept for himself the proceeds and profits for his own livelihood and Mother’s medical expenses.

49.  Furthermore, P’s case on profit sharing is not supported by any contemporaneous document even though he allegedly was responsible for accounting matters.  The passbook of P’s accounts showed entries from 1992 but not before.  To the extent that P relies on his oral assertion, I found him to be not a reliable and credible witness. 

50.  As for the entries in P’s passbooks showing deposits of HK$421,764.25 and HK$836,126.45 in P’s YY HKD A/C[49] together with the brought down balance of £74,519.21 in P’s YY Multicurrency A/C[50] in January and February 1992, and by end of December 1992 (as P relied in P’s Closing Submissions) totaling HK$4.8M odd, the source of those sums is not known and most of those sums were transferred out of those accounts, again to unknown whereabouts. 

51.  Most of the opening balance on 20 January 1992 was withdrawn on 7 February 1992 leaving only £0.21 in P’s YY Multicurrency A/C until a sum of £15,000 was deposited on 13 May 1992 and interest of £761.64 on 30 June 1992.  Again, the balance did not remain in the account for long and was withdrawn on 27 October 1992 leaving a balance of £1.85.  In December 1992, two further sums of £60,000 and £136,306 were deposited but with the withdrawals of £96,000, £20,000, £20,000 and §60,000 on 21 December 1992, 27 May 1993, 7 June 1993 and 22 June 1993 respectively most of it was withdrawn leaving a balance of £1,113.  These deposits followed by withdrawals soon after do not suggest this account was intended to be a savings accounts. In oral evidence, P suggested that large sums of withdrawals were for timed deposits but this was unsupported by any contemporaneous document.  It is more likely to be, as Ds’ submitted, that this account was used for channeling funds from the profits of the Takeaway Shop back to Father.

52.  Besides, even if P, as he claims had at his disposal approximately HK$4.5M, there is simply no documentary evidence to prove that he had contributed to HK$2,351,694 to the acquisition of FF Shops.

53.  According to the Provisional Sale and Purchase agreement of Shop No.55, a provisional deposit had to be paid upon signing of that agreement (30 May 1993), a further deposit shall be paid upon the signing of a formal sale and purchase agreement (on or before 7 June 1993) and the balance paid upon completion which was to take place on or before 28 June 1993.[51] The provisional sale and purchase agreement and formal sale and purchase agreement for Shop No. 54 was not before me but from the Land Search[52], the agreement for sale and purchase was dated 28 May 1993 and assignment was dated 25 June 1993 so similar time for payments is likely.  P relied on the proximity of the transfer of various sums from P’s accounts on 27 May 1993, 7 June 1993, 22 June 1993 and 1 July 1993 as demonstrating that he had contributed his monies to the acquisition of the FF Shops.  However, even if that was the case, there is no evidence that these amounts transferred to Father or Father and Mother’s accounts were for the acquisition of FF Shops.  The odd amounts, the total sums allegedly transferred to Father not being exactly 50% of the total purchase price and the last transfer being after the completion date all goes against P’s case.

54.  I am not satisfied on a balance of probabilities that P has proved his case on resulting trust such that the beneficial title of FF Shops is different from the legal title.

E2.    Whether there was an arrangement or agreement between Father and P that P would be the 50% owner of FF Shops and Father acted in breach of trust in selling the FF Shops

55.  As for P’s case that there was a common agreement or understanding that Father and him that they would be joint owners of FF Shops to give rise to a common intention constructive trust, I am of the view that it is inherently unlikely Father would need to purchase FF Shops with the assistance of P and intended the purchase to be a joint investment. 

56.  If P had amassed HK$4.5M by the time of his return to Hong Kong in 1992, Father no doubt would have the same if not more.  Initially, P himself accepted that Father no doubt would be entitled to a larger share of the profits. 

57.  The excuse of putting FF Shops in Father’s name because P was too busy to manage the shops does not make sense for the reasons already explained.  On the other hand, Father was retired and it made total sense for him to acquire FF Shops by himself as his own investment. 

58.  The parties’ subsequent conduct is also not consistent with P’s case of the common agreement or understanding.  Whilst P relied on the fact that rental proceeds of FF Shops were paid into a joint account held by Father and P, the only documentary evidence was a tenancy agreement dated 29 January 2005 which provided payment to an account number which was the Hang Seng Bank account belonging to P and Father, yet above the account number was written Father’s name.  There is no evidence of any rental from FF Shops actually being paid into Father and P’s joint account. Considered together with Father being named the landlord, it is more consistent with Ds’ case and inconsistent with P’s case. 

59.  There is not one contemporaneous document of the alleged agreement or understanding with Father.  Insofar as P’s case rest on his testimony, I have found him to be an unreliable witness.

60.  Overall, I do not find that P has established on a balance of probabilities that there was a common agreement, intention or understanding between him and Father that he is the 50% beneficial owner of FF Shops. 

61.  It follows that it is not necessary to further consider the sale of FF Shops (which Father was entitled to sell whenever he liked) and the acquisition of TSH Shop as the FF Shops’ Proceeds belonged to Father solely and he did not owe any fiduciary duties to P.  In any event, P’s case is bound to fail as there is simply no evidence to prove FF Shops’ Proceeds was subsequently used to purchase TSH Shop given the lapse of time between the sale of FF Shops in November 2009 and purchase of TSH Shop in May 2011[53] and any monies claimed to belong to P is not traceable to D1’s Hang Seng Bank account from which the entire purchase price of TSH Shop was paid[54].  The claim against D1 for knowing receipt is therefore also doomed to fail.

E3. Who is the true source of funds for the acquisition of House 71 and House 72

62.  For the acquisition of House 71 and House 72:

(1)     On 23 November 1995, a total of HK$504,780 (two sums of HK$252,390) were paid to the Hong Kong Government from the joint Hang Seng Bank account of P and Father (No. 259-4-033306) for the acquisition of Lots 935 and 936[55];

(2)     Pursuant to the construction contract entered into with Sun Wing Construction & Decoration Design (“Sun Wing”) dated 22 July 1996 of HK$860,000 for each House 71 and House 72[56], an initial deposit of HK$43,000 was paid but there is no documentary proof who paid this amount;

(3)     4 cheques were issued by Father to Sun Wing in the amounts of HK$129,000, HK$1M, HK$250,000 and HK$414,000 on 17 September 1996, 7 April 1997, 30 July 1997 and 26 February 1998 respectively.

63.  On 16 September 1998, additional construction costs of HK$24,695.64 were incurred to Sun Wing by Father.  Whilst the invoice stated the owner was Father and the additional costs were for House 72, HK$15,000 was stated to be for the aluminum sliding doors for the three floors of each of the buildings.

64.  The above all contradicts P’s case that he had paid for the full costs of acquisition costs of both House 71 and House 72. Rather, it supports Ds’ case that Father paid for the construction of all three Houses.

65.  On the other hand, P’s case on various payments to reimburse Father is convoluted[57].  In respect of the construction costs:

(1)     P said that he paid HK$43,000 in cash to Father for the initial deposit for the construction contracts with Sun Wing for both houses[58]. However, there is no documentary evidence to support this and besides, the initial deposit is HK$43,000 for each of the houses;

(2)     On 16 September 1996, HK$130,000 was transferred from P’s YY HKD A/C[59]. However, this amount does not match with the cheque Father issued in the sum of HK$129,000 and in any event, it is not apparent from the passbook that this sum was transferred to Father;

(3)     On 25 September 1996 from the matured fixed deposit he transferred HK$356,310.57 from P’s YY HKD A/C[60].  However, the passbook does not show this odd amount was transferred.  P says it is “inferred” from the fixed deposit amount reduction. In any event, it does not show this amount was transferred to Father;

(4)     On 13 December 1996, he transferred HK$260,000 from P’s YY HKD A/C[61] but again this amount does not match Father’s cheques and from the passbook it cannot be seen that this amount was transferred to Father;

(5)     On 7 April 1997, he transferred HK$1M from P’s YY HKD A/C derived again from the reduction in the fixed deposit sum[62].  However, the passbook cannot show this amount was transferred to Father; and

(6)     On 31 July 1997, he transferred HK$250,000 from P’s YY HKD A/C[63] but the passbook cannot show this amount was transferred to Father.

66.  Given the amounts allegedly transferred do not match in both the amount and timing, and the lack of documentary records to demonstrate monies were transferred to Father, I am not satisfied that it has been proved on a balance of probabilities that P contributed to the acquisition and construction costs of both House 71 and House 72.

E4.    Whether P and Father had an agreement and/or common understanding as pleaded in paragraph 13 of RASOC (summarised in paragraph 17 above)

67.  I have already mentioned above how P’s case that he was the beneficial owner of both House 71 and House 72 is inconsistent with the contemporaneous documents, undisputed background and subsequent conduct of the parties.

68.  Moreover, I do not find it inherently probable that Father would agree with P for P to take up the acquisition and construction costs for both House 71 and House 72, the latter where the whole family resided for a considerable period of time[64].  As already mentioned, in terms of financial abilities, Father’s means should not be any less than P’s and it is unlikely he would agree to P to pay for the construction of his own house.

69.  On the other hand, it is not disputed that at around the time of the construction of House 71 and House 72, P was employed earning around HK$10,000/month and needed Sai Kuen’s help to obtain a mortgage loan for purchase of a Shenzhen flat in September 1997 for the consideration of HK$1,215,696.  If he had as alleged the financial means to pay in cash the total acquisition and construction costs of House 71 and House 72 (over HK$2.48M) there is no credible explanation for taking out a mortgage loan of HK$850,987.20 with Sai Kuen[65] and incurring interest charges.  Whilst P explained his cash was tied up in FF Shops and building House 71 and House 72, it did not make sense he would not use his cash to purchase his intended matrimonial home with his long-term girlfriend living in Shenzhen but rather use his cash on investments.

70.  As for P’s reliance on his alleged contribution to the acquisition and construction costs, I have rejected this above.

71.  In all, I do not find that P has satisfied his burden to prove that there was an agreement or common understanding with Father that he would be the sole beneficial owner of House 72 and Father would be entitled to withdraw up to two units’ rental.  Furthermore, not having satisfied that P paid for the acquisition and construction of House 72, this is also fatal to making out a case of detrimental reliance and unconscionability for P’s claim based on constructive trust.

E5.    Whether Father acted in breach of trust and/or D1 knowingly received or dishonestly assisted Father in breach of his fiduciary duties owed to P in respect of the Unauthorised Withdrawals and/or the Missing Rental

72.  As P acknowledged that the claim for Missing Rental and Unauthorised Withdrawals will not succeed if P does not succeed on his claims on establishing a trust[66], it is not necessary to further consider this issue.

E6.    Mense profits?

73.  In light of my findings that no constructive and resulting trust arises in favour of P in respect of House 72 which belonged solely to Father, this issue does not arise.  However, for completeness, I will make the following findings.

74.  From the expert report, the market value rent for all three flats of House 72 is HK$48,200 per month.  This has not been challenged and accordingly I so assess the mense profits for House 72 to be calculated from May 2018.

F.      Conclusion and Orders

75.  Accordingly, I will order P’s claims against Ds be dismissed.  Ds’ counterclaim is also dismissed.

76.  I make a costs order nisi that P pays the costs of this action to Ds, to be taxed, if not agreed.  Any application to vary the costs order nisi should be made by application within 14 days from the handing down of this Judgment.

HCA 2218/2019

[2021] HKCFI 904

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2218 OF 2019

________________________

________________

_____________

D E C I S I O N

_____________

A.Introduction

1.  By my Judgment dated 5 October 2020 [2020] HKCFI 2551 (“Default Judgment”), I gave the plaintiff (“P”) liberty to enter default judgment against D1 and D2 for his proprietary claims for relief relating to House 72 itself.  I shall continue to use the definitions and abbreviations adopted in the Default Judgment.  The relevant default was that neither of the defendants had filed any Acknowledgement of Service giving notice of intention to defend, nor any Defence.

2.  I further directed that as regards the other issues raised in the P’s claim, the action be listed for trial of those issues and the P be at liberty to proceed to trial notwithstanding the default of the defendants in serving a defence.

3.  The full extent of the claim – and the materials deployed by P in support of it – can be seen summarised in the Default Judgment, and need not be rehearsed at great length here.  By way of introduction it suffices to say that P has twin sisters, of whom one is D1, and the two sisters– that is, D1 and Cheung Sai Kuen (“CSK”) – are together D2, as the executrices of the estate of their Father.

4.  The claim pleaded in the SOC can be grouped into three distinct parts:

(1)   Ownership of the landed property known as No. 72 Tai Shui Hang, Shatin, New Territories on Lot No. 935 in Demarcation District No. 196 (“House 72”);

(2)   The liquidated sum of $3,521,100, comprised of

(a)  $2,300,000 of alleged unauthorized withdrawals (“Unauthorized Withdrawals”) by the Father in favour of D1 from the joint account Hang Seng Bank No. 259-3-076181 held in the names of the plaintiff and the Father (“Joint Rental Account”) and

(b)  $1,221,100 of alleged missing rental income (“Missing Rental Income”) not paid into the Joint Rental Account from leasing House 71 and House 72;

(3)   Proceeds (“FF Proceeds”) from the sale of Shops 54 and 55 at 1/F, Fu Fai Gardens, Shatin, New Territories (“FF Shops”) in the amount of $2,257,105 representing the sum of money the plaintiff paid to the Father to acquire jointly the FF Shops, which the Father allegedly sold without authorization and which proceeds were applied to acquire the shop at G/F, 93 Tai Shui Hang, Shatin, New Territories (“TSH Shop”) in the joint names of the Father and D1 as joint tenants.

5.  The matter had previously come to court on an inter partes application for injunctive relief.  I gave a proprietary injunction on 27 December 2019 (“Injunction Order”) restraining D1 from disposing of the property and funds the subject matter of the action, and made ancillary orders for D1 to file and serve an affirmation in relation to the whereabouts of some of those funds.  D1 is in breach of that requirement, and the subsequent unless order made by me on 23 January 2020 (“Unless Order”) that if she did not provide the discovery she should pay $600,000 into court.

6.  By summons dated 13 November 2020 (“Set Aside Summons”), D1 and D2 applied for orders:

     (1)  setting aside the Default Judgment on the sole ground of irregularity of service;

     (2)  discharging Injunction Order, or varying the time for compliance with it;

     (3)  discharging or varying the Unless Order;

     (4)  setting aside all previous costs orders; and

     (5)  seeking a stay of execution of the Default Judgment and all costs orders.

7.  The Injunction Order and the Unless Order were referenced by me at §5 of the Default Judgment, and again at §64 where I continued the Injunction Order until the trial/assessment or further order (save to permit Ds to act in compliance with the declarations and orders made in the Default Judgment).

8.  I heard the substantive argument on the Set Aside Summons on 1 April 2021. D1 and D2 were represented by Mr Tony Ko and Ms Lisa Lam of Counsel. P was represented by Mr Earl Deng of Counsel.  This is my Decision.

B.     Preliminary Point - Hadkinson

9.  Mr Deng submitted – on the basis of Hadkinson v Hadkinson [1952] 2 All ER 567, and K&L Gates v Aggarwal (unreported, HCA 1061/2011, 18 August 2011) at §§6-9 – that the Court should not hear Ds’ application until they materially complied with both the Injunction Order and the Unless Order.  He pointed out that Ds seek the Court’s indulgence in the exercise of discretion in their favour, yet without any attempt to comply with the Injunction Order, by refusing to disclose the most obvious evidence that would probably undermine the basis of the Default Judgment (being the source of funds and tracing of funds).

10.  Mr Deng reminded me that the point had been taken and Ds’ Counsel had been supplied with the authorities governing the Hadkinson principle as early as the directions hearing on 8 December 2020.  Yet, Ds failed to produce any clear or objective evidence that would undermine the basis of the Injunction Order or the Default Summons, or even to explain the absence of the relevant bank account and other objective records of D2’s financial dealings and situation, or to explain why the Unless Order has not been complied with or why D1 is not capable of complying with it.

11.  Whilst, for present purposes, it suffices to say that there is real force in Mr Deng’s submission, I do not think in the overall circumstances it would be right to shut Ds out from putting forward their argument on the Set Aside Application.  Rather, it seems to me that the criticisms made by Mr Deng about Ds’ conduct properly come into play in the overall approach to the exercise of discretion.

12.  On the other hand, the Hadkinson point has potentially much more force in the context of what is the application to set aside or vary the Injunction Order and the Unless Order, though again I think it right for present purposes that the point comes into play in the discretionary approach.

C.     Applicable Principles – Setting Aside

13.  The principles applicable on an application to set aside a default judgment are well-settled, and they can be set out without lengthy reference to previous authority.  A distinction is to be drawn between a default judgment entered regularly, and one obtained irregularly.

14.  A default judgment entered irregularly (in the sense that it was obtained without good and effective service of the writ) is liable to be set aside ex debito justitiae, and the Court does not have to consider the merits of the proposed defence.  The Court does not have to accept a defendant’s assertion that he has not received the writ, which the defendant must show by compelling evidence.  The relevant time is the time at which the default judgment was entered; therefore, it is for the defendant to show that he did not have notice of the writ at that time.  Nevertheless, even if there was no effective service, the Court retains a residual discretion to impose terms for setting aside, having regard to the parties’ conduct.  One such term might be to impose a condition that a payment into Court be made (for example where the court considers the defendant intended to evade service, or delayed substantially before applying to Court to set aside the judgment).

15.  However, if the judgment is regular, the Court may set it aside if a meritorious defence can be shown by the defendant.  The defendant must show a real prospect of success, meaning a defence which is one that could well be established at trial, requiring clear and objective evidence casting doubt on the claim.  The power to set aside a regular default judgment is discretionary and unconditional, and the Court should have regard not just to the merits of the defence case put forward, but to all relevant circumstances.  Typically, the circumstances taken into account in the discretionary exercise include: why the default occurred; the defendant’s conduct after he had notice of the proceedings; the explanation for the time taken where there has been delay in making the application; and any prejudice that would be caused to the plaintiff or third parties if the default judgment were to be set aside.

16.  I have noted that the Set Aside Summons identifies on its face that the Default Judgment should be set aside on the sole ground that it is an irregular judgment.  Nevertheless, it seems to me that if I am not satisfied of irregularity, I can within the terms of the application still properly consider the position that flows from a finding that the judgment was entered regularly.  Indeed, both Mr Deng and Mr Ko addressed submissions to the merits of the claim and defence.

D.     Applicable Principles – Service

17.  RHC Order 10 rule 1(1) provides that an alternate mode to personal service of a writ on a defendant can be in the form of service by inserting the writ through the letterbox at the defendant’s usual or last known address.  In this context, the last known address is the address last known to the plaintiff, and it does not matter that the plaintiff could have found a different address for the defendant with further investigation (even if it would have been prudent and advisable to do so).

18.  Nevertheless, it is well-established that the real test as to whether there has been properly effected service is whether the writ has been brought to the attention of the defendant, and not simply whether it has been delivered to his usual or last known address.

19.  Therefore, where a defendant was not living at the address where the writ was served, and it was not brought to the defendant’s notice, service was irregular.

20.  Of course, the writ – or the fact that there is a claim brought by the plaintiff against the defendant – can be brought, or can come, to the attention of the defendant in other ways.  For example, if the defendant is in clear receipt of other documents which make clear, and give sufficient notice of, the fact of the claim commenced by the writ, then (depending on circumstances) it may not matter that the attempted service of the writ itself was not effective.

21.  Further, the requirement for insertion into the letterbox at the usual or last known address is not to be construed unnecessarily narrowly or strictly.  In an appropriate case, documents left on the top of a letterbox can be effective as service: see, for example, Elijah Saatori v Raffles Medical Group (Hong Kong) Ltd (unreported, HCMP 3224/2016, 13 September 2017) at §§29-30, where the Court of Appeal rejected a complaint of non-compliance with Order 65 when affirmations were placed on top of the letterbox and not inserted into it, when there was no dispute that the affirmations had reached the plaintiff and the contents were brought to his attention.

22.  As a final point, it seems to me that Mr Deng is correct that if there was good service on D1, where D1 and CSK were also acting jointly in their capacity as executrices in the administration of the Father’s estate, there was good service on D2.  This is because D1 and CSK are treated in law as a single entity (referred to collectively as D2), and there was no need separately to have served on each of D1 and CSK in order to have effected service on D2.

E.     Chronology

23.  Mr Deng helpfully provided a chronology of service, with other references to some of the evidential materials, either agreed or as put forward by the parties.  Save to correct one typographical error, Mr Ko took no issue with the chronology.  Some of the following matters come from that helpful summary.

24.  Probate was granted to D1 and CSK as executrices named in the Father’s Will.  The Will is dated 18 February 2008, and simply appoints the executrices and bequeaths the entire (net) estate to D1, CSK, and D1’s two daughters in equal shares absolutely.  I take account of the fact that the Will was made in 2008, namely at a time when P says he enjoyed good relations with the Father, yet P does not feature as either an executor nor as a beneficiary.

25.  The Probate was granted on 11 May 2018, and identified both D1 and CSK as residing at G/F, House 35 Tai Shui Hang Tsuen (“House 35”).

26.  The Schedule of Assets and Liabilities dated 27 March 2018, annexed to the grant of Probate, is significant in that it identifies just $1,102.01 cash at bank, and no other assets at all except House 72.  There are no stocks or shares, no household goods, no motor vehicle, no insurance policies, no property held as trustee, no other assets and no liabilities.

27.  P says that when he realised the content of the Will, he instructed his solicitors to write to D1 and CSK.  The letter is dated 14 August 2018 and is addressed to them at House 35 (where they claim to have been living just a short time earlier), but was also copied to G/F House 72 (the only real asset in the estate).  It identified the various claims, including (a) P’s claim to House 72, put forward on the basis that P paid for the entire costs of it, and that it was held on trust for P by the Father; (b) the Missing Rental Payments; and (c) the FF Proceeds.

28.  A second letter was sent on 12 September 2018 reiterating the claims.  That letter was sent to D1 and CSK at House 35, again copied to House 72.  As it is common ground that D1 and CSK removed their personal belongings from House 35 only in September 2018, it seems likely that they would have received the two letters.  They seem to have chosen not to respond.

29.  It is P’s case that D1 and CSK moved into G/F of House 72.  Though that is disputed, they had been granted probate over House 72, and it seems to me to be likely that they were exercising control over that property, including its letterbox.  In other words, they would likely have received the copies of the correspondence sent to that address.

30.  P’s solicitors wrote a further demand letter dated 25 January 2019, addressed to D1 at G/F House 72.  The letter stated that unless P’s demands were met, he would commence proceedings in relation to his intended claim without further notice.  I think it likely that D1 received the letter.  Subsequently, P’s solicitors then wrote on 29 January 2019 to the solicitors (“GYCM”) who had acted for D1 and CSK in relation to the Probate, asking if GYCM had instructions to accept service on behalf of D1.  It is natural to assume that GYCM contacted their client(s), and that seems to be all the more so in circumstances that the claim intimated was against House 72, the very property which was main subject of the grant of Probate.  I note that no evidence has been filed by D1 or D2 to contradict the natural assumption.  Instead, there has been the odd suggestion that GYCM would not file evidence as there might be a conflict of interest (where it seems to me the only conflict as might arise would be if – contrary to what D1 and CSK say – GYCM were to state that they had indeed passed the information and sought instructions).  Anyway, again, there was simply no response to the letters.

31.  It is common ground that in October 2019, the parties’ mother (“Mother”) injured her hip, and upon discharge from hospital on 18 November 2019 moved to stay at G/F House 72.  Though denied by them, it is P’s case that D1 and CSK had moved into G/F House 72 at the latest by that time, and that Mother went there so that they could help care for the Mother.  There is some clear logic to that idea, and the Mother has filed an affirmation confirming that D1 and CSK arranged for her temporarily to move into G/F House 72 to live with them.  She also says that at the time she moved back to House 71 in January 2020, D1 and CSK were still living at G/F House 72 (though they later moved to 2/F and rented out G/F).  It is D1 and CSK’s case that at the time they actually had moved to and were living in 2/F House 110.

32.  The writ was issued on 29 November 2019.

33.  On 3 December 2019 service of the writ, the injunction summons and P’s first affirmation was made at House 72.  Though not made clear in the original affirmation of service, the person serving the document has subsequently clarified that a copy of the writ only, addressed to D1 and CSK in their capacity as D2, was inserted through the letterbox of G/F House 72. But the envelope addressed to D1 alone, containing a separate copy of the writ as well as the injunction summons and P’s affidavit and supporting documents was thicker and would not fit through the letter box, so was left on top of the letterbox directly above the slot for G/F House 72 and leaning against the wall.

34.  It is the Mother’s evidence that a couple of weeks after moving into House 72 she saw D1 and CSK taking out some stack of papers from brown envelopes in the living room.  They flipped through the papers and became agitated, and the Mother heard them say to each other that P was now suing them both, and that even court documents had arrived.  This evidence is denied by D1 and CSK.

35.  On 27 December 2019, the injunction summons was heard leading to the making of the Injunction Order.  The Injunction Order was served by insertion through the letterbox of G/F House 72.  At the time of service, the person serving the document noted that the letterbox had been emptied and that the brown envelope previously placed on top of the letterbox had been removed.  The photographic evidence produced shows that there was room for a large envelope or small parcel to be placed on top of the letterbox, and that if it had fallen off it would have fallen onto the ground very near to the letterboxes and close to the entrance door next to which is the number “72”. There is no evidence of something left lying nearby at the time.

36.  The Injunction Order was also served on all banks which, according to P’s knowledge, held accounts in the name of D1, putting them on notice of the Injunction Order and requesting all accounts or banking facilities maintained by D1 (whether in her own name or in joint names) to be frozen until further order of the Court.

37.  In the evidence is a significant email sent by P to his solicitor on 6 January 2020. In it, P was checking whether service of the Injunction Order had been made “without a problem”.  Amongst other things, P told his solicitor that his presence would not have been of any aid when effecting service as D1 was unlikely to open her front door to him, indicating the perceived “problem” was that D1 might wish to evade service.  He also stated in the email “She [D1] already knew her account was freeze and the summons was received by her as related to me by my mother (4th December)” (sic).  This email contemporaneously corroborates what the Mother has subsequently described in her affirmation.

38.  It also seems to me to be unlikely that D1 was never contacted by any bank to explain why her account was frozen, and/or that she never enquired of any bank why her account was frozen.  Indeed, in her first affirmation, D1 expressly (though perhaps inadvertently) stated that the Injunction Order, which restrained her “from using such a large sum of money amounting to HK$3,271,500”, had “created extreme difficulty and inconvenience” for her to support the lives of herself and her daughters.

39.  On 20 January 2020, service was effected of the unless order summons, the statement of claim (“SOC”), the affidavit in support, and the hearing bundle.  The person making service effected service by inserting an envelope containing the summons, the SOC and the affidavit through the letterbox of G/F House 72, and effected service of the hearing bundle by placing it on top of the letterbox as previously.

40.  On 23 January 2020, I made the Unless Order.  Copies of the Unless Order were also sent to the banks.

41.  In July 2020, D1 and CSK moved to the 2/F and roof top of House 72. They say they moved from House 110.  P says they moved up from G/F House 72. G/F House 72 was subsequently let to a tenant from September 2020.

42.  The default judgment summons dated 6 August 2020 was served on D1 and D2 by ordinary post.  The relevant envelopes were quite thin, and the person posting them states his belief that the postman would have inserted them through the letterbox of G/F House 72.  In any event, it has been admitted that the default judgment summons was received, though D1 says she picked up the hearing bundle for the Injunction Order application and the default judgment summons on the public road outside House 72, and that she did so out of pure luck.

43.  D1 produced as an exhibit a photograph of the hearing bundle, which shows it to be in apparently pristine condition, with the solicitors’ compliment slip dated 20 January 2020 still stapled to the front of the lever arch file.  The idea that the file had been outside from January to August 2020, on a public road, until it was supposedly stumbled across by D1, yet remained in such good condition, seems to me to be highly unlikely.  It also seems to me to be unlikely that that lever arch file would happened to have been on the road next to or near the separate envelope containing the default judgment summons, delivered nearly 7 months later, yet which D1 claims to have discovered by chance at the same time.

44.  The directions given that the default judgment application be dealt with on written submissions and by way of paper disposal were posted to D1 and D2 at House 72 by the Court on about 24 August 2020.  Subsequently, P’s solicitors attempted to serve P’s skeleton submissions and authorities by ordinary parcel post.  A tracking system showed that an unsuccessful attempt to deliver was made on 23 September 2020, but the understanding was that a collection card would have been inserted into the mailbox identifying the parcel as available for collection at the local post office within 14 days. No one collected the parcel, which was eventually returned to P’s solicitors.

45.  On 5 October 2020, I gave the Default Judgment.  On 21 October 2020, P’s solicitors wrote to GYCM urging that there be compliance with the orders made.

46.  However, I also note that even before that letter was sent GYCM notified P’s solicitors that they had come on the record to act for D1 and D2 in this action, and had written to the Registrar of the High Court authorising their clerk to conduct a search of the Court file.  It seems to me to be noteworthy that it was GYCM that have been acting for D1 and D2, being the same solicitors to which P’s solicitors wrote the letter before action.

47.  Still, it was only on 13 November 2020 that the Set Aside Summons was taken out with the first affirmations of D1 and CSK filed in support.

F.     Regular or Irregular Judgment

48.  Both Mr Ko and Mr Deng agree that the crux of the argument surrounded whether service was properly effected or not, the focus on being whether Ds received notice of the existence of the claim against them.

49.  On the basis of the matters canvassed in Section E above, I am satisfied that notice of existence of the claim was indeed brought to the attention of D1 and CSK.  I accept the evidence that they received the Writ, as well as the injunction application materials, in December 2019 as described by the Mother, and as contemporaneously recorded in the email sent by the plaintiff to his solicitor shortly thereafter (where I do not think there was any reason then to have fabricated the relevant point).  Further, where D1 and CSK (even on their own case) lived throughout the material time within a few minutes of House 72, and had unimpeded access to House 72 and its letterboxes under their control and responsibility, I think there is no reason why they would not have checked the mailboxes and would not have found the various documents served.

50.  I also take into account that after Ds say they moved into 2/F House 72 in July 2020, G/F House 72 was let out in September 2020.  When preparing the premises for a tenant, it is more likely than not that the mailbox would have been emptied.  Further, when the skeleton submissions for the Default Judgment summons were posted after Ds had moved into part of House 72, it is unrealistic to think that the tenant would not have informed his or her landlord (living upstairs) of the receipt of legal documents.

51.  I have also taken into account the various utility bills produced by D1/CSK in the attempt to demonstrate that they were not resident at House 72 at the time of service.  Against the fact that they had control and responsibility over House 72 at all material times, precisely where they resided may not be so important if the focus is on whether notice of the claim against them was actually received.  But in any event the relevant utility bills for G/F House 72 at the relevant times, which would be the most obvious bills to have produced to show who was in residence at those times, have not been produced.  Further, even if not residing there, Ds were clearly responsible for the payment of the supply of utilities to that property, and would likely have checked the mailbox for the utility bills (and would have found any other mail at the same time).  The appropriate adverse inference to be drawn from the absence of what seem to me to be the most relevant utility bills is, to my mind, obvious.

52.  Further, it is in any event not in dispute that by August 2020 Ds had notice of the proceedings, and the looming application for default judgment, before the application was heard.  Therefore, at least by the material time of the hearing of the application (even though dealt with by way of paper disposal) the relevant notice had been received.

53.  Though strictly it may not matter, I also do not accept the reasons put forward by D1 and CSK for not reacting sooner after August 2020.  The excuse put forward to explain why no legal advice was sought until October 2020 is fear of the Covid-19 pandemic and a desire not to go out at all, but even if that were true it cannot explain the failure to have sought legal advice for example by telephone, email or any other of the technical possibilities readily available.  I accept Mr Deng’s submission that there was no need for D1, contrary to her suggestion, to start looking the lawyers.  The obvious lawyer to contact was the lawyer dealing with the estate comprising House 72, the subject of the claim.  Indeed, that is the firm who was subsequently contacted and which now acts as solicitor on the record.  I also note that the service of the original documentation in December and January 2020 was before the relevant public health concerns arose in Hong Kong.

54.  On that basis, it seems to me to be sufficiently clear that the judgment was entered regularly.  Indeed, I accept the force in Mr Deng’s submission that Ds have in fact been actively avoiding service, or engagement with proceedings of which they were fully aware.

55.  As the Default Judgment is regular, it is necessary for Ds to demonstrate a real prospect of success, meaning a defence that could well be established at trial.

G.     Merits

56.  What D1 says are the merits of the proposed defence have been set out by her in her affirmation evidence.  Mr Ko highlighted several aspects of that evidence.

57.  First, by reference to the original Chinese takeaway business in England, it was owned solely by the Father, and the children really helped out as employees earning monthly salaries.  When P started working as a full-time counter cashier at the business in 1987, he was about 17 years old and had just dropped out of college.  So, it is submitted, it was impossible for P to have had any capital to start and invest in the business in cooperation with the Father.  Further, all the children were involved in assisting on a monthly salaried basis.  It is also to be noted that P was not the only son, and was not the elder son.  So, if it is true (as P claims) that the Father was a traditional man, it would be expected that the traditional approach would not have involved asking only P to join as a business partner and share profits, without asking the elder son to do so as well.

58.  Further, the basis for the alleged accumulation by P in his sole name accounts of between HK$3.5 million and HK$4.5 million through profit and sale proceeds of the business are submitted to be contradictory to other aspects of the evidence.  P asserts he and £2,000-£3,000 a month, and would share one third of the profits.  If both were true he would be earning almost £60,000 a year, whilst the Father would be taking only about £46,666 per year – less than the son and alleged junior partner.  Instead, it is said that the Father opened various bank accounts in Hong Kong in his sole name, in the sole name of P and in the joint names of himself and P for the purpose of transferring the profits on money made by the Father back to Hong Kong, in order to reduce the risks of having the business investigated by tax authorities.  Monies held by P were held as a trustee of the Father.

59.  As to the FF Shops, the main point made is that the property was held 100% by the Father, and there is no real evidence that there was either a common understanding that he would be entitled to 50% beneficial ownership or that the Father would hold a share on trust for P, whether as a gift or otherwise. It was in any event implausible for P, who was only 23 years old in 1993, to have accumulated and contributed such a large sum of money to purchase the FF Shops.  The submission is that the documentary evidence is not sufficient to support P’s case, not least because the banking book evidence does not identify the transferee of the purpose of any transfer.  It is also submitted that it makes no sense for the Father to be the sole owner of the FF Shops if P had truly invested such a huge sum of money in the purchase.  Naming both P and the Father as joint owners would not in any way have prevented the Father from managing the FF Shops.

60.  Mr Ko also submitted that there is no solid or cogent evidence provided by P to support the fact that the sales proceeds of the FF Shops, that is the FF Proceeds, have been used to purchase the TSH Shop. Further, even were that true, without proof of the interest in the FF Shops, no interest can be proved in the TSH Shop.  The high evidential burden for establishing a common intention is not met in light of the matter is now placed before the court.

61.  As to the construction and allocation of the village houses, there were three such houses not two, namely Houses 70, 71 and 72.  Mr Ko made reference to the various mismatches of transferred sums and further transfers and payments, as well as certain chronological inconsistencies.  He also pointed out that when it was demonstrated that the amounts P claimed himself to have transferred to the Father did not match with the total construction costs of the two houses, the difference was described as the cost of furnishings, though not supported by any contemporaneous documents.

62.  Reference is also made to the fact that the three houses were intended to be dealt with as follows.  Houses 70 and 71 would be given to the elder brother and P, and so were registered under their respective names.  However, the Father would retain House 72 for himself during his lifetime, with the beneficial interest to be transferred to the daughters and D1’s daughters in equal shares after he passed away, so it was held in the Father’s sole name. The fact that the Will was made by the Father in 2008, appointing D1 and CSK as executrices and leaving House 72 to D1, CSK and the daughters in equal shares absolutely supports that fact.

63.  As to the alleged Missing Rental Income, Mr Ko submitted on the evidence that the rental income for House 71 was in fact paid into the HSB Joint Account, and the withdrawals from that account were the rental income generated by House 72.  The Father subsequently took HK$2.3 million out of the HSB Joint Account and transferred it to his joint account with D1. It is said that as he was the legal and beneficial owner of House 72, he was entitled to have done so.

64.  In response, Mr Deng submitted that P’s evidence was clearly set out in his first affirmation, and the material was analysed by reference to the pleadings in the Default Judgment as regards House 72 (where it was deemed that the issues in relation to the FF Proceeds or the Unauthorised Withdrawals and Missing Rental Income were more suitable for trial in any event).  Mr Deng pointed out that Ds had had more than six months from October 2020 to provide evidence in reply to P’s evidence covering the matter of the source of funds, but had failed to do so despite (a) being the executrices of the Father’s estate and (b) being subject to three separate court orders to give disclosure of the source of funds of the Father to support their defence.

65.  As regards the two main thrusts of Ds’ proposed defence – namely (1) the Father funded the entirety of acquisition and construction of three houses, evidenced by a series of payments made by the Father from his personal account to the contractor, and (2) the Father intended to assign House 72 to his two daughters, having left the other two houses to his two sons already – Mr Deng made the following broad submissions.  First, he submitted that Ds had not denied the transfer of funds from P to the Father, while simply offering a reason for the transfer amounting to no more than a bare assertion. Secondly, Ds had omitted to address the fact that P has provided concrete evidence that the acquisition and construction of House 72 came from his bank accounts, where he was able to identify specific transfers with amounts and dates, reflecting individual elements of the construction and the identification of the particular funds used for particular purposes.

66.  Mr Deng also pointed to the incongruity of the existence of the Joint Rental Account setup by P and the Father for the purpose of collecting rent generated from leasing House 72 with the idea that House 72 was intended to be for Ds.  He also submitted that Ds had not suggested that there was no detrimental reliance by P on his alleged common intention, or no unconscionability for the Father to depart from such intention.  Hence the submission that the line of defence lacks a real prospect of success.

67.  As to the other matters – which Mr Deng submitted do not really arise on the current argument – he submitted as follows.  On the basis that Ds admit that P was the legal and beneficial owner of House 71, it is insufficient to assert that the part of the Missing Rental Income which is comprised of the rental income from House 71 has been paid into the Joint Rental Account, without addressing the whereabouts of the specific amounts P says is missing.  Further, Ds’ assertion of the existence of an agreement between P and the Father for repayment of construction costs by way of assignment of rental income generated from one flat of House 71 ignores that neither of them were party or privy to any such agreement, which in any event is firmly denied by P.  In addition, the rental income from all three flats at House 71 was deposited into the Joint Rental Account, which is telling.  Indeed, when rental income from leasing all three houses was deposited into the one account, the monies were mixed and the Unauthorised Withdrawals cannot be solely generated by the income from House 72.  Yet further, Ds appear to accept that some withdrawals were actually unauthorised, but say that they were made by the Father while still alive, not by them.

68.  I have also kept in mind that the fact that the Father is the sole named owner of House 72 may not be particularly strong evidence as to the true beneficial ownership, when it is remembered that each of Houses 70, 71 and 72 were built under the ‘small house’ policy, so that the named owners of each house were likely necessarily one single male family member.  The position may be different in relation to the sole ownership of the FF Shops.

69.  I have also taken into account that I do not see great merit in the limitation defence and the joint tenancy defence put forward by Mr Ko in submission (though I do not make any finding on either point).  As to the evidence/argument of P, I have set that out in my earlier Default Judgment, where I also canvassed the applicable legal principles relevant to the claim.

70.  Nevertheless, looking at matters overall – including in particular in the context that I have required significant issues to go to a trial in any event – I am satisfied that sufficient merit has been demonstrated that I should set aside the Default Judgment.  There is at least a potentially important overlap between the issues surrounding the true beneficial ownership of House 72 and those matters which will be appropriately investigated in the interlocutory steps towards and at a trial of the other issues, and sufficient matters have been raised overall to warrant the entirety of matter being dealt with on a proper interlocutory and trial basis.

71.  However, in the broad exercise of my discretion to set aside the Default Judgment, it seems to me that fairness and justice necessarily require the setting aside to be conditional upon proper compliance with previous court orders.  I again take into account the absence of any real explanation as to why the Unless Order has not been complied with or why it is not capable of being complied with.

H.     Injunction Order and Unless Order

72.  On the approach I take below, the Hadkinson point does not need to come into play here.

73.  First, I am satisfied that the Injunction Order should in any event remain in place.  Though I have set aside the Default Judgment, there is (on the competing factual cases on the totality of the evidence) clearly at least a serious issue to be tried on P’s claim.  The balance of convenience is in favour of the grant of the injunction, and I think it is just and convenient to grant and continue the injunction.  The particular injunction granted relates to a specific asset held by or under control of Ds, or the traceable proceeds, in respect of which a proprietary claim is made by P.

74.  Secondly, the disclosure of information and documentation required under the Injunction Order is directly relevant and necessary.  Not least when the matter is now going to a trial on all issues, that disclosure will be required in any event.  But, I see no reason why it should be – and many reasons why it should not be – delayed to await an ordinary interlocutory discovery exercise.

75.  I will nevertheless extend the time for compliance with the Unless Order (in particular paragraph 2) until 9 July 2021.

76.  Should there be continued non-compliance after that date, and in addition to the consequence specified in the Unless Order, I grant leave to P to apply as to what further consequences should flow from the failure to comply with the Unless Order within the extended time, where I have made such compliance a condition of the setting aside of the Default Judgment.

I.     Residual Discretion

77.  Had it been necessary to say so, I would point out that even if I were satisfied that the Default Judgment had been entered irregularly, I would in the overall circumstances have chosen to exercise the residual discretion to impose terms for setting aside.  The terms that I would have imposed are the same as those which I have imposed.

J.     Costs

78.  The application to set aside the Default Judgment on the basis that it was irregular has failed.  Further, it seems to me that the setting aside of the regular Default Judgment can properly be seen in the circumstances I have outlined as something of a significant indulgence.  Indeed, I have also made the order conditional on compliance with previous orders.  That also means that I have refused to discharge or vary the Injunction Order or to discharge the Unless Order (though I have extended time for compliance with it).  The Set Aside Summons is also a stand-alone application.

79.  Those are all circumstances which indicate to me that the appropriate costs order on the Set Aside Summons to be made in the exercise of my discretion is for Ds to pay P’s costs of and occasioned by the Set Aside Summons forthwith, to be summarily assessed.  However, as I have not yet heard argument on costs, I shall make that order on a nisi basis.  The nisi order will become absolute unless either party makes an application for variation of it within 14 days.  If such an application is made, I will deal with it and any possible summary assessment of costs by way of paper disposal.

HCA 2218/2019

[2020] HKCFI 2551

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2218 OF 2019

________________________

________________________

________________________

J U D G M E N T

________________________

A. Introduction

1.  By summons dated 6 August 2020 (“Summons”), the plaintiff seeks judgment in default in relation to various claims for declaratory relief and liquidated sums as set out in the Statement of Claim dated 20 January 2020.  The application is made pursuant to RHC Order 19 rule 7.  The relevant default is that neither of the defendants has filed an Acknowledgement of Service giving notice of intention to defend, nor any Defence.

2.  On 3 September 2020, I gave directions for this application to be dealt with by way of paper disposal, in accordance with a timetable for exchange and filing of written submissions which I set.  Mr Earl Deng, Counsel for the plaintiff, has filed submissions dated 21 September 2020.  Neither of the defendants has filed any submission within the time permitted, nor sought any extension of time to do so, though in light of the nature of this application that is perhaps not surprising.

3.  The plaintiff has twin sisters.  One sister is the 1^st defendant (“D1”), and both sisters together are the 2^nd defendant (“D2”) as the executrices of the estate of their father Cheung Hung Kwong, deceased (“Father”).

4.  The claim pleaded in the SOC can be grouped into three distinct parts:

(1)  Ownership of the landed property known as No. 72 Tai Shui Hang, Shatin, New Territories on Lot No. 935 in Demarcation District No. 196 (“House 72”);

(2)  The liquidated sum of $3,521,100, comprised of

(a)  $2,300,000 of alleged unauthorized withdrawals (“Unauthorized Withdrawals”) by the Father in favour of D1 from the joint account Hang Seng Bank No. 259-3-076181 held in the names of the plaintiff and the Father (“Joint Rental Account”) and

(b)  $1,221,100 of alleged missing rental income (“Missing Rental Income”) not paid into the Joint Rental Account from leasing House 71 and House 72;

(3)  Proceeds (“FF Proceeds”) from the sale of Shops 54 and 55 at 1/F, Fu Fai Gardens, Shatin, New Territories (“FF Shops”) in the amount of $2,257,105 representing the sum of money the plaintiff paid to the Father to acquire jointly the FF Shops, which the Father allegedly sold without authorization and which proceeds were applied to acquire the shop at G/F, 93 Tai Shui Hang, Shatin, New Territories (“TSH Shop”) in the joint names of the Father and D1 as joint tenants.

5.  The matter has previously come to court on the inter partes application for injunctive relief.  I gave an injunction restraining D1 from disposing of the property and funds the subject matter of the action, and made ancillary orders for D1 to file and serve an affirmation in relation to the whereabouts of some of those funds.  D1 is in breach of that requirement, and the subsequent unless order that if she did not provide the discovery she should pay $600,000 into court.

B.  Background Facts

6.  Mr Deng relies upon the following general background matters, which are pleaded, as being relevant to all three areas of the claim.  Unless the context otherwise makes clear, references in brackets to paragraph numbers are to the material numbered paragraphs of the SOC.

7.  In around 1992, the plaintiff and the Father sold their father-and-son Chinese takeaway business in the UK (which they had been operating since around 1987), so as to return with the entire family to Hong Kong.  This was because the plaintiff’s mother had a terminal illness, and the Father retired to care for the mother (§§3-4).

8.  At the time of his return to Hong Kong, the plaintiff had approximately $4.5 million from the proceeds of sale of the business, his personal savings, a cash gift from his grandfather after selling land, and profits made from currency speculation (§5).

9.  In 1993, the plaintiff and the Father jointly purchased the FF Shops.  Shop 54 and Shop 55 were purchased by assignments in June and July 1993, for the consideration of $2,500,000 and $1,970,000 respectively.  The plaintiff contributed a sum of at least $2,351,694, based on a series of transactions between 27 May 1993 and 1 July 1993, the details of which are particularized in the SOC by reference to dates, amounts, and currency (§§9-11).

10.  In the period 1995 to 1997, the plaintiff paid a total of $2,544,780 from his personal bank accounts to acquire the land and fund the construction of two houses under the Government Small House Policy for indigenous villages.  The houses as constructed became House 71 and House 72 (together “Houses”).  House 71 was put in the plaintiff’s name and House 72 was put in the name of the Father.  But, they reached a common understanding that all rental income was to be deposited into a joint account in the plaintiff’s and the Father’s names, and that the rental income belonged to the plaintiff, except that the Father was entitled to take the equivalent of two rental units’ worth of rental income forces and the mother’s maintenance only (§§13-14).

11.  The plaintiff suffered a depressive illness, although undiagnosed for some period, with various consequent physical ailments between 2008 and 2015.  As a result, the plaintiff left management of the Houses to the Father, who would regularly until end 2017 assure the plaintiff that everything was taken care of and everything would be left to him (§17).

12.  The Father passed away on 8 March 2018 (§19).  The twin sisters obtained a grant of probate on a testamentary document dated 18 February 2008, said to be the Father’s last will and testament (“Will”), which simply provided that all of his property (including House 72) would be bequeathed to the twin daughters (§21).  When the plaintiff began to investigate the Father’s conduct and transactions, he discovered in May 2018 that the Father had sold the FF Shops and acquired the TSH Shop shortly thereafter, and also found a series of unauthorized withdrawals and missing rental income inferred from the various tenancy agreements (§§21-22).

13.  From the above, it can be seen that the plaintiff essentially relies upon a common intention constructive trust (“CICT”) as the foundation for his claim, or alternatively a resulting trust, and the ability to trace.

14.  Also relevant to the various claims are the pleaded facts relating to D1’s knowledge of the financial affairs between the plaintiff and the Father; that the TSH Shop was purchased free of mortgage specifically for the purpose of helping D1 start a business; that the Father had ceased working since 1992 and had no other source of income; that D1 was at all material times unemployed since 2003/2004 and did not have her own source of funds to contribute; the same solicitors assisting with the conveyancing also prepared and drew up the Will; the FF Shops appear to have been sold at an undervalue (§28).

C.  Applicable Principles

C.1  Common Intention Constructive Trusts

15.  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: see, for example, Luo Xing Juan Angela v Estate of Hui Shui See Willy, deceased [2009] 12 HKCFAR 1 at §38.

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.

17.  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.

18.  Common intention can be expressed or implied. It can be deduced or inferred objectively from the parties’ conduct.  As a matter of common sense, it is easier to infer such an intention prior to the acquisition of property which results in an obvious change in legal ownership (rather than after such an acquisition where there is no change in legal ownership and a change in beneficial ownership is not otherwise apparent).

C.2  Constructive Trust in relation to Joint Bank Account

19.  Where a sum of money belonging to one person is paid into a joint bank account, there is a presumption that the owner of that money does not make a gift of it to the account holder and accordingly the money is held on a resulting trust for the provider.  The presumption will be rebutted if the circumstances give rise to a presumption of advancement, or by evidence that the owner intended to transfer the beneficial interest to the account holders jointly, or as the case may be to the other account holder solely.  Further, it is for the trustee to give an account of his dealings and to establish that all withdrawals and payments were made with the consent of the other party: see, for example, Northall v Northall [2010] EWHC 1448 (Ch) at §8.

20.  In Hong Kong it has been held that the general principle is that beneficial entitlement of funds in a joint account is to be determined by the common intention of the account holders: see Nanyang Commercial Bank Ltd v Personal Representative of Vannee Nativitat [2013] 2 HKLRD 749 at §29.  As was their pointed out, the parties’ intention overrides the survivorship clause, which is just a contractual arrangement between the bank and the joint account holders as to how to deal with the money in the joint account.  In drawing inferences of common intention, greater weight is to be given to the source of the funds in the joint account and the presumption of resulting trust in favour of the joint account holder who provided the funds than to the survivorship clause.

C.3  Dishonest Assistance/Knowing Receipt

21.  It is established that there are four requirements that need to be proved to show a case of dishonest assistance. They are: (1) breach of trust or fiduciary duty by someone other than the defendant; (2) the defendant’s assistance; (3) dishonesty; and (4) resulting loss: see, for example, Hui Cheung Fai v Daiwa Development Limited (unreported, HCA 1734/2009, 8 April 2014, DHCJ Eugene Fung SC) at §130, quoting Grupo Torras SA v Al-Sabah [1999] CLC 1469 at 1664A-B.

22.  Dishonesty is an objective standard.  The court applies the normally acceptable standards of honest conduct in determining whether the accessory is dishonest, and it is not necessary that the accessory considers that he is acting dishonestly.  But, the court does take into account the circumstances known to the accessory at the time he acted, his personal attributes such as his experience and intelligence, and the reason why he acted as he did.

23.  The requisite state of mind for knowing receipt is whether there was trust property received in the circumstances where there was unconscionability on the part of the recipient of such trust property: see Thanakharn Kasokorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) (2010) 13 HKCFAR 479 at §134.

C.4  Unjust Enrichment

24.  The constituent elements for unjust enrichment were considered by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at §§66-68.

25.  The Court approved a useful framework for approaching such claims as involving asking four questions: (1) was the defendant enriched? (2) was the enrichment at the plaintiff’s expense? (3) was the enrichment unjust? and (4) are any defences applicable?

C.5  Tracing of Proceeds

26.  It is trite that where property is obtained by breach of fiduciary duty, equity imposes a constructive trust on the recipient so that the property is recoverable and traceable in equity.

27.  In order to succeed in tracing his funds, the plaintiff must establish a clear link between his funds and the asset or money into which he seeks to trace.  The proprietary claim is not lost simply because the wrongdoer has mixed such funds with his own funds, and the onus is on the wrongdoer to establish that part of the mixed fund, and which part of the mixed fund, is his own property.

28.  Tracing is the process of identifying a new asset as the substitute for the old.  But, it would not be accurate to speak of tracing one asset into another; rather the claimant traces the new asset because it was acquired in whole or in part with the original asset.  What is traced is not the physical asset itself, but the value inherent in it: see Foskett v Mc Keown [2001] 1 AC 102 at 127-128.

C.6  Default Judgment

29.  As stated, the present application is made under Order 19 rule 7(1), because it in parts seeks declaratory relief.  The principles applicable on such applications are well-settled.

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.

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 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.

35.  Mr Deng submits that the present case is closer to the circumstances of the Kan case.

D.  House 72

36.  As before, references in brackets to paragraph numbers are to the material numbered paragraphs of the SOC.

37.  The SOC pleads that in 1995 the plaintiff and the Father came to a common understanding relating to the construction and use of two Small Houses (“SH Common Intention”).  Under the SH Common Intention, the plaintiff would pay for the acquisition of land and construction of the Houses on the land; each house would be subdivided into three individual flats, which if they can be rented out would generate income for both the plaintiff and the Father; the rental income was to be deposited into a joint account in the name of both the plaintiff and the Father; the Father would supervise the construction of the Houses as he was retired; and all rental income from both Houses deposited into the joint account belonged to the plaintiff, but the Father would be entitled to withdraw up to 2 rental units’ worth of rental income for the Father and mother’s maintenance (§13).

38.  A total of $2,544,780 was paid by the plaintiff out of his personal account to acquire the lands and to fund construction of the two Houses, each with identical layout and finish.  The detail of the payments, and the various costs are pleaded (§§14-15).

39.  I think it can be noted that the pleading in the SOC does not say in terms – at least not at §§13-15 – that it was part of the SH Common Intention that the plaintiff was to be the beneficial owner of House 72.  But, I accept that the pleading as a whole – including at §§31-32 – makes that point clear.  Despite that, and pursuant to the Will, the plaintiff has now been deprived of both legal and beneficial interest to House 72.

40.  Mr Deng submits that that was a breach of the SH Common Intention and/or the presumption of resulting trust.  As to the former, Mr Deng submits the following facts give rise to the claim of CICT:

(1)  First, the common intention that the plaintiff would be the beneficial owner of House 72 is clear on the pleaded case that the plaintiff paid the entire amount needed to buy the land and construct houses, and that the rental income was to be deposited into a joint account, from which the Father was entitled to withdraw only a fixed sum.

(2)  Secondly, there was detrimental reliance, as the plaintiff relied on the common intention and paid from his own personal accounts the entire sum of $2,544,780 to buy the land and construct the houses.

(3)  Thirdly, it is unconscionable for the Father to depart from that intention.  The Father did not contribute at all to the buying of land and construction, and the monies were never intended to be a gift, nor is there any presumption of advancement from son to father as a matter of law.

41.  As to the alternative claim of resulting trust, Mr Deng submits there is the trite presumption that the parties intended for there to be a trust resulting from financial contributions, where there is no evidence of a contrary intention of the transferor at the time of the transfer.  In this case, the only relevant evidence which might rebut the presumption would be that the plaintiff intended to gift House 72 to the Father.  But that does not arise on the pleaded facts.

42.  Mr Deng further submits that this is a strong and obvious case, not least because of the specific detail and particulars of the basis upon which the plaintiff made the financial contributions to acquire the land and construct the two Houses.  Those details plead the bank account numbers from which transfers were made by the plaintiff to the Father, and the amount and date of each transfer.  Those details are pleaded to have been extracted from existing and retrieved documentary records, including as to the individual elements for construction of the Houses.  Hence, the pleading identifies particular funds used for particular purposes, giving rise to the resulting trust or supporting the existence of the SH Common Intention, and the detrimental reliance on it.

43.  As to the genuine need for relief, Mr Deng submits that:

(1)  Although there is no acknowledgement of service from either defendant, the various affirmations of service identify that both sisters live in House 72, next door to where the plaintiff lives at House 71.

(2)  There is an outstanding disclosure order, and unless order, against D1.

(3)  The relevant evidence has been filed in support of the interlocutory injunction application, and so is before the court.  Even if looking only at the pleading, the plaintiff has specifically pleaded that the particulars of payments were retrieved from documentary records that have been retrieved.

(4)  It would be an unnecessary use of Court time, and a waste of expenses, to order a trial.

(5)  The relief sought is proprietary relief, and there is no suggestion that any third-party interests apart from the Estate would be affected.  Nor is there any indication from the Estate (whose executors’ – D2’s – non-appearance is in breach of their fiduciary duties) that there are any creditors or persons other than the parties to these proceedings who would be affected by the proprietary relief sought.

(6)  The plaintiff is a victim of a long-term fraud by his sisters, who took advantage of his illness to strip him essentially of his property and life savings.

(7)  Each day without relief, the plaintiff is unable to recover his property, and unable to recover rental income or derive fruits from his property rights.  He is, therefore, severely prejudiced.

44.  I accept that, on the pleaded case in the SOC, the plaintiff might be entitled to the relief sought by the Summons in relation to House 72.  The case seems to me to be strong, and I accept that there is a genuine need for relief, and that justice would not be done if the relief were denied to the plaintiff.  I also agree that, absent any attempt to contest the proceedings and where significant (if not all) relevant evidence has been filed, there is no benefit or purpose in requiring the claim relating to House 72 to go through the interlocutory process to a trial.

E.  The Unauthorized Withdrawals and Missing Rental Income

45.  The pleaded case in the SOC is that the plaintiff is the legal and beneficial owner of House 71 and the beneficial owner of House 72 (§31).  It is also pleaded that, as a result, the plaintiff is entitled to all rental income generated from the Houses, subject to the Father’s entitlement to draw up to 2 rental units’ worth of rental income (or around $30,000 per month by 2018), defined as the “Authorized Amount” (§33(2)).

46.  The Joint Rental Account from which the alleged Unauthorized Withdrawals were made, in the total of $2,300,000 from four separate occasions, are pleaded in specific detail (§36).  The Unauthorized Withdrawals were wrongful and in breach of the Father’s fiduciary duties owed to the plaintiff (§34) because they were made on top of and in addition to the Authorized Amount withdrawals, and there was no valid or reasonable explanation to withdraw the sums in such amounts and such frequency to benefit D1, who provided no consideration for those sums (§37).  Particulars of D1’s knowing receipt are pleaded (§38).  Particulars of the Missing Rental Income are set out, the calculations being made and cross-checked by comparison with tenancy agreements and the monies missing from the Rental Joint Account (§41). Particulars of D1’s knowing receipt of those sums, and her involvement in collecting rent but failing to deposit it into the Rental Joint Account are provided (§43).

47.  Mr Deng submits that those pleaded facts support the causes of action relied upon to substantiate the plaintiff’s claims regarding the Unauthorized Withdrawals and the Missing Rental Income, being breach of trust against the Father, giving rise to a constructive trust for which D2 as the Estate is liable, knowing receipt by D1, and the unjust enrichment of D1.

48.  I accept there is a strong case on the pleaded facts that, as the beneficial owner of both House 71 and House 72, the rental income generated from the tenancy agreements for those Houses also belonged to the plaintiff (except for the withdrawal of the Authorized Amount).  I am also satisfied that the pleaded facts establish the claim to dishonest assistance and knowing receipt, as well as unjust enrichment.  The specific details of the Unauthorised Withdrawals and knowing receipt have been pleaded (§§36, 38), as have the specific details of the basis on calculation of the Missing Rental Income and knowing receipt (§§41, 43, 45).

49.  The two relevant sums pleaded in the SOC have been combined in the Summons, whereby the plaintiff seeks a liquidated sum totalling $3,521,100.  Relying on Tian Yao (Xiamen) Property Development Co Ltd v Right Margin Ltd [2016] 2 HKLRD 175 at §17, Mr Deng submits that the plaintiff’s claim for the sum is to a liquidated sum, even though it is reached through a series of arithmetical calculations from various sources.  So, he says it amounts to a liquidated claim for the purpose of Order 19 rule 2.

50.  I disagree.  In that paragraph of the Right Margin case, Barma JA referred specifically to the notes in the White Book at §6/2/4 which identify that a liquidated demand is in the nature of the debt, i.e. a specific sum of money due and payable under or by virtue of a contract.  Its amount must either be already ascertained, or capable of being ascertained as a mere matter of arithmetic.  I do not think the claimed sum totalling $3,521,100 is a claim for a liquidated demand within Order 19 rule 2.  Clearly, it is not a claim in the nature of a debt in the form of a specific sum of money due and payable under or by virtue of a contract.  The amount claimed is not calculable by reference to arithmetic applied pursuant to any contract.  Further, a debt or liquidated demand does not extend, for the purposes of the rule, to unliquidated damages, whether in tort or in contract, even if the amount of such damages been named at a definite figure.

51.  Indeed, I note that the pleaded consequences of the various breaches alleged in the SOC include that the plaintiff is entitled to: (a) an account of each of the Unauthorised Withdrawals and the Missing Rental Income; (b) restitution of each of the sums of $2,300,000 and $1,221,100; or (c) damages in lieu of restitution in the total sum of $3,521,100 (§46).  Further, in the prayer (g) to the SOC, the plaintiff asked for an order against each of the defendants for inspection and delivery up of their banking statements, records and documents, and all necessary accounts and enquiry for all profits, income and other interest derived from and/or received by them in relation to the Unauthorized Withdrawals and the Missing Rental Income, to enable the plaintiff to trace them and/or their traceable fruits (if any).  Prayers (h) and (i) seek damages for breach of fiduciary duties and/or for monies had received, and an order for payment out of all sums found due on the taking of the enquiry or account.  Those are not pleadings making a liquidated demand.

52.  The Summons simply seeks an order that D1 and D2 pay the plaintiff the sum of $3,521,100, on the basis that it is a liquidated demand.  In the circumstances that I do not think it is a claim for a liquidated demand, I decline to give default judgment in relation to that sum. No alternative form of judgment in default has been sought by the Summons, and though it might be thought that an account could be ordered, that is only one of various alternate forms of relief sought and that might be ordered if appropriate.  Which remedy is apt seems to me a matter for trial.

F.  The FF Proceeds

53.  As to the FF Shops, the pleaded facts giving rise to the resulting trust include that the common understanding between the plaintiff and the Father would be that, though the property would be held in the Father’s name, they would each contribute 50% of the purchase price and own the property in equal shares.  Therefore, the Father was to hold 50% on trust for the plaintiff, and the plaintiff’s share of rental income was to be applied to the Father and mother’s maintenance (§§7-8).

54.  The detail of the assignments by which the two Shops were purchased are pleaded (§§9-10), as are the particulars of the contributions by a series of transfers from the plaintiff’s personal account to the Father totalling $2,341,694, made in reliance on the agreement (§11).  It is specifically pleaded that the plaintiff’s contributions were not intended as a gift to the Father (§23).

55.  The plaintiff pleads that in late 2009 or early 2010 (and without the plaintiff’s knowledge, consent or authorization) the Father sold the FF Shops for $3,800,000 – a commercially inexplicable paper loss of $670,000 (when the shops were almost immediately sub-sold at the total of $4,370,000) (§24).  The proceeds were then applied in acquisition of the TSH Shop, purchased for $4,780,000 without a mortgage, with the Father and D1 as joint tenants, and which D1 thereafter used for operating a restaurant business and/or leasing to unknown third parties (§25).

56.  On that basis, the plaintiff pleads a claim to 51.65% (alternatively 50%) beneficial ownership of the FF Shops, the breach of the Father’s duties as trustee, the sale at an undervalue, and the use of the proceeds to purchase the TSH Shop (§§26-27).  Particulars are given as to D1’s dishonest assistance and knowing receipt (§§28-29).

57.  I accept those pleaded facts establish a claim in CICT or in resulting trust.  The common agreement is pleaded, and in any event there is no presumption of gift, so that ordinarily it would be presumed that the parties intended to own the property beneficially in equal shares.  I also accept the facts establish the claim in dishonest assistance, as well as that D1 was unjustly enriched at the expense of the plaintiff who lost all of what should have been his share of the FF Proceeds.

58.  Mr Deng submits that tracing of the proceeds is appropriate, and that where the Father sold the FF Shops without authorisation, he became a constructive trustee not over 50% of $3,800,000 (because that was an undervalue) but over the entire original sum paid by the plaintiff of $2,351,694.  But, I do not think that figure can be correct, even on the basis of the immediate sub-sales at an account totalling less than double that figure.  Whilst there may be some argument about valuation, and alleged undervaluation, I do not think it would be right proceed on the basis of the originally injected sum.

59.  Mr Deng submits that the court is not being asked to make a declaration in relationship to ownership of property, but to trace the proceeds from the FF Shops into the TSH Shop, and to seek a liquidated sum of damages based on a fixed sum or equitable compensation.  As he puts it, all that the plaintiff is seeking, in order to ensure that justice can be done, is liquidated damages either (1) in the form of a fixed liquidated sum of $2,257,105 (calculated by reference to the plaintiff’s share and percentage value decrease by reference to the actual sale price of $4,370,000 and not the undervalue price), or (2) equitable compensation equivalent to 51.65% of the FF Proceeds.

60.  I do not think the figures and calculations are straightforward as Mr Deng submits.  Further, for similar reasons as I have given in relation to other matters above, I do not think those are claims for liquidated demands.  No alternative form of relief for judgment in default has been sought by the Summons.  Again, therefore, I decline to give default judgment in that respect.

G.  Result

61.  On the above analysis, I accept that these are appropriate circumstances in which to give the plaintiff liberty to enter judgment against D1 and D2 for his proprietary claims for relief relating to House 72 itself.  I, therefore, grant and make orders as follows:

(1)  A Declaration that Cheung Hung Kwong, deceased (“Deceased”) was and the 2^nd defendant has been holding on trust for the sole benefit of the plaintiff the landed property known as House No. 72 Tai Shui Hang, Shatin, New Territories on Lot No. 935 in Demarcation District No. 196 (“House 72”) and all the traceable fruits and proceeds thereof.

(2)  An Order that the Deceased and D2 be removed as trustee of House 72.

(3)  The entire legal and beneficial estate, title, rights, interests and shares of and in House 72 be vested in the plaintiff absolutely.

(4)  The 1^st defendant and the 2^nd defendant do deliver up to the plaintiff forthwith vacant possession of House 72.

(5)  The 1^st defendant and the 2^nd defendant do deliver to the plaintiff forthwith all title documents of House 72.

(6)  Stamp duty payable, if any, for and incidental to the Order made herein be borne and paid by the 1^st defendant and the 2^nd defendant.

(7)  The 1^st defendant and the 2^nd defendant do pay the plaintiff mesne profits to be assessed from 8 March 2018 until the date of delivery up vacant possession of House 72 to the plaintiff.

62.  On the claims relating to the Unauthorised Withdrawals, the Missing Rental Income and the FF Proceeds, I direct the alternative relief sought in the Summons, namely that the action be listed for trial of those issues and the Plaintiff be at liberty to proceed to trial notwithstanding the default of the defendants in serving a defence.  I will also make the following additional directions, broadly as sought by the Summons to deal with that trial and the assessment of the mesne profits:

(1)  The parties shall within 14 days file and serve their List of Documents, with inspection 7 days thereafter.  Any party failing to serve a List of Documents shall be deemed to have elected not to add juice documentary evidence at trial or for the assessment.

(2)  The parties shall within 42 days lodge and serve their respective expert reports on land valuation for the assessment of (1) the current market value of the TSH Shop, and (2) the market rental of House 72 from 8 March 2018 up to the date of assessment.

(3)  The parties shall within 28 days of service of the expert report(s) file and serve their respective witness statements of fact.  Each witness statement shall be accompanied by a statement of truth and shall stand as evidence in chief unless the trial or assessment Judge otherwise directs.  Any party failing to serve such witness statement of fact shall be deemed to have elected not to adduce factual evidence in either oral or written form at trial or assessment.

(4)  Liberty to apply.

63.  Where the plaintiff has obtained a substantial benefit on his proprietary claim to House 72, it seems to me that he is entitled to the costs of the Summons (notwithstanding that some other aspects have been dealt with by reference to a trial/assessment).  Therefore, I order the 1^st and 2^nd defendants to be jointly and severally liable for the plaintiff’s costs of the Summons.

64.  For the avoidance of any doubt, I continue my previous interlocutory injunction orders until the trial/assessment or further order (save that the defendants are of course at liberty to act in compliance with the declarations and orders made above).

Mr Earl Deng, instructed by Liu, Chan & Lam, for the plaintiff

The 1^st and 2^nd defendants were not represented and did not appear