Wan Po Jun Mary Pauline v. Au Yeung Yee Man Representative of the Estate of Au-yeung Wing Hong

CACV 141/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 141 OF 2016

(ON APPEAL FROM HCA NO 1478 of 2009)

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REASONS FOR JUDGMENT

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Hon Lam VP (giving the Reasons for Judgment of the Court):

1.By a decision of 17 May 2016, Deputy High Court Judge Cooney SC struck out the plaintiff’s Defence to Counterclaim and entered judgment for possession in favour of the defendant in respect of Flat A, 42^nd Floor, Tower 1, Harbourfront Landmark, 11 Wan Hoi Street, Kowloon [“the Property”]. The defendant appealed against that decision and we heard the appeal on 2 November 2016.

2.After hearing submissions, we dismissed the appeal with costs.  We now give reasons for the dismissal of the appeal. 

3.The Property was purchased by the late father of the defendant and registered in his sole name.  The plaintiff was a co-habitee of the late father and she had resided with him at the Property.  The late father passed away in 2008.  The defendant is the personal representative of the late father.  The plaintiff had challenged the will (which bequeathed his assets to his children, without any provision for the plaintiff) of the late father unsuccessfully.  As a result she was liable for costs incurred by the defendant in the probate action.  Due to her failure to pay such costs, she was made a bankrupt in April 2011.

4.Before her bankruptcy, the plaintiff acting in person commenced this action in 2009 claiming beneficial interest in the Property.  She said she had contributed to the businesses of the late father financially as well as working in them.  She also said he had promised to marry her and the Property was purchased as their matrimonial home.  The relief she sought included a claim for “half-sharing in the estate of the Deceased including the plaintiff’s entitlement in the use and occupation in the Property”.

5.Initially, the defendant only filed a Defence disputing the claims of the plaintiff.  It was pleaded that the Property was purchased as the residence of the family members of the late father, including his 5^th step-mother and elder brother. He also granted a licence to the plaintiff to live there.  It was further averred that the relationship between the late father and the plaintiff turned sour around 2004 and he ceased to live with her.  He moved to live at another property until his demise.

6.By reason of the bankruptcy of the plaintiff, she could not pursue the claims because whatever proprietary interest she had (including the choses in action embodied in the claims) were vested in the trustees in bankruptcy of her estate.  The trustees declined to take up the claims.  The plaintiff tried to challenge that decision without success in HCB 144 of 2011, 3 May 2013.  

7.After the bankruptcy of the plaintiff, the defendant obtained leave from the court in 2014 to pursue a counterclaim against the plaintiff for possession of the Property.  It was averred that the licence for the plaintiff’s occupation of the Property had been terminated by the late father during his lifetime.  After his death, solicitors for the defendant had written to the plaintiff demanding her to vacate from the Property.

8.The plaintiff filed a Reply and Defence to Counterclaim, which was subsequently amended when she obtained legal representation by legal aid.  In the amended Reply and Defence to Counterclaim, it was asserted that the plaintiff is a beneficial owner of the assets of the late father, including the Property.  The claim of beneficial ownership was formulated by counsel with reference to a common intention constructive trust.  It was denied that the plaintiff had been granted any licence by the late father to occupy the Property.  It was pleaded that there was a promise by the late father that all assets acquired after 1985 would be jointly owned by him and the plaintiff. 

9.It should be noted that there was no plea to the effect that the plaintiff derived her right to occupy the Property from the trustees in bankruptcy either as their agent or licensee.  The plaintiff only relied on her own beneficial ownership acquired before the death of the late father to resist the claim for possession.     

10.Thus, the obvious hurdle in the plaintiff’s defence to the counterclaim is the vesting of all her property in the trustees in bankruptcy on the making of the bankruptcy order by reason of Section 58(1) of the Bankruptcy Ordinance (and such property included the right to claim a property which is a chose in action, see Chung Kau v Hong Kong Housing Authority  [2004] 2 HKLRD 650; Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp [2012] 2 HKLRD 1255)and the unwillingness on the part of the trustees to pursue the claim for beneficial interest in the Property.

11.Notwithstanding her discharge from bankruptcy on 11 April 2015, the property that had been vested in the trustees would not be re-vested in the plaintiff, see Cheung Wing Kwan Tommy v Hong Kong Export Credit Insurance Corp, supra.

12.Whilst it is possible for the trustees to assign the chose in action back to a bankrupt after the discharge to enable the latter to pursue a claim accrued before the bankruptcy (as in The Kwantung Provincial Bank v Chung Sun Kwan CACV 64/2014, 15 August 2014), this is not what happened in the present case.  The trustees in bankruptcy made it crystal clear in a letter of 6 November 2015 that they did not assign the right of action to the plaintiff. In any event, as we said above, the plaintiff did not plead any assignment of such right in her Amended Reply and Defence to Counterclaim.

13.The plaintiff sought to rely on a short letter of 5 October 2015 from the trustees to the solicitors for the defendant.  The relevant part reads:

“ We also confirm that we would allow the Bankrupt to defend the counterclaim against her in HCA 1478 of 2009.”

14.With respect, it is not clear what the trustees meant by that statement.  Since the plaintiff had been discharged as a bankrupt, she did not need their consent to defend the counterclaim, at least not in respect of a claim for possession as at the date of the letter.  Her continued occupation of the Property after the discharge may give rise to fresh causes of action accrued after the discharge and there is no reason why she would need the consent of the trustees to defend such a fresh cause of action.

15.In any event, the trustees clarified their position in another short letter of 2 November 2015 addressed to the solicitors for the defendant.  In that letter, the trustees said:

“ We write to confirm that we allow and consent the Bankrupt to use the rights vested in us, if any, to defend for the counterclaim in HCA 1478 of 2009.”

16.At this juncture, it is necessary for us to explain the genesis of the correspondence from the trustees in bankruptcy.  As observed above, the plaintiff did not rely on any acts of the trustees in bankruptcy in her Amended Reply and Defence to Counterclaim.  Nor did she allude to any such acts in her affirmations of 23 January 2015 (prepared by her without any legal representation) and 8 April 2015 (prepared by her solicitors).

17.The correspondence with the trustees in bankruptcy was conducted at the request of the master hearing the applications on 19 October 2015 after the hearing had completed.  Such letters were placed before the court without further affirmations or affidavits being filed.  Apparently parties did not make further submissions.  See the judgment of the master of 4 December 2015, [18] to [26]. 

18.With respect, and perhaps with the benefit of hindsight, whilst we can understand why the master made such request in light of the arguments before him which focused on locus standi as opposed to the substantive point on the merit of the defence of the plaintiff to the counterclaim, we are of the view that those acting for the parties should not simply produce the correspondence to the court without further reflections and submissions on the implications arising from such correspondence. 

19.Be that as it may, we are concerned with an appeal from the decision of the Deputy Judge who heard the applications afresh.  By that stage, the focus was fairly and squarely on the merit of the defence, see [21] of the judgment of 17 May 2016.  Despite that, there was still no plea in the pleadings of the plaintiff as to the consent by the trustees to use the rights vested in them to defend the counterclaim and its legal implications. 

20.Before the judge, Mrs Chan (who appeared for the plaintiff at all the hearings, including that before the master) primarily relied on the contention that the right to occupy the Property is a personal right, therefore not vested in the trustees under Section 58(1) of the Bankruptcy Ordinance.  That contention was rejected by the judge, see [25] to [31].

21.We agree with the analysis of the judge. Whilst, as presently advised, we would not exclude entirely the possibility of a right of occupation which is not proprietary in nature (and thus there might be arguments if such right is a personal one for the purpose of Section 58(1)), this is not the case of the plaintiff as pleaded or advanced before us.  She categorically denied that she was given a licence to occupy the Property. Instead she pitched her case entirely on the basis of the property right stemming from constructive trust.  As such, the right of occupation is only an incidence of such property right. 

22.The test for determining whether a right comes within the exception to Section 58(1) of the Bankruptcy Ordinance is well established.  In Beckham v Drake (1849) 2 HL Cas 579, Erle J said:

“ The right of action does not pass where the damages are to be estimated by immediate reference to pain felt by the bankrupt in respect of his body, mind or character, and without an immediate reference to his rights of property.” (our emphasis)

23.It has been consistently applied in subsequent cases, see Heath v Tang [1993] 1 WLR 1421; Ord v Upton [2000] Ch 352 and Chung Kau v Hong Kong Housing Authority, supra.  As highlighted by Aldous LJ in Ord v Upton, supra at p.363F, both conditions have to be satisfied.        

24.There is no doubt that the right of occupation relied upon by the plaintiff is a right immediately referable to her alleged interest as beneficial owner of the Property. 

25.Before us, Mrs Chan submitted that the beneficial interest of the plaintiff is for the time being only a claim and it has yet to be adjudicated upon in the future.  She then made a startling submission that because of that the claim is only a contingent expectancy and as a future interest could not have been assigned to the trustees. 

26.With respect, we have no hesitation in rejecting such a proposition.  Though it has yet to be adjudicated upon, the claim is a present chose in action, and therefore vested in the trustees.  Mrs Chan’s submission was premised on a fundamental misconception of contingency interest and future interest.  

27.Mrs Chan further submitted that as de facto wife, the plaintiff should have a life interest in the Property which is personal in nature.  But she had not explained to us how that life interest came into existence other than the pleaded case of beneficial interest arising from common intention constructive trust.

28.Before us, Mrs Chan placed more emphasis on the consent from the trustees.  She contended that such consent for the use by the plaintiff of the rights vested in them to defend the counterclaim gives the plaintiff the necessary right to defend against the claim for possession.  Counsel said the consent of the trustees amounted to an equitable assignment of the right to defend.  She also drew an analogy with the position of a defendant bankrupt resisting a claim for injunction. 

29.The judge addressed the issue of consent at [36] and [37] of the judgment:

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

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

30.Mrs Chan submitted that in the context of a strike out application, when the court was not clear as to the subject rights of the consent, it should not strike out the defence to counterclaim. 

31.We cannot accept this submission.  The court is entitled to examine the pleaded case of the plaintiff in assessing whether there is any substance in her defence.  If her counsel could not even put forward a pleading setting out a proper defence, it is not the court’s function to speculate what alternative case she might run.  As we said, even at the hearing before us, Mrs Chan did not attempt to put forward any proposed amendment of the plaintiff’s defence setting out clearly the plaintiff’s case of the right which is the subject matter of the consent and the relevant consequence of such consent.

32.Taking Mrs Chan’s submissions on their face value, they hinge on the proposition that the right to defend against a claim for possession can be hived off from the beneficial interest in the Property. Counsel did not cite any authority to support such proposition. 

33.As a matter of principle, we do not agree with such proposition.  The right to defend is not a separate right or a right which can be segregated from the beneficial interest in the Property.  When a person defends against a claim for possession by reference to his beneficial interest in the property, he is in effect exercising and asserting his right as an owner to remain in possession.  In the context of the present case, as the plaintiff did not plead any right to possession other than the beneficial ownership arising from constructive trust, such right to possession is merely an incidence of ownership.

34.Hence, we do not accept that the so-called right to defend can be separately assigned by the trustees to the plaintiff.  Since the trustees had made it crystal clear that they had no intention to assign the alleged beneficial interest to the plaintiff, Mrs Chan’s argument of equitable assignment has no support in terms of factual foundation.

35.We do not think any analogy can be drawn with the situation of a bankrupt resisting a claim of injunction against him personally.  An order for possession is a remedy granted by the court to a person having a superior right to possession vis-à-vis a defendant who does not have a better right to possession.  As explained above, at least in the context of the present case, the right to possession in question can only be an incidence to property right and there is no question of any personal right of the plaintiff being engaged.  

36.We agree with the judge that it is a question of the merit of the plaintiff’s defence as opposed to a question of locus standi.

37.Further, given the trustees’ refusal to proceed with the claim of constructive trust (see the judgment of To J in HCB 144 of 2011, 3 May 2013), there is nothing inequitable to disallow the plaintiff from achieving by the backdoor what she failed to achieve in the context of the bankruptcy proceedings.  The trustees, being the persons with the legal title to the claim for beneficial ownership based on constructive trust, took the view that such a claim is unmeritorious and do not wish to pursue the same.  The plaintiff must be bound by such decision by reason of her bankruptcy and the interest in that claim is now vested exclusively in the trustees.  Without any right to assert such claim by herself, the plaintiff failed to advance any viable claim independent of the title of the trustees to resist the claim for possession in the counterclaim.

38.In the circumstances, the judge was correct in striking out the Amended Defence to Counterclaim and entering judgment in favour of the defendant on the Counterclaim.

39.We therefore dismissed the appeal with costs to the defendant and ordered the plaintiff’s own costs to be taxed in accordance with the Legal Aid Regulations.

Mrs Dora K H Chan, instructed by Pauline Wong & Co, assigned by Director of Legal Aid, for the plaintiff

Mr Paul H M Leung, instructed by Liu, Chan & Lam, for the defendant