Hong Kong Sai Kung Ngong Wo Resort Development Ltd v. Zhang Xianjie
Read the full judgment text of HCA 1387/2018 on BabelCite. This High Court CFI judgment was delivered on 13 June 2022.
1. These actions centre on a house in Sun On Village, Sai Kung (“the House”).
Cited by 1 case · Cites 4 cases
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HCA 1387/2018 & HCA 2127/2018 [2022] HKCFI 1710 HCA 1387/2018 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1387 OF 2018 _________________ BETWEEN
_________________ HCA 2127/2018 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2127 OF 2018 _________________ BETWEEN
________________________ (HEARD TOGETHER)
_________________ JUDGMENT _________________ A THE ACTIONS 1.These actions centre on a house in Sun On Village, Sai Kung (“the House”). 2.The first action (HCA 1387/2018, “the Ownership Action”) is brought by Hong Kong Sai Kung Ngong Wo Resort Development Limited (“Ngong Wo”) against Mr Zhang Xianjie (“ZX”), the House’s registered legal owner. Ngong Wo claims to be the full beneficial owner of the House and seeks declaratory and other relief against ZX on this footing. 3.The second action (HCA 2127/2018, “the Mortgage Action”) is brought by Fu Tat Credit Limited (“Fu Tat”) against ZX, ZX’s son Mr Zhang Jing (“XJ”) and Ngong Wo. Fu Tat claims inter alia for possession of the House which was undisputedly mortgaged to Fu Tat as security for a HK$5 million loan to ZX and ZJ as borrowers. 4.Besides ZX’s filing of a Defence in the Ownership Action on 2 August 2019, neither ZX nor ZJ have actively contested the claims against them. Both were entirely absent from the trial. 5.The active parties at trial were Ngong Wo and Fu Tat as the respective plaintiffs in the Ownership and Mortgage Actions, with Ngong Wo also pressing its case as 3rd Defendant in the Mortgage Action. Mr Roland Lau appeared as counsel for Ngong Wo, and Mr Ernest Koo appeared with Mr Tyrone Tang as counsel for Fu Tat. I have been much assisted by counsel on both sides. B BACKGROUND FACTS[1] B1. Ngong Wo 6.Ngong Wo was incorporated in Hong Kong on 3 May 2021 with the following initial shareholdings:
7.On 6 July 2012, the shareholding structure of Ngong Wo was altered as follows:
8.Zhuhai Company became the sole shareholder of Ngong Wo on 18 September 2013. 9.On 28 December 2017, all 100,000 shares in Ngong Wo were transferred from Zhuhai Company to Honorable International Corporation. 10.ZX was a Director of Ngong Wo from its incorporation on 3 May 2012 until 14 August 2017. 11.ZX and ZY were at all material times the only two shareholders of Zhuhai Company. ZX was also Zhuhai Company’s Legal Representative and Executive Director / General Manager until about 21 August 2017, at which point Mr Wang Li Hong became Zhuhai Company’s Legal Representative, and ZY and Mr Zhang Jinwei became its only shareholders. B2. The House 12.By two Provisional Agreements for Sale and Purchase both dated 23 May 2012, ZX purchased two properties from their respective vendors: (1) G/F & M/F of No. 746A Sun On Village, Section A of Lot No. 746 in D.D. 215, Sai Kung, New Territories (“Property 1”); and (2) 1/F and Roof of No. 746A Sun On Village, Section A of Lot No. 746 in D.D. 215, Sai Kung, New Territories (“Property 2”).[2] 13.The purchases of Property 1 and Property 2 were completed on 9 July 2012. The properties have since then been registered in the sole name of ZX. 14.At all material times, Property 1 and Property 2 have together comprised a single 3-storey building, i.e. the House. 15.Following the purchase under ZX’s name the House was substantially renovated, with that work completing in about February 2013. B3. Fu Tat and the Loan 16.Fu Tat was at all material times and remains a Money Lender licenced under the Money Lender’s Ordinance (Cap 163). 17.By a Loan Agreement dated 11 June 2016 (“Loan Agreement”) between Fu Tat as the lender and ZX and ZJ as the Borrowers, Fu Tat loaned to ZX and ZJ the sum of HK$5 million (“the Loan”) at the interest rate of 15.6% per annum. 18.By a Legal Charge dated 11 June 2016 executed by ZX as the Mortgagor and ZJ as the Borrower, registered in the Land Registry by Memorial No. 16061301170012 on 13 June 2016, the House was mortgaged to Fu Tat as security for inter alia the Loan and accrued interest, the title deeds having been deposited with Fu Tat’s solicitors since 3 June 2016. 19.In accordance with the Loan Agreement, ZX and ZJ paid to Fu Tat six monthly interest instalments each of HK$65,000 for the period from 11 June to 11 December 2016. But they failed to repay any of the Loan principal (HK$5 million) on the principal due date of 11 December 2016. 20.On 11 January 2017, ZX and ZJ paid a further sum of HK$65,000 to Fu Tat as interest on the outstanding principal for the month from 11 December 2016 to 11 January 2017. They have made no further payments to Fu Tat since then. 21.Due to their default, ZX and ZJ are liable to Fu Tat for (1) the principal in the sum of HK$5,000,000; and (2) the interest accrued thereon calculated at the rate of 15.6% per annum from the date of 11 January 2017 until full payment. C MATTERS FOR TRIAL C1. The rival claims 22.By its Amended Statement of Claim dated 30 August 2018 in the Ownership Action, Ngong Wo primarily claims against ZX for declarations to the effect that Ngong Wo is the sole beneficial owner of the House along with consequential claims for the effective transfer by ZX of legal title in the House to Ngong Wo, indemnities and costs. 23.Ngong Wo’s case for relief is essentially that:
24.By a Defence dated 2 August 2019, ZX denied holding the House on trust for Ngong Wo and put Ngong Wo to strict proof of its alleged payment of purchase and renovation costs. As earlier noted, ZX has not otherwise actively contested either of the actions at hand. He has not tendered any witness evidence and did not appear at the trial in any capacity. 25.On the basis of the Loan Agreement and the Legal Charge, Fu Tat’s Amended Statement of Claim dated 21 May 2019 in the Mortgage Action primarily seeks an order for delivery of vacant possession in respect of the House against ZX, ZJ and Ngong Wo. Fu Tat also claims against ZX and ZJ for HK$5 million as the outstanding principal of the Loan, together with HK$1,300,000.00 as interest of the Loan at the rate of 15.6% per annum for the period from 11 January 2017 to 11 September 2018 and then further interest at the 15.6% per annum rate from 12 September 2018 until payment in full. 26.After being joined (on its application) as 3rd Defendant to the Mortgage Action on 23 April 2019, Ngong Wo filed its Defence and Counterclaim dated 2 July 2019. This essentially repeats and rests on the Ngong Wo Beneficial Interest Claim first made in the Ownership Action. 27.In its Reply and Defence to Counterclaim in the Mortgage Action dated 23 September 2019, Fu Tat denies the Ngong Wo Beneficial Interest Claim. Fu Tat further contends that in any event:
C2. Issues arising 28.Ngong Wo and Fu Tat agree that three main issues arise for determination:
D THE BENEFICIAL OWNERSHIP ISSUE 29.Ngong Wo seeks to establish its beneficial ownership of the House on the basis of:
30.While formally denying the Ngong Wo Beneficial Interest Claim, Fu Tat advances no positive factual case on the matter. It simply puts Ngong Wo to proof of its claim. D1. Resulting trust 31.I shall deal first with Ngong Wo’s resulting trust claim since, unlike its stance on the constructive trust question, Fu Tat accepts that a resulting trust may arise in law if Ngong Wo’s factual case on the purchase of the House succeeds. 32.The relevant legal principles here are well-established. The following propositions are common ground between Ngong Wo and Fu Tat:
33.On the evidence before me, I find that Ngong Wo’s case on funding is made out on the balance of probabilities. 34.There is significant documentary evidence supporting Ngong Wo’s case, in the form of the Report and Financial Statements for Ngong Wo for the period from 3 May 2012 (its date of incorporation) to 31 March 2013 (together “the 2012-2013 Financial Statements”). 35.In the Statement of Financial Position as at 31 March 2013 signed by ZX and Mr Chan Wai Yu as directors of Ngong Wo on 9 August 2013, the company’s listed Non-Current Assets are “Property, plant and equipment” valued at HK$10,288,937.00, and “Land under development” valued at HK$98,482,564.00. 36.Point 7 of the Notes to the independently audited financial statements particularises the relevant “Property, plant and equipment” items as comprising “Leasehold properties”, “Furniture and fixture” and “Decoration”. The cost attributed to “Leasehold properties” there is HK$9,236,395, which may be compared with the undisputed combined purchase price of Property 1 and Property 2 (plus stamp duty, legal costs and agency fees) of HK$9,036,196.00. 37.The stated amount for “Decoration” at Point 7 is HK$1,418,000.00, which notably corresponds with (1) the contemporaneous records of two cheque payments of HK$520,000 each made by Ngong Wo to “建明工程公司” for respectively “西貢三層樓裝修費40% 預付款”[3] and “西貢辦公室住宅裝修第二次付款”,[4] aggregated with (2) the sum of HK$378,000.00 referred to in an application for payment, approved by ZX on 1 February 2013, for the total remaining balance of the decoration fee for a 3-storey building with the address of the House (香港西貢新安村92號房) (“the Payment Application”). This in turn ties with the admission at §7 of ZX’s Defence in the Ownership Action that “[Ngong Wo] did make two payments of HK$520,000.00 each in respectively late 2012 and early 2013 towards the renovation costs of Property 1 and/or Property 2”. 38.The Payment Application further supports Ngong Wo’s case on beneficial ownership in stating that the sum of HK$378,000.00 was to be included as part of the “investment total under the books and accounts of [Ngong Wo]” (original Chinese: “該款納入香港西貢昂窩渡假村發展 有限公司, 總投資帳目”). Considered in context, this may be accorded some weight as evidence of the existence, acknowledged by ZX, of other sums having been paid in respect of the House as part of an investment by and for the benefit of Ngong Wo. 39.Standing back, I consider that the overall documentary picture (comprising the full range of financial statements, accounts and other primary records available at trial) aligns with Ngong Wo’s witness evidence and the commercial arrangements addressed there. 40.The witnesses at trial for Ngong Wo were ZY (who testified from the Mainland via video-link), Mr Wang Li Hong (a director of the company) and Mr Chan Wai Yu (manager and former director). While I bear in mind that ZY, Mr Wang and Mr Chan were each closely associated with Ngong Wo, they were generally prepared at trial to answer all questions put to them in direct terms, and to confirm some propositions put to them even where apparently not in their favour. Overall, I find that each were straightforward, honest and credible in the evidence they gave. 41.Most relevantly for present purposes, I have assessed as essentially credible and have for the funding question taken into account the firm and direct evidence of ZY, Mr Wang and Mr Chan to the effect that all the investment money in respect of Ngong Wo’s holiday resort project in Sai Kung (“the Resort Project”), including for the purchase of the House, were provided by ZY and ultimately transferred from the Mainland to Hong Kong via arrangements made by ZX. 42.Taking the evidence of each of Ngong Wo’s witnesses together with the contemporaneous documents, including the 2012-2013 Financial Statements, the following matters are in my view made out on the balance of probabilities:
43.On the basis of these factual findings, and in the absence of any evidence sufficient to displace the presumption that the House was not intended as a gift to ZX, Ngong Wong’s claim to beneficial ownership by way of resulting trust succeeds. D3. Common intention constructive trust 44.Since Ngong Wong has succeeded in establishing its full beneficial ownership of the House by way of resulting trust, I need not rule on its claim based on common intention constructive trust. 45.That leaves for another day the question of whether common intention constructive trusts are confined to “domestic” contexts, as contended with some force by Mr Koo by reference to an array of authorities, including Lewin on Trusts (20th edn) [10-062]-[10-063], Crossco No.4 Unlimited v Jolan Ltd [2012] 1 P&CR 16 at §§85-87 and §107 and Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752 at §68 and §81. Mr Lau was candid in stating that he was unable to find any direct authority supporting Ngong Wong’s stance on the availability of the doctrine in a commercial setting like the present. E THE CONSTRUCTIVE NOTICE ISSUE 46.The Constructive Notice Issue is premised on the finding that the House was beneficially owned by Ngong Wong when the Loan Agreement was entered. 47.It is common ground that, even if Ngong Wong owns the House beneficially, its equitable interest must yield to Fu Tat’s legal interest unless it is shown that Fu Tat had prior notice of Ngong Wo’s interest. There is no claim that Fu Tat had actual notice of Ngong Wo’s alleged interest in the House. The disputed issue is whether Fu Tat nonetheless had constructive notice. 48.The primary principles and approach have not been disputed by the parties, including the recent summary discussion of the doctrine of notice in CS Credit Limited v Marspan Limited & Anor [2021] HKCFI 3707 at §52 (Recorder Sit SC). While the entire summary is helpful, the observations made at §52(3)-(5) of CS Credit Limited bear repeating here (original emphasis kept):
E1. No duty to inquire arising 49.Fu Tat submits that there were no facts or circumstances that put it on inquiry as to the existence of Ngong Wo’s equitable right in the House. 50.I agree. 51.At trial, the general manager of Fu Tat, Mr Lo Shi Ki, gave the following account, which I have considered in the light of the wider span of evidence to hand and accept in full:
52.I see nothing in the circumstances of this case to put Fu Tat on inquiry as to the possible existence of Ngong Wo’s equitable interest in the House. 53.Referring to the Signage and the fact that the House was being used as an office, Ngong Wo asserts that this should have put Fu Tat on notice as to its alleged equitable right in the property. But why? In the context of this case, there was in my view nothing inherently inconsistent or remarkable as regards the existence of the Signage and the partial use of the House as an office to give serious cause to question the nature and extent of ZX’s ownership of the House. Based on the information accessible to Fu Tat, Ngong Wo could have been the company referred to by ZX and ZJ, particularly given that the House was evidently also being used as a residence, consistently with what ZX and ZJ has earlier said about its use. Moreover, even allowing for the possibility that the company named on the Signage (Ngong Wo) was not that of ZX, there was in my view no compelling reason to further inquire given that Ngong Wo could readily have been a company leasing the House from ZX. In short, the overall circumstances would not have pointed a reasonable party in Fu Tat’s position to the probable existence of Ngong Wong’s proprietary interest; nor would they give serious cause to question the propriety of the arrangements in question. 54.Ngong Wo’s reliance on cases involving matrimonial homes occupied jointly by two spouses though registered in the sole name of one of them do not in my view assist it. Fu Tat was not dealing with a property in a matrimonial or domestic context, where occupation by a person may constitute prima facie evidence of their equitable interest in the property. 55.All told, Ngong Wo’s case on constructive notice does not get off the ground. E2. Whether further inquiries would have revealed the probably existence of Ngong Wo’s interest in the House 56.My firm primary conclusion being that Fu Tat had no duty to inquire in this case, I will only briefly state why Ngong Wo’s case fails in any event when it comes to causation. 57.Ngong Wong does not dispute the requirement of a causal link between, on the one hand, such further inquiries as Fu Tat could have but had not undertaken, and on the other hand the revelation of the probable existence of its interest in the House: see CS Credit Limited (above) at §52(7); Barclays Bank Plc v O’Brien [1994] 1 AC 180 at 195G-H. 58.In my view, the required causal link is in this case far from made out. Given that Ngong Wo’s affairs at the time were (on its own case) primarily if not exclusively handled by ZX and ZJ, any attempts to further inquire would most likely have been deflected or thwarted by them as part of the same scheme that led to Ngong Wo’s own difficulties as regards the ownership of the House. F THE ESTOPPEL ISSUE 59.Given my findings on the Constructive Notice Issue, I do not propose to delay matters by addressing Fu Tat’s fallback contention that ZX’s knowledge of the Legal Charge should be imputed to his principal Ngong Wo, such that Fu Tat’s interest should take priority over Ngong Wo’s. G OUTCOME AND FURTHER DIRECTIONS 60.For the reasons set out above:
61.Absent agreement the parties shall in light of this judgment within 14 days of this Judgment file submissions as to the appropriate final orders on relief and costs in both actions.
Mr Roland Lau, instructed by Messrs Kong & Tang, for the Plaintiff in HCA1387/2018 and the 3rd Defendant in HCA2127/2018 Mr Ernest Koo and Mr Tyrone Tang, instructed by Messrs David YW Man & Co., for the Plaintiff in HCA2127/2018 Mr Zhang Xianjie and Mr Zhang Jing were not represented and did not appear [1] Largely drawn from the Statement of Agreed Facts between Ngong Wo and Fu Tat for both actions. [2] As reflected in some of the documents at trial, the address of Property 1 and Property 2 is also known as “No. 92 Sun On Village, Sai Kung, New Territories”. [3] Certified English translation: “40% prepayment for the decoration fee of the three storey building in Sai Kung”. [4] Certified English translation: “2nd Payment for renovation of Sai Kung office and Residential”. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
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Further hearings and rulings under HCA 1387/2018