Chen Tek Yee and Others v. Chan Moon Shing and Another
Read the full judgment text of CACV 136/2015 on BabelCite. This Court of Appeal judgment was delivered on 18 February 2016 before Cheung JA, Yuen JA, Kwan JA.
Property law – constructive trust – contractual licence – whether binding on subsequent purchaser – Property acquired in 1980 by 1st plaintiff and Deceased (Chan Kwok Cheung) as joint tenants for HK$335,400 – Deceased's alleged promise that if plaintiffs paid mortgage and household expenses, Property would be their home for life – mortgage redeemed in 1989 using loan from 1st plaintiff's brother – 1st plaintiff paid substantial portion of purchase price and all mortgage and renovation expenses – Deceased severed joint tenancy in April 1997 and assigned his half-share to 1st defendant for HK$2 million – 1st defendant took no action to seek possession or demand rent for 12 years despite being a tenant in common entitled to unity of possession – Deceased died in August 2009 – 1st defendant sought to sell half-share by auction with reserve of HK$1.2 million (approximately 30% below market) – auction particulars expressly noted Property was sold subject to occupation by the other tenant in common and the writ in HCA 954/2010 – 2nd defendant (an experienced real estate investor) visited the Property, met the 1st plaintiff, learned of her determination to remain, and bid successfully at the reserve price – whether Deceased had made a contractual licence – whether 2nd defendant's conscience was affected so as to give rise to a constructive trust – whether declaration of sole and exclusive occupation should be granted – held: contractual licence established on totality of evidence, including 12 years of 1st defendant's inaction giving effect to the promise, and the 1st and 2nd plaintiffs' credible oral testimony – held: constructive trust properly imposed on 2nd defendant who took the benefit of a substantially reduced price knowing of plaintiffs' asserted right – held: appeal dismissed with costs to plaintiffs, save for the costs of and occasioned by the respondent's notice filed by the plaintiffs to affirm the Judgment.
Legal issues: Whether the judge erred in finding a valid contractual licence · Whether a constructive trust was imposed on the 2nd defendant
Outcome: Appeal by the 2nd defendant dismissed
Cited by 12 cases · Cites 1 case
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CACV 136/2015 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVI l appeal no. 136 of 2015 (ON APPEAL FROM HCA 954 OF 2010) ________________ BETWEEN
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________________________ REASONS FOR JUDGMENT ________________________ Hon Cheung JA: 1.I agree with the Reasons for Judgment of Yuen JA. Hon Yuen JA: 2.This is the 2nd defendant’s appeal from a Judgment of Deputy High Court Judge Marlene Ng given on 7 May 2015 (“the Judgment”) in which a declaration was made that:
3.At the conclusion of the hearing, we dismissed the appeal with costs to be paid by the 2nd defendant to the plaintiffs, save and except the costs of and occasioned by a respondent’s notice filed by the plaintiffs to affirm the Judgment. My reasons appear below. Background 4.The background facts have been set out in detail in the Judgment. The facts relevant to this appeal can be summarized as follows. Relationships 5.1.The 1st plaintiff, who was born in 1932, is the mother of the 2nd and 3rd plaintiffs. She was divorced from her husband. 5.2.In 1967, when the 1st plaintiff was living and working in Taiwan, she started a relationship with Chan Kwok Cheung (“the Deceased”). They never married. The Deceased was the father of the 1st defendant. 5.3.In the decade that followed, the 1st plaintiff came to Hong Kong and lived, together with the Deceased, the 2nd and 3rd plaintiffs and two other children from her previous marriage, in rented accommodation. She had no contact with the 1st defendant. Acquisition of the Property 6.In December 1980, the 1st plaintiff and the Deceased bought the Property from a developer as joint tenants. The purchase price was paid from (1) the 1st plaintiff and the Deceased’s respective savings and (2) banking facilities secured by a mortgage over the Property. The banking facilities comprised (a) a loan which was used to pay the purchase price and (b) an overdraft for use by the Deceased’s business, at which the 1st plaintiff also worked. Occupation of the Property 7.In 1982, the 1st plaintiff, her children and the Deceased moved into the 3-bedroom Property. In due course, the 1st plaintiff’s other children moved abroad, leaving the Property occupied by the 1st plaintiff, her two unmarried daughters the 2nd and 3rd plaintiffs, and the Deceased. The 1st defendant never occupied any part of the Property. Payments for the Property 8.1.The learned deputy judge accepted the 1st plaintiff’s evidence that she had paid a substantial portion of the purchase price from her savings. The judge found that the Deceased had contributed only $35,400 towards the total purchase price of $335,400. 8.2.Further the judge found that the mortgage repayments were made by the 1st plaintiff with contributions from her daughters the 2nd and 3rd plaintiffs, who were both career women already in gainful employment at the time the Property was purchased. The Deceased’s business did not do well, and he could not service the overdraft. In 1989 the 1st plaintiff obtained a loan from her brother and discharged the mortgage. She kept the title deeds. 8.3.In 1993, the building underwent renovation. By that time, the Deceased was already nearly 80 years old and his business was dwindling (it closed altogether in 1996-7). The judge found it was the plaintiffs who paid for the Property’s share of the renovation expenses even though the Deceased jointly owned it with the 1st plaintiff. 9.The judge found that during the course of the occupation of the Property by the Deceased and the plaintiffs, he had made various statements to them which will be discussed later in these Reasons for Judgment. Severance of the joint tenancy and assignment of half share of the Property 10.1.As mentioned earlier, the Property had been acquired by the 1st plaintiff and the Deceased as joint tenants. 10.2.In 1997, the Deceased executed a Memorandum of Sale and an Assignment both dated 24 April 1997. Both were prepared by the same solicitors. 10.3.The Memorandum of Sale recorded that the Deceased agreed to sell the Property to the 1st defendant for $2 million. There are two interesting features in this Memorandum:
10.4.However in the Assignment dated the same day, the Deceased:
10.5.The Assignment was silent as to possession. Contrary to the Memorandum, vacant possession was never delivered or sought by the 1st defendant. This will be discussed later in these Reasons for Judgment. Events after the Assignment 11.1.Shortly after the Assignment, sometime in May 1997, the Deceased moved out of the Property and into an old people’s home. 11.2.The Memorandum of Sale and the Assignment were registered in the Land Office on 4 June 1997, about 6 weeks after their execution. The 1st plaintiff was however not informed of the Assignment, whether by the Deceased (whom she visited at the old people’s home regularly) or by the 1st defendant. The plaintiffs remained undisturbed in sole possession of the Property. 12.In 2003, the building underwent renovation again. The judge found that the plaintiffs paid for the Property’s share of the renovation expenses again, even though by now the 1st defendant had owned half of the Property for some 6 years. Deceased’s death 13.In August 2009, more than 12 years after the Assignment, the Deceased died aged 95. Throughout this period of time, the 1st defendant had not entered into possession of the Property and had not at any stage demanded rent from any of the plaintiffs who continued to occupy it exclusively. 1st defendant’s intention to sell his interest in the Property 14.1.On 7 October 2009, the 1st defendant’s solicitors wrote to the 1st plaintiff, informing her of the Assignment and the Deceased’s death, and proposing that (1) she acquire the 1st defendant’s interest in the Property at a price to be mutually agreed; or (2) they could sell the Property together to a purchaser at market price and divide the proceeds equally. He did not demand to enter into possession or demand rent from any of the plaintiffs. 14.2.This was followed by negotiations between the parties’ solicitors which were inconclusive. 15.Eventually on 10 June 2010, the 1st defendant’s solicitors informed the 1st plaintiff’s solicitors that he intended to put up his interest in the Property for sale at an auction to be held on 23 June 2010. 16.On 18 June 2010, there was included in an auctioneer’s newspaper advertisement an offer to sell a half-share of the title in the Property. The reserve price was stated to be $1.2 million. Under the column for “Time for Inspection of Property” was stated “No vacant possession. Sold in present condition”. 2nd defendant’s involvement 17.The 2nd defendant is a businessman who was experienced in investing in real estate. He saw the auctioneer’s advertisement and his interest was aroused by the fact that the reserve price “was about 30% lower than the market price”. 18.The auction particulars at that time stated in the Remarks that the half-share of the Property was sold on an “‘as is’ basis which is occupied by the other tenant in common in equal shares”. Clause 21 of the Conditions of Sale stated:
Conversation between 1st plaintiff and 2nd defendant 19.The auction due to be held on 23 June 2010 was postponed. On the same day, the 2nd defendant visited the Property with a view to “investigating the situation of the owner or the occupier of the Property”. He met the 1st plaintiff and had a brief conversation with her lasting 5-6 minutes. At trial there was no dispute that the 2nd defendant asked the 1st plaintiff whether she would sell her share in the Property to him if he bought the 50% share offered at auction. The judge found that the 1st plaintiff told the 2nd defendant she would not sell the Property as she had to live there. Issue of writ 20.Within a week, on 28 June 2010 the 1st plaintiff’s solicitors issued a writ against the 1st defendant for a declaration that
21.The following day, the 1st plaintiff’s solicitors informed the 1st defendant’s solicitors of the issue of the writ and registered the writ in the Land Registry. Auction particulars and Conditions of Sale 22.The issue of the writ led to some additional text in the auction particulars and conditions of sale. The auction particulars stated the Property was to be sold on an
Clause 5 of the Special Conditions stated that apart from the Deed of Mutual Covenant, the Property was to be sold also subject to and with the benefit of the writ, and Clause 21 of the General Conditions of Sale stated that
The 2nd defendant’s acquisition of half-share in Property 23.It was on those terms that the 2nd defendant bid for the half-share of the Property at auction. He was the only bidder and acquired the half-share at the reserve price only. The assignment was executed on 19 August 2010. 24.In due course, the action commenced before the auction developed into the present form, with the addition of the 1st plaintiff’s two daughters as the 2nd and 3rd plaintiffs, and the addition of the 2nd defendant. The 1st defendant was apparently not served and he did not take part in the proceedings. Issues at trial 25.1.By the time the matter came on for trial before the judge, the issues between the plaintiffs and the 2nd defendant were as follows:
alternatively,
25.2.For reasons unknown to this court, the plaintiffs’ counsel at trial (not Mr Bernard Man SC who appeared before us) did not rely on principles of promissory/proprietary estoppel (para. 6, Judgment). 25.3.However it was accepted by the 2nd defendant’s counsel that he would also not rely on the argument that his client was a bona fide purchaser of the legal estate without notice if the plaintiffs could establish their case under either issue (para. 6, Judgment). Judgment 26.1.The trial took 4 days. The 1st and 2nd plaintiffs and the 2nd defendant gave evidence. 26.2.In the Judgment, the judge dismissed the 1st plaintiff’s claim of a common intention constructive trust. There is no cross-appeal. 26.3.In relation to the contractual licence issue, the judge found that when the Property was purchased in 1980, the Deceased had promised the plaintiffs that if they undertook responsibility for the mortgage repayments and household expenses, the Property would be their home for the rest of their lives, and relying on that promise, they had paid the mortgage repayments and renovation expenses. 26.4.The judge also found that over the years, even as the Deceased was about to move out to the old people’s home, he continued to give express assurances to the plaintiffs that the Property would be their permanent family home during their lifetimes. 26.5.Importantly, the judge found that the 2nd defendant’s conscience was affected by the contractual licence so as to give rise to a constructive trust. The judge regarded it as significant that the reserve price was 30% less than the market price, and she found that it had been reduced on the footing that any purchaser would have to give effect to the plaintiffs’ interest. The 2nd defendant therefore assumed a new obligation to the plaintiffs to give effect to their rights. 26.6.Accordingly the judge gave the declaration set out in para. 2 of these Reasons for Judgment. Appeal 27.The 2nd defendant appealed. Essentially it was submitted by his counsel Mr Richard Leung that:
Discussion (1) Finding of a contractual licence 28.In respect of the first submission, Mr Leung referred to the courts’ recognition that there is a “special burden assumed by a person claiming to be a donee under a gift made by a deceased person” (Yung Shu Wu v Vivienne Sung Wu (2011) 14 HKCFAR 39, para.76). He emphasized that there was no written evidence of any of the assurances that the Deceased was found to have made. Mr Leung also pointed to the absence of contemporaneous documentary evidence, such as banking documents evidencing payment of mortgage instalments or the loan from the 1st plaintiff’s brother. He submitted that the plaintiffs’ case was based on only bare assertions. 29.In my view, when the parties are in a personal relationship (as contrasted with parties in a commercial transaction), it would be unrealistic to expect written records of assurances such as the ones which the judge found the Deceased had made. 30.As for the lack of banking documents, in the present case the mortgagee bank had closed down well before the commencement of litigation, and in any event the mortgage had been redeemed some 20 years before the 1st defendant disclosed his half-share in the Property. The judge found that given the lapse of some 34-25 years (from purchase of the Property to the redemption of the mortgage), it was “readily understandable” that there was no longer any documentary evidence of the 1st plaintiff’s savings at the time, or of contributions made to her by her children, or of the loan her brother gave her to redeem the mortgage. 31.1.Further it is of course correct that when one party is asserting a benefit allegedly given to her by a person who has died, the court must exercise special caution. But it is clear in the present case that the judge had carefully evaluated the evidence of the witnesses. She described the evidence of the 1st plaintiff as “forthcoming and articulate” and “firm on most of the material matters”. The judge recognized that there were some matters which the 1st plaintiff could not recollect and there were minor discrepancies, but after giving some allowance for her advanced age, found that “they do not detract from the reliability and truthfulness” of her evidence. The judge also found the 2nd plaintiff to be “on the whole truthful and reliable”. 31.2.These are observations made by a judge who had seen and heard the witnesses under cross-examination. This court (Lam VP, Kwan and Barma JJA) has recently reiterated in Hoptai Sharksfins Co Ltd v Productos Pesqueros Gallegos SL CACV240/2014, 7 December 2015, unrep. the onerous burden imposed on an appellant who seeks to overturn a finding of primary fact reached on an evaluation of oral evidence and the trial judge’s assessment of the credibility of witnesses (paras.18-23). Mr Leung has not identified any conclusion on the primary facts reached by the judge which either (i) was unsupported by any evidence, or (ii) was based on a misunderstanding of the evidence by the judge, or (iii) was such that no reasonable judge could have reached. 32.1.In any event, with respect to Mr Leung, I do not agree that the plaintiffs’ case was based entirely on their bare assertions. When one considers the evidence of the parties’ conduct, it is material not only to consider what they have done, but also what they have not done. 32.2.In the present case, it is pertinent to note that the 1st defendant acquired the Deceased’s half-share in the Property in April 1997. Shortly after that, the Deceased moved out of the Property. Yet in the 12 years between 1997 and 2009, the 1st defendant did not seek to enter into possession of the Property (unity of possession being enjoyed by tenants in common) or to demand rent from the plaintiffs for their exclusive occupation. 32.3.In my view, this is entirely consistent with (1) the promise which the plaintiffs say the Deceased had made to them and (2) the 1st defendant giving effect to that promise. Otherwise one would have expected someone who had paid out $2 million to have taken steps to recoup some income or return on a sizeable investment. 32.4.Even if it is assumed that the 1st defendant had not paid the $2 million consideration and his father had made a gift of the half-share of the Property to him, the 1st defendant’s conduct over those 12 years was still consistent with his giving effect to the Deceased’s promise. Otherwise, as a tenant in common entitled to unity of possession, one would have expected him to demand payment by the plaintiffs for their exclusive occupation of the entire Property. 32.5.There was no evidence proffering any other explanation for the 1st defendant’s inactivity. In my view, the 1st defendant’s conduct over this lengthy period of 12 years supported the plaintiffs’ case and also showed that he was giving effect to their right under the contractual licence. (2) The 2nd defendant’s assumption of new obligation giving rise to constructive trust 33.Before discussing Mr Leung’s second submission, it may be helpful to set out my understanding of the principles under which a contractual licence can give rise to a constructive trust, as derived from the English cases (starting with Binions and another v Evans [1972] 1 Ch 359, and as discussed and refined in Ashburn Anstalt v Arnold and another [1989] 1 Ch 1, Lloyd v Dugdale [2002] 2 P. & C.R. 167, Chaudhary v Yavuz [2012] 3 WLR 987 and Groveholt Ltd v Hughes [2013] 1 P. & C.R. 342). 34.(1) A mere contractual licence to occupy land (which term includes, as in our case, a unit in a building) is a personal right only1. It does not give the licensee a proprietary interest in the land which is binding on a purchaser from the licensor2.
35.Mr Leung and Mr Man did not challenge these principles. However Mr Leung submitted that the judge erred in her application of these principles to the facts of this case. 36.1.In my view, the court is entitled to find that the 1st defendant had set the reserve price of his half-share at substantially less than the market price to reflect the plaintiffs’ right under the contractual licence. First, this is consistent with his conduct for the past 12 years when he had given effect to it by not entering into possession or demanding rent from them for their exclusive possession. 36.2.Secondly, if he had only wished to protect his obligations as vendor, he could have simply imposed restrictions on requisitions and put up the half-share for sale without vacant possession. However the particulars did not simply state the fact that the Property was being occupied by the other tenant in common. Instead it was expressly acknowledged in the auction particulars and Conditions of Sale that the Property was sold subject to occupation by one of the tenants in common, as well as the writ in High Court Action No.954 of 2010 (which had already been registered at the Land Registry) which included the right of occupation of her daughters. 36.3.In my view those two features, considered together, evidenced an intent on the part of the 1st defendant that the reduction in price was to give effect to the plaintiffs’ right. 37.1.The other party to the transaction the 2nd defendant was well aware of the substantial reduction in price. The reduction was not because for instance, a mortgagee bank was pursuing an early conclusion to a foreclosure. Nor did the 2nd defendant claim that he thought the price had been fixed by a vendor ignorant of the market price. On the contrary, the 2nd defendant was aware of the background of the reduction. He went to visit the Property, knew the 1st plaintiff was determined to remain in occupation and was also aware (through the auction particulars and Conditions of Sale) of the claims in the writ. 37.2.Thus, on the day of the auction, when he decided to take the benefit of the substantially lower-than-market reserve price by making a bid, he did so recognizing that the setting of the reduced price by the 1st defendant reflected the plaintiffs’ actual, and asserted right of, exclusive occupation. Put another way, knowing the background of the reduction and taking the benefit of that reduction, he had conducted himself in such a way that it would be inequitable to allow him to deny the plaintiffs’ right in the Property. In my view the judge was entitled to hold on those facts that there was imposed on the 2nd defendant as principal at the time of his acquisition9 a new obligation to give effect to the plaintiffs’ right even if he had hoped that they might not succeed in proving it in the action. 38.The judge found that the reduction was “upon the footing that any purchaser would have to give effect to such encumbrance and prior interest” (para. 113), and “[the 2nd defendant’s] conscience was effected [affected] by the Contractual Licence giving rise to a trust, and it is therefore unconscionable for him to claim he could revoke and deny the Contractual Licence in favour of [the plaintiffs]” (para. 114). The matters discussed in the preceding paragraphs provide evidence on which the judge was entitled to make that finding of fact and in the words of the learned authors of Gray & Gray, Elements of Land Law, 5th ed at para. 10.5.7,
39.Accordingly I dismissed the appeal with costs to the plaintiffs save and except the costs of and occasioned by a respondent’s notice filed by the plaintiffs to affirm the Judgment which Mr Man accepted was unnecessary. Hon Kwan JA: 40.I agree with the reasons for judgment of Yuen JA.
Mr Richard Leung, instructed by Tsang, Chan & Woo, for the 2nd defendant Mr Bernard Man SC, instructed by Hobson & Ma, for the 1st, 2nd and 3rd plaintiffs 1 Binions v Evans, 367C. 2 Ashburn Anstalt v Arnold, 25E. 3 Ashburn Anstalt v Arnold, 15H; Lloyd v Dugdale, 183, para. 52(4). 4 Ashburn Anstalt v Arnold, 25H. 5 Ashburn Anstalt v Arnold, 25H, and 27C. 6 Lloyd v Dugdale, 182-3, para 52(3). 7 Lloyd v Dugdale, 183, para 52(4). 8 Lloyd v Dugdale, 183, para 52(5). 9 Groveholt v Hughes, 350, para.26 and 351, para. 32. |
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