Guan Zongqing also known as Kwan Chung Hing v. Kwan Chung Kin
Read the full judgment text of HCA 1728/2014 on BabelCite. This High Court CFI judgment was delivered on 5 August 2016.
1. The facts which I now set out are not in dispute, although there is a dispute as to the true meaning and effect of a Deed of Gift referred to below.
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HCA 1728/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1728 of 2014 ________________________
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_______________ JUDGMENT _______________ Factual circumstances 1.The facts which I now set out are not in dispute, although there is a dispute as to the true meaning and effect of a Deed of Gift referred to below. 2.In April 1965, the plaintiff (“Mr Guan”) ’s aunt, Kwan Sau Ho was the owner of a property known as Flat B2, 5/F, Hoi Hing Building, 2 – 16, 2A – 16A, Kok Cheung Street, 32 – 44 Fuk Chak Street, and 35 – 47 Li Tak Street, Kowloon (“the property”). Kwan Sau Ho was unmarried, and had no children. She had a sister, Kwan Kum, who lived in Singapore. 3.Kwan Sau Ho had four nephews, brothers, Mr Guan, the defendant (“Mr Kwan Chung Kin”), Kwan Chung Keung (“Mr C K Kwan”), Kwan Chung Lok (“Mr C L Kwan”). 4.On 22 June 1984, by a Deed of Gift, Kwan Sau Ho assigned the property to her sister, Kwan Kum, and her nephew, Mr Kwan Chung Kin. Mr Kwan Chung Kin lived in Hong Kong. The assignment was to Kwan Kum and Mr Kwan Chung Kin in the these terms:
5.The Deed of Assignment included the following paragraphs:
6.It is clear from these provisions that, on its face, the gift was a gift of the property to the trustees to hold on trust for the benefit of five persons, the trustees (sister and nephew/brother) and the remaining three nephews/brothers, as tenants in common in equal shares. There were consequently, five equal shares in the property. 7.It is important to note that Kwan Sau Ho’s sister, Kwan Kum, who resided in Singapore, was one of the trustees, and, like Mr Kwan Chung Kin, was a beneficiary of the gift. 8.The deed of gift was duly registered as a memorial on the Land Registry under number UB 2620327 on 22 June 1984. 9.On 13 December 1994, Kwan Kum passed away in Singapore. Her death has been duly proved and is not in dispute, but there is no evidence as to whether or not she had a will, or whether or not she left any issue. It is not known whether her share in the property has passed, either by intestacy or by will, to any other person. 10.On 24 January 2014, Mr Kwan Chung Kin sold the property for $5,247,000. On 9 April 2014, Mr Kwan Chung Kin purchased, in his sole name, another property at Flat E, 2/F, Block 15, Charming Garden, 8 Hoi Ting Road, Kowloon (“the new property”). The purchase price of the new property was $4,300,000, and there was no mortgage. The inference is that Mr Kwan Chung Kin has kept the difference of nearly $1 million, less costs, for his own benefit. 11.Both Mr Guan and Mr Kwan Chung Kin emphasised the fact that between the five brothers they were not calculating, and there was a high degree of filial piety in the family. Mr Guan’s case 12.Mr Guan’s claim is based upon a straightforward case against his brother for a breach of trust, in reliance upon the documentation produced. He says that he is entitled to one fifth (20%) of the sale price of the property, a sum of $1,049,400. Mr Kwan Chung Kin’s case 13.Mr Kwan Chung Kin admits that the Deed of Gift exists, but says that the true situation was that he had purchased the property in 1984 from Kwan Sau Ho for the sum of $130,000. He says that it was intended that he, Mr Kwan Chung Kin, should be the sole legal and beneficial owner of the property. He says that he wanted to invite his Singaporean aunt, Kwan Kum to live in Hong Kong, and that he wished his brothers, Mr Guan, Mr C K Kwan and Mr C L Kwan, to assist him to dispose of the property for him, after his death. 14.Mr Kwan Chung Kin says that for those reasons, he instructed his solicitor to “put down the names of Kwan Kum, Mr Guan, Mr C K Kwan and Mr C L Kwan in the conveyancing documents”. He says further that neither he nor Kwan Sau Ho intended that those four parties should be beneficial owners of the property. 15.He then says that he and Kwan Sau Ho were advised by the solicitors that the conveyancing costs of transferring title by way of a deed of gift were much less than by way of sale and purchase, and that the deed of gift would have the same effect in achieving their intentions. He says that in reliance on that advice he and Kwan Sau Ho agreed to transfer the property by way of Deed of Gift. 16.He next says that the Deed of Gift was drafted by the solicitors and was not fully explained to either himself or to Kwan Sau Ho or Kwan Kum. He says that those three persons believed that the Deed of Gift reflected the true intention, as described in §§13 – 14 above, and consequently signed the Deed of Gift, without any of the three signatories fully understanding its legal effect. 17.He further asserts, without particulars other than the matters set out in §§13 – 16 above, that the Deed of Gift should be set aside on the grounds of misrepresentation and/or undue influence by the solicitors. In the alternative he says that the Deed of Gift should be set aside as it does not reflect the true intention of the parties, and amounts to a mutual mistake of the parties. 18.A further allegation is that the Deed of Gift should be set aside since a sale and purchase of the property between Kwan Sau Ho and himself had been concluded before the signing of the Deed of Gift, and that Kwan Sau Ho had received a sum of $130,000 from him. Consequently, it is contended, at the time the Deed of Gift was made, Kwan Sau Ho held the property on a resulting/constructive trust for him, and had no capacity to settle the trust as stated in the Deed of Gift. 19.Mr Kwan Chung Kin says that he paid all monthly management fees of the property since 1984, and contributed more than $100,000 in respect of repairs and renovation costs. Mr Guan admits that Mr Kwan Chung Kin paid the monthly management fees and contributed to repairs and renovation costs. However he does not admit the sum of $100,000 in respect of repairs and renovation costs. Mr Guan’s reply 20.By his reply, Mr Guan says that the Deed of Gift was clear on its face, and denies the allegations upon which Mr Kwan Chung Kin says the document should not be found to be effective. The facts in dispute 21.It is not in dispute that after the property was transferred to the Trustees, Mr Kwan Chung Kin and his family lived in the property. Mr Guan says, and I accept, that whenever he came to Hong Kong from China, he “resided” at the property. Mr Kwan Chung Kin denies that, and says that Mr Guan came to Hong Kong very rarely. He says that when Mr Guan came to Hong Kong, he was on a two‑way permit and stayed at the property as Mr Kwan Chung Kin’s guest for one or two nights. Mr Guan did not dispute that assertion. It matters not for the purposes of this case, whether or not Mr Guan stayed in the property or not. 22.Mr Kwan Chung Kin gave no evidence that Kwan Kum ever came to Hong Kong to stay with the property. Equally it does not matter whether she stayed in the property or not. 23.Mr Guan says that sometime between 2004 and 2005, Mr Kwan Chung Kin came to him in China and asked Mr Guan, Mr C K Kwan and Mr C L Kwan to sign documents with him, to apply for a loan from the Hong Kong Government for repairs to the property. Mr Kwan Chung Kin denies this. There is no evidence as to any loan from the Hong Kong Government. I am unable to conclude that this event took place. 24.Neither Mr C L Kwan nor Mr C K Kwan were called to give evidence. No explanation was offered by either Mr Guan or Mr Kwan Chung Kin for this. I place no weight on the absence of their evidence. 25.In June 2014, Mr Guan was told by his sister that Mr Kwan Chung Kin had bought a new property. Mr Guan says that after discovering that Mr Kwan Chung Kin had purchased the new property in his sole name, he asked Mr Kwan Chung Kin why the property had been sold without the consent of the other beneficiaries. Mr Guan says that no definite reason has been given by Mr Kwan Chung Kin in response to the enquiry. 26.In this respect, Mr Kwan Chung Kin now says that the property was to be repossessed for redevelopment. He said that he and his three brothers, at his request, met at an estate agent’s office, who were responsible for dealing with the acquisition of the properties to be repossessed. There they dealt with a Ms Hau. Mr Kwan Chung Kin said that it was at that meeting that he became aware of the consequences of the title documents. When told by Ms Hau of this, he said he refused to sign any documents. 27.As this meeting had not been put at all to Mr Guan, (nor was it in Mr Kwan Chung Kin’s witness statement), I recalled Mr Guan to the witness box in order that he may give evidence of those circumstances. 28.Mr Guan did not dispute that the meeting had taken place. He said that Ms Hau suggested that the repossession of the property for redevelopment should take place and that the funds should be held for the five beneficiaries. Mr Guan said that Mr Kwan Chung Kin rejected that proposal. Mr Guan said that Mr Kwan Chung Kin wanted the funds to be held in an account in the name of Mr Kwan Chung Kin’s wife and son. Mr Guan rejected this proposal. It was agreed that the parties would adjourn to a restaurant for further discussion at a later time. 29.Mr Kwan Chung Kin did not dispute that summary, and I am satisfied that the evidence broadly describes the events that took place, although nothing turns on those events. 30.Some days later, the precise date is irrelevant, the four brothers met at a hotel restaurant together with a barrister, a Mr Tang Yung Loi, the son of Madam Cho Lai Kuen, who was to be called as a witness for Mr Kwan Chung Kin. Mr Tang had with him a document in Chinese, that he had prepared, entitled “Joint Agreement”. 31.It was a simple document which recorded that a developer intended to acquire the property and that the original owner, Kwan Sau Ho had transferred the property by way of a deed of gift to the four Kwan brothers, and Kwan Kum, and that Mr Kwan Chung Kin and Kwan Kum were the designated trustees of the property. The document contained the following terms of agreement:
32.Significantly, the document did not describe the fact that there were five beneficiaries who were, on the face of the document, absolutely entitled to the property. This surprises me. Mr Tang, as a barrister, must have known that, at the very least, the five beneficiaries have some entitlement to the property. He must have known that, if the document was upheld, the five beneficiaries had an absolute entitlement to a share in the property. There was no suggestion that there were any residuary beneficiaries to the trust. I have no doubt that to be able to draw the document Mr Tang must have seen the deed of gift. Any lawyer would know that adult beneficiaries, fully entitled to the trust property may call upon the trustees to transfer that property to them absolutely. 33.A negotiation took place, (described by Mr Kwan Chung Kin as a mediation), in which initially $100,000 was offered by Mr Kwan Chung Kin to each of his three brothers. Mr Guan rejected this proposal, and, in a further discussion in the absence of the other brothers, Mr Guan was offered $150,000. He rejected that offer. The meeting ended with no conclusion having been reached. 34.It is quite apparent from the steps that were being taken, there being no real dispute between Mr Guan and Mr Kwan Chung Kin as to what had taken place, that Mr Kwan Chung Kin was fully aware of the fact that according to the documents, he was merely a trustee of the property for himself, his three brothers and the estate of Kwan Kum. 35.I place no weight upon the evidence of the meetings, other than to record the matter in the previous paragraph as to Mr Kwan Chung Kin’s knowledge of the true situation prior to selling the property and buying the new property. 36.Notwithstanding being fully aware of the fact that he was a trustee for beneficiaries, Mr Kwan Chung Kin instructed solicitors, Messrs Hon & Co, to act for him in respect of a sale of the property, and a subsequent purchase of the new property in Mr Kwan Chung Kin’s name alone. Mr Kwan Chung Kin explained this in his evidence in chief in these terms:
Mr Kwan Chung Kin was not cross-examined on this evidence. I shall refer to the conduct of Hon & Co at the conclusion of this judgment. 37.Mr Kwan Chung Kin’s evidence was that since 1984, he had paid monthly management fees on the property and that he had paid over $100,000 Incorporated Owners of the Property repair/renovation charges. He said he never asked his three brothers to make the same contribution. I accept that he paid monthly management fees and had paid sums in respect of repairs and renovation charges, however the amount was not proved. Payment to Kwan Sau Ho 38.Mr Kwan Chung Kin said that in 1984, he had withdrawn $80,000 cash from his savings in the Bank of China, and had paid that to Kwan Sau Ho. However he was quite unable to produce any evidence of that assertion, having not even gone to the Bank of China to see if he could get copies of his bank records from 1984, to establish either that he had funds in his account, or that a withdrawal of that sum was made at that time. 39.Mr Kwan Chung Kin next said that he had borrowed $50,000 from his employer, Tang Kwong Lam. Mr Tang has passed away, and his wife, Madam Cho Lai Kuen, was called to give evidence. She had no personal knowledge of the loan and could only give evidence of what her husband had told her. Her evidence was that as a traditional family her husband did not shared details of their financial matters with her. 40.Mr Kwan Chung Kin said that that loan was repaid at the rate of $1,666 per month to Mr Tang, in cash, to help pay his house mortgage payment. Again, there was no documentary evidence of those payments. 41.Mr Kwan Chung Kin said that he had paid the $80,000 withdrawn from his bank account, and the cash from the $50,000 loan, to Kwan Sau Ho, as the purchase price of the property. He said there was no receipt. 42.He was unable to explain how it would be that he would be willing to withdraw $80,000 cash from the bank in 1984, and carry it and a further $50,000 to an elderly lady and deliver, in cash, $130,000 to her, when she was on the verge of leaving the property to go to a “spinster house”, an establishment that I understood to be an old folks home for single women. He was unable to offer any explanation as to why either he or Kwan Sau Ho would not be afraid of losing such a substantial sum in cash when in the street. 43.The only other witness was Luk Chiu Ho, who had sneaked into Hong Kong in 1978 with Mr Kwan Chung Kin. He is Mr Kwan Chung Kin’s cousin, and they share the aunts, Kwan Sau Ho and Kwan Kum. Mr Luk said that he recalled Kwan Sau Ho inviting him to her home and telling him that the property had been sold to Mr Kwan Chung Kin at a lower than market place because she had got old and the property was large for her to live alone. He said she needed cash to move to the spinster house for the rest of her life. 44.Mr Luk gave no evidence at all as to why he would remember this conversation, some 30 years ago. Mr Luk and Mr Kwan Chung Kin have remained friends ever since. 45.Although Kwan Sau Ho was Mr Luk’s aunt, I think it unlikely that, if she intended to sell the property to her nephew, his cousin, Mr Kwan Chung Kin, and at below market price, in other words to favour him in a transaction, she would tell another of her nephews. In the absence of any sensible reason why she should do that, I am unable to place any weight on Mr Luk’s evidence. 46.I am unable to place any real weight on the evidence of Cho Lai Kuen, as I am not satisfied that she would have had sufficient knowledge of the circumstances of any transaction undertaken by her husband. Further, her continuing friendship with Mr Kwan Chung Kin, as with Mr Luk’s continuing friendship, puts them in a position where, in the absence of an independent reason for accepting their evidence, little weight can be put on it. 47.The onus of proof is plainly on Mr Kwan Chung Kin to establish that he has made payment of $130,000 to Kwan Sau Ho. In the absence of any independent evidence to establish that Mr Kwan Chung Kin accumulated the sum of $130,000 in the manner described, or of the fact of payment to Kwan Sau Ho, or repayment to Mr Tang Snr, and for the further reasons enunciated below, I am not satisfied that it is established on the balance of probabilities that the payment was made. The preparation of the deed of gift 48.Mr Kwan Chung Kin said that having paid Kwan Sau Ho $130,000, she and he went to solicitors, M K Lam & Co, the solicitors who had acted for Kwan Sau Ho on her acquisition of the property. He said that he gave instructions for the transfer of the property to him. 49.His evidence was that when he told the solicitors of the arrangement that had been made, and the payment that had been made, he said that he wanted his aunt from Singapore, Kwan Kum, to be able to come and stay in the property with him, and that he hoped his three brothers would help him with the property on his behalf after his death. He said that he did not intend to give any ownership to his brothers or Kwan Kum. 50.His evidence was that the advice he received from the solicitors was that the transfer of ownership should be undertaken by way of a gift, because this arrangement would cost less than a sale and purchase transaction, and could also achieve their intention. He said he agreed to the transaction in that way and the matter was concluded. He said there was no comprehensive explanation of the documents to either him or Kwan Sau Ho or Kwan Kum. He denied that the document was interpreted to them in Cantonese, notwithstanding the certificate on the document. 51.Despite having previously been legally represented in these proceedings, Mr Kwan Chung Kin said that no notification of a claim in negligence had been made to M K Lam & Co in respect of the allegations he was now making as to the incorrect nature of the documents. Further, despite that previously legally representation, neither he nor his former solicitors in these proceedings had gone to M K Lam & Co to make any enquiry to see whether or not the file could be retrieved. 52.Significantly, no enquiry had been made as to whether or not Leung Siu Wa, an employee of M K Lam & Co who certified that the documents had been interpreted into Cantonese for the parties, was available to give evidence. 53.Despite making an allegation in the statement of defence of undue influence, there were no particulars of the undue influence. Neither did Mr Kwan Chung Kin give any evidence of any activity, action or statement on the part of any person at the solicitors’ firm which might constitute undue influence. 54.There was no evidence at all to support the assertion made that to carry out the transaction by way of the preparation of a Deed Gift and an Assignment would involve less costs. Even if the conveyancing file were no longer available, I have no doubt at all that there are expert conveyancing solicitors in Hong Kong who were in practice in 1984, who would be able to give such evidence. 55.It is difficult, if not impossible, to imagine how any solicitor, having received the instructions described above, would undertake the transaction by way of a deed of gift to trustees, to act as trustees for five adult beneficiaries. 56.If, as Mr Kwan Chung Kin says, the property was to be purchased by him for $130,000, and he wished his aunt from Singapore to be able to stay with him, the advice would undoubtedly be that his aunt did not need to be on the title to enable her to come and stay with him, particularly in a family that greatly respected filial piety. 57.Second, if the property was to be his alone with no entitlement in his brothers, and the involvement of his brothers was to deal with the property after his death, the advice would be to prepare an appropriate will to protect his estate. There would be no need at all, if the purpose of involvement of the brothers was to deal with an estate, to make them joint beneficiaries of the trust together with Kwan Kum and Mr Kwan Chung Kin. 58.On the other hand, the transaction as structured, is entirely understandable. It would be quite normal for a senior childless aunt to wish her spinster sister and her nephews to share in the property after she left it in retirement. 59.Mr Kwan Chung Kin said that at that time, 1984, he had little hope that his brothers would ever be able to make it to Hong Kong to live here. In those circumstances it would be entirely sensible to anticipate that the only nephew living in the Hong Kong, Mr Kwan Chung Kin, would be able to reside in the property, with the Singaporean sister visiting from time to time, and that the elderly aunt would wish for the bounty of the property to be shared between her sister and her nephews, the four brothers. 60.The difference between the advice that would more likely than not be given upon the instructions asserted by Mr Kwan Chung Kin, and the steps that were taken, are so vastly different that I am unable to accept that the instructions asserted were in fact given by Mr Kwan Chung Kin. I find that it is more likely than not that the Deed of Gift accurately reflects the instructions given by Kwan Sau Ho. 61.Bearing in mind the plain statement on the face of the Deed of Gift that the document was interpreted to the parties, and in the absence of any evidence that the documents were misrepresented to either Kwan Sau Ho, Kwan Kum or Mr Kwan Chung Kin, or that there was any undue influence, and the obvious conflict between the advice that would most likely be given, and the terms of the documents, I reject the evidence of Mr Kwan Chung Kin as unbelievable. 62.The absence of any evidence from Mr Kwan Chung Kin as to anything that might amount to undue influence leads more likely than not to the conclusion that the pleading in the statement of defence was an optimistic assertion by a solicitor of a case that might one day if the evidence was available, be mounted. At the end of the day, that case is quite devoid of evidence. The same may be said of the pleadings in the statement of defence as to misrepresentation, mistake, and a sale giving rise to a constructive trust. 63.It may well be that Mr Kwan Chung Kin did give some money to Kwan Sau Ho to assist her in her life in retirement. That he would do so is understandable as he was the nephew who was going to be able to live in the property, his other three brothers being in China with little hope of ever being able to come permanently to Hong Kong to enjoy full use of the property. Conclusion 64.For the foregoing reasons I am satisfied that the Deed of Gift genuinely reflects the intention of Kwan Sau Ho, and that there is no reason why the document should not be given its full force and effect. 65.I accordingly hold that Mr Kwan Chung Kin acquired title to the property as a trustee on behalf of himself, Kwan Kum, and his three brothers. By selling the property as he did, and in purchasing the new property for a lesser sum in his own name, and retaining the difference, Mr Kwan Chung Kin is in breach of that trust. 66.Mr Guan is entitled to judgment in the sum of $1,049,400, being one fifth of the sale price of the property. There will be judgment accordingly. 67.The prayer for relief sought damages for the breach of trust. Ms Kung made no submission that there should be additional damages and I make no assessment. Mr Guan is entitled to interest on the amount awarded in the usual way. Costs 68.There will be an order nisi that Mr Guan will have his costs on a party and party basis, to be taxed if not agreed. Hon & Co 69.The conduct of the solicitors, Hon & Co, is a serious matter. The Deed of Gift was plain on its face in that it established a trust on the part of Mr Kwan Chung Kin in respect of himself, Kwan Kum and his three brothers. On the face of the document, the beneficiaries, all being adults, were entitled to call upon the trustees to transfer the property to the beneficiaries absolutely. 70.I do not make any findings against the solicitors, because I have not heard from them. But on the face of it, it was not for them to make a decision on the instructions of Mr Kwan Chung Kin that the property was his alone, and to act for him, enabling him to sell the trust property and apply the proceeds for his own personal use. By doing so they appear to have exposed Mr Kwan Chung Kin to this litigation, and on the face of it, appear to have exposed him not only to the findings I have made against him, but also the award of costs made against him. 71.At the least, there is a good argument to say that the solicitors have acted negligently in their conduct of Mr Kwan Chung Kin’s instructions. They may well also have breached their duty as solicitors, contrary to Principle 6.01 of The Hong Kong Solicitors’ Guide to Professional Conduct, (the duty to act competently). 72.For these reasons I direct the Registrar to forward a copy of this judgment to the President of the Law Society, by way of a disciplinary complaint, for action by the Disciplinary Committee of the Law Society. A copy of the judgment is to be forwarded by the Registrar to the senior partner at Hon & Co. 73.I will leave it to Mr Kwan Chung Kin to take his own legal advice as to any claim of negligence he might wish to make against the solicitors who acted for him on the sale and purchase.
Ms Athena Kung, instructed by Danny Lau & Co, for the plaintiff The defendant appeared in person [1] There was no explanation on the evidence of TIN SANG, whom I understood to be the property redeveloper. | |||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 1728/2014