Ho Lai Lei and Another v. Mang Wan Kwan Simon and Another
Read the full judgment text of HCA 2147/2015 on BabelCite. This High Court CFI judgment was delivered on 25 March 2020.
1. The Plaintiffs are the Mother and Father respectively(collectively “ the Parents ”)of D1 (“ Mang ”). D2 (“ Madam Tse ”) is the ex‑wife of Mang. The Mother and Father claim equitable compensation from Mang and Madam Tse pursuant to a post-acquisition common intention constructive trust in respect of a property purchased in the name of Mang.
Cited by 2 cases · Cites 7 cases
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HCA 2147/2015 [2020] HKCFI 527 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2147 OF 2015 ____________
____________ Before: Hon Au-Yeung J in Court Dates of Hearing: 9, 10 and 15 October 2019 Date of Judgment: 25 March 2020 ________________ J U D G M E N T ________________ A. INTRODUCTION 1.The Plaintiffs are the Mother and Father respectively(collectively “the Parents”)of D1 (“Mang”). D2 (“Madam Tse”) is the ex‑wife of Mang. The Mother and Father claim equitable compensation from Mang and Madam Tse pursuant to a post-acquisition common intention constructive trust in respect of a property purchased in the name of Mang. 2.The claim is based on an alleged Oral Agreement made between the Parents and Mang in the presence of Madam Tse such that the Parents would contribute to mortgage repayments in return for beneficial ownership in the Property. Mang acted in breach of the constructive trust by transferring the Property to Madam Tse. 3.Madam Tse denies the existence of the Oral Agreement or her knowledge of it. She claims that the property was a gift from Mang and a new mortgage was taken out in her name, which she had solely repaid. 4.The Parents claim that Madam Tse was not a bona fide purchaser for value without notice in that she had knowledge of the Oral Agreement or otherwise had constructive notice of the Parents’ interest in the property; she also had not paid for the full purchase price of the property. 5.Mang has not filed a defence. He only filed an affirmation in opposition which simply stated that in dividing assets between them, Madam Tse had already got 80% of the proceeds of sale of the Property and thus had no basis for seeking an indemnity. B. UNDISPUTED FACTS 6.The facts in this section are either supported by documentary evidence or are largely uncontroversial. 7.The Father and Mother were born in 1943 and 1947 respectively. They moved from Hangzhou to Hong Kong in the 1980s. The Mother washed dishes in a restaurant and still does. The Father was a security officer until he retired in 2012. He still does part-time jobs. 8.The Parents purchased their first property at Gillies Avenue. The family later moved to a property at Full Hang Court in Hung Hom bought in the name of the younger son in 2002. There is issue over whether it was the Parents or the younger son who beneficially owned this property. 9.Mang rented Flat C, 2nd Floor, Bowie Mansion, No.49 Ma Tau Wai Road, Kowloon (“the Property”) in 2000 and bought it in October 2001 in his sole name. The purchase price was $1,180,000, funded by:
10.Mang and Madam Tse cohabited at the Property from 2000 to about 2006, broke up and got reunited in 2008. They got married on 10 October 2010. They lived at Tin Fu Building opposite to the Property. The Property had hardly been a matrimonial home. 11.After sale of Full Hang Court, the Parents and the younger son lived with Mang and Madam Tse at the Property since about November 2005. The younger son lived there until 2008. 12.In 2011, Mang transferred the Property to Madam Tse as a purported gift (“the Transfer”). The gift took the form of a sale and purchase agreement on 11 April 2011 and assignment on 20 May 2011 at a consideration of $2,000,000. There is no dispute that Madam Tse had not paid the stated “deposit” of $600,000 to Mang and she bore the monthly repayments of the DBS Mortgage herself. 13.A fresh mortgage for $1,400,000 with DBS (“the DBS Mortgage”) was taken out in the sole name of Madam Tse. After paying off the prior incumbrances, Mang took away about $125,000. 14.Shortly thereafter, Mang left Madam Tse, who moved to live in a rented unit above the Property. She could not afford the rent and thus returned to reside at the Property on a day in June 2011 until she left in July. 15.In about mid-June 2011, Mang suddenly came to the Property and said he wanted the Property sold. The Parents asked where they should live if the Property was sold, but Mang insisted on selling as he needed money. He eventually did not sell or evict anyone. 16.Madam Tse petitioned for divorce in December 2011 and sought to evict the Parents. Mang sought a share of the Property, the most substantial matrimonial asset, in the ancillary relief proceedings. 17.As early as 2012, the Parents had, through letters to Madam Tse’s then solicitor (“Mr Ho”) and letters to the Family Court, alleged contribution towards repayment of the Mortgage. Regrettably, the Parents had never been joined as a party and the Son had decided not to call them as witnesses in the ancillary relief proceedings. 18.By a judgment dated 15 October 2013, the Family Court ordered a sale of the Property, with the proceeds being divided as to 80:20 between Madam Tse and Mang (“the AR Judgment”). 19.The Mother’s attempt to intervene after the AR Judgment was refused. The Parents were evicted by the bailiffs in May 2014. 20.The Property was sold on 23 February 2015 for $3,880,000. Madam Tse got $1,938,625.46 and Mang got $484,65.37 out of the net proceeds. 21.The Parents instituted the present action on 15 September 2015. Their case was that in August/September 2005, there was an Oral Agreement between them and Mang whereby:
22.There is dispute as to whether Madam Tse was present at the time the Oral Agreement was made. 23.The Parents had acted upon the Oral Agreement by selling Full Hang Court and repaying 70 instalments of the Mortgage until Mang told them to stop. They only learnt about the Transfer when she came back to live at the Property sometime in June 2011. She stayed there for about a month before moving out. There was discussion as to transfer of the Property to the Parents, sale of the Property and treatment of the proceeds. Transfer of the Property to the Parents was out of the question as no bank was willing to lend due to the age of the Parents. 24.In that period, Madam Tse made an entry dated 18 June 2011 in her diary (“the Diary Entry”), the interpretation of which is in dispute. 25.The Parents now seek 50% of the net sale proceeds of the Property as equitable compensation. 26.Madam Tse denies existence of the Oral Agreement or her knowledge of it. She refers to Mang’s evidence in the ancillary relief proceedings that it was he who had been repaying the Mortgage of the Property. 27.On 25 September 2015, on the application of the Parents for a preservation order, Mang gave an undertaking to Lok J to pay $240,000 into court. He never did and the Parents never enforced that undertaking. Apart from filing a short affirmation, he never appeared in the present proceedings. C. ISSUES 28.The issues are:
29.Mr Cheung, counsel for the Parents, confirms that he will not pursue the cause of setting aside the order under the AR Judgment. Mr Chow, counsel for Madam Tse, confirms that he will not pursue the point about res judicata and abuse of process. These are correct positions to take because the AR Judgment does not bind the Parents, whose claim has never been adjudicated on the merits. D. THE WITNESSES 30.The Parents and Madam Tse gave evidence. Credibility on the Oral Agreement was crucial. In deciding whose version to believe, the court should consider the inherent probabilities and great weight would be put on contemporaneous documents. 31.Madam Tse suggested that there might be collusion between the Parents and Mang, caused by the result of the ancillary relief proceedings. Material non-disclosure of Mang’s financial condition had always been at the heart of the ancillary relief proceedings. Mr Chow suggests that Mang clearly knew that the Family Court would make adverse finding against him. In order to have a second bite of the cherry, there was incentive on the part of the Parents and Mang to collude so that documents like the Mortgage repayment slips and receipts of management fees were not produced at the Family Court but only in these proceedings. 32.Mang helped the Parents to obtain bank records of repayment of his bank account, after the AR Judgment. With respect to Mr Chow, it would have been simpler and more costs-saving for Mang to produce those documents to support his case in the Family Court that the Mortgage repayments were solely borne by him. 33.Moreover, the original deposit slips with regard to the repayments were in the possession of the Parents. It was more likely than not that they had repaid. Mang had not obtained those documents for the ancillary relief proceedings, probably knowing that he could not avoid giving the Parents a share if he had. 34.Then Madam Tse pointed to the Parents’ failure to enforce the undertaking to Lok J. However, the Parents have explained why, in view of the costs involved and the potential difficulty in serving Mang who resided in Mainland China, they did not pursue committal proceedings. I find that to be a reasonable explanation, especially since, without disrespect, the amount involved in this case was not enormous. 35.I am not satisfied that there was collusion between the Parents and Mang. 36.Having heard them, I find the Parents and Madam Tse to be honest witnesses. However, the Parents sometimes could not distinguish clearly between what was actually said and their opinion of a state of affairs. The court has to be careful in sifting the facts from their opinion. It will become apparent from the analyses below, that all 3 of them have been victims of Mang’s conduct. E. THE LAW ON COMMON INTENTION CONSTRUCTIVE TRUST 37.Beneficial ownership follows the legal title. The burden is on the party disputing this (in this case, the Parents) to establish the contrary. 38.As summarized in the headnote to Chan Chui Mee v Mak Chi Choi [2009] 1 HKLRD 343, §§16-30, Lam J (as he then was) held that determination of beneficial ownership under a common intention constructive trust involves a two-stage test. First, the key is to establish the parties’ true common intention that the claimant should have a beneficial interest. Second, it is necessary to ascertain the extent of the parties’ respective interests in the property, by adopting a holistic approach to quantification, surveying the whole course of dealing and conduct which threw light on what shares the parties must have intended. The court could not impose its own view of what it considered fair. This was affirmed in Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985, §§6.1-6.3, Cheung JA. 39.As this is a post-acquisition common intention constructive trust, this would imply a change in the ownership of the property. In the absence of an express post-acquisition agreement, compelling evidence was required to support an inference that there was a fresh agreement as to beneficial ownership before the court can give effect to the common understanding. In that situation, there must be some evidence to infer that the original beneficial owner has agreed to give up some of his interest in the property in favour of the other party: Chan Chui Mee, §§34-36. 40.In a domestic context, particularly in relation to a matrimonial home, the court is not constrained in the holistic approach by pure direct monetary contributions to the purchase price. In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family are not that common, the court has to pay more regard to circumstantial matters. See Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327. 41.Detrimental reliance and unconscionability of the property owner departing from the common intention remain requirements of common intention constructive trust: Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, 16, §38, Ribeiro PJ; Mo Ying, §§5.17. F. ISSUE 1 – WHETHER THERE WAS AN ORAL AGREEMENT BETWEEN THE PARENTS AND MANG IN AUGUST/SEPTEMBER 2005? 42.It is the Parents’ case that the Oral Agreement was formed in about August or September 2005. In November 2005 when they moved into the Property, Mang confirmed to the Parents in the presence of Madam Tse that the Parents had a share in the Property (“the 2005 Confirmation”). In July/August 2006, Mang and Madam Tse had such a heated argument that the police was summoned. The Father asserted before Mang and Madam Tse that the Parents had a share in the Property (“the 2006 Assertion”). F1. The Oral Agreement 43.According to the Parents, one evening in about August 2005, Mang and his then girlfriend, Madam Tse, went to the Parents’ home. Allegedly, Mang told the Mother that he had problem with his business. He could not afford to repay the mortgage and the bank was about to reclaim possession. He hoped that the Parents could help by selling the property at Full Hang Court. He said that the podium was big and he could live there. He then told the Mother that in future she and the Father would have a share. 44.The Mother claimed that after discussion with the Father, they agreed that they would not be able to afford to repay mortgages for 2 properties at the same time. They had to sell Full Hang Court. 45.On the following day, Mang called. The Mother allegedly told him that the Full Hang Property had to be sold before they could help Mang; so the Parents had to move in to live with Mang. But she said that the Parents had to have a share in the Property. Mang said, “No problem. No big deal even if the whole Property was given to you.” He promised the Mother that he would not sell the Property without the consent of the Parents. 46.Madam Tse denied such happenings and effectively put the Parents to strict proof. 47.I remind myself that an oral agreement is easy to allege but hard to prove. The Parents may not know what constituted an oral agreement in the eyes of the law. However, they would know that Mang had promised to give them a share in the Property. 48.Yet, the Father’s letters (collectively “the Letters”) were telling:
More details unfolded with each Letter, yet none of them asserted an oral agreement of any kind or Madam Tse’s presence when the Oral Agreement was made. 49.That said, I find some support of the Parents’ version in Mang’s own conduct. 50.Firstly, Mang’s version in the Family Court was that he was responsible for repayment of the Mortgage but there was not much documentary proof (§49 AR Judgment). In the present proceedings, he avoided taking a stance for or against the Parents in the only affirmation that he filed. 51.Secondly, just before commencement of the present action, Mang helped the Parents to obtain the repayment records of the Mortgage. This was borne out by a letter from the mortgagee to Mang addressed to his aunt’s address (where the Parents have lived since eviction from the Property). Plainly, Mang knew that the Parents had contributed to the mortgage repayments. 52.Apart from Mang’s conduct, the bank statements confirmed that several instalments had been outstanding in about August/September 2005 and it was a reasonable inference that the bank had threatened recovery of possession. There was also the Parents’ possession of the original deposit slips, which strongly suggested their repayments. 53.The Parents were not, without disrespect, very eloquent persons. Despite the less than perfect evidence from them, I am satisfied that there was an oral agreement between them and Mang for the Parents to assist in repayment of the Mortgage. The Mother had told Mang that the Parents had to sell Full Hang Court to be able to help Mang. Part of the oral agreement was that the Parents could live at the Property. 54.I am satisfied from the Parents’ evidence that the Father did not have a good relationship with Mang. They were not on speaking terms. The Mother was the point of contact with Mang. The Parents hardly met Mang even when they were living at the Property. The Father gave money to the Mother and left her to handle the family finance. He did not even know that the Mother had given $30,000 to Mang when Mang purchased the Property. He left it to the Mother to decide whether or not to help Mang and to talk to Mang. I am satisfied that the Mother was also acting on behalf of the Father in entering into the Oral Agreement with Mang. 55.With regard to whether or not the Parents were promised a share in the Property, the Father gave various versions:
56.Further, in the Letters, the Father never asserted that Mang had promised them a share in the Property. It was not until 21 May 2014, after the AR Judgment, when the Mother filed an affirmation in the Family Court in support of her application to seek stay of execution of judgment that she first asserted that the Parents were promised a share in the Property. 57.The Father gave the unconvincing explanation that the promise was made by Mang to the Mother. He simply overlooked the fact that the promise was accepted by the Mother on his behalf as well. 58.The Father also explained that he did not want Mang and Madam Tse to engage in litigation. However, this explanation contradicted the fact that the Letters were written in the course of their litigation. 59.The Father further explained that “he wrote down what he had done”. That, in my view, reflected the truth. There was an Oral Agreement between Mang and the Parents that the latter would aid in repayment of the mortgage, which they performed. However, there was no express agreement that the Parents would have a share in the Property. This is where I find the Parents, though honest witnesses, had confused between what was actually said, and what they thought should have been the position. F2. The 2005 Confirmation 60.According to the Mother, on the day the Parents moved into the Property, Mang and Madam Tse went to the master bedroom to see if the bed was properly installed. At the small space which they called “corridor”, the Parents, Mang and Madam Tse were present. The Parents said, “We have moved in. We have a share in the Property (我地有份).” 61.Given my doubts as to whether or not there was express agreement that the Parents would have a share in the Property, I approached the evidence with caution. 62.The Father said that he had not “voluntarily” moved into the Property, which was probably true as he would not have wanted to live with a son whom he was not on talking terms with. He said to Mang loudly, that the Father had worked hard for his whole life but had no property to live in. It was then that Mang retorted, “Give you the whole property, then what?” (成層樓比哂你，咁點呢?) 63.I find this to be probably true, coming from the mouth of a father who wanted to have security in accommodation after having to provide the hard earnings of his life, and from the mouth of a son who was not on close relationship with the Father. I accept the Parents’ evidence that the 2005 Confirmation did occur. F3. The 2006 Assertion 64.In 2006, police came to the Property as a result of a dispute between Madam Tse and Mang. The Father allegedly said to them, “All along I did not care about your matters. But why would you quarrel to such an extent as to summon the police? This Property is ours. We also need face. You can move out but we cannot.” 65.Under cross-examination the Father vacillated between admitting that he had said “the Property is ours”; and denying it was said. He said that it was his state of mind. He said that he spoke to Mang who was at the corridor whilst Madam Tse was in the living room, the 2 places being very close. 66.This piece of evidence appeared only in the Mother’s witness statement. The Mother admitted in the witness box that she was not present at that time but the Father subsequently told her about it. 67.Given the vacillating nature of the evidence, I am not satisfied on balance of probabilities that the 2006 Event had happened. G. ISSUE 2 – WHETHER THE ORAL AGREEMENT GAVE RISE TO A COMMON INTENTION CONSTRUCTIVE TRUST OVER THE PROPERTY? 68.The court should look at all the surrounding circumstances at the time the Oral Agreement was made. The Father and Mang were not on speaking terms. Due to the need to work, members of the household seldom talked and the relationship was not close. Mang chose to make the request to the Mother alone. 69.The Parents already had accommodation even though it was in the younger son’s name. There was no reason for them to move to the Property. According to the Mother, she thought that a natural son was not as good as near money (親生仔不如近身錢). And yet, as Mang was told by the Mother, the Parents gave up Full Hang Court to meet the Mortgage. 70.Madam Tse was told by Mang that the sale of Full Hang Court was to reduce the younger son’s gambling debts. Whilst I accept that she was so told, I find that Mang had cheated her, as the evidence firmly established that the timing of sale of Full Hang Court, the Parents’ move into the Property and the payment in October 2005 of 5 outstanding Mortgage instalments dovetailed the Oral Agreement. 71.Further, the younger son had a stable job, as opposed to Mang having to face risks of loss in business. There was no evidence that the younger son was in financial trouble. According to the Mother, Mang had helped the younger son to study in Canada. The younger brother had every reason to assist Mang in return. I accept the Mother’s evidence and find that sale of the Full Hang Court was for the purpose she described. 72.Mang’s request for repayments was of unlimited duration. The Parents were approaching retirement but still acceded to the request. The Father even used his retirement fund to reduce the Mortgage subsequently, which he would not have to if he just wanted to repay the younger son’s debt. 73.When one considered the relationship of this conservative family, one could understand why things were not said in explicit terms. Instead of denial of the Parents’ rights altogether, the 2005 Confirmation was Mang’s subtle acknowledgement that the Parents would have rights over the Property. 74.I find there to be a common intention between the Parents and Mang that the Parents would have beneficial ownership and right to accommodation over the Property. The Oral Agreement gave rise to a common intention constructive trust over the Property. The question of common intention over the Parents’ share is dealt with in Section L below. H. ISSUE 3 – WHETHER THE ORAL AGREEMENT WAS MADE IN THE PRESENCE OF MADAM TSE OR WITH HER KNOWLEDGE? 75.The pleaded case of the Parents about Madam Tse’s knowledge contained 3 limbs: (i)at the time of the Oral Agreement; or (ii) at the time she lived in the Property in June 2011; or (iii) before the start of the matrimonial proceedings in about 9 December 2011. See §17(b) of the re-amended statement of claim. 76.With regard to limb (i), the Parents’ case was that Madam Tse was present when the Oral Agreement was made. 77.Madam Tse denied and said that she and Mang’s relationship had been deteriorating during 2005 and she rarely met the Parents. Effectively, she put the Parents to strict proof. 78.Madam Tse was living at the Property between about 2005 and 2006 when the Oral Agreement was made. Mr Chow submits that if Mang had made the promise to the Parents and Madam Tse was present, it was inconceivable that Madam Tse would have said nothing or shown no response at all when the arrangement would have affected her, not financially but in the daily life sense. 79.I do not find this to be the necessary inference. The Parents and Madam Tse had a good, though not close, relationship. I would not be surprised if she raised no objection to their residing with her if she had known that the Parents would help in repaying the Mortgage. 80.Mr Chow also points out that the Mother had never ascertained whether or not Madam Tse could have helped Mang before committing herself to repayment. I do, however, accept the Mother’s explanation that she found it embarrassing to ask Madam Tse, who was not wedded to Mang then, why she would not assist in repayment. 81.I have alluded to the fact that none of the Letters mentioned Madam Tse’s presence when the Oral Agreement was entered into. There was no circumstantial evidence to show her presence. The Oral Agreement was concluded on the following day by telephone conversation between the Mother and Mang. There was nothing to indicate that Mang had told her about the contents of that telephone conversation later. 82.I would add by way of passing that Madam Tse testified that the Mother spoke the Hangzhou dialect and Madam Tse could not understand her. The Mother claimed to have used Cantonese. With respect, the Mother’s Cantonese (as used in the witness box) carried a very strong accent. Often, the court had to ask her to repeat before fully grasping what she said. She admitted that, in the witness box, she had spoken slower and softer than in daily life. 83.I am of the opinion that even if Madam Tse was present at the time of Mang’s request to the Mother, it was unlikely for her to have understood the Mother. However, she would have understood Mang. Her failure to understand the Mother was irrelevant. If I were satisfied as to Madam Tse’s presence, I would find that she knew about the Oral Agreement. 84.With regard to the 2005 Confirmation, Madam Tse would have understood the Father. Even though he had an accent, his punti (as used in the witness box) could be said to be fluent and easily understood. 85.However, without knowledge of the Oral Agreement, the conversation between father and son was, properly understood by a bystander like Madam Tse, a father’s expression of regret that he had no secure accommodation and a son’s impolite retortion. I am not satisfied that the 2005 Confirmation would have caused Madam Tse to wonder if the Parents had interest in the Property. 86.Madam Tse pleaded that she only first knew about the Parents’ contribution towards the Mortgage whilst she and Mang were arguing for separation and divorce in 2011. 87.The event in June 2011 when Mang asked for the sale of the Property was actually quite odd, for neither Madam Tse nor the Parents asserted their respective beneficial interest before Mang or one another. 88.During the one month when Madam Tse resided with the Parents in June/July 2011, she made the Diary Entry:
89.Madam Tse explained that she was in a depressed state then. She was struggling between continuation of the marriage and divorce. The Diary Entry meant that she found the Parents pitiful as Mang did not take care of them but she wanted to. She indicated to them that she would sell the Property and, as admitted by the Parents, she might give some proceeds of sale to them. She had thought of selling the Property but was unable to do so because the Parents were in occupation. 90.Further, according to Madam Tse, the initial intention was to add their names to the Property, not transfer the Property to them. I find this to be her recognition of the Parents having interest in the Property. It was just that the bank would not allow such addition by way of gift. 91.Both Madam Tse and the Parents had gone to banks to ascertain if the Parents could take out a mortgage but met with a refusal because of the age of the Parents. The Parents had suggested keeping the Property in the name of Madam Tse whilst the Parents would continue with the DBS Mortgage. However, because Madam Tse wanted a clean break from Mang, she declined the suggestion. 92.Even accepting that Madam Tse was in a depressed state, I am not satisfied that it affected her thoughts about property rights. The first part of the Diary Entry showed that she had wanted to give up everything and escape. The best way would thus be to sell the Property. And yet she stated that she had never thought of selling but returning the Property to the Parents. She wanted to find ways to help them repay the mortgage. This was recognition of their obligation to repay. Asking them to raise a mortgage with a bank was not helping them to repay. It was not necessary for her to consider the interest of the Parents if she truly believed that the Property belonged solely to her. 93.I have read through the whole Diary. The tone of the Diary Entry was telling. Madam Tse expressed no anger at Mang’s suggestion to sell; nor Mang’s prior misrepresentation to her that the Parents did not have interest and that the Parents knew of the Transfer. She was wholly focused on the welfare of the Parents, which I find to be genuine. 94.I find that the Diary Entry showed that Madam Tse had knowledge about the Parents’ contribution to the Mortgage (although not the extent of it) and might have beneficial interest under limbs (ii) and (iii) of the Parents’ pleaded case on “knowledge”. However, it was a quantum leap to infer from that that she must have actual knowledge of the Oral Agreement under limb (i) of the Parents’ pleaded case and I decline to draw that inference. J. ISSUE 4 – WHETHER MADAM TSE WAS LIABLE AS A CONSTRUCTIVE TRUSTEE ON THE BASIS OF KNOWING RECEIPT? J1. Legal principles 95.Prior equitable interests bind a person who takes land without valuable consideration. See Megarry & Wade, 2019, 9th ed, para.4-012, p 74:
96.The Parents sue Madam Tse only on the basis of knowing receipt of the Property transferred to her in breach of trust by Mang but not dishonest assistance. J2. Bona fide purchaser for value 97.Madam Tse regarded the Transfer as a gift. In her affirmation in ancillary relief proceedings, she stated:
98.In the assignment, Madam Tse was stated to be a purchaser instead of donee, a perfectly acceptable phenomenon in Hong Kong to facilitate future sale to third parties. There is no dispute that she had not paid the deposit of $600,000 to Mang. I accept her evidence that the DBS Mortgage enabled Mang to obtain cash of about $125,000 (§50 of the AR Judgment) after redeeming all incumbrances (including his debts). She did not really know where the cash had gone. Mang claimed in the ancillary relief proceedings that the money was used on the marriage celebrations. 99.The stamp duty of the Property was based on a market price of $2,600,000. Accordingly, Madam Tse provided consideration at about 54% of the market price in the form of the DBS Mortgage. Transfer at such a substantial discount of the market price made the Transfer a significant gift. 100.The assertion of a gift appeared at first sight to contradict Madam Tse’s position before the Family Court where she claimed only 50% interest in the Property: §§11 & 13 of the AR Judgment. It was also consistent with her failure to assert the gift in June 2011. 101.However, one has to bear in mind that in ancillary relief proceedings, save for very special circumstances, the matrimonial assets would be equally divided and it was not wrong for Madam Tse (with legal representation) to think that she was only entitled to half. 102.In any case, had Mang wanted to retain some interest but needed cash for use, he could have raised a second mortgage on the Property without transferring to Madam Tse. 103.As will be analyzed below, whether it was a gift would not make much difference to the outcome of this case (paragraph 138 below). 104.The Parents claimed that the Son and Madam Tse had colluded to cheat the bank for loans. I consider this to be the Parents’ opinion only. The truth, I find, was that Mang cheated Madam Tse by saying it was a gift to her, when in fact he wanted to free himself from liability under the Mortgage. 105.For the reasons given in this sub-section, although there was no bad faith on her part, Madam Tse could not be regarded, in the eyes of equity, as a bona fide purchaser for value. J3. Lack of notice of the Parents’ interest in the Property 106.In relation to “knowing receipt”, there are 3 types of recipients:
107.Different consequences apply to each type of recipient:
108.Knowledge and notice are different things. A person may be regarded as having notice of a fact not because he knows it, but because for legal purposes he is to be taken to know it. In practice, however, this distinction is not always observed. See Megarry & Wade, The Law of Real Property, 9th ed, 2019, §5-016(a). 109.Notice can be actual or constructive. Constructive notice by the purchaser of another person’s prior equitable interest operates to defeat the purchaser’s priority over the property:
Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985,§§8.5, 8.6, citing Barclays Bank Plc v O’Brien [1994] 1 AC 180, 195 and Lewin on Trusts, 19th ed, §33-023. 110.It is an ancient rule that the fact of possession constitutes notice of the rights of the possessor:Megarry & Wade, §5-019. 111.In Wong Chim Ying v Cheng Kam Wing [1991] 2 HKLRD 253,the Court of Appeal agreed with the statement of law by the then edition of Snell that, “it is now settled that if the land is occupied by a person jointly with the vendor, usually his wife or other relative, this occupation will be constructive notice of any rights stemming from a contribution to the purchase price.” (at p273E-G, underline added) 112.A purchaser should make all usual and proper enquiries as to the existence of equitable interest before he could plead absence of notice. See Megarry & Wade, 2019, 9th ed, §§5-016-020, pp114-116:
113.The Parents had been in possession of the Property, initially with Mang, and continued even after Madam Tse left the Property. There were other circumstances which would have alerted Madam Tse to make enquiries as to the Parents’ beneficial interest:
114.Applying Lewin on Trust (paragraph 107 above), I find that Madam Tse was a type 2 recipient, ie a “purchaser for value with notice” of the Parents’ beneficial interest, which she could have verified with proper enquiries of the Parents. The notice at the time of the Transfer was not complete but latest by June 2011, she had acquired sufficient knowledge to fix her with liability as a constructive trustee. K. ISSUE 5 – WHETHER THE PARENTS ARE ENTITLED TO EQUITABLE COMPENSATION? 115.The court needs to consider whether the Parents had acted in accordance with the common intention, suffered detriment and whether it was unconscionable for Mang to depart from the common intention. K1. Parents acting in accordance with the common intention 116.The Parents had honoured the terms of the Oral Agreement. by repaying 5 outstanding instalments of $22,500, monthly sums for the period of November 2005 to about April 2011, redeeming the Housing Society’s mortgage and paying for the modular unit. The Parents could afford to do so with the alleged net proceeds of $170,000 to $180,000 from sale of Full Hang Court, the Father’s retirement fund and their earnings. The question is how many instalments they had repaid. 117.I accept that after so many years, the documents kept would not have been complete. I find that the Parents had expended $51,840 on the modular unit, supported by a receipt but the rest of the $100,000 did not come up to proof. 118.The actual amounts repaid for the Mortgage were shown in the bank statements. I accept that some of the deposit slips had been lost over the years, especially since the Parents had tidied up the Property after Madam Tse left and the Parents themselves were evicted. 119.There were 2 sets of documentary evidence – the original deposit slips and the Hang Seng Bank statement dated 31 August 2015 which covered the period from January 2008 to May 2011. 120.I start off with the figure set out in column (1) of Mr Cheung’s table of “Hang Seng Bank mortgage instalments paid by the Plaintiffs”, ie $287,222. I deduct from that figure all instalments not covered by either set of documentary evidence up to 3 February 2010, ie December 2005 ($4,500), November and December 2006 ($9,957), December 2007 ($4,800). This is because there was a possibility that those instalments had not actually been paid (just as in the months of October 2008, May 2009, October and December 2010). The total to deduct is $19,257. 121.There were instalments covered by the Hang Seng Bank statement but not the deposit slips, eg March, May, July, August, November and December 2008 (for half a year) and April 2009. It amounted to $27,184. It was odd that the Parents had not followed their usual mode of putting the deposit slips into the same pile if they had been the persons repaying. This was a period when Mang and Madam Tse had just got reunited. 122.A more disturbing feature was that there were no deposit slips at all for 9 months from March 2010 onwards until February 2011. The amount repaid was $32,300. This included a period when Mang and Madam Tse lived out of the Property and they might not have been able to afford paying both the Mortgage and the rent. 123.There was no clue as to why the Parents had not retained the deposit slips if they were the payors. The 2 periods in paragraphs 121 and 122 were too significant for me to ignore. I cannot draw any inference that Mang had no ability to pay as he had borrowed (eg from Konew Finance, as shown in the land search record of the Property). 124.The Parents failed to satisfy me that it was more likely than not that they were the payors of the sum of $78,741 (ie $19,257 + $27,184 + $32,300). I find that the Parents had repaid $287,222–$78,741 = $208,481. That amount had to be attributed to Mang as mortgagor. 125.The Parents had also paid for the utilities bills and management fees in relation to the Property at least before the Transfer. The dispute as to whether it was the Parents or Madam Tse who paid thereafter for 3 months until September 2011 was insignificant. Such payments would not, in themselves, give the Parents a share in the Property, but they added weight to the inference that they and Mang treated the Property as belonging in part to the Parents. K2. Detriment suffered by the Parents 126.The Parents twice lost their accommodation: Full Hang Court and the Property. The Parents have had humble jobs, each with income much below $10,000 per month even at the time of their retirement. They lost what could have been their savings and retirement fund. They had without doubt suffered detriment. K3. Unconscionability of Mang 127.The Parents’ repayments spared the Property from the bank’s recovery, gave Mang an extra 6 years of accommodation, and Madam Tse at least 2 years (2005-2006; 2010-2011). The modular structure added a bedroom of over 100 square feet, larger than the master bedroom. 128.It was unconscionable for Mang (and Madam Tse), having enjoyed the benefits brought about by the Parents’ repayments, to pocket the net proceeds without regard to the Parents’ equitable interest. Mang misrepresented to the Family Court that he had paid all Mortgage instalments by himself for about 10 years from about 18 October 2001 to 11 April 2011, on which the Family Court based its finding (§49 of the AR Judgment). I have no hesitation in holding him fully liable for his breach of trust in the Transfer and misleading Madam Tse as to its being a gift. 129.I hold that the Parents are entitled to equitable compensation from Mang. Madam Tse, being a constructive trustee, is jointly and severally liable. L. ISSUE 6: WHAT SHOULD THE QUANTUM OF EQUITABLE COMPENSATION BE L1. Legal principles 130.In Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, Ribeiro PJ set out the principles on equitable compensation.
131.The claimant under a common intention constructive trust is entitled to his agreed beneficial share. This is to be contrasted with a claimant under proprietary estoppel where the remedy is discretionary; or under resulting trust, where the beneficial share may depend on the amount of monetary contribution: Snell’s Equity, 33rd ed, §24-047. 132.The court should have regard to “the whole course of dealing” between the parties in relation to the property: Chan Chui Mei. The whole course of dealing, in relation to the property, should be given a broad meaning, enabling a similar range of factors (not just financial contributions) to be taken into account as may be relevant to ascertain the parties’ actual intention. Each case will turn on its own facts. L2. The common intention over shares 133.There was no express agreement as to what share the Parents should have. It was not surprising in this conservative Chinese family. The reason that Mang gave for requesting assistance was difficulty over his business. It was not going to be short-term or definite because the Parents and Mang expected the former to sell the Full Hang Property to be able to repay the Mortgage. Mang had not mentioned repaying his Parents. 134.The reason that Mang gave for his Parents to cease repayment was that “he could handle it”. The impression created was that his income had picked up. The timing tallied with the creation of the DBS Mortgage. 135.The irresistible inference was that the common intention was for the Parents’ share to depend on the Mortgage repayments they had made. 136.The contributions to the purchase price of the Property were:
137.Each counsel submits that the Court should look at the contributions by the Parents, Mang and Madam Tse in order to divide up the net proceeds of sale on pro rata basis ranging from about 28 % to 38%. 138.With respect, that is not the correct approach. As between Mang and the Parents, their respective share crystalized on the date of breach of trust, ie 20 May 2011. Their respective share was thus 52:48. Mang could only make a gift of 52% to Madam Tse. Upon making the gift, Mang had divested himself of all interest. If Mang had retained half interest in that 52%, Madam Tse had provided more than the full consideration for his half and he should not have a share in the proceeds. In any case, his half interest should be used to indemnify her. L3. Dividing up the net proceeds 139.Madam Tse’s repayments of the DBS Mortgage ($203,095 from 20 June 2011 to 23 February 2015) in fact benefitted the Parents in giving them about 4 years of accommodation. Such repayments should be set off against the net proceeds of sale ($2,511,552) before dividing up the balance between her and the Parents. 140.Mr Chow submits that the costs of the modular unit should not be deducted from the proceeds of sale as it was unauthorized building work which had to be demolished. I reject that contention because Mang and Madam Tse had enjoyed occupation of the modular unit. 141.The split of net proceeds is as follows:
142.Madam Tse and Mang should be jointly and severally liable to pay the Parents’ share. M. ISSUE 6 – WHETHER MANG SHOULD INDEMNIFY MADAM TSE FOR HER LOSS AND, IF SO, TO WHAT EXTENT? 143.Under section 4(1) of the Civil Liability (Contribution) Ordinance, Cap 377, the amount of the contribution recoverable shall be such as may be found by the court to be “just and equitable” having regard to the extent of that persons’ responsibility for the damage in question. It was Mang who kept the Transfer from the Parents and did not live up to the promise of a gift to Madam Tse. He also failed to honour his undertaking to Lok J. He was the main culprit. 144.Since Mang should not have received anything after the purported gift to Madam Tse, he should regurgitate the full amount of $484,656 to Madam Tse. In addition, he should indemnify Madam Tse for all payments that she had to make to the Parents, both in terms of equitable compensation and costs. N. COSTS 145.Costs should follow the event so that Mang and Madam Tse should jointly and severally bear the Parents’ costs whereas Mang should indemnify Madam Tse of all costs. The Contribution Ordinance, Cap 377 does not permit me to make a direct order for Mang to bear all of the Parents’ costs. I make an order nisi accordingly. 146.The Parents had had notice of the Family Court proceedings and that the Property was in issue. They had made their claims known well before the ancillary relief trial. The Father clearly requested the Family Court to give the Parents a chance to address the court on their claims. As they were working on low income jobs and had no money to hire a lawyer, they asked the court for directions but to no avail. 147.Unfortunately, they only applied to intervene after the AR Judgment was handed down. This delay, although out of ignorance of the law, brought about (i) this case in the Court of First Instance; and (ii) consequently, more costs to be incurred by both parties. 148.Equally innocent was Madam Tse. She never concealed the existence of the ancillary relief proceedings from the Parents. 149.Further, the Parents’ side had gone to the extent of obtaining discovery of the ancillary relief proceedings and the transcripts. It turned out that the plea that Madam Tse had failed to make full and frank disclosure to the Family Court was not pursued. In fact, that duty could not be enforced as a matter of law by parents. The use of 2 pages of the transcript simply did not justify the costs on them. Costs of the wasteful discovery and transcripts should not be borne by Madam Tse. 150.I am aware, of course, that Madam Tse’s side has taken the point of asking the court to dismiss the action on the ground of abuse of process arising out of the Parents’ delay in coming to court. That point was doomed to fail and was abandoned at trial. This issue gave rise to relatively less costs than those wasted on the Parents’ side. 151.The claim was rightly instituted in the High Court. However, since setting down for trial, the jurisdiction of the District Court has increased to $3,000,000 in December 2018. Mr Cheung has fairly conceded an order for costs in the District Court scale. 152.Taking an overall view of the matter, I order Madam Tse to bear 90% of the Parents’ costs, on High Court scale up to 30 December 2018 but on District Court scale since 1 December 2018. There shall be taxation of the Parents’ costs in accordance with the Legal Aid Regulations. 153.Failing agreement as to costs, the receiving party shall provide a costs statement for the purpose of summary assessment on the papers. O. CONCLUSION 154.There was an Oral Agreement between the Parents and Mang for the Parents to assist in repayment of the Mortgage. The Mother had told Mang that the Parents had to sell Full Hang Court to be able to help Mang. Part of the oral agreement was that the Parents could live at the Property. Madam Tse did not have knowledge of this agreement. 155.The 2005 Confirmation occurred but not the 2006 Assertion. 156.The Oral Agreement gave rise to a common intention constructive trust whereby the Parents were to have a share in the Property according to their repayments of the Mortgage. 157.Mang breached the Oral Agreement by transferring the Property to Madam Tse without letting the Parents know. Madam Tse was a purchaser for value with notice that would put her on enquiry of the Parents’ interest in the Property before the Transfer. She acquired sufficient notice of their beneficial interest, latest by June 2011. Both Mang and Madam Tse were liable jointly and severally for breach of constructive trust. 158.The Parents are entitled to $1,107,670 out of the net proceeds of sale. P. INTEREST 159.The court can award interest to the Parents:
160.Mang and Madam Tse distributed the net proceeds of sale under the AR Judgment in mid-June 2015. The Parents commenced action 3 months later. They request that interest be awarded under s.48 of the High Court Ordinance as from 15 June 2015 up to trial. 161.In my view, the Parents’ request was reasonable as they have been deprived of the money which was rightly theirs. There was no litigation misconduct which would justify reducing the period of interest. I award interest at half the judgment rate to represent their loss of use of the money. 162.I therefore order as follows:
163.I thank counsel for their assistance.
Mr Wallace Cheung, instructed by H Y Leung & Co LLP, assigned by Legal Aid Department, for the plaintiffs The 1st defendant was not represented and did not appear Mr Enzo Chow, instructed by Jackson Ho & Co, for the 2nd defendant | ||||||||||||||||||||||||||||||||
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