Shanghai Commercial Bank Ltd v. Lee Yau Tak and Another
Read the full judgment text of CACV 576/2021 on BabelCite. This Court of Appeal judgment was delivered on 31 March 2023 before Hon Cheung, Au and Chow JJA.
Civil law – mortgage – possession – beneficial interest – common intention constructive trust – right to redeem – bankruptcy – Court of Appeal – appeal allowed – payment into court – Property purchased in sole name of mortgagor despite joint marital home use – Whether 2nd Defendant adduced sufficient evidence of beneficial interest (Yes, sufficient for trial) – Whether 2nd Defendant had right to redeem (Yes, beneficial owner can redeem) – Appeal allowed; orders set aside; 2nd Defendant to pay HK$1,000,000 into court; Plaintiff to pay costs
Legal issues: Grounds 2 and 3: Whether the 2nd Defendant has adduced sufficient evidence to show that she has a beneficial interest in the Property · Grounds 1 and 4: Whether the 2nd Defendant had a right to redeem the Mortgage
Outcome: Appeal allowed; orders of Master Catherine Cheng dated 23 August 2019 and the order of the Judge dated 9 October 2020 set aside
Cited by 3 cases · Cites 6 cases
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CACV 576/2021 [2023] HKCA 450 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 576 OF 2021 (ON APPEAL FROM DCMP NO 3066 OF 2016) ________________________
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___________________ J U D G M E N T ___________________ Hon Chow JA (giving the Judgment of the Court): INTRODUCTION 1.There are before the Court the following appeal and applications:
BACKGROUND FACTS (a) The 1st and 2nd Defendants 2.The 1st Defendant was formerly a fireman working for the Fire Services Department. He had been working as such since 1986 until he reached the retirement age of 55 in 2018. 3.In 1989, the 1st and 2nd Defendants were married. In August 2015, the 2nd Defendant commenced divorce proceedings against the 1st Defendant (FCMC 10354/2015). On 17 January 2016, a decree nisi was granted by the Family Court. 4.On 1 March 2016, the 1st Defendant filed a petition for his own bankruptcy (HCB 1378/2016). On 20 June 2016, the 1st Defendant was declared bankrupt upon his own petition. (b) Purchase of the Property 5.Shortly after their marriage in 1989, the 1st and 2nd Defendants purchased in their joint names a property in Shatin (“the Shatin Property”) under the Home Ownership Scheme. A few years later, upon the 1st Defendant’s suggestion, the Shatin Property was sold and the 1st and 2nd Defendants moved to live in the Married Quarters of the Fire Services Department at Junk Bay. Later still, they moved to live in Government Quarters at Ngau Chi Wan. 6.In early 2012, the 1st Defendant proposed to the 2nd Defendant, in view of his pending retirement from the Fire Services Department in September 2018, that they should acquire a private property to be used as their matrimonial home with the assistance of Government and bank loans. According to the 2nd Defendant, the 1st Defendant also proposed that the new property be purchased in his sole name in order to facilitate the obtaining of the Government and bank loans. The 2nd Defendant agreed to the 1st Defendant’s proposal because of her trust in the 1st Defendant at that time. 7.Eventually, the Property was purchased in the 1st Defendant’s sole name in 2012 for the consideration of HK$2,000,000 with the assistance of:
8.According to the 2nd Defendant, she also obtained a loan HK$200,000 from her brother-in-law to pay the deposits and/or estate agent’s commission for the purchase of the Property. Subsequently, in view of the fact that the loans obtained from the Plaintiff and the Government were sufficient to cover the entire purchase price and associated legal costs and disbursements, the excess amount of HK$200,000[1] was paid back to the 1st Defendant, who then repaid the loan obtained from the 2nd Defendant’s brother-in-law. 9.The 1st and 2nd Defendants, together with their daughter, began residing in the Property in 2013. (c) The 1st Defendant’s default 10.According to the 2nd Defendant, in or about 2015, following her discovery that the 1st Defendant had an extra-marital affair, the 1st Defendant asked her for permission to sell the Property. The 1st Defendant’s request was refused by the 2nd Defendant. In or about April 2015, the 1st Defendant moved out of the Property, and told the 2nd Defendant and their daughter that they could continue to live in the Property. 11.Starting in about March 2016, the 1st Defendant failed to pay any further mortgage instalment to the Plaintiff. As at 10 May 2016, the amount of the outstanding principal owing to the Plaintiff under the Mortgage was HK$585,803.95. THE ACTION 12.On 20 June 2016, the 1st Defendant was declared bankrupt upon his own petition. According to the 2nd Defendant, after 1st Defendant’s bankruptcy, she approached the Plaintiff to discuss about payment of the mortgage instalments. However, the Plaintiff refused to provide the 2nd Defendant with information concerning the amount of the monthly mortgage instalment, apparently because of some privacy concerns. The 2nd Defendant also says that she told the Plaintiff that she was willing to repay the entire outstanding mortgage loan and interest thereon. However, her attempt to make repayment was not entertained by the Plaintiff. 13.On 15 September 2016, the Plaintiff obtained the court’s leave to commence an action against the 1st Defendant for recovery of vacant possession of the Property. 14.On 7 October 2016, the Plaintiff commenced the present action (“the Action”) by way of an Originating Summons against the 1st Defendant seeking an order for (i) delivery up of vacant possession of the Property, and (ii) payment of the outstanding principal and interest thereon under the Mortgage. 15.On 26 October 2016, the 2nd Defendant issued a summons in the Action seeking (i) an order that she be joined as a party to the Action, and (ii) a declaration that she was the (or a) beneficial owner of the Property. As further explained below, the 2nd Defendant’s claim of a beneficial interest in the Property is based upon a common intention constructive trust. 16.On 15 March 2018, the 2nd Defendant was joined as a party to the Action pursuant to an order of Deputy District Judge W H Wong. The Originating Summons was amended accordingly on 23 March 2019. 17.On 18 July 2018, the 2nd Defendant wrote to the Plaintiff’s solicitors (Chow, Griffiths & Chan) stating that she was willing to repay the outstanding bank loan inclusive of interest in one go, and requested the Plaintiff’s solicitors to inform her of the total amount required to be paid, the repayment method, and the date of repayment. 18.By a letter in reply dated 20 July 2018, the Plaintiff’s solicitors informed the 2nd Defendant that, in view of the fact that the 1st Defendant was the mortgagor of the Property and had been declared bankrupt, the Plaintiff could not receive money from her or reach any settlement arrangement with her in the absence of any consent form the 1st Defendant and the Official Receiver’s Office. The Plaintiff’s solicitors further stated that since the 1st Defendant was the legal owner of the Property and the Property was subject to a second mortgage in favour of the Government, the Plaintiff could not transfer any interest in, or the title deeds of, the Property to the 2nd Defendant. In short, the Plaintiff refused the 2nd Defendant’s request to repay the mortgage loan and redeem the Mortgage. THE JUDGMENT 19.On 23 August 2019, the Amended Originating Summons and the 2nd Defendant’s application for declaratory relief came before Master Catherine Cheng. Having heard the Plaintiff’s lawyer and the 2nd Defendant in person (with the 1st Defendant being absent), the Master dismissed the 2nd Defendant’s claim for a declaration that she had a beneficial interest in the Property, and made an order for possession of the Property in the Plaintiff’s favour against the 1st and 2nd Defendants. 20.The 2nd Defendant’s appeal against the Master’s order was heard by Her Honour Judge Phoebe Man on various dates in 2019 and 2020. The Plaintiff and the 1st Defendants’ trustees-in-bankruptcy (“the Trustees”) were represented by their respective counsel, while the 2nd Defendant appeared in person. 21.On 9 October 2020, the Judge gave a judgment (“the Judgment”) dismissing the 2nd Defendant’s appeal against the order of Master Catherine Cheng (save in relation to an issue on costs which is not material for the present purpose). In the Judgment:
THE APPEAL 22.The 2nd Defendant was not satisfied with the Judgment, and applied to the Judge for leave to appeal. On 28 January 2021, the Judge dismissed the 2nd Defendant’s application for leave to appeal. 23.The 2nd Defendant renewed the application for leave to appeal by a summons dated 9 February 2021 filed in the Court of Appeal. On 22 October 2021, Cheung JA granted the 2nd Defendant leave to appeal. 24.In the Notice of Appeal dated 13 December 2021, the 2nd Defendant raised 4 grounds of appeal:
GROUNDS 2 AND 3: WHETHER THE 2ND DEFENDANT HAS ADDUCED SUFFICIENT EVIDENCE TO SHOW THAT SHE HAS A BENEFICIAL INTEREST IN THE PROPERTY 25.Grounds 2 and 3 concern the question of whether the 2nd Defendant has adduced sufficient evidence to show that she has a beneficial interest in the Property under a common intention constructive trust, and may be considered together. 26.The relevant principles for determining whether a common intention constructive exists are well settled. “Where a constructive trust is alleged to arise on the basis of the parties’ common intention, it is the intention commonly held by the property owner and the claimant regarding their shared beneficial interests in the property that matters. The trust is constituted by the claimant’s detrimental reliance on their common intention and the unconscionability of the property owner departing therefrom” (Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1, at §38 per Ribeiro PJ). 27.When considering the question of the parties’ common intention, the court should adopt what has been described as a “holistic approach” having regard to the context (Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985, at §§6.1-6.3 per Cheung JA). In a domestic context, particularly in relation to a matrimonial home, “the court is not constrained in that exercise 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” (Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327, at §1.6 per Lam VP (as he then was); see also Mo Ying, at §§7.13-7.14). Once it is shown that there was a common intention that the claimant should have an interest in the property, any act done by the claimant to his/her detriment relating to the joint lives of the parties in reliance on the common intention is sufficient. The act done does not have to be inherently referable to the property (Grant v Edwards [1986] 1 Ch 638, at 657B-C). 28.In the present case, the 2nd Defendant’s evidence before the Judge in support of her case of common intention constructive trust included the following:
29.The Judge held that the 2nd Defendant had failed to produce sufficient evidence to show that she had a beneficial interest in the Property under a common intention constructive trust mainly because of a lack of evidence that she had made any financial contribution to the purchase of the Property[6]. However, as mentioned in §27 above, direct financial contribution to the acquisition of the property is not the only relevant consideration, particularly in the domestic context. A proper consideration of whether a common intention constructive trust exists would require a careful, objective, consideration of the whole course of conduct of the parties. In our view, the matters referred to in §28 above are sufficient to raise a reasonably arguable case of common intention constructive trust, and the issue ought to be determined in a full trial. Having come to this view, it would not be appropriate for us to further discuss the merits of the 2nd Defendant’s case of common intention constructive trust in this judgment. 30.In short, we consider that the Judge should not have summarily determined against the 2nd Defendant on the issue of whether she had a beneficial interest in the Property, but should have held that she had produced sufficient evidence for this issue to be tried. GROUNDS 1 AND 4: WHETHER THE 2ND DEFENDANT HAD A RIGHT TO REDEEM THE MORTGAGE 31.The Judge accepted that any person with an interest in a property may exercise the right of redemption[7]. However, the Judge found that the 2nd Defendant did not have any beneficial interest in the Property, whether under a common intention constructive trust or on any other basis. Thus, she had no right to redeem the Property[8]. The Judge further held even if the 2nd Defendant had a right to redeem the Mortgage, it would not have made any difference to the outcome of the action, because:
32.In our view, none of the matters referred to by the Judge would lead, or necessarily lead, to the conclusion that the Plaintiff is entitled to an order for possession of the Property against the 2nd Defendant.
33.In all, we are of the view that the Judge erred in holding that even if the 2nd Defendant had a beneficial interest in the Property and thus had a right to redeem the Mortgage, the outcome of the case would inevitably be the same. 34.Mr Cheung argues that even if the 2nd Defendant has a beneficial interest in the Property, her interest ranks below the right of the Plaintiff as the mortgagee of the Property in the circumstances of the present case where the 2nd Defendant knew of and supported the 1st Defendant’s plan to borrow monies from the Plaintiff secured by the Mortgage over the Property, and the Plaintiff is perfectly entitled to apply for possession of the Property in circumstances when it is undisputed that the 1st Defendant has committed an event of default by reason of his failure to make payments due under the Mortgage[19]. Mr Cheung further argues that in order to exercise the right of redemption, the 2nd Defendant had to make repayment of the principal, interests, costs and expenses secured by the Mortgage, but she did not have the financial means to make such full repayment[20]. 35.Mr Ho (for the 2nd Defendant) does not dispute the proposition that the 2nd Defendant’s beneficial interest in the Property is subject to the right of the Plaintiff as mortgagee of the Property in the present case[21]. He submits, however, that the right to redeem is not confined to the mortgagor or those claiming under him, but is exercisable by any person who has an interest in the mortgaged property, and the mortgagee is bound to release the mortgage in favour of any person having an interest in the Property who exercises the right to redeem (Pearce v Morris (1869) 5 Ch App 227, at 230)[22]. Thus, the Plaintiff, as a beneficial owner of the Property, is entitled to exercise the right of redemption of the Mortgage by payment of the secured indebtedness. We consider this submission to be correct as a matter of principle. 36.As for the question of whether the 2nd Defendant is required to make full payment of the principal, interest, costs and expenses as claimed by the Plaintiff in order to redeem the Mortgage, Mr Ho submits that a mortgagor (and, by extension, any party having the right to redeem) has a right to know how much he (or she) is liable to pay: Fisher & Lightwood’s Law of Mortgage (15th edn), §47.37, and a mortgagee is under an obligation not to impede or obstruct an entitled party from exercising the right of redemption. Mr Ho also refers the Court to evidence from the 2nd Defendant to the effect that after the bankruptcy of the 1st Defendant, she had made repeated attempts to make payment of the mortgage instalments, and informed the Plaintiff that she was ready and willing to repay the entire mortgage loan with interest[23], but the Plaintiff refused to provide information of the outstanding indebtedness or otherwise entertain her requests on the ground that the 2nd Defendant had no interest in the Property[24]. Accordingly, the Plaintiff had unnecessarily prolonged proceedings by steadfastly refusing the 2nd Defendant an opportunity to discharge the Mortgage at a much earlier stage, rendering it wholly unjust for the Plaintiff to claim interest (or costs): see Çukurova Finance International Ltd v Alfa Telecom Turkey Ltd (No 4) [2016] AC 923, at §§29-38[25]. 37.In our view, the issues of (i) whether the Plaintiff wrongfully or unreasonably impeded or obstructed the 2nd Defendant from exercising the right of redemption, and (ii) the correct amounts of the principal, interest, costs and expenses which the Plaintiff is entitled to claim from the 2nd Defendant upon redemption of the Mortgage, can only be resolved in a full trial. 38.As earlier mentioned, on 18 January 2023, the 2nd Defendant issued a summons (“the 1st Summons”) seeking leave to pay into Court the sum of HK$580,803.95 (the outstanding principal amount of the mortgage loan), such sum to be paid out to the Plaintiff in discharge of the indebtedness owed by the 1st Defendant to the Plaintiff upon the appeal being allowed. Mr Ho says that the proposed payment into court is for the “avoidance of doubt” and to reconfirm “actual tender” by the 2nd Defendant so that the accrual of further interest shall cease. 39.On 20 February 2023, the 2nd Defendant issued a further summons (“the 2nd Summons”) seeking leave to pay into Court the additional sum HK$419,196.05, such sum together with the aforesaid sum of HK$580,803.95 (making a total of HK$1,000,000) to be paid out to the Plaintiff in discharge of the indebtedness owed by the 1st Defendant to the Plaintiff upon the appeal being allowed (without prejudice to the 2nd Defendant’s right to seek an account of the actual sum due and payable by the 1st Defendant to the Plaintiff). The 2nd Defendant offered to pay this additional sum into Court in light of the further information provided by the Plaintiff shortly before the hearing of the appeal (upon the Court’s direction) that the total indebtedness of the 1st Defendant to the Plaintiff, inclusive of interest calculated up to 3 February 2023 but exclusive of costs, was HK$958,911.52. 40.With the proposed payments into court, the Plaintiff’s position should be reasonably secured. DISPOSITION 41.The 2nd Defendant’s appeal is allowed, and the order of Master Catherine Cheng dated 23 August 2019 and the order of the Judge dated 9 October 2020 are set aside. 42.The 2nd Defendant shall pay into court the sums of HK$580,803.95 and HK$419,196.05 under the 1st and 2nd Summonses within 7 days from the date of this judgment, with liberty to the parties to apply for payment out after judgment has been given in the Action or with the court’s leave. We do not consider that those sums should be paid out to the Plaintiff at this stage, since the issue of whether the 2nd Defendant is entitled to redeem the Mortgage has yet to be determined. 43.The Plaintiff shall pay the 2nd Defendant the costs of the appeal, including the costs of the application for leave to appeal by summons dated 9 February 2021, to be taxed if not agreed. In view of the fact that Mr Kwan (Mr Ho’s junior) acts for the 2nd Defendant on a pro bono basis, it is not necessary to make any order concerning certificate for 2 counsel. The costs of the 1st and 2nd Summonses shall be in the cause of the Action. The 2nd Defendant’s own costs shall be taxed in accordance with legal aid regulations. 44.In relation to the hearings below before Master Catherine Cheng and the Judge, the 2nd Defendant appeared in person while the Plaintiff was legally represented. We make no order as to costs (including the costs of the 2nd Defendant’s application for leave to appeal which was dealt with by the Judge by way of written submissions only without an oral hearing) as between the 2nd Defendant and the Plaintiff, while the costs of the Trustees shall be in the cause of the Action.
Mr Tommy Cheung, instructed by Chow, Griffiths & Chan, for the Plaintiff The 1st Defendant, absent Mr Martin Ho and Mr Adrian Kwan, instructed by Sit, Fung, Kwong & Shum, assigned by Director of Legal Aid, for the 2nd Defendant [1] $20,000 (initial deposit) + $180,000 (further deposit) + $700,000 (loan from Plaintiff) + $1,310,935 (loan from Government) - $2,000,000 (purchase price) - $10,935 (legal costs and disbursements) = $200,000 (refunded to 1st Defendant). [2] §§28, 34-36 of the Judgment. [3] §§29-33, 37-38 of the Judgment. [4] §§41-42 of the Judgment. [5] In the amended Originating Summons, the Plaintiff in fact seeks an order for possession of the Property, not foreclosure. [6] §31 of the Judgment. [7] §28 of the Judgment. [8] §§33-38 of the Judgment. [9] §41(1) of the Judgment. [10] §41(2) of the Judgment. [11] §41(3) of the Judgment. [12] §41(4) of the Judgment. [13] §42 of the Judgment. [14] See §24 of Lee See Hang’s 1st Affidavit filed on 13 January 2020. [15] See §4 of the 2nd Defendant’s Affirmation filed on 7 August 2020. [16] §4 of the Judgment. [17] See §13 of the 2nd Affidavit of Wong Wan Sheung filed on 29 August 2018. [18] See §12(e)(ii) of the Skeleton Submissions of the Plaintiff/Respondent dated 20 January 2023. [19] See §§4-7 of the Skeleton Submissions of the Plaintiff/Respondent. [20] See §11 of the Skeleton Submissions of the Plaintiff/Respondent. [21] See §6(1) of the Supplemental Submissions of the Appellant/Wife dated 27 January 2023. [22] See §§25.1 and 33 of the Skeleton Submissions of the Appellant/Wife dated 6 January 2023. [23] See §2 of the Supplemental Submissions of the Appellant/Wife. [24] See §3 of the Skeleton Submissions of the Appellant/Wife. [25] See §§14 and 15 of the Supplemental Submissions of the Appellant/Wife. | |||||||||||||||||||||||||||
Cases cited in this judgment