Wong Wai Sin v. Wong Wai Mui
Read the full judgment text of HCA 7225/1997 on BabelCite. This High Court CFI judgment was delivered on 29 March 2004.
1. In the earlier proceedings under this action, I granted a declaration that the Defendant was holding the property situate at Flat F, 5th Floor, Tower A, Dioramic Rise, Marina Cove together with Car Parking Space No. 52 on Site A of Stage III of Marina Cove (the "Property") upon trust for the Plaintiff. The Property was purchased on the instruction of the Plaintiff for use as rental property to be held in the name of the Defendant. The Plaintiff paid the deposit and down payment. The balance o
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HCA007225A/1997 HCA 7225/1997 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 7225 OF 1997 ____________
____________ Coram: Deputy High Court Judge To in Chambers Date of Hearing: 12 December 2003 Date of Decision: 29 March 2004 _______________ D E C I S I O N _______________ Introduction: 1.In the earlier proceedings under this action, I granted a declaration that the Defendant was holding the property situate at Flat F, 5th Floor, Tower A, Dioramic Rise, Marina Cove together with Car Parking Space No. 52 on Site A of Stage III of Marina Cove (the "Property") upon trust for the Plaintiff. The Property was purchased on the instruction of the Plaintiff for use as rental property to be held in the name of the Defendant. The Plaintiff paid the deposit and down payment. The balance of the purchase price was financed by a mortgage with the Defendant as the borrower and mortgagor. The initial arrangement was for the Defendant to reside in the Property in return for her paying the mortgage instalment. Later the Defendant moved to her own accommodation and the Property was rented out with the rent being applied towards payment of the mortgage instalments. On 26 November 1991, the Defendant discharged the mortgage. Two months after the present action was instituted, the Defendant mortgaged the Property with Dao Hang Bank on 26 September 1997. She defaulted payment and the Property was sold by Dao Hang Bank on 13 February 2001 for $2,560,000. 2.The Defendant was ordered to give an account of the rentals she had received from the Property. This exercise involves taking an account of all rental receipts generated by the Property and discounting from that all outgoings, such as rates, management fee, estate agent commission, insurance premium, maintenance and renovation costs and the mortgage repayments made by the Defendant. 3.Before starting the exercise, it is essential to determine the period for which the Defendant shall be held accountable. Two options are available. She may account for the period up to the date of judgment when she should have delivered up the Property or up to the date of mortgagee sale by Dao Hang Bank when the Plaintiff's title to the Property was extinguished. The latter option is premised on the assumption that the Defendant held onto the Property and denied the Plaintiff of the use of the Property until the sale. In practical terms, the difference under the two options would be minimal. The court has absolute discretion to choose whatever option is just and convenient. In the present case, as restitutionary compensation assessed at the sale price under the mortgagee sale had been ordered to be paid on the date of the sale, it would be just and convenient to require the Defendant to give an account up to the date of sale, i.e. 13 February 2001. The rental receipts 4.According to the Defendant, for the period between October 1990 and March 2001, the Property had only been rented out on 21 February 1993 for a period of one year at a monthly rent of $21,000 and another period of six months from 1 June 1996 at a monthly rent of $23,000. The Property was vacant or under renovation or used by herself for the remaining period of over nine years. In particular, she had the Property extensively renovated in June 1992 as she intended to reside there. The renovation took several months. She demanded a higher rental because of the luxurious renovation. However, she could not let the Property out because no tenant would pay the rental she demanded. But according to the Plaintiff, she had been told by the Defendant that the Property had been rented out in about April 1991 to an expatriate for $16,000 to $17,000 about six months after the purchase. 5.I consider the Defendant's allegation wholly incredible. The Property was purchased as a rental property. The Defendant was to lease the Property for the Plaintiff. Six months after its purchase, the Defendant told the Plaintiff that the Property had been let to an expatriate. That was a contemporaneous statement when the parties were acting in accordance with their agreement. That statement must be more credible. The Defendant had been ordered to produce bank statements for the entire period evidencing the rental receipts. Yet she only selectively produced bank statements for part of the period. No explanation was given for her failure. The Property was intended to be a rental property. It is incredible that it was left vacant for over nine years not generating any income. Even if the Property had been occupied by the Defendant instead of being rented out, she had to pay mesne profit to the Plaintiff unless she had her prior approval and consent. 6.A person who has been ordered to give an account is under a duty to give a satisfactory account in the sense that it is a full and frank disclosure, supported wherever possible by credible evidence, including documentary evidence. He may not selectively produce some evidence which is to his advantage and deliberately conceal evidence which is unfavourable to him. If he does not give an account to the court's satisfaction, the court will have to make one for him based on the court's assessment of what he would have received. I am not satisfied that the Defendant has given a full account of the period during which the Property had been let. I shall make an assessment for her. On the evidence, Marina Cove was a well sought after property. The Plaintiff had no problem renting out her other property there. According to the Plaintiff's evidence at trial which I accept, the Defendant told her that the Property had been let to an expatriate for $16,000 to $17,000 per month about six months after the purchase, i.e. since April 1991. I shall therefore assess rental income from April 1991 at the rate of $16,500 until January 1993. Thereafter I shall assess the rental income according to the monthly rental as suggested by the Plaintiff's expert on the basis of full occupancy with 10% allowance in between leases for carrying out minor renovation and for finding a new tenant. The total rental receipts or mesne profit was assessed to be $2,107,236.60, which is calculated as follows :-
Rates and Government rent 7.The Defendant claimed rates and government rent for the flat including the car park at the average rate of $4,684 per quarter in the total amount of $196,728. She produced receipts for the quarter ending December 1997 only in support. That was the time when the rates were at the highest along with the peak of the property market in 1997, but the majority of the period concerned was before 1997. She is again selective in the document she produced. Not only that, she is dishonest and the amount claimed is grossly inflated because no government rent was charged before 1 July 1997 while the rates and government rent after 1998 had been reduced due to the economic crisis. According to the valuation list produced by the Plaintiff, the rateable value of the Property was at its highest in 1988/1989 at a value of $218,160 and at its lowest in 1990/91 at a value of $76,800. For most of the time between 1991 and 1998, it was between $135,600 and $218,160. Thus the average rateable value between 1991 and 1998 was about 80% of that of 1998/1999. For the period before 1 July 1997, I therefore assess the average monthly rates at 80% of that charged during the quarter ending December 1997 to be $795.20 (($2,727 + $255) x 80% ( 3). For the period after 1 July 1997, I assess the average monthly rate and government rent at 80% of that charged during the quarter ending December 1997 to be $1,272.27 (($4,363+$408) x 80% ( 3). According, I assess the total rate and government rent to be $120,391.08.
Management fee, estate agent commission and insurance premium 8.The Defendant claimed management fees for the flat and the car park at the monthly rate of $1,034 and $22. She produce a receipt for the month of November 1998 in support. I am not satisfied that this represents the average management fee for the period of 125 months as obviously the management fee would have been much lower in 1990. I discount that claim by 80% and assess the total amount of management fee for the 125 months to be $105,600 (i.e. $1,056 x 125 x 80%). 9.The Defendant claims agency commission for renting out the Property. She produced two receipts in the total amount of $22,000. I allow that in full. 10.The Defendant claims insurance premium in the amount of $48,772.50. She produced only one receipt for 1994 in the amount of $4,645. Though she did not produce receipts for the entire period, as it would have been reasonable to insure the Property, I assume in her benefit that she had so insured the Property and allow that claim in full. Renovation costs 11.The Defendant claimed $341,089.60 renovation expenses. On her case that the Property had only been rented out for 18 months for the entire 125 months period, such a claim is ridiculous. The problem with this claim is that she has never shown herself to be an honest and credible witness, neither at the trial nor in the present exercise. She produced photographs showing the renovated Property and produced receipts for labour and materials for most of the expenses. 12.Over a hundred receipts were produced, but only about twenty were issued for delivery of material to or for services at the Property. Most receipts for materials did not have an address; that is understandable in respect of small items. Some receipts were for delivery of materials to another address. Some receipts were issued to Rightbond Company, others were issued to Mr Ivan Ho of an address in Tsuen Wan. The Defendant explained that that was the way how she and her husband were being identified by the suppliers. 13.A careful reading of the materials purchased under the receipts cast serious doubts on whether the materials were indeed purchased for the renovation work on the Property. The Property is a two bedroom apartment unit with one bathroom and one kitchen. One receipt showed that on 24 April 1991 a bath tub was purchased. Then on three occasions in June 1992, a total of another three bath tubs were also purchased. Other receipts showed that three cooking hoods were purchased during a period of six months. These four bath tubs and three cooking hoods could not have been purchased all for the renovation of this Property. The Defendant could not offer any explanation. There are receipts for large quantities of paint of different colours bought over the years at different times. There are other receipts in respect of similar work being executed on the Property. The Defendant explained that they were not for similar work. I cannot be satisfied that these receipts were all in respect of material and labour in connection with the renovation work on the Property. 14.I have no doubt that some renovation costs must have been incurred over the ten years. It would not be a meaningful exercise to comb through these more than a hundred receipts to guess which were incurred in respect of the Property. The address as shown on the receipts is inconclusive. Such guestimate would be no better than an estimate based on a percentage of the gross rental receipt. I assess the renovation costs to be 5% of the gross rental receipt, i.e. $117,068.70 ($2,341,374 x 5%). There is some evidence from the Plaintiff's affirmation that the Defendant had told her in 1992 that the renovation work cost $120,000. The above estimate is in line with this piece of evidence. Ms Tsui submitted that it is implicit in the Plaintiff's affirmation that the Plaintiff had paid for the renovation for she said in her affirmation that she asked the Defendant if the money was sufficient and the Defendant said it was and told her not to worry. I do not think that is the only way that statement in the affirmation could be interpreted. There is no doubt that she was disputing the amount, but the affirmation is silent as to whether she had paid anything. It could be interpreted to mean that she disputed the amount claimed because the Defendant had told her at the time the renovation works were incurred that they cost $120,000 and the Defendant could meet those costs from her own funds or from the rental income. Had the Plaintiff meant to say she had paid the renovation costs, she should have said so in clearer terms. Accordingly, I allow the Defendant's claim for renovation costs in the amount of $117,068.70. Electrical appliances 15.The Defendant claimed $120,000 for electric appliances purchased for use in the Property. No receipt was produced. I consider the amount excessive. In any event, according to the Plaintiff when the Property was bought, it was fitted with standard appliances. The Property could be rented with or without the appliances. I am not satisfied that the expenses had been incurred and disallow this claim. Mortgage repayments 16.The assessment of the mortgage repayments is complicated by the fact that the Defendant discharged the mortgage in November 1991 out of her own funds. Hence, no further instalments were paid after November 1991. The question is whether credit should be given to the Defendant for the mortgage interest she thus saved by having discharged the mortgage. Ms Tsui for the Plaintiff suggested that the Defendant should be given credit for the amount she paid but without the benefit of the mortgage interest she helped to reduce as she should not be allowed to benefit from her breach of trust. The Plaintiff would then have the benefit of the saving in mortgage interest. The Defendant is required to give an account. The exercise is intended to achieve a fair result for both parties by restoring the plaintiff so far as possible to the same position as if there had been no breach of trust and giving credit to the defendant for what she has incurred to put the plaintiff in that position. The accounting is not intended to be penal. The Defendant should not be deprived of the interest which that sum of money would have earned had it not been applied to pay off the mortgage, especially when what the Defendant did by discharging the mortgage did not occasion any loss to the Plaintiff. 17.On the other hand, the Defendant argued that in addition to the repayment she should be allowed the appreciation an investment of that amount in real property during that period could have earned. I think her argument is ridiculous. While credit must be given to the outstanding mortgage she discharged plus an element of saving in interest which the Plaintiff benefited as a result, the Defendant should not be allowed to take advantage of any appreciation in the value of the Property or any part of it for having discharged the mortgage. To allow her request would be to deprive the Plaintiff of part of the benefit of her investment by forcing a partial sale of the investment on the Plaintiff. That appreciation and, likewise, the risk is the Plaintiff's. The Defendant should not be allowed to benefit from her own breach of trust and certainly not at the expense of the Plaintiff. 18.Had the original mortgage run its course, it would have been fully paid on 28 November 2002. It could have been paid up earlier because of the reduction in interest rate but certainly not before the date of the mortgagee sale on 13 February 2001. It is not known how much would have been outstanding by that date. As a result of the mortgagee sale, the Plaintiff was deprived of the Property which was worth what it was sold for. The Plaintiff had been awarded restitutionary compensation in that amount. Thus for the purpose of this exercise, I consider the fairest way to assess the mortgage repayments is to give credit to the Defendant for all the monthly instalments which the Plaintiff would have paid up to the date of the mortgagee sale. That would have included the sum actually paid by the Defendant in discharging the mortgage in November 1991 plus an element of interest. Any amount which would have been outstanding under the original mortgage would have to be absorbed by the Defendant because of her breach of trust. In any event, the mortgage interest which she earned is more than enough to cover the amount which would have been outstanding under the original mortgage. 19.The monthly mortgage payment was $13,351. Had the mortgage not been discharged by the Defendant, the mortgage payment which the Plaintiff would have paid for the 125 months between October 1991 and February 2001 would have been $1,668,875. The Defendant shall be given credit for this amount. Conclusion 20.Having assessed the rental receipts, outgoings and mortgage repayments, the account came to a balance of $24,529.32 which is arrived as follows : -
21.The Plaintiff is successful in her claim for an account. The Defendant is in breach of trust. The Plaintiff paid the initial deposit and down payment in the amount of $266,840 in 1990 to acquire the Property for investment purpose so that the rental income would in due course pay off the mortgage and she would end up with a mortgage free property which together with the appreciation in real estate would worth many times her initial investment. It did work that way and could have worked much better had it not been for the Defendant's greed. The Defendant contested the main action. When she was ordered to give an account, she made grossly inflated claims and the receipts she produced were not related to the Property. This exercise was wasteful and as a result of her breach of trust. In the circumstances, justice requires that she be ordered to pay the Plaintiff's costs on an indemnity basis. 22.Accordingly, I enter judgment in favour of the Plaintiff in the sum of $24,529.32. I make a costs order nisi that the Defendant shall pay the Plaintiff's costs on an indemnity basis.
Representation: Ms Jennifer Tsui, instructed by Messrs Jack Fong & Co, for the Plaintiff Defendant, appearing in person | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Further hearings and rulings under HCA 7225/1997