Chen Yu Tsui v. Tong Kui Kwong
Read the full judgment text of HCA 1/2003 on BabelCite. This High Court CFI judgment was delivered on 25 October 2005.
1. The plaintiff’s late husband Mr. Tong Kui Ming (“deceased”) and the defendant are registered tenants in common in equal share of Block D, 3/F, 1 Walnut Street, Kowloon (“the Property”). The plaintiff is suing on behalf of the deceased’s estate for an account of rent collected by the defendant. The defendant counterclaims a declaration that the deceased held the half share of the Property as trustee for him, and denies that the deceased’s estate is entitled to any rent.
Cited by 8 cases · Cites 2 cases
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HCA1/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.1 OF 2003 ---------------------- BETWEEN
--------------------------------------- Before : Deputy High Court Judge Fung in Court Date of Hearing : 25 – 29 April 2005, 4-6 May 2005, 12-13 May 2005, 3 June 2005 and 8 June 2005 Date of handing down Judgment : 25 October 2005 -------------------------- JUDGMENT -------------------------- 1.The plaintiff’s late husband Mr. Tong Kui Ming (“deceased”) and the defendant are registered tenants in common in equal share of Block D, 3/F, 1 Walnut Street, Kowloon (“the Property”). The plaintiff is suing on behalf of the deceased’s estate for an account of rent collected by the defendant. The defendant counterclaims a declaration that the deceased held the half share of the Property as trustee for him, and denies that the deceased’s estate is entitled to any rent. Introduction 2.The deceased was the younger brother of the defendant. They were partners in the family partnership of Kong Hing Plastic Factory (“the Factory”). 3.In 1973, the partnership was incorporated as Kong Hing Plastic Factory Limited (“the Company”). The shareholders were: the defendant (1,200 shares); the deceased and the two younger brothers (500 shares each); Madam Cheung Po Ling, the defendant’s wife (400 shares). The deceased and the defendant are the two permanent directors of the Company. The defendant is the Chairman of the Company, and the deceased became a full time employee of the Company in 1984. 4.On 20 February 1967, the deceased and the defendant entered into an agreement for the purchase of the Property. The purchase price was $107,996.00. The construction of the Property was then still uncompleted. Prior to completion, certain part payments as deposit and instalments were made. 5.On 14 March 1968, the sale and purchase was completed. On the same date, the deceased and the defendant executed a mortgage in favour of the Hang Seng Bank Limited to secure the loan and interest of $60,553. The loan was repayable by 19 equal instalments of $3,187.00. On 16 October 1969, the Property was reassigned to the deceased and the defendant upon repayment. 6.Ever since completion, the Property was let to the Factory, and then the Company for the use as office and/or factory. The registered office of the Company was and is situated at the Property. The accounts of the Company showed that between 1987 and 1992, a monthly rent of $15,000 was paid by the Company in respect of the Property. It is not in dispute that between 1987 and 1989, the deceased received sums out of the Rent Account of the Company. The entries do not always show $7,500 per month, but the defendant admitted that a personal subsidy of $7,500 per month was paid by him to the deceased, which unbeknown to him at the time was booked to the Rent Account. The payment stopped after 11 November 1991. 7.The deceased left the employment of the Company some time after November 1991. 8.On 1 April 1993, the deceased through his solicitors wrote to the Company demanding payment of the arrears of rent in respect of the Property (being the half payable to the deceased) from 1 November 1991 to 31 March 1993 in the sum of $127,500 ($7,500 x 17). Plaintiff’s case 9.The plaintiff’s pleaded case can be summarised as follows:
10.It is common ground that the Company’s audited accounts show that rent was paid in respect of the Property up to the end of 1998. No further accounts have been produced. The Company is not wound up and the Court is asked to infer that the defendant is still in receipt of rent. 11.Mr. Chan SC for the plaintiff based the claim as follows :
Mr. Chan clarified that he is not claiming any occupation rent on the ground of ouster. Defence case 12.The defendant’s pleaded case can be summarised as follows:
13.The defendant admitted that he had paid the deceased a personal subsidy of $7,500 per month. This subsidy ceased on 11 November 1991. 14.Further, Mr. Yin for the defendant stated that in the event that the deceased were found to be a beneficial owner, the plaintiff is put to the strict proof of whether:
Issues 15.The issues in this case are:
Plaintiff’s evidence 16.Both the plaintiff and her daughter Tong Kit Chi (PW2) gave evidence that the deceased had told them that he paid for half of the purchase price of the Property, and he retained the mortgage instalment receipts of repayment made by him. 17.The plaintiff only met the deceased in 1969. But she said by reason of the deceased’s education and career, he should have means to purchase the Property in 1967. He graduated from university in Taiwan in 1963, and returned to join a French construction company as a draftsman, rising to assistant engineer. In 1965, he joined a shipping company as assistant engineer, and eventually as General manager. 18.Mr. Lee Yuet man (PW1) had known the deceased and the defendant for over 30 years. He introduced the Property to the deceased and the defendant. He said that at around the time of the purchase, the deceased had a good job, and was very thrifty. The deceased once said he used all his money to help the family business. Mr. Lee had accompanied the deceased to the bank to pay the mortgage instalments, and he presumed it was for the Property. 19.Miss Tong Kwok Wai (PW3) is the sister of the deceased and the defendant. She said when the Property was purchased, she asked the defendant whether he had enough money. The defendant told her that the Property was purchased with the deceased, and the mortgage instalments were paid by them together, and there should be no problem. She said the deceased once told her that he received a cheque for rent from the Company. She said what caused the rift between the deceased and the defendant was that the defendant highhandedly increased his shareholding in the Company. 20.It is noted that on or about 28 August 1992, the defendant’s shareholding in the Company was increased to 4,100 shares with the others remaining unchanged. 21.The daughter produced documents from the belongings of the deceased to support the purchase and receipt of rent by the deceased. They include:
22.The plaintiff relied on the audited accounts of the Company to prove that the Company had paid rent for the Property up to the financial year ending 31 December 1998. The details are as follows :
23.The audited accounts of the Company for 1996 and 1997 are not produced. The plaintiff’s contention is that judging from 1994, 1995 and 1998, the rent for 1996 and 1997 should be $216,000. 24.The plaintiff has asked the defendant to produce the audited accounts of the Company from 1999. The defendant refused to do so. The plaintiff relies on the fact that up to the present, the Company is not wound up, and the Property is still the registered office for the Company, and contends that rent is still being paid by the Company for the Property. 25.The plaintiff sought to rebut the defendant’s allegation that the Company ceased production since 1993, and had moved out of the Property since 1993 by referring to the Company’s documents. 26.In the Supporting Analysis for Factory Rent and Rates in the audited accounts of the Company for 1995, both the Property and the adjacent property of Block B & C were included under factory premises. In the Supporting Analysis for 1998, the Property was still stated to be the office and Block B & C were the warehouse. 27.In the Company’s Notice of Extraordinary General Meeting on 3 January 2000 (“EGM”) signed by the defendant as Chairman, it stated that “Toy business has slowed down much due to increasing replacement of electronic toys”; “Especially in Swatow, the costs are only 70% as much as in Hong Kong”; “Some Hong Kong factories have already closed down as Hong Kong factories cannot compete”; “In view of above and future status, we suggest that we have to hold a meeting to discuss the following issues: A) Closing our company effectively from Jan 1, 2000. B) Other alternative methods.” 28.The minutes of the EGM and meeting of the Board of Directors of the Company on 3 January 2000 stated that it was “resolved that the meeting concluded that our Company would be closed & that production would stop effectively from January 4, 2000”; “Our company would proceed to sell all the inventories & assets for cash to pay off all debts including staff.” 29.Miss Tong Kit Chi said that in October 2001, she visited the Property and saw the door was open with workers going in and out of it. She said that meant the Company was still occupying the Property. Defence evidence 30.The defendant said he purchased the Property entirely with his own money. He used his personal cheque to pay the deposit of $15,979, and he retained a photocopy of the receipt. He also retained the original sales and purchase agreement. The original assignment is kept by the mortgagee bank upon the re-mortgage in 1980, and it was not returned because the bank required the signature of the deceased. 31.The defendant said the deceased had no money for the purchase. The deceased only returned from Taiwan in late 1964, not 1963. In 1967, the deceased earned $500 to $600 per month. Due to over-spending, the deceased often had to borrow money from him. The defendant said he never told PW3 that the Property was purchased by the deceased and himself jointly. 32.The defendant said he might have asked the deceased to pay the mortgage instalments, but he gave the deceased the money and the deceased always gave him back the receipts. The mortgage instalment receipts were later stolen by the deceased. 33.At the time of the purchase, the defendant was not yet married. Originally, he intended to purchase the Property under his sole name. But a friend told him that in case he were to die unexpectedly, his assets would be frozen pending payment of estate duty and/or grant of probate. If he added a name of someone he could trust as the owner, the Property would not be frozen, and his family could use the rent in the meantime, or mortgage the Property to borrow money. He asked to “borrow” the deceased’s name. The deceased said no problem and promised to transfer the Property back to him at any time. He only intended the arrangement to be interim, and he would ask the deceased to transfer the half share back to him after he got married and gained confidence in his wife. 34.In 1982 after his son was born, the deceased offered to transfer the half share of the Property back to him. The defendant said there was no urgency. Secondly, the Tong family would not give valuable property to a woman, and his mother might object to giving property to a daughter in law. In 1992, he asked the deceased to give him back his half share of the Property but the deceased made excuses for not doing so. 35.The defendant said his letter to the CIR in 1983 stating the deceased and him jointly owned the Property was untrue. At that time both the deceased and him faced CIR enquiries. The deceased had already replied and stated the position of ownership as per the Land Registry record. The deceased drafted the letter for him along the same line. He never read the letter because the deceased said it was alright. He did not care whether the letter stated the true position. 36.The defendant admitted that he had paid a personal subsidy of $7,500 per month to the deceased. In 1987 or 1988, the deceased asked for a pay rise. At the relevant time, the deceased’s monthly salary was $10,000. The defendant said the Company would not do so, but he could personally give the deceased $7,500 per month. It was purely co-incidental that monthly rent he received from the Company was $15,000 and the monthly subsidy was $7,500. 37.At the time his wife was responsible for keeping the accounts for the Company. He told his wife to pay $7,500 per month to the deceased. He did not know that his wife had paid it out of the Company’s Rent Account. He did not know about the payment vouchers of the Company at the time. He only knew about them after the present litigation. The initials on the payment vouchers purportedly showing he had approved the payment of rent were not made by him. He had authorized his wife to initial on his behalf generally. 38.The defendant said the Company ran a special system of cash expenditure. In order to increase the cash flow of the Company, he would not normally withdraw the rent due to him unless he needed money. Whenever purchases in cash were needed, the sum would be booked to the Rent Account and charged against his unwithdrawn rental income. For example, if the staff member needed to make purchase of $10,000, he would pay the staff $10,000. After the purchase, he would give the receipt of $10,000 to the Company and the Company would pay him back $10,000 from the Rent Account. He expected the $7,500 might have been booked to the Rent Account in this manner. It would explain why the payment vouchers retained by the deceased stated “rent”. 39.In late 1991, the defendant stopped the subsidy of $7,500. The subsidy was subject to the conditions that the deceased had to work diligently and to make a moulding machine work. The deceased failed to do so. After that, his mother told him that the deceased took away the mortgage instalment receipts placed in two boxes in her mother’s room. 40.Mr. But Hoi Hung (DW3), an employee of the Company, produced a Cash Advance Book purportedly to prove the above system. Mr. But could only tell of cash advances to him in making purchases, he did not know about the accounting system and in particular the use of the Rent Account. The Cash Advance Book covered the period from 1995 to 1997. The defendant’s wife emigrated to Canada in 1994 and she ceased to keep the books of the Company. From then on, the system of cash advance was handled by the defendant himself. 41.The Defence originally pleaded that the Company ceased renting the Property in 1993. After discovery of the Company’s audited accounts disclosing the payment of rent until 1998, the Defence was amended. The defendant said the Company ceased production in Hong Kong in 1993. He told his wife to move out of the Property and not to pay rent anymore. His understanding was no rent was paid since 1993, and he only realized at the end of 1998 that his wife made a mistake in continuing to pay rent. He told his wife to stop paying rent after 1998. He signed the audited accounts without looking at the description in the Supporting Analysis for rent. The accounts for 1999 were drawn up but not audited. There were no further accounts done. 42.Since 1993, the Property could not be used or rented out because of concrete spalling. He asked his staff to repair it but they never got round to do it. It was basically left idle since 1993, and was used to store some useless items and fixtures for convenience, and the staff might have used the toilet. There was no urgency to let it out. Since the Company still occupied Block B & C, the Property was kept as the registered office merely for correspondence. 43.The defendant explained that the production referred to in the minutes of the EGM in 2000 was not the business directly operated by the Company, but business of Wo Hing in the Mainland. Woo Hing is a factory owned by the defendant and his wife. It is not a subsidiary of the Company. It is a sub-contractor of the Company. 44.The defendant’s wife Cheung Po Ling (DW3) handled the accounts of the Company before she emigrated to Canada in 1994. She had no formal training in book keeping. She treated the Rent Account as the defendant’s personal Auto Teller Machine. Therefore, when the defendant asked her to pay the deceased $7,500 subsidy per month, she subconsciously charged it to the Rent Account. She never encountered a situation where the Rent Account was insufficient for cash purchases because she would see to it not being so. In 1992, the accountant said it was messy to charge cash purchases to the Rent Account and suggested that a Petty Cash Account be used. Since 1992, the Rent Account was only used for rent and not cash purchases. 45.Madam Cheung said she put the defendant's initial on the payment vouchers because the auditors said the payment vouchers should be approved by someone. She said that she feared no consequence of putting other’s initial because the defendant would never check on her. Although she had emigrated in 1994, she would come back to supervise the drawing up of the annual accounts. She told the book keeper to book rent of $15,000 per month. Even in 1998 where she did not return to Hong Kong, she told the book keeper to do the same for the 1997 accounts. The payment voucher dated 9 November 1989 stating “Rent – KM Tong Rent for 3/F “D” (May to September) $37,500” was not prepared by her although so stated. The deceased prepared it for her when he came up to receive payment of subsidy. 46.Madam Cheung said after 1993, the Company only used the Property as the office, and the warehouse was move to neighbouring premises of Block B & C. Finally in 1999, even the office was moved to Block B. 47.Madam Cheung said the rent for 1996 and 1997 should be $180,000 (i.e. $15,000 per month) instead of $216,000 (i.e. $18,000 per month) as in 1994, 1995 and 1998, because there were periodic fluctuations in the rental market. 48.Mr. William Lee Cheuk Yin (DW2) is the manager of Messrs. M.B. Lee & Co. Mr. Lee was in charge of the Company’s audit from 1974 to its cessation of business in 1998. In relation to the Audit Confirmation dated 24 July 1992 asking the deceased to confirm that the Company owed the him rent for the Property in the sum of $15,000, he presumed that his staff would send audit confirmations to both owners based on the record of owners in the Land Registry. There should be no enquiry as to who actually received the rent as the auditor of the Company was only concerned with payment of rent, not with the receipt. On the other hand, he never heard from anyone that the rent payment to the deceased was not real. As to the letter to the Commission for Canada, he drafted it based on information supplied by the deceased. Beneficial ownership of the Property 49.The burden of proof of provision of the entire purchase price rests with the defendant, whereas the burden of proof relating to the receipt of rent rests with the plaintiff. 50.Mr. Yin for the defendant pointed out that the defendant is the only witness with personal knowledge of the purchase. The plaintiff’s evidence is either hearsay, or documentary hearsay. Mr. Yin submitted that the plaintiff should not reap a forensic advantage by reason of the deceased not being available for cross-examination. 51.Mr. Yin submitted that it is common ground that at the time of the purchase the deceased did not have other business or investment, and the Factory never distributed profits to the partners. The defendant simply could not have afforded to purchase the Property. Mr. Lee Yuet Man did not know whether the deceased was paying the mortgage instalments for the Property or else. Miss Tong Kwok Wai had an axe to grind against the defendant because they had quarrelled over other investments, and at any rate, she was dismissed from the Company by the defendant allegedly for poor performance. 52.Mr. Yin submitted that the documentary evidence are inconclusive. The Audit Confirmation was issued on the basis of the owner’s record of the Land Registry. The letter to the Commission of Canada was written on the instructions supplied by the deceased. 53.The tax record was inconsistent with the date of occupation of the Property. The assignment was dated 14 March 1968, which meant the occupation of the Property should commence from mid-March 1968. Hence, the assessable profits from Properties for the years of assessment 1967/68 and 1968/69 could not possibly have been the same $6,410. Even the deceased stated in his memo that renting only commenced in September 1968. It either means the assessable profits from properties for 1967/68 were mis-stated, or they related to other properties. Further, the assessments were retrospectively raised in 1973 and the rental income could have been mis-stated. 54.The mortgage instalment receipts could not prove the source of fund. In any case, the deceased only had some mortgage instalment receipts and 1 downpayment receipt, but not other payment record. The deceased had 10 receipts out of 19 instalments in total. That is not consistent with paying half of the instalments. Except for the one payment voucher dated 9 November 1989, the others never stated the payment to the deceased was rent. And that one was but an aberration. 55.Mr. Yin submitted that although the defendant produced only one copy of the downpayment receipt of $15,979, it is not surprising since the purchase was 40 years ago and the documents could have been lost. 56.Granted that the plaintiff’s witnesses and the documentary evidence referred to above are hearsay in nature, I consider that one document stands apart from them, that is the letter by the defendant to the CIR stating that he was owner of only half share of the Property. It might have been drafted by someone else, but it was signed by the defendant. It is an admission against interest. 57.Mr. Chan for the plaintiff submitted even if the Court were to accept that the letter did not state the truth, it would mean the defendant was defrauding the CIR, and the original intention to avoid the Property being frozen was also improper. Hence, the defendant is not entitled to rely on any resulting trust in his favour by reason of illegality. 58.Mr. Yin submitted that the defendant’s intention to save the Property from being frozen pending payment of estate duty is not necessarily illegal, and the letter to the CIR stating he owned only half of the Property was not part of any underlying transaction at the time of the creation of the trust. Hence, the defendant did not have to rely on any facts disclosing any illegality to prove the resulting trust. 59.In Tinsley v. Milligan [1994] 1 AC 340, the plaintiff and the defendant, two single women, purchased a house in which they lived together and which was vested in the sole name of the plaintiff, but on the understanding that they were joint beneficial owners of the property. The purpose of that arrangement was to assist in the perpetration of frauds on the Department of Social Security. A quarrel between the parties led to the plaintiff moving out, leaving the defendant in occupation. The plaintiff claimed possession asserting sole ownership of the property. The defendant counterclaimed a declaration that the property was held by the plaintiff on trust for the parties in equal shares and for an order for sale. The House of Lords (by a majority) held that a claimant to an interest in property, whether based on a legal or equitable title, was entitled to recover if he was not forced to plead or rely on an illegality, even although it transpired that the title on which he relied was acquired in the course of carrying through an illegal transaction; that in the circumstances, by showing that she had contributed to the purchase price of the property and that there was a common understanding between the parties that they owned the property equally, the defendant had established a resulting trust; that there was no necessity to prove the reason for conveyance into the sole name of the plaintiff, which was irrelevant to the defendant’s claim, and that since there was no evidence to rebut the presumption of a resulting trust the defendant was entitled to succeed on her counterclaim. Lord Browne-Wilkinson stated at 371 F-H that : “Where the presumption of resulting trust applies, the plaintiff does not have to rely on the illegality. If he proves that the property is vested in the defendant alone but the plaintiff provided part of the purchase money, or voluntarily transferred the property to the defendant, the plaintiff establishes his claim under a resulting trust unless either the contrary presumption of advancement displaces the presumption of resulting trust. Therefore, in cases where the presumption of advancement does not apply, a plaintiff can establish his equitable interest in the property without relying in any way on the underlying illegal transaction.” 60.In Tribe v. Tribe [1996] Ch 107, the English Court of Appeal held that an action for restitution could be brought by the transferor either at common law or in equity, but as a general rule would fail if it would be illegal for the transferor to retain any interest in the property; that in a case where no presumption of advancement arose a transferor could recover property transferred without consideration if he could do so without reliance on an illegality and could show an intention to retain a beneficial interest in the property; where the presumption of advancement arose, an exception to the general rule against recovery applied if the illegal purpose which the transferor had to rely on in order to rebut the presumption had not been carried into effect in any way. 61.Tinsley v. Milligan has been considered and Tribe v. Tribe has been applied in Hong Kong in Yue Shiu Ngam v. Zen She Lin & anor [1999] 2 HKLRD 21 per Beeson J. 62.Mr. Chan sought to argue that the doctrine of locus poenitentiate discussed by Millet LJ (as he then was) in Tribe v. Tribe ought to be applied in the present case, in view of the defendant further perpetrating the fraud against the CIR in his letter dated 3 October 1983. I am afraid I shall not delve into this interesting topic as I reject the defendant’s evidence that his letter to the CIR did not state the true position, just as I reject his evidence on the provision of the entire purchase price of the Property. 63.The defendant’s allegation that by adding the deceased name as a joint owner would save the Property from being frozen pending the payment of estate duty is ludicrous. He agreed that his friend who gave him this advice did not know any law, and he did not know whether the Property would be frozen if there were two owners, or whether it would also be frozen if the deceased were to die first, yet he never sought the advice conveniently available from the solicitor who acted for him in the purchase of the Property. His explanation that the solicitor only knew how to collect money is simply incredible. 64.The defendant said the deceased had no money for the purchase because he was a spendthrift and often had to borrow money from him. If so, why would he trust the deceased to make him a trustee of the Property? Further, he told the CIR that he had borrowed $80,000 from the deceased to purchase another property. True that related to a later period in 1983, but it was contrary to the picture of the deceased’s spendthrift and impecuniosities the defendant was trying to paint. 65.The defendant said he was in no hurry to get the half share back from the defendant in 1982 because he feared his mother might object to his wife holding valuable property of the family. Yet, he had given his wife 400 shares in the Company in 1974, and he had purchased another property jointly with her in 1979. He said the deceased stole the mortgage instalment receipts inside two boxes which held title documents, yet somehow he still retained the sale and purchase agreement and a photocopy deposit receipt. 66.As to receipt of rent by the deceased before November 1991, Mr. Yin submitted that the payment vouchers were not rental receipts. Mr. William Li of the auditors said that the function of the payment voucher was only to record how an item of expenditure is to be classified in the Company’s books. The fact that the deceased had also signed on the payment vouchers only made it a receipt, not necessarily rental receipt. The single payment voucher dated 9 November 1989 which referred to payment of rent of the Property to the deceased was but an aberration. 67.Mr. Yin also pointed out that the payment vouchers were not always in amount of $7,500 or multiples or factors of $7,500, and might not relate to the payment of half of the rent. Be that as it may, the defendant did not deny that $7,500 were paid to the deceased monthly. The only dispute was whether it was rent or a personal subsidy. On this point, I totally reject the evidence of the defendant and his wife. 68.The defendant and Madam Cheung’s evidence of the use of Rent Account for cash purchases by the staff before 1993 was contrived and convoluted. I cannot imagine the amount of cash purchases of the Company would be artificially limited by the amount of unwithdrawn rent at any time. It is even more incredible that after her emigration to Canada, Madam Cheung told the clerk to continue to book rent for the Property between 1993 and 1998 without the knowledge of the defendant, 69.The defendant said according to his understanding at the time, there was no payment of rent since 1993. Then as far as the defendant was concerned, cash purchases could not be charged against the Rent Account any more. When being asked what account would be used instead, the defendant could only say that no account was necessary. 70.On the other hand, given the defendant’s understanding that no rent was charged and the practice of charging cash purchases against the Rent Account had ceased in 1994, the Rent Account would have been saddled with undistributed rent (as rent was actually charged). When being asked where the rent from 1993 to 1998 had gone while there was no withdrawal nor contra entries against the Rent Account, again, the defendant could only say his wife would know. 71.Madam Cheung said she put the defendant’s initials on the payment vouchers in order to satisfy the auditor’s query that they were not properly approved. What is the credibility of one who could do such a thing? I find that she is simply trying to shield the defendant from the fact that he actually knew and approved of the payment of $7,500 to the deceased out of the Company’s Rent Account. I reject her evidence on this point and find to the contrary. 72.I find that the payment voucher dated 9 November 1989 was an accurate record of what it stated : “Rent – KM Tong Rent for 3/F “D” (May to September) $37,500”. Although this was the only voucher which connected the deceased to payment of rent of the Property, I am satisfied that the other vouchers were in the same vein. I find that the deceased did receive half of the rent paid by the Company for the Property up to October 1991. The payment of rent to the deceased by the Company was with the knowledge and approval of the defendant. 73.All in all, I disbelieve the defendant and his wife. They are using each other as excuses for lies they each told. I reject the defendant’s evidence that he had provided all the purchase money of the Property and that there was a common intention that the deceased would hold the half share in trust for him. I find that the deceased was a beneficial owner of the half share of the Property, and he received $7,500 as rent from the Property before 11 November 1991. Payment of rent by the Company after November 1991 74.The first issue was whether there was one joint letting after November 1991. 75.Mr. Chan referred to Woodfall’s Law of Landlord and Tenant (Release 21) at 2.102 that:
He contended that all along, the letting to the Company was a joint letting by the deceased and the defendant. 76.Mr. Yin submitted that even if the deceased did receive rent of $7,500 per month from the Company before November 1991, it did not necessarily mean that there was a joint letting by the deceased and the defendant either before or as from November 1991. 77.Mr. Yin referred to Jacobs v. Seward (1872) 5 L.R.H.L. 464 as an illustration that tenants in common could lease their respective share of the land without reference or even knowledge of each other. By reason of the unity of possession of the tenancy in common, the lessee is entitled to occupy the entire property. As a general proposition, I agree. But the position must be viewed against the circumstances of the case. 78.The Property was let to the Factory ever since it was first occupied. The deceased and the defendant were partners of the Factory. Then it was let to the Company, and they were the two permanent directors of the Company. Since 1984, the deceased also worked for the Company at the Property. At the relevant time, the rent paid by the Company was $15,000 per month. I have already found the deceased received the rent of $7,500 per month. The only reasonable inference is that there was one joint letting and the deceased received half of the rent. 79.The defendant’s only evidence of any change in the letting was that the Company had ceased renting the Property since 1993. This is contrary to the audited accounts of the Company. The effect of Madam Cheung’s evidence was that she just continued to book the same (and revised) rent from 1993 to 1998 without the defendant’s knowledge. I reject their evidence. I find that the Company was paying rent for the Property from November 1991 to the end of 1998 at the least. 80.The next issue is whether the rent paid by the Company from November 1991 to 1998 covered the half share of the Property of the deceased. Notwithstanding that the deceased no longer worked for the Company, his shareholding and permanent directorship of the Company remained unchanged. There is no documentary evidence of the Company as to any change of letting. The only reasonable inference is that the previous joint letting arrangement continued save that the deceased was not paid his half share of the rent after 11 November 1991. 81.Mr. Yin referred to the letter of the solicitors for the deceased dated 1 April 1993, giving notice to the Company that the half of the rentals of the Property payable to the deceased would be increased from $7,500 to $12,000 per month with effect from 1 May 1993. Mr. Yin submitted that this indicated there were separate instead of joint letting. In the light of all the evidence, I do not find those letters casting any doubt on my conclusion on joint letting. 82.The next issue is the amount of rent for 1996 and 1997. Madam Cheung said it was $180,000 (i.e. $15,000 per month) as in 1991 and 1992, as opposed to $216,000 (i.e. $18,000 per month) for 1994, 1995 and 1998. She said that was due to fluctuations in the rental market. I reject the evidence of Madam Cheung and infer that the rent for 1996 and 1997 was $18,000 per month. 83.The next issue is whether the Company was paying rent for the Property from 1999 onwards. The defendant said the production of the Company stopped in 1993, and since then, the Property was only of limited use: as the registered office for the Company, storage for unused items and unremoved shelves, and toilet for the staff. The minutes of the EGM held on 3 January 2000 stated that the business had slowed down, but not stopped. The defendant explained that the business referred to was Woo Hing, not the Company. It was not so stated in the minutes. In any case, Woo Hing belonged to the defendant and Madam Cheung. The deceased and the other shareholders had no interest in it. I reject the evidence of the defendant that the Company’s production ceased in 1993. 84.The registered office of the Company is still at the Property. I find that that Company is still occupying the Property now, at least to the same limited extent as in 1993 to 1998 as alleged by the defendant himself. 85.Although there were no written tenancy agreement, the use of the Property was stated in writing in the Company’s audited accounts up to 1998. If there were any change in the position thereafter, the matter should be stated in the 1999 accounts. The defendant had access to the unaudited accounts for 1999. He could have produced the accounts to rebut the payment of rent if that was the case. As for the subsequent years, as the Company is still in existence, there ought to be some accounts, at least for the shareholders. Since the defendant chose not to disclose the 1999 unaudited accounts or any other accounting documents, an adverse inference is more readily drawn against him. Hence, I infer that the Company is still paying the same rent as in 1998. Finding of facts 86.On the accepted evidence, I find that:
Equitable Accounting 87.The position of joint tenant or tenant in common at common law is stated in Sir Edward Coke’s commentary On Littleton (1823) at 172a and 200b, as cited in Henderson v. Eason (1851) 17 QB 701, 707-8; 117 ER 1451, 1453:
88.In 1705, the Administration of Justice Act, section 27, often cited as the statute of 4 & 5 Anne c. 3 s. 27, gave a joint tenant or tenant in common at law the right to an account against the other co-owners where they had taken more than their fair share of the rents and profits of the land. This statute was repealed by the Law of Property (Amendment) Act 1924, section 10. The statute was originally applied in Hong Kong by section 3 of the Supreme Court Ordinance 1844. However, it was repealed in 1966 by non-adoption under the Application of English Law Ordinance (Cap. 88). 89.Mr. Chan submitted that even without the Statute of Anne, there has always been a duty to account as between co-owners in equity. He relied on Strelly v. Winson (1685) 1 Vern 298; 23 ER 480 for the proposition. 90.In Strelly v. Winson, there being three part-owners of a ship, one of them refuses to fit out the ship to sea, and the others do it without his consent, and the ship is lost in the voyage, it was held by the Lord Keeper of the Great Seal in the Court of Chancery that:
91.Mr. Chan also relied on Leake v. Cordeaux (1856) 4 WR 806 where a tenant in common of a farm brought a suit in equity against his co-tenant, who had alone occupied it and cultivated, for a moiety of the profits. On appeal, Turner LJ said that:
92.Mr. Yin submitted that the remedy of accounting is an ancillary jurisdiction in equity. It is either ordered in aid of an equitable right, e.g. an account given by a trustee to a cestui que trust, or ordered in aid of a legal right, e.g. the duty to account by an agent to the principal. He referred to Snell’s Equity (13th ed., 2000) at 44-09 on accounting between co-owners:
93.Mr. Yin referred to Kennedy v. de Trafford [1897] AC 180 where the House of Lords held that there is no fiduciary relationship between tenants in common of real estate as such. Nor can one tenant in common of real estate by leaving the management of the property in the hands of his co-tenant impose upon him an obligation of a fiduciary character. Lord Hershell said at p. 186 that:
94.In the Australian textbook Meagher, Gummow and Lehane’s Equity: Doctrine and Remedies (4th ed., 2002) at 25-605, the authors dealt with the right to an account by joint tenants or tenants-in common of realty or personalty inter se, where one co-owner contributes more than the other co-owners to the property owned by them all, or one co-owner receives more profits from the property than his colleagues. The Statute Anne has also been repealed in New South Wales. The learned authors stated that:
95.It is noted that Meagher, Gummow and Lehane observed that the equitable jurisdiction referred to in Strelly v. Winson was somewhat shadowy. One of the authors, Meagher JA of the Court of Appeal of New South Wales, commented in Forgeard v. Shanahan (1994) 35 NSWLR 206 that Strelly v. Winson was an Admiralty case wandering into the Chancery Courts, a solitary and curious decision which might suggest the contrary to the other authorities. 96.In Forgeard v. Shanahan, there was an application for appointment of a trustee for sale under section 66G of the Conveyancing Act 1919 (NSW). (Section 66G empowers the court to order statutory trusts for sale or partition of property held in co-ownership.) The plaintiff sought to make the defendant accountable for an occupation fee, and the defendant sought an allowance in her favour for the expenditure incurred by her. This raises the question of what rights one co-owner has against another, particularly when one has been in occupation and the other has not. Meagher JA (with whom Mahoney JA agreed) summarized the position as follows:
97.In paragraphs 9 to 14, Meagher JA dealt with the principles relating to the claim of an allowance for improvement and its variation and the set-ff against an occupation fee, and his Lordship continued:
98.Mr. Yin echoed the point that Strelly v. Winson was an Admiralty case wandering into the Chancery Courts and referred to Green v. Briggs (1847) 6 Hare 393 for the proposition that the law relating to the earnings of a ship, whether as freight, cargo or otherwise, follows the general law of partnership. Sir James Wigram VC said at pp. 402-3:
99.Mr. Chan referred to two Australian cases which have acted on the authority of Strelly v. Winson. In Ryan v. Dries [2002] NSWCA 3, Hodgson JA of the Court of Appeal of New South Wales said:
100.The other case is Hitchins v. Hitchins (1057/97 NSW Supreme Court, 11 December 1998), where Bryson J referred to Forgeard v. Shanahan and said at pp. 5-6 of the judgment:
101.It is noted that in none of the cases cited by Mr. Chan that the claim for accounting was based simply on the incidence of co-ownership. In Ryan v. Dries, the court was concerned with the quantification of an interest held on resulting trust. In Hitchins v. Hitchins, the co-owners were in partnership and one managed fund for the other co-owners. As Bryson J said, the co-owner who in some way undertook the responsibility was accountable as fiduciary. The duty to account seems to be grounded on a supposed consent. 102.In Leake v. Cordeaux, an undivided moiety of the estate at Bilsby, Lincolnshire was held by John Taylor, and another undivided moiety was held on trust for sale for his sister Frances Taylor. John Taylor was in occupation of the estate and cultivated it for his own benefit. The estate was sold by Cordeaux, the trustee by succession. John Taylor made a claim against the estate of Frances Taylor for money expanded by him for the benefit of the estate. The plaintiff took out letters of administration de bonis non of the estate of Frances Taylor, and instituted the suit against Cordeaux to pay over the purchase money, so that it might be ascertained what was due to John Taylor for improvement, and that he might be charged with an occupation rent. Hence, the account was taken when the relationship between the tenants in common came to an end, and the position was akin to partition. 103.With due deference to Meagher JA, I adopt his analysis on the duty to account between co-owners for rent received in Forgeard v. Shanahan. Upon the repeal of the Statute of Anne, a co-owner out of occupation has remedies at law in two situations: damages for occupation rent for ouster, or an account if the other co-owner has rendered himself liable as agent or bailiff. Agency and ouster aside, the duty to account will arise in partition actions, administration actions, in other cases where there is a fund in court, or where the court makes an order for sale as an alternative to partition, or as suggested by Hodgson JA in Ryan v. Dries, an account for a share of rent where one party claims an interest in property by reason of a resulting trust or constructive trust, and the court is asked to quantify that interest. 104.Strelly v. Winson seems to be in opposite to the mainstream of the authorities. The statement in Strelly v. Winson that “so where one tenant in common receives all the profits, he shall account in this court as bailiff to the other” seems to have loomed larger than its fact that the part owners of a ship were partners of the venture of the ship. 105.Hence, I find that there is no duty to account for rent received by one co-owner arising simply by reason of the incidence of co-ownership. 106.Be that as it may, Mr. Chan submitted that on the facts of this case, an agency should be implied upon the defendant. I shall consider this point. Agency 107.Bowstead & Reynolds on Agency (17th Ed., 2001) at 2-030 stated that:
108.Mr. Yin submitted that there was no agency between the deceased and the defendant before November 1991 as the Company paid the rent to the deceased directly. Thereafter, the defendant could not have been an agent as he never consented to it. On the contrary, he denied that the deceased was either a beneficial owner, or had ever received any rent from the Company. How then could he be taken to have collected rent on behalf of the deceased? Further, the deceased wrote to the Company demanding the payment of the arrears of rent, and purportedly to increase the rent for his half share. These acts were inconsistent with any agency. 109.Mr. Chan submitted there was a joint letting by the deceased and defendant after November 1991 (as actually found by me). Hence, the Company continued to be liable to pay rent to the deceased. As from November 1991 to 1998, the Company’s audited accounts recorded full payment of the rent on the Property without provision for any arrears due to the deceased. Hence, as far as the Company was concerned, the debt to the deceased had been fully discharged. As a matter of fact, all the rent was received by the defendant since November 1991. As the Chairman and majority shareholder and controlling mind of the Company, the defendant must be taken to be ad idem in knowledge with the Company. The Company could not have recorded in the accounts that it had made full payment of the rent on the Property if the defendant had not collected the rent on behalf of the deceased and giving discharge to the Company on behalf of the deceased. Hence, the deceased cannot be allowed to approbate and reprobate, and must be held to have collected the rent as an agent of the deceased. 110.Mr. Yin submitted that even assuming that the deceased accepted the instruction from the Company to pay the deceased, it only made the defendant an agent of the Company, but not an agent of the deceased. 111.I agree with the submission of Mr. Chan. As I have found against the defendant on the resulting trust and personal subsidy of $7,500, the truth is the defendant knew from the beginning that the deceased was a beneficial owner of the half share and the deceased had been receiving half of the rent before November 1991. He cannot be allowed to gainsay the position otherwise. Insofar as the defendant was trying to do so, it must have been his lame excuse to hold on to the rent payable to the deceased. This evidence must be rejected as contrary to the truth. 112.The defendant did not merely accepted the instruction from the Company to pay the deceased. It had given discharge to the Company on behalf of the deceased, such that the Company could report in the audited accounts that the rent on the Property was fully paid. Hence, the defendant must be taken to be an agent of the deceased. 113.Granted that the deceased did write to the Company demanding the arrears and increase of rent. However, there is nothing inconsistent given that he must have regarded the defendant as controlling the Company. 114.Hence, I find that the defendant has been an agent of the deceased in collecting the rent since 11 November 1991. The defendant is liable to account to the deceased. However, this is not the end of the matter, because the deceased’s claim is subject to a limitation period of six years, unless the claim is proprietary as opposed to merely personal in nature. Constructive trust 115.Mr. Chan submitted that the defendant was a constructive trustee in collecting the rent as agent for the deceased. 116.Bowstead & Reynolds ob. cit. at 6-040 deals with when an agent holds for principal as trustee:
117.Insofar as Mr. Chan is relying on a constructive trust to avoid the application of the statue of limitation, it is necessary to distinguish between constructive trust in the true or institutional sense and “constructive trust” in the remedial sense. A claim based on the former is proprietary in nature and is not barred by the lapse of time. The statute of limitation has been held to apply to the later by analogy. 118.Section 20(1) of the Limitation Ordinance provides that:
119.On the other hand, section 4(7) of the Limitation Ordinance provides that the general period of limitation of 6 years in actions of contract or on tort, etc. may be applied to other equitable relief by analogy:
120.In Paragon Finance plc v. DB Thakerar & Co (a firm) [1999] 1 All ER 400, Millet LJ (as he then was) said at p. 408j to 409g:
121.In Coulthard v. Disco Mix Club Ltd [2000] 1 WLR 707, Deputy Sher QC said at p.730 B-C:
122.Mr. Chan submitted that the defendant in receiving the deceased’s rent on his behalf owed him a fiduciary duty, and was liable to him as a constructive trustee (of a real constructive trust of the first kind), as there could not be any contemplation that the defendant could use the deceased’s rent as part of the defendant’s cash flow, nor was the relationship between the deceased and the defendant a commercial one (they were just brothers) in relation to the defendant’s collection of the deceased’s rent on behalf of the deceased. 123.Mr. Yin submitted that a constructive trust which give rise to proprietary relief cannot arise in the absence of an intention to create a trust. 124.In SJ v. Hon Kam Wing & Ors [2003] 1 HKLRD 524, where the Government claimed under a constructive trust the bribe received by a civil servant, Deputy Judge Barma SC (as he then was) said at p. 537E-G:
And his Lordship held that the trust was a real one and was not time-barred. 125.I have already found that the defendant was an agent of the deceased in receipt of the rent paid by the Company to the deceased after 11 November 1991. I proceed to find that the defendant was a constructive trustee in the real or institutional sense for such rent. Insofar as the defendant had collected those rent from the Company, it was his duty to hand them over to the deceased as a conduit. There was no occasion to suggest that the defendant could use the money first before paying the deceased. True that the Company in the past might not have paid the deceased promptly by month, but it is one thing for the Company to retain the money before payment to the deceased, and an entirely different matter for the defendant to retain it after payment by the Company as recorded in the audited accounts. Hence, the plaintiff’s claim is not statute-barred. 126.; By reason of my conclusion on constructive trust, it is not necessary for me to examine Mr. Chan’s contention of the primary trust under Barclays Bank Ltd v. Quitclose Investments Ltd [1979] AC567, or under money had and received and other claims of restitution. Conclusion 127.In the premises, I hold that the defendant is liable to account to the deceased’s estate the Collected Rent, at the rates I have found above. 128.As I have not been addressed on tracing of the Collected Rent into other properties, I shall not order any consequential relief. 129.I order that the defendant do pay interest at judgment rate from the date of the writ. 130.I make an order nisi that subject to any costs order made previously, the defendant do pay the costs of the action to the plaintiff, to be taxed if cost agreed.
Mr. CHAN Chi-hung, SC, inst’d by M/s Gallant Y.T. Ho & Co. for Plaintiff. |
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