Wong Chick Keung and Another v. Woo Man Sang and Others
Read the full judgment text of CACV 1945/2001 on BabelCite. This Court of Appeal judgment was delivered on 20 December 2006.
1. This is the taking of account of profits pursuant to an order made by the Court of Appeal dated 15 May 2002.
Cited by 2 cases · Cites 1 case
|
CACV 1945/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 1945 OF 2001 (On appeal from Court of First Instance No. HCMP 3490 of 1991) ______________________ BETWEEN
______________________ Coram : Before Master Ho in Court Date of Hearing : 18 May 2006, 12 and 13 October 2006 Date of Handing Down Reasons for Decision : 20 December 2006 _______________ D E C I S I O N _______________ 1.This is the taking of account of profits pursuant to an order made by the Court of Appeal dated 15 May 2002. 2.According to the said order, the plaintiffs are entitled to an account of profits, if any, made by the 2nd, 3rd and 4th defendants in respect of their dealing with the property known as Flat 3, 7th Floor, Block B, Greenview Garden, Shatin (“the Property”). Background 3.The background of the case has been succinctly set out in the judgment of the Court of Appeal under paragraphs 2 to 10. Briefly it can be stated as follows. 4.The 1st and 2nd plaintiffs are now husband and wife. Back in 1991, they were colleagues working for the same estate agent company. The 2nd plaintiff was then married to the 1st defendant. 5.In August 1991, the Property in question was purchased by the plaintiffs with their own money. For fear of conflict of interest with their work as estate agent, and with the consent of the 1st defendant, the legal title to the Property was registered in the name of the 1st defendant. A mortgage was also executed by the 1st defendant in favour of Hang Seng Finance Limited. 6.In about the end of September 1991, the marriage between the 2nd plaintiff and the 1st defendant fell apart. The plaintiffs decided to sell the Property. With the assistance of their estate agency colleagues, the plaintiffs attempted to sell the Property to the 2nd to 4th defendants. However, the sale was aborted because by then the plaintiffs feared that they would not be able to secure the 1st defendant to execute the necessary sale documents. However, throughout the attempted sale of the Property to the 2nd to 4th defendants, the plaintiffs had concealed their beneficial interests in the Property. 7.In November 1991, and without the authority of the plaintiffs, the 1st defendant instructed other estate agents to sell the Property. The Property was again offered to the 2nd to 4th defendants. On 10 November 1991, an agreement for the sale and purchase of the Property was reached between the 1st defendant and the 2nd defendant, and a provisional sale and purchase agreement of the Property was signed between the parties. Messrs. Stevenson, Wong & Co., the third party in these proceedings was engaged as the solicitors for the 2nd to 4th defendants. At the material times, the 2nd to 4th defendants had no knowledge that the 1st defendant did not have the authority to sell nor that the plaintiffs were the beneficial owners of the Property. 8.On 18 November 1991, and before the completion of the sale and purchase of the Property, the plaintiffs filed a claim against the 1st defendant and a lis pendens was registered against the Property at the Land Registry. However, due to the omission on the part of the solicitors (i.e. the third party) the 2nd to 4th defendants proceeded to complete the sale and purchase in disregard of the interests of the plaintiffs registered by way of lis pendens. 9.At the trial of this action before Yam J, the plaintiffs’ claims against the 2nd to 4th defendants were dismissed. On appeal, the Court of Appeal ruled that because of the registration of the lis pendens by the plaintiffs before completion, the 2nd to 4th defendants had constructive notice of their claim in equity. The 2nd to 4th defendants should take the legal estates subject to that equity. They were also ordered to account to the plaintiffs their dealing with the Property. The undisputed facts 10.The following facts are not disputed:-
Receipts and Disbursements of the 2nd to 4th defendants 11.Pursuant to the directions of the Court, the 4th defendant has filed her 3rd affirmation (on behalf of herself and the 2nd and 3rd defendants) accounting for the benefits received from their occupation of the Property as well as the expenses incurred. Various supporting documents such receipts and bank statements are also exhibited. At the hearing, the 4th defendant gave evidence to further elaborate on the receipts and expenses incurred. She was cross-examined by the plaintiffs. 12.The receipts and disbursements of the 2nd to 4th defendants as per the account exhibited to the 3rd affirmation of the 4th defendant can be summarized as follows. For the sake of easy reference, I have adopted the same numbering as appears in the account rendered.
13.Based on the above account, the 2nd to 4th defendants contended that they have no profit to account to the plaintiffs. On the contrary, they have suffered a loss of $881,695.35. The plaintiffs disagreed. 14.In respect of the account, Mr. Cheung, counsel for the 1st plaintiff, and the 2nd plaintiff do not dispute the receipt items namely item 1 and 3 above. They also agree that the disbursement items namely item 8 (which is adjusted by agreement to $37,426.50), 9, 12, 13, 14, 15, 17, 18, 19, 20 and 23 should be deducted from the receipts. However, they dispute on the following items and matters:-
14. Apart from the above, Mr. Cheung also sought to claim interest on the rentals received from the 1st and 2nd lettings. Initially, he also sought interest on the occupation rent under item 2 and on the proceeds of sale under item 3 above. However, at the hearing on 13th October 2006, he confirmed that his client would maintain the claim for interest on the rentals received only and would abandon the claim for interest on items 2 and 3. 15.The 2nd plaintiff was unrepresented at the hearing. However, she confirmed that she would adopt the stance and submissions of Mr. Cheung made on behalf of the 1st plaintiff. 16.I shall now deal with the disputed items and the other matters raised by Mr. Cheung. The disputed items Occupation rent (item 2) 17.The only dispute under this item is whether the 2nd to 4th defendants should also pay occupation rent during the vacant period i.e. the two months in March and April 1996 when the Property remained vacant pending the commencement of the 2nd letting to the said Lo Mei Kuk. The parties agreed that if the 2nd to 4th defendants are required to pay occupation rent for the vacant period, the total occupation rent that they need to account for should be $509,400 (representing 65 months of occupation) and not $540,002.21 as originally claimed under item 2. But if they need not account for the vacant period, the total occupation rent to be accounted for is $490,000 (representing 63 months of occupation). 18.On this issue, Mr. Cheung argued that although the 2nd to 4th defendants were not occupying the Property during the vacant period, they were nevertheless in possession of it and should therefore pay occupation rent for these two months. He added that the plaintiffs had been deprived of the use of the Property. 19.Mr. Merry, counsel for the 2nd to 4th defendants disagreed. He argued that the occupation rent is not compensation to the beneficiaries for deprivation of use of the Property, rather it is an allowance to account for the benefit received by the 2nd to 4th defendants from their actual occupation of the Property. The benefit is from occupation not from possession. I agree and accept the argument of Mr. Merry. In my view, the said order of the Court of Appeal requires the 2nd to 4th defendants to account for the profit they receive from the Property. This would naturally include the rentals they received from letting the Property out and the benefits they gained from actually occupying it. However, the 2nd to 4th defendants are not required under the said order to compensate or to pay damages to the plaintiffs simply because the plaintiffs had been deprived of the use of the Property. On this item, I agree that the 2nd to 4th defendants are only required to account for the benefit they gained from their 63 months of occupation of the Property which amounts to, in money terms, $490,000 as agreed by the parties. The purchase price (item 4) 20.On this item, it is the first argument of Mr. Cheung that the purchase price paid by the 2nd to 4th defendants in the sum of $1.76 million should not be deducted from the receipt items. He stated that out of the said sum of $1.76 million, $1.3 million was mortgage loan from HSBC and the balance of $460,000 was own money from the 2nd to 4th defendants. However, after discharging the balance of the said mortgage loan (amounting to $881,756.86) from the proceeds of sale of the Property in June 2001, the 2nd to 4th defendants only suffered a net loss of $878,243.14 (i.e. $1,300,000 - $881,756.86 + $460,000). He contended that this net loss should not be deducted from the receipt items rather the 2nd to 4th defendants should recoup this net loss as damages against the solicitors in the third party proceedings. He relied on the case of Clarke v Milford (1987) 38 D.L.R. (4th) 139 to support his proposition that a client could recover from his solicitors the purchase price and the taxes he had paid on the property and as a result of the negligence of the solicitors. 21.Mr. Cheung further submitted that in the judgment of the Court of Appeal, at paragraph 25 thereof, the Court of Appeal has expressly allowed the mortgage interest payments made by 2nd to 4th defendants to be deducted as expenditure, but the Court of Appeal has not stated that the purchase price paid by them could also be deducted. Paragraph 25 reads as follows:-
Relying on the above, Mr. Cheung argued that the purchase price paid by the 2nd – 4th defendants should not be allowed to be deducted. 22.It is the second argument of Mr. Cheung that the 2nd to 4th defendants should deduct the plaintiffs’ mortgage loan in the sum of $1,206,004.74 from the receipt items. He based his argument on paragraph 14 of the judgment of the Court of Appeal. At line H thereof, it states:-
23.Mr. Merry argued otherwise. He submitted that the purchase price was a sum actually “expended in respect of the property” and was incurred during the 2nd to 4th defendants’ first dealing with the Property. This is entirely within the meaning of the said order the Court of Appeal as per paragraph 25 cited above. He stated that without this expenditure, there would have been no trust property, no sale and no possibility of there being any profits upon the taking of an account. He submitted that it would be grossly unjust if no allowance is given for the purchase price as part of it had been applied to discharge the mortgage of the plaintiffs. He disagreed that the mortgage loan of the plaintiffs in the sum of $1,206,004.74 should be deducted as expenditure. 24.In my view, and with respect to Mr. Cheung, there is no merit in the arguments put forward by him. 25.Firstly, we are not here to deal with what damages that the 2nd to 4th defendants could seek against their own solicitors or the loss suffered by them as a result of the negligence of their solicitors in handling the transaction. Nor are we concerned with the assessment of the damages that the plaintiffs are entitled. We are here to take account of the profit, if any, made by the 2nd to 4th defendants in their dealing with the Property. As such, it is irrelevant as to whether the 2nd to 4th defendants could claim the net loss against their solicitors or not. The case of Clarke v Milford has no application in the present case. We are concerned with what profit that the 2nd to 4th defendants had made out of their dealing with the Property; that is receipts less allowable expenses. As stated in Snell’s Equity, 31st edition, at page 185, paragraph 7-129 that:-
26.Secondly, and on the plain reading of paragraph 25 of the Court of Appeal judgment, I am of the view that the purchase price paid by the 2nd to 4th defendants must be treated as expenditure in respect of the Property and should be taken into account. I note the argument of Mr. Cheung that paragraph 25 refers to “mortgage interest payments” only, there is no mention about the purchase price. However, I agree with the submissions of Mr. Merry that the purchase price was not specifically referred to by the Court of Appeal because it was so obvious that it should be. As pointed out by Mr. Merry, the Court of Appeal allows the 2nd to 4th defendants to bring into account “all sums expended in respect of the property”. Indeed, when one looks at paragraph 25 in context, the purchase price should be allowed to be deducted. By using the word “including” before “mortgage interest payment”, the Court of Appeal is only taking “mortgage interest payments” as one of the examples of expenditure. It does not mean to exclude the purchase price as Mr. Cheung argued. 27.Further, I also disagree with Mr. Cheung’s submission that the mortgage of the plaintiffs in the sum of $1,206,004.74 should be deducted from the receipts. I note that he relied on the said paragraph 14 of the judgment of the Court of Appeal, but in my view, paragraph 14 is not part of the reasoning of the Court of Appeal. What the Court of Appeal has done in paragraph 14 is to relate the arguments of Mr. Cheung submitted at the hearing only. That paragraph does not form and never forms part of the order or ruling of the Court of Appeal. This can be seen at between lines J and K of paragraph 14 which states that:-
28.In my view, the order of the Court of Appeal is as stated in paragraph 25 of its judgment. And as the mortgage of the plaintiffs is not sums expended in respect of the property by the 2nd to 4th defendants, it should be excluded. Legal fees and related charges and expenses (items 5, 6 and 7) 29.Mr. Cheung argued that these items namely the Agency fee, charges for home loan application and legal fees and stamp duty incurred for the purchase of the Property by the 2nd to 4th defendants in December 1991 should be regarded as wasted expenditure and be recoverable by the 2nd to 4th defendants against the negligent solicitors only under the principles of Clarke v Milford. They should not be allowed to be deducted from the receipts of the Property. 30.Mr. Merry contended that they should be deducted as they were costs actually expended in respect of, and of dealing with, the Property. Without them, there would have been no trust property, no account, no resale and no possibility of profit. 31.I agree with Mr. Merry that these items should be allowed to be deducted as they are sums expended on the Property. As I have mentioned above, we are not here to deal with what damages that the 2nd to 4th defendants may be able to claim against their solicitors. We are to find out the sums expended on the Property and items 5, 6 and 7 are just one of those expenses on the Property. The government rates and management fees (items 10 and 11) 32.Mr. Cheung does not dispute that the government rent (in the sum of $12,096.00) is deductible expenses but argued that the government rates (in the sum of $45,468.00) and the management fees (in the sum of $38,306.00) paid by the 2nd to 4th defendants during their occupation of the Property are not deductible. Mr. Cheung argued that they are not deductible because the rental values are exclusive of the management fees and rates and the same had all along been paid by the tenants (of the two lettings). By the same token, as the 2nd to 4th defendants had to pay occupation rent for the use and occupation of the Property, they should also be responsible to discharge the management fees and rates as the tenants had done. 33.Mr. Merry again disagreed. He submitted that management fees are for services, such as security, for the Property and to the common areas, they are not related with its occupation as such. Likewise rates are paid for public services rather than for occupation. 34.In my view, the management fees and rates in the sum of $38,306.00 and $45,468.00 respectively should be allowed to be deducted from the receipt items. They are recurrent expenses for the Property and are payable irrespective of who is in occupation be it the 2nd to 4th defendants or the plaintiffs. They are sums expended by the 2nd to 4th defendants on the Property. The decoration fee incurred before the sale of the Property in June 2001 (item 16) 35.The sum claimed under item 16 is $12,000. Mr. Cheung conceded a sum of $6,000. I am prepared to allow the full sum to be deducted as I fail to see how this amount, incurred by the 2nd to 4th defendants solely for the purpose of making the Property more saleable, is not deductible. As I see it, the 2nd to 4th defendants gained no benefit out of it and the amount claimed appears to be reasonable. Interest on the deposit of $450,000 and on repayment of capital (items 21 and 22) 36.The primary position of the 2nd to 4th defendants is that either party should not be allowed to claim interest against the other. However, if the plaintiffs would like to claim interests on the rentals received or on the occupation rent etc, Mr. Merry contended that the 2nd to 4th defendants should be allowed to claim interest for the loss of use of the deposit of $450,000 and on the money used to repay the capital. With respect to Mr. Merry, I do not agree. In this taking of account exercise, we are concerned with the sums expended by the 2nd to 4th defendants in respect of their dealing with the Property, not with what loss that the 2nd to 4th defendants had incurred such as the loss of use of money. Indeed, for the sake of argument, if the Court is to allow interest on the loss of use of money spent on mortgage repayments, does it also mean that the Court should allow interest on loss of use of money spent on other items in question such as rates, management fees or decoration fee. In my view, that cannot be right and the claims under these two items namely for interest on the deposit and on the repayment of capital are disallowed. The claim for interest on rentals received from the 1st and 2nd lettings 37.Mr. Cheung submitted that they should be entitled to interest on the rentals received from the two lettings in the total sum of $439,296.00. He stated that interest should be assessed on this sum either at the bank savings rate or half of the judgment rate. He relied on the textbook, Breach of Trust (2003), edited by Birks and Pretto, ‘Liability’ by Robert Chambers, at page 33 which states:-
38.Mr. Merry disagreed. He stated that even on the authority relied on by Mr. Cheung, payment of interest is an alternative remedy to an account. A trustee cannot be ordered to pay over a surplus arising on an account taken and to pay interest. He submitted that where a commercial or professional trustee uses trust money to invest, beneficiaries are entitled to an account of profits or interest upon the trust money used, as compensation but not to both. He argued that in the case of Bartlett v Barclay’s Bank Trust Co Ltd (No 2) (1980) Ch 542, the discussion of interest concerned the compensation only not the account. 39.Mr. Merry further submitted that the plaintiffs’ request for interests assumes that the money received was all profit upon which interest could be earned. He said that that assumption is mistaken as the rentals received had been expended by the 2nd to 4th defendants on mortgage repayments, management fees, rates etc. The rentals received would be swallowed up in expenses, there would be no running surplus upon which interest could be earned or charged. 40.Having considered the authorities and the submissions, I agree with Mr. Merry that the authority relied on by Mr. Cheung does not lend support to his claim for interest on the rentals received. Indeed, after the passage referred to by Mr. Cheung in Birks and Pretto at page 33, it continues to state as follows (i.e. on the 3 permitted bases for charging trustees with interests):-
41.In view of the above, I agree that the plaintiffs could either claim profit or interest, but not both. On this issue, I disallow the claim by the plaintiffs for interest on rentals received. Amount of Profits to be accounted 42.After deducting all the allowable expenses from the receipt items and for the reasons stated above, I conclude that there is no profit for the 2nd to 4th defendants to account to the plaintiffs. The calculations appear as follows:-
Costs 43.On the question of costs, I am minded to make no order as to costs of these hearings as I have found, after taken the accounts, that there is no profit to be accounted by the 2nd to 4th defendants to the plaintiffs. On the other hand, I do not think it is appropriate to order the plaintiffs to bear the costs of these hearings as the taking of account exercise is ordered by the Court of Appeal. 44.As to the costs of the hearings before Master De Souza on 13 July 2005 and 14 November 2005, I am also minded to make no order as to costs for these two hearings as the adjournments were through no fault of the parties but occasioned by the discharge of legal aid certificate previously granted to the 2nd plaintiff. For these reasons, I make an order nisi that there be no order as to costs for these hearings including the hearings before Master De Souza on 13 July 2005 and 14 November 2005. The order nisi is to be made absolute upon the expiration of 14 days from the date this decision is handed down. There will be legal aid taxation in respect of the own costs of the 1st plaintiff.
Mr. Jeremy Cheung, instructed by Messrs. Yeung & Chan, for the 1st plaintiff. Madam Wan Shui Ling, 2nd plaintiff, acting in person. Mr. Malcolm Merry, instructed by Messrs. Richards Butler for the 2nd to 4th defendants. |
Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under CACV 1945/2001