Cheung Kai Cheung and Another v. Wu Kwok Man Andy
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DCMP 2277/2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION MISCELLANEOUS PROCEEDINGS NO. 2277 OF 2005 _______________
BETWEEN
___________________________ Coram : Deputy District Judge Anthony Kwok in Court Date of Hearing : 5th – 7th March and 29th March 2007 Date of Delivery of Judgment : 31st May 2007 ___________________________ J U D G M E N T ___________________________ Introduction 1.In this action, the Plaintiffs originally claim against the Defendant for possession of the Property and mense profit. The claim for mense profit was however abandoned during final submission and it was dismissed accordingly. The Plaintiffs are the present registered owners of the Property. They purchased the Property from the Third Party at a price of HK$ 1,180,000.00 on 9 March, 2005. Upon completion on 19 May, 2005, according to the Plaintiffs, the Third party requested further time to move out from the property and as a result, a licence in writing was granted to them with one of the conditions being to deliver up possession to the Plaintiffs upon the expiry of the licence which was in one month’s time. The licence terminated upon the expiry of the one month period but it was then found out, said by the Plaintiffs, that the Defendant was and has since remained in occupation of the Property and still refused to deliver up possession, despite repeated demands by the Plaintiffs. 2.In Defence, the Defendant claims that he has beneficial interest in the Property. He contends that he has in fact provided the down payments, monthly instalments of the mortgage loans, outgoings and also other incidental expenses of the Property. He further argues that the Plaintiffs have actual knowledge and/or constructive notice of his interest in the Property. In final submission, however, the Defence relied rather on the notion of constructive notice. 3.By an Order of Master S T Poon dated 21 December, 2005, the Defendant issued Third Party Proceedings. By the Third Party Proceedings dated 6 January, 2006, the Defendant claims against the Third Party, in the event judgment is entered against him, (a) damages for breach of resulting trust, (b) account of profits, and (c) interests. Issues 4.The questions that are fallen to be decided revolve around (1) whether the Defendant has a beneficial interest in the Property and (2) whether the Plaintiffs have actual or constructive notice of the beneficial interest of the Defendant. In law, the Plaintiffs will take free of the beneficial interests acquired by the Defendant in the Property provided they have no actual or constructive notice of them. The Plaintiffs’ Case 5.Only the second named Plaintiff, Madam Ku Ming Ming (“Madam Ku”) was called to testify on behalf of the Plaintiffs. Madam Ku is the wife of one Cheung Kai Sum, Henry (“Henry Cheung”) who is the brother of the other Plaintiff, Cheung Kai Cheung (“K C Cheung”). According to her statement which was adopted as evidence in chief, Madam Ku and her husband took possession of the Property after the expiry of the Licence Agreement. They locked the iron gate of Property before they left but when Madam Ku later returned, she found the Defendant was occupying the Property. Madam Ku informed the Defendant about the purchase but he refused to leave. According to Madam Ku in the statement, she and K C Cheung did not acquaint with the Defendant. They have no knowledge or notice of the Defendant’s interest of and in the Property. Madam Ku also said in her statement that it was she who handled the purchase of the Property. She inspected the Property before the signing of the Sale and Purchase Agreement and later before the completion. She said in both occasions, she did not see the Defendant. As for K C Cheung, he never attended the Property and never met the Defendant. The Plaintiffs accused the Defendant of trespassing their Property. As far as the position of the Third Party was concerned, Madam Ku only spoke of asking the Third Party in October, 2005 whether the Defendant had made any contribution towards the purchase price, mortgage payment or other expenses of the Property and the Third Party denied that the Defendant had contributed to the same in any way. 6.The Third Party, however, never filed any pleading or document with the court and was absent throughout the whole trial. The Defendant’s case 7.According to the Defendant’s statement, the first named Third Party, Wu Ka Shun Spencer (“Spencer Wu”) is the son of his kin brother Wu Kwok Leung (“K L Wu”) whilst the second named Third Party, Mok Pei Sha is the girl friend of Spencer Wu. In the beginning of the statement, Defendant had said K C Cheung alias Henry Cheung is a friend of K L Wu and Madam Ku is the wife of K C Cheung. 8.Defendant went on to say how he acquired the Property with the assistance of his kin brother, K L Wu. Back in 2002, Defendant was married and they resided in a public housing estate. As they were later required to move out from the unit of public housing, they needed to buy a property and he turned to K L Wu for advice as he did not have sufficient money to pay for the downpayment. His kin brother, K L Wu told the Defendant that he could make arrangement for that so that the purchase could be made with little downpayment only. Defendant believed his kin brother as K L Wu was a respectable family member of his clan . Upon K L Wu’s requests, in the period between 24 May, 2002 and 9 July, 2002, the Defendant had, on 4 separate occasions, deposited a total of HK$ 39,000.00 into Wu’s account to facilitate the purchase of the Property. 9.In the beginning of July, 2002, K L Wu told the Defendant that he had already selected some properties for him to choose and the Defendant and his wife finally chose the Property after viewing it but the Defendant did not have sufficient cash to pay for the deposit and furthermore, he did not have income proof to apply for the mortgage as he was then self-employed. Also, as his company was in the winding-up at that time, he did not wish to put down his name as the registered owner of the Property. Because of all these considerations, the purchase of the Property was handled by K L Wu which included the setting up of one Joinwell Technical & Fire Services Engineering Co. Ltd (“Joinwell”) and the application of the mortgage loan. The Defendant was appointed as the secretary of this service company. K L Wu first arranged Joinwell to purchase the Property from the vendor. Defendant first paid HK$ 5,700.00 to set up Joinwell and he also paid HK$ 20,000 as a preliminary deposit to the vendor in the estate agency. Before completion, K L Wu further arranged his son Spencer Wu and his girlfriend to purchase the Property from Joinwell as confirmors and became the registered owners of the Property. K L Wu told the Defendant that while Spencer Wu was the registered owner, he would be the real or beneficial owner. Defendant went along with the suggestion and the arrangement of K L Wu and the Property was finally purchased in the names of the Third Party. In October, 2002, the Defendant also paid a further sum of $ 7,000.00 as commission for the estate agent. 10.The Defendant moved into the Property at the beginning of November, 2002. Spencer Wu had reminded him not to fall behind the mortgage payment so as not to cause him any trouble. It was not until the Defendant has received the first letter from the mortgagee bank that he came to notice the additional name of the second named Third Party. When asked by the Defendant about this, Spencer Wu explained that the Property have to purchased in joint names with his girlfriend as his own monthly income was insufficient to obtain the mortgage. Since then, the Defendant said he had made monthly mortgage repayments by paying or transferring money into Spencer Wu’s bank account. He had also paid the rates, government rent, management fees and other expenses of the Property. 11.In August, 2003, the Defendant separated with the wife. She left the Defendant and took away the two children, leaving the Defendant alone in the Property. In October, 2003, K L Wu suddenly arranged one Chiu Luen Ho and his family to move into the Property as tenants at a monthly rent of HK$ 3,500.00 without the knowledge and prior consent of the Defendant. K L Wu told the Defendant that Chiu was his friend as well as his worker, he would deduct his salary as rental payment and directly pay into Spencer Wu’s mortgage account. The Defendant first objected but he reluctantly agreed. However, the Chiu’s family has failed to pay the outgoings and expenses of the Property since they moved in. The Defendant protested and requested that they should move out but K L Wu just asked the Defendant to be patient. 12.K L Wu told the Defendant that he has already deducted the rent from the salary of Chiu for the purpose of mortgage payment of the Property. As it turned out, K L Wu had only paid a total of HK$ 2,060.00 into the mortgage account for the 3 months from December 2003 to February 2004. He later admitted to the Defendant that the salary deducted has been in fact been used to repay the mortgage of his another property. In order to make good the arrears of the mortgage, the Defendant had borrowed HK$ 15,000.00 from a friend. 13.On 4 April, 2004, when the Defendant finished working and returned, he found that K L Wu and Spencer Wu had moved all his furniture and personal belongings out to the room at the flat roof of the Property. K L Wu produced a signed 2-year provisional license agreement and told the Defendant that they have already rented out their own property in order to pay their own mortgage. They would move into the Property as they had no place to live and they would share the mortgage and expenses of the Property. According to the Defendant, from April, 2004 to May, 2005, both K L Wu and Spencer Wu has however been delaying their contributions. Only partial repayments of HK$ 4,500.00 has been made in 4 occasions from June 2004 to January 2005. In the evening of 2 December, 2004, a row broke out between them. Defendant alleged that he was even assaulted by K L Wu during the incident. The case was later reported to the police. After the incident, the Defendant demanded K L Wu and his son to move away but they ignored him. 14.At about the end of May, 2005, K L Wu suddenly told the Defendant that he had already sold the Property and he had to move out from the Property by 19 June, 2005. The Defendant refused to move out and upon land search, he came to know that the Sale and Purchase Agreement of the Property has already been signed on 9 March, 2005. On 1 June, the Defendant issued a letter drafted by a District Councilor to the Third Party setting out in details his financial contributions and reiterating his beneficial interest in the Property. The same letter has also been copied and sent to solicitors acting for the Plaintiffs and the Third Party on 1 June, 2005. Later a similar letter was also issued to the Third Party and copied to the same solicitors objecting to the sale of the Property and demanding the repayment of about HK $250,000 in order to settle the matter on 7 June, 2005. 15.According to the Defendant, at all material times, the Plaintiffs knew that he was residing in the Property and they were aware of his relationship between the Third Party and K L Wu. The Plaintiffs also knew about his beneficial interest in the Property. The Plaintiffs have first viewed the Property in December, 2002 as well as during the first six months in 2003. He was there at that time and he opened the door for them. However, as far as he knew, no inspection was made in 2005 at all and no enquiry has ever been made about his interest in the Property before the completion. The Law 16.As rightly cited by Counsel for the Plaintiff from Megarry and Wade, The Law of Real Property at para. 5-005: “It is a fundamental rule that a purchaser of a legal estate for value without notice is “an absolute, unqualified, unanswerable defence” against the claims of prior equitable owner or incumbrancer. The onus of proof lies on the person putting forward this plea.” There are three kinds of notice: (a) actual notice, (b) constructive notice, and (c) imputed notice. (para. 5-015 to 5-023) 17.In respect of actual notice, “ a person may be regarded as having notice of a fact not because he knows it, but because for legal purposes he is to be taken to know it.” (para. 5-016) 18.In respect of constructive notice, the learned authors said that the purchaser has a duty of diligence in that he should inquire about equitable interests with no less diligence than about legal interests, which they could ignore only at their own peril. (para. 5-017) A purchaser would be able to plead absence of notice only if he had made all usual and proper inquiries and had still found nothing to indicate the equitable interest. If he fell short of this standard, he could not plead that he had no notice of the rights which proper diligence would have discovered. A purchaser has constructive notice of a flat if he (i) had actual notice that there was some incumbrance and a proper inquiry would have revealed what it was, or (ii) deliberately abstained from inquiry in an attempt to avoid having notice, or (iii) omitted by carelessness or for any reason to make an inquiry which a purchaser acting on skilled advice ought to make and which would have revealed the incumbrance. (para. 5-018) 19.Lastly, “ a purchaser is expected to inspect the land and make inquiry as to anything which appears inconsistent with the title offered by the vendor. A purchaser should therefore (i) ascertain whether there is anybody in possession or occupation of the land apart from the vendor, at least if there are any circumstances from which a reasonable person might infer this, and (ii) make inquiry of any such person. (para. 5-019) Evaluation of Evidence 20.Before analysis, it is noted that the Plaintiffs choose only to claim possession on the single ground that the Defendant is trespassing the Property. For reasons best known to themselves and those advising them, they have since refrained from suing the Third Party cum vendor for breach of the Sale and Purchase Agreement and claim damages for failure to deliver up vacant possession . On the other hand, the Defendant does not seek a declaration from the court of his beneficial interest in the Property. That said, it is trite that the narrow issues for me to decide would be restricted to the pleadings before me. 21.Based on the production by the Defendant of large numbers of copies of pay-in slips evidencing his contributions towards monthly mortgage repayments as well as receipts for other outgoings and incidental expenses such as gas, water, electricity and management fees before the completion of the Property, I have no difficulty in accepting Defendant’s evidence on this part. According to the calculation by Counsel for the Defendant, the Defendant has contributed a total amount of HK$ 219,222.00 (based on the available evidence before me). The total mortgage payments of the Property was HK$ 117,800.00(of which the Defendant had shown on documents of the amount of HK$ 63,751.00 for payment of the mortgage and HK$ 20,000.00 for the initial deposit.) The Plaintiffs took no issue of the above calculations. Nor did they be able to adduce any contrary evidence from the Third Party of any alternative financial sources towards the acquisition and the outgoings of the Property. The assertion by Madam Ku that the Third Party had denied that the Defendant had made contribution amounts to no more than a bare denial and I decline to attach any weight to it. In my judgment, the financial contributions by the Defendant was substantial and the only reason why he would have so contributed to the Property which was held not under his own name could only be that he had the intention to ownership. His conduct was consistent with his evidence that the Property was acquired through the arrangement of his kin brother, K L Wu by setting up a service company to purchase and then to sub-sell to Spencer Wu in order to obtain a better valuation and thus more mortgage loan from the bank so as to attain the target of solving his then accommodation problem with little or less downpayment. As K L Wu is Defendant’s kin brother and Spencer Wu is the son of K L Wu, they are close relatives to one another and there is every reason for Defendant to trust the arrangement without first securing a formal written declaration of trust from them. After all, the Defendant, unlike the Plaintiffs, really had no choice at that time but to go ahead with the arrangements under his tight financial circumstances. 22.The next question would be Plaintiff’s knowledge of the Defendant’s interest in the Property. According to the evidence of the Defendant, from November. 2002 to August, 2003, the Property was occupied by the family of the Defendant. In August, the wife separated with the Defendant and went away with the two children. Thereafter he lived alone in the Property until K L Wu first arranged his worker Chiu Ho Luen to move in for a brief period and later K L Wu and Spencer Wu also moved into the Property after they had rented out their own property for their own financial reason. 23.As to the Plaintiffs’ knowledge of Defendant’s occupation in the Property, the first named Plaintiff, K C Cheung never involved in the purchase of the Property other than holding the Property under his name and according to Madam Ku, he never even attended the Property or met the Defendant. It was firstly said that Madam Ku was the one who handled the purchase of the Property. In her statement that was adopted, she said she inspected the Property herself before entering the Sale and Purchase Agreement and subsequently before the date of completion. She denied seeing the Defendant on both occasions. 24.Under cross-examination, however, Madam Ku admitted that she and her husband, Henry Cheung were friends of K L Wu and Spencer Wu. She also admitted that in December, 2002, they have already visited the Property. When further asked if she already knew that the Defendant was residing in the Property before taking possession, she first answered in the affirmative and when she was asked when did she come to know that, her answer was 2002. These answers confirmed the case of the Defendant. As Madam Ku went along, she realized she had said it wrong and she retracted her answers before long. What she did not retract was that she confirmed she had visited the Property as early as 2002 and she knew that at that time there were children living there. 25.By her answers, Madam Ku had cut a poor figure in the witness stand. Despite what she said in the statement that she handled the purchase of the Property, she had shown little or no personal knowledge about the matter. When she was asked why in the Amended Reply, the Plaintiff averred that Spencer Wu was an investor of landed properties and he invited the Defendant to reside in the Property temporarily as licensee at will, she said her husband told her so. She even had no idea that the same information had been pleaded at all. The cavalier manner displayed by the Plaintiffs in their allegations has the only effect of reminding myself to approach their evidence with skepticism. As she went along, her evidence could not bear close scrutiny. 26.Perhaps the most damaging confession by Madam Ku was when she finally admitted that her husband had told her before the completion that the Defendant resided in the Property. She also admitted that although she knew that but she did not make any inquiry as to his interest in the Property. 27.Apart from the admission, there is also strong circumstantial evidence to infer that Henry Cheung have had full knowledge about the Defendant’s interest in the Property. Madam KU confirmed that her husband Henry Cheung had paid a total of HK$ 4,590.00 to settle the arrear of 9 month management fees first before completion. Looking at the exhibit which was coming from the Plaintiffs (p130 Bundle of Documents), the copy receipt for all those management fees was all written in a single receipt with a total amount which suggested that it was paid in one go. Under the Sale and Purchase Agreement of the Property, it was the responsibility of the vendor to settle all the outgoings before the completion. Before he paid the outstanding fees for the Third Party, Henry Cheung being the husband of Madam Wu who was the purchaser must have enquired from K L Wu or Spencer Wu as to the reason why the management fees was remained unsettled for 9 months. Henry Cheung would not simply write out a cheque or pay out cash without knowing what was going on inside the Property. Coupled with the admission by Madam Wu in the witness box, there was every reason to believe that Henry Cheung and for that matter, Madam Wu both knew the existence of Defendant in the Property before the completion. The payment of the outstanding management fees by Henry Cheung further suggested that he and his wife should both become suspicious and should have inquired as to what really happened and hence the arrangement and argument between the Third Party and the Defendant concerning the interest in the Property. 28.The law requires that as a prudent and reasonable purchaser, given their knowledge about the Defendant residing in the Property, they have a duty of diligence in that they should inquire about his equitable interest which if they chose to ignore, they did it at their own peril. 29.What was perhaps most unusual was the response and conduct of the Plaintiffs after the Defendant had issued the letter to their legal representative stating his beneficial interest in the Property on 1 June, 2005. Madam Ku said that she did not know about it. Her excuse was unbelievable. Either she was not telling the truth or even if she really did not know, the legal representative must have related the content of the letter to Henry Cheung who was said by Madam Ku to have her full authority and to give instructions to the solicitors in the conveyancing matter. The absence of any correspondence between solicitors for the Plaintiffs and solicitors for the Third Party relating to the Defendant’s two letters in June had displayed a marked lack of interest in the matter. 30.Madam Ku had been most evasive when giving her evidence. She showed little or no knowledge in some of the important matters. Her admission to certain matters as stated above would not by accident and a slip of tongue. On the other hand, her husband, Henry Cheung who well knew K L Wu and Spencer Wu had elected not to testify so as not to expose to the vigorous cross-examination by Counsel for the Defendant. 31.As for the Defendant, he obviously made a mistake in pleading when he said Henry Cheung was the first named Plaintiffs. He could however clearly identified Madam Ku’s husband as Henry Cheung. I accept his explanation and I found there was nothing in this misnomer. His version of event was well supported by documents he produced and he was not shaken at all in the cross-examination. I am impressed with his honesty and I prefer his evidence whenever it conflicts with the evidence of the Plaintiffs. Conclusion 32.Based on the above reasons, I found that the Defendant had a beneficial interest in the Property and the Plaintiffs had constructive notice on the beneficial interest of the Defendant. 33.Accordingly, all the claims by the Plaintiffs must be dismissed. The Third Party Proceedings must also be dismissed. 34.There is no reason why costs should not follow event. I also order the Plaintiffs to pay the Defendant costs of this action, with certificate to Counsel, to be taxed, if not agreed. This shall be a cost order nisi and be made absolute 14 days after judgment.
Representation: Mr. Lau Woon-sun, Wilson instructed by Messrs Raymond Cheung & Chan for Plaintiff Mr. Wong Chao-wai, Brian instructed by Messrs Y. L Yeung & Co. for Defendant Third Party Absent |