Chan Lan v. Shing Kei and Another

HCA 1206/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1206 OF 2006

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Before: Mr Recorder Fok, SC in Court

Dates of Hearing: 7 to 10 April 2008

Date of Judgment: 18 April 2008

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J U D G M E N T

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Introduction

1.This action concerns a property known as Flat B, 23^rd Floor, Tower 5, Sorrento, No.1 Austin Road West, Kowloon (“the Property”).

2.The Property is registered in the names of the Plaintiff and the 1^st Defendant.  At the time of the purchase of the Property, the Plaintiff and the 1^st Defendant were engaged and the Property was purchased with in the intention that it should become their matrimonial home when they eventually married.  Since they could not afford to fund the purchase themselves, part of the purchase price was paid by the 1^st Defendant’s father, the 2^nd Defendant.

3.Unfortunately, shortly after moving into the Property, the relationship between the Plaintiff and the 1^st Defendant deteriorated and their engagement was terminated.

4.The issues in this action concern the ownership of the Property and, if appropriate, its disposition.

Background facts

5.The Plaintiff and the 1^st Defendant met while they were both at university in New Zealand.  On the 1^st Defendant’s return to Hong Kong in 2000 they became engaged and co-habited at the Plaintiff’s father’s flat in Yau Ma Tei.  The Plaintiff’s father was at that time living in New Zealand and so the Plaintiff and the 1^st Defendant lived alone in his flat.

6.The Plaintiff and the 1^st Defendant both worked for a telecommunications company, with a combined joint income of about $30,000 to $35,000 per month.  In 2001, they decided they would like to buy a property as their matrimonial home, in contemplation of their getting married, although they had not yet fixed a date for their wedding.

7.After looking at various properties they realised they could not afford to finance the purchase of a property to their liking on their own from their joint savings, which were then about $260,000, even if a 95% mortgage was obtained.

8.Eventually, in early November 2001, the couple learned of a new property development in Kowloon, named Sorrento, which was then being marketed.  They were persuaded by the estate agents marketing the development to apply in a ballot for the right to purchase one of the flats there.  The cost of the application for the ballot was $100,000, as to which the 1^st Defendant paid $35,000 and the 2^nd Defendant paid $65,000.

9.The ballot was successful and the couple was thereupon entitled to purchase a flat in the development.  Having regard to the prices of the units, the couple selected the Property.  Being a new development under construction, a 5% discount on the price was available if the full purchase price was paid within a month but this offer was only available with a 70% mortgage.

10.The Plaintiff and the 1^st Defendant signed a preliminary agreement for sale and purchase of the Property on 16 November 2001.  The purchase price was $3,336,000 which was payable as to 5% ($166,800) on the signing the preliminary agreement, another 5% ($166,800) on or before 20 November 2001 and the balance 90% ($3,002,400) on or before 20 December 2001.  As to the initial part payment of $166,800 payable on signing the Memorandum, the $100,000 paid to enter the ballot was credited to this amount due and the 2^nd Defendant issued a cheque for the balance of $66,800.  The 2^nd Defendant also reimbursed the 1^st Defendant for the $35,000 he had paid to enter the ballot so that, in effect, the 2^nd Defendant financed the whole of the $166,800 initial part payment.

11.On 20 November 2001, the formal agreement for sale and purchase of the property was signed by the Plaintiff and the 1^st Defendant as purchasers.  The 2^nd Defendant paid a further sum of $166,800 in respect of the second part payment due.  He also paid the legal fees in the sum of $1,560.

12.On 19 December 2001, 20% of the purchase price was paid in the sum of $667,200 and legal costs of $5,800 were paid.  These two sums were paid by the 2^nd Defendant, who had thereby financed the purchase of the Property to the extent of $1,000,800, being 30%.  The nature and effect of his 30% contribution is a central issue in this action.

13.Also on 19 December 2001, the balance 70% of the purchase price in the sum of $2,335,200 was paid by way of mortgage loan from the Bank of Communications.

14.The monthly mortgage repayments commenced in January 2002 and from that month until June 2003, these repayments were made by the Plaintiff and the 1^st Defendant from their joint savings account.  For the months of July and August 2003, the mortgage repayments made by the Plaintiff were reimbursed by the payment by the 2^nd Defendant of a sum of $25,000 to the Plaintiff.

15.In early 2002, the mortgage loan was reduced by two separate payments of $200,000: on 19 February 2002, the Plaintiff repaid $200,000, which she had received as a gift from her father; on 20 March 2002, the 1^st Defendant likewise repaid $200,000, which he had received as a gift from his grandfather.

16.On 15 March 2003, the purchase of the Property was completed and the Property was assigned to the Plaintiff and the 1^st Defendant as joint tenants.  Stamp duty and legal fees in the sum of $83,758 were paid, as were deposits for the management fees in the sum of $15,080.  Both these sums were paid by the 2^nd Defendant.  Subsequently, the 2^nd Defendant received a cheque from the Plaintiff and the 1^st Defendant for $90,000.  The 2^nd Defendant says this was by way of partial repayment of these sums, although the Plaintiff disputes that this was the purpose of that payment.

17.Although they moved into the Property upon the completion of their purchase of it, the relationship between the Plaintiff and the 1^st Defendant began to deteriorate in the course of 2003.  By September 2003 both of them had moved out of the Property and the 1^st Defendant had returned to New Zealand to pursue a business there.  The Property was rented by them to a tenant at a monthly rental of $12,800 as from September 2003.  The rent was paid into a joint account in the names of the Plaintiff and the 1^st Defendant.

18.Since then the monthly mortgage payments, management fees, Government rates and other expenses for the Property have been paid out of the rental income received.  From about the middle of 2005, due to increases in the monthly mortgage repayments, the rental income has been insufficient to fund the outgoings on the Property and the 2^nd Defendant has met this deficit.

19.In early October 2003, while the 1^st Defendant was in Hong Kong but was shortly to return to New Zealand, he and the Plaintiff discussed the breakup of their relationship.  The Plaintiff proposed to the 1^st Defendant that he and his family should buy out her interest in the Property for the sum of $438,000.  This proposal was accepted by the 1^st Defendant and his family.

20.There is a dispute as to whether this amounted to a binding and enforceable agreement for the sale and purchase of the Plaintiff’s interest in the Property and, if it did, as to its terms.

21.On 5 January 2003, the Plaintiff signed a document entitled “Declaration” which, after identifying the Property, stated:-

“I, Miss Chan LAN, Hold[er of] Hong Kong ID No.K404832(6), I am in New Zealand now.

I declare:

1)    I shall sold [sic] all of my rights of this property, total amount is HKD438,000**

2)    I promise to sign all relative legal documents.”

22.The 1^st Defendant requested the Plaintiff to return to Hong Kong to execute the documents necessary to effect the transfer of her interests in the Property to him or his father.  The Plaintiff did return, using an air ticket paid for by the 1^st Defendant.  She did not appoint solicitors to act for her but instead made an appointment to attend on 16 April 2005 at the offices of Messrs Chung & Kwan, who had been instructed to act on behalf of the Defendants in relation to the transfer.  However, for reasons to which I shall have to return later in this Judgment, no documents were executed on that occasion nor was the sum of $438,000 paid to the Plaintiff.

The parties’ respective claims and the issues

23.It is the Plaintiff’s case that the 30% down payment for the Property paid by the 2^nd Defendant was a gift made by him to her and the 1^st Defendant in order to enable them to purchase the Property as their matrimonial home.  She therefore says that the Property is owned equally by her and the 1^st Defendant as to 50% each.

24.The Plaintiff has served a notice to terminate her joint tenancy of the Property with the 1^st Defendant and seeks a declaration that the Property is held by her and the 1^st Defendant as tenants in common in equal shares and an order that the Property be sold under s.6 of the Partition Ordinance (Cap.352).

25.For their part, the Defendants deny that the 30% down payment of the Property was a gift by the 2^nd Defendant to the Plaintiff and the 1^st Defendant.  Instead, it is their case that the 2^nd Defendant agreed to invest in the purchase of the Property to the extent of the 30% down payment in order to help out the couple who could not otherwise have afforded to buy a property.

26.The Defendants therefore claim that the Plaintiff and the 1^st Defendant, as registered owners of the Property, hold the Property on trust for the 2^nd Defendant to the extent of the 2^nd Defendant’s beneficial interest in the Property either by way of express trust arising from a common understanding or agreement when the Property was acquired or by way of resulting trust arising from the parties’ respective contributions to the purchase of the Property.

27.Further, and in any event, the Defendants contend there is a binding and enforceable agreement for the sale by the Plaintiff of her interest in the Property to the 1^st Defendant and/or 2^nd Defendant for $438,000.  It is the Defendant’s case the Plaintiff breached this agreement and they seek its specific performance.

28.The principal issues to be determined are therefore:-

(1) Was a binding and enforceable agreement for the sale by the Plaintiff of her interest in the Property to the 1st Defendant and/or 2nd Defendant for $438,000 reached and, if so, on what terms?

(2) If such an agreement was reached, was this breached by the Plaintiff?

(3) Did the 2nd Defendant make a gift to the Plaintiff and the 1^st Defendant of the 30% down payment in respect of the Property?

(4) If not, does the 2nd Defendant have a beneficial interest in the Property held by the Plaintiff and the 1st Defendant on trust for him?

(5) The appropriate disposition of the action.

Was a binding and enforceable agreement for the sale by the Plaintiff of her interest in the Property to the 1^st Defendant and/or 2^nd Defendant for $438,000 reached and, if so, on what terms?

29.This is logically the first issue to consider since my conclusion on it may render academic the issue of whether the 2^nd Defendant made a gift to the Plaintiff and the 1^st Defendant of the down payment for the Property.

30.I approach this issue with some circumspection, since there is no written sale and purchase agreement in the usual form one would expect for a normal conveyancing transaction in Hong Kong.  It is axiomatic that certainty of terms is a necessary ingredient of any contract and this is particularly the case in respect of a contract for the disposition of an interest in land.

31.Indeed, in order to show compliance with the necessary memorandum in writing required by s.3 of the Conveyancing and Property Ordinance (Cap.219), the Defendants accepted they would have to rely on the contents of the Declaration signed by the Plaintiff (see paragraph 21 above) read together with the contents of her affirmation (which was ordered to stand as her pleading in this consolidated action when her Originating Summons was consolidated with the Defendants’ separate action against her).  In the event I were to hold that an agreement was reached, I would have to consider the Defendants’ contention that the requirements of s.3 of the Conveyancing and Property Ordinance are satisfied by those documents read together, alternatively that there was sufficient part-performance of the agreement to render it enforceable as against the Plaintiff.

32.As to the Plaintiff’s own evidence, which the Defendants rely upon, that there was such an agreement, that evidence (in paragraphs 20, 23, 24 and 26 of her affirmation) described the formation of the alleged agreement in a number of stages:-

(1) First, in October 2003, in order to effect a clean break, she proposed to the 1^st Defendant’s family that if they would pay her $438,000, she would be willing to transfer the Property to the 1^st Defendant or his delegate.  She says that, although the 1^st Defendant agreed this, he did not pay her this sum;

(2) Secondly, in about December 2004 or January 2005, the 1^st Defendant asked her to transfer her interest in the Property to the 2^nd Defendant and agreed to pay all the monies he owed after she had signed all the relevant documents.  He asked her to sign the Declaration, which she reluctantly did;

(3) Thirdly, the Plaintiff had a telephone conversation with the 1^st Defendant on 12 February 2005 in which she told him he must pay her by a cashier’s order or a solicitor’s cheque in advance or at the time she signed any transfer documents in respect of the Property.  She says the 1^st Defendant agreed he would pay her at the time of her execution of all the relevant transfer documents in respect of the Property;

(4) Fourthly, the Defendants arranged for transfer documents to be prepared by Messrs Chung & Kwan and asked her to get in touch with them.  The Plaintiff telephoned the solicitors and made an appointment to attend at their offices on 16 April 2005.

33.The Defendants contended that this evidence demonstrated that a binding agreement was reached.

34.Although the Plaintiff had initially contended that any agreement was on the basis that the $438,000 was payable immediately in October 2003, the evidence showed that the parties were all aware that a penalty was payable for early redemption of the mortgage prior to the expiry of three years from its date and so the transaction could only be effected without financial penalty after 19 December 2004.  Hence, argued the Defendants, the Declaration was presented to the Plaintiff for her signature in late December 2004 or early January 2005.  On this point, I accept that the Plaintiff’s awareness of the penalty clause led her not to insist on immediate payment for her interest in the Property pursuant to her proposal of October 2003, to which the 1^st Defendant had agreed.  Although the Plaintiff claimed she pressed for payment during the course of 2004, there is nothing by way of written demand for payment, which one would have expected if the parties had agreed that payment should be made immediately to the Plaintiff after October 2003.  In any event, the Plaintiff confirmed her continued willingness to sell her interest in the Property for $438,000 by the Declaration which she signed on 3 January 2005 and so must have waived any requirement that payment be made before that date.  In addition, the evidence showed that the 2^nd Defendant was left to assume responsibility for expenditure on the Property during the period after October 2003, to the extent that the rental income was insufficient to meet the expenses for it, and this is inconsistent with an intention that the sale of the Plaintiff’s interest would take place immediately.

35.I therefore find that it was not a term of any agreement for the sale of the Plaintiff’s interest in the Property that she be paid immediately in October 2003.

36.This finding does not, however, dispose of the issue of whether there was a binding agreement as contended for by the Defendants.

37.Neither the Plaintiff’s affirmation evidence nor the Declaration indicated the date for completion of the sale.

38.As to the date for completion, Mr K.M. Chong (Mr David Tang with him), counsel for the Defendants, argued that in October 2003 it was agreed that the time for completion was a reasonable time after the expiry of the 3 year redemption penalty period but that it was later crystallised as 16 April 2005, being the date on which the Plaintiff attended at the offices of Messrs Chung & Kwan to execute documents in relation to the transfer.

39.Mr Chong argued that there must be implied into the parties’ agreement that it would be in accordance with the prevailing conveyancing practice in Hong Kong.  Thus, he argued, the sale and purchase would have to be split into the usual two stages of contract and completion, between which stages it was necessary, pursuant to s.13 of the Conveyancing and Property Ordinance, for the vendor to show a good title to the property being sold before completion.  He contended, relying on the judgment of Bokhary PJ in Smart International Industrial Limited v. Twinkle Step Investments Ltd. [1999] 3 HKLRD 521 at 528I-529D, that the parties in a conveyancing transaction are under a duty to co-operate so that the sale and purchase would come to a successful completion.

40.Therefore, it was the Defendants’ case that the parties’ agreement was that, at the offices of Messrs Chung & Kwan on 16 April 2005, the Plaintiff would execute documents which would enable her to show a good title, after which payment would be made to her against her assignment of her interest in the Property.  Mr Chong argued that it was possible, although he accepted it was unlikely, that the two stages could be completed on the same day, i.e. 16 April 2005, and that by application of the “midnight rule” the Defendants would have until the end of that day to make payment to the Plaintiff.

41.Even if I were to accept for present purposes that this may have been the Defendants’ intention as regards the completion of the transaction, the evidence of what transpired at the offices of Messrs Chung & Kwan shows that it is unlikely that this was the basis on which the Defendants actually proceeded as regards the agreement.

42.On 16 April 2005, the Plaintiff, together with her father, attended at the offices of Messrs Chung & Kwan as arranged.  The 2^nd Defendant and his sister were also in attendance.  A Miss Chan, a legal executive with the firm, presented several documents to the Plaintiff which apparently included a letter to the Bank of Communications to authorise inspection of the title deeds and a Power of Attorney in favour of the 2^nd Defendant’s sister to enable all further documents relating to the sale of her interest in Property to be executed on behalf of the Plaintiff.  Unfortunately, the documents prepared by Messrs Chung & Kwan that day and presented to the Plaintiff for her signature were not disclosed in discovery, nor was any representative of Messrs Chung & Kwan called to give evidence as to how they were expecting to handle the transaction.  Nevertheless, I am highly doubtful that the Power of Attorney was prepared simply so that the 2^nd Defendant’s sister could execute documents on behalf of the Plaintiff on that very day.  It seems to me that the execution of this Power of Attorney would have been consistent with an intention that the conveyancing transaction proceed in the usual manner in Hong Kong whereby completion would follow about one month after the execution of a formal sale and purchase agreement.  Since the Plaintiff was going to leave Hong Kong to return New Zealand, it would be necessary for her to have authorised someone to execute any further documents, such as the assignment, at a later date and not on 16 April 2005.

43.There is no dispute that the meeting at the offices of Messrs Chung & Kwan was very short and that the Plaintiff left without signing any documents.  Although the evidence shows that the 2^nd Defendant drew a cheque for $438,000 dated 15 April 2005 in favour of Messrs Chung & Kwan, for which they issued a receipt dated 16 April 2005, it is also common ground that no cashier’s order or solicitors’ cheque was available or tendered to the Plaintiff when she was asked to sign the documents presented to her.

44.However, the Plaintiff’s evidence was that she wanted to be paid by a cashier’s order or solicitor’s cheque at the same time she signed any transfer documents for the Property.  It was suggested to the Plaintiff that she had left Messrs Chung & Kwan’s offices on 16 April 2005 without signing any documents because she and her father had discovered that day that the value of the Property was in the region of $5 million so that the $438,000 she was asking for her interest was much lower than the market value of that interest.  The Plaintiff denied this was the reason and was adamant that she left because no cashier’s order or solicitors’ cheque was provided to her.  I accept the Plaintiff’s evidence in this regard.  She was anxious to have a clean break from the 1^st Defendant and there was clearly some acrimony, if not actual distrust, between the parties.  I accept that she was insistent on this point and had communicated this to the Defendants, since her request is reflected in a fax written by the 2^nd Defendant and addressed to the 1^st Defendant to be forwarded to the Plaintiff dated 24 March 2005.  It is therefore clear, and I find, that she had a wholly different intention as to how the transaction would proceed, namely that she would attend once and for all on 16 April 2005 at the offices of Messrs Chung & Kwan and that she would receive a cashier’s order or solicitor’s cheque for $438,000 at which time she would then execute all documents necessary to effect the transaction.

45.The Plaintiff’s intention, as I have found it to be, as regards the completion of the agreement for the sale of her interest in the Property is therefore wholly inconsistent with the Defendants’ intention as to how that transaction would be completed.  It is my finding that, on the one hand, the Plaintiff intended that, so far as she was concerned, she would be paid on 16 April 2005 by cashier’s order or solicitors’ cheque before or at the same time she executed any documentation necessary. 

46.On the other hand, for the Defendants’ part, my finding is that they intended completion to be achieved in the manner their solicitors, Messrs Chung & Kwan, proposed to proceed, which, as the evidence shows, was apparently to be in accordance with the usual two-stage conveyancing practice in Hong Kong.  I say apparently because the evidence of what happened at the offices of Messrs Chung & Kwan on 16 April 2005 does not obviously support an inference that the Defendants and their solicitors were intending that the sale be completed on that very day: no documents have been produced by the Defendants to show that Messrs Chung & Kwan were, unusually, going to process a conveyancing transaction that would complete that very day.

47.In the circumstances, it is my firm conclusion that the parties were never ad idem as to the terms of their purported agreement regarding the sale of the Plaintiff’s interest in the Property. 

48.In Kwan Siu Man v. Yaacov Ozer (1997-98) HKCFAR 343, where there was an oral agreement as to the parties, property and price only, it was held that courts should be slow to find a binding open contract (per Bokhary PJ at p.363A-B).  As Litton PJ also held in that case (at p.355D), “in the Hong Kong of today, the date of completion is an essential term of any contract of sale and purchase of land”.  These comments seem to me to be apposite in the present case, notwithstanding that the facts of the two cases are obviously different.

49.I am not prepared to find in the present case that the parties had agreed with sufficient certainty when and how the sale of the Plaintiff’s interest in the Property was to be completed.  I do not consider that the Plaintiff’s fixing of an appointment to attend at the offices of Messrs Chung & Kwan was sufficient thereby to constitute that as the completion date.  In any event, as I have already found, to the extent that the Plaintiff thought that anything had been agreed, she believed that she would receive payment in the form of a cashier’s order or solicitors’ cheque at the same time she executed the necessary documentation for the sale.  This was not what the Defendants intended or agreed.

50.I therefore conclude on this issue that there was no binding agreement for the sale by the Plaintiff of her interest in the Property to the 1^st Defendant and/or the 2^nd Defendant.

51.In the light of my conclusion there was no binding agreement between the parties, it is unnecessary for me to determine whether the Declaration together with the Plaintiff’s affirmation would be sufficient to constitute a memorandum in writing for the purposes of s.3 of the Conveyancing and Property Ordinance, or whether there were sufficient acts of part performance of the agreement, in order to render it enforceable.

If such an agreement was reached, was this breached by the Plaintiff?

52.This issue is academic in the light of my conclusion that the parties did not reach any binding agreement in relation to the sale of the Plaintiff’s interest in the Property.

53.There being no binding agreement, the Plaintiff was not in breach of any contractual promise in failing to execute the documents presented to her by Messrs Chung & Kwan on 16 April 2005.

54.By the same token, although breach on their part has not been alleged by the Plaintiff, since the parties were not in agreement as to how the transaction should proceed, the Defendants were not in breach in failing to provide a cashier’s order or solicitors’ cheque for $438,000.

Did the 2^nd Defendant make a gift to the Plaintiff and the 1^st Defendant of the 30% down payment in respect of the Property?

55.It was the Plaintiff’s case that when the 1^st Defendant’s parents became aware of the Plaintiff’s and the 1^st Defendant’s intention to buy a flat, they took the initiative to pay the down payment as a gift to them.  The Plaintiff’s evidence was that the 2^nd Defendant said that he would pay the down payment as a gift to her and the 1^st Defendant and the amount would be about $1 million.  The Plaintiff’s evidence was in effect that the 2^nd Defendant made an express gift to her and the 1^st Defendant.

56.Mr James Cheng, counsel for the Plaintiff, submitted that the 2^nd Defendant’s motive for making this gift was a potential loss of face arising from the fact that the Plaintiff and the 1^st Defendant were living in a flat belonging to the Plaintiff’s father and not living under his own roof.

57.For the Defendants’ part, it was their case that there was an agreement or common understanding that the 2^nd Defendant would have an interest in the property to be purchased.

58.The parties’ respective cases are therefore diametrically opposed and, in the absence of contemporary documentary evidence to demonstrate the 2^nd Defendant’s intention when making the down payment for the Property, it is necessary to consider the evidence of the parties’ respective financial conditions and other surrounding circumstances to reach a view as to which of the competing cases is more probable.

59.The 2^nd Defendant’s evidence was that, in mid 2001, he worked for a textile company earning a salary $17,000 a month.  He had no other assets other than a 40-year old flat in Tsim Sha Tsui, in which he lived with his wife and daughter, the 1^st Defendant’s younger sister.  He was still supporting his daughter who was at secondary school at that time and who was intending, with his financial support, to continue her studies at university in New Zealand.  He had approximate savings of $1.5 million.  None of this evidence was challenged by the Plaintiff.

60.Against this, the evidence was that the Plaintiff and the 1^st Defendant had joint income in the region of $30,000 to $35,000 and combined joint savings of $260,000.

61.The evidence showed that the 2^nd Defendant was closely involved in the acquisition process for the Property.  He paid the initial legal costs for the purchase.  Later, in March 2003, he also paid the stamp duty and legal fees and management fee deposits at the time of the completion of the purchase, although he was subsequently partially reimbursed for these.

62.Looked at in the round, the evidence I have referred to above supports an inference, in my judgment, that it would be unlikely that the 2^nd Defendant intended to make a gift of slightly more than $1 million to the Plaintiff and the 1^st Defendant.  As the Plaintiff accepted in her cross-examination, $1 million would be a “huge amount to anyone”.  Whilst a gift of that sum might have been intended by a wealthy individual, it is, in my judgment, obviously much less likely that a man whose total savings amounted to $1.5 million would intend to make a gift of about two-thirds of that sum in the circumstances of this case.

63.I am also sceptical of the Plaintiff’s evidence that the 2^nd Defendant said that he would give the down payment to the Plaintiff and the 1^st Defendant.  Her evidence was that when the 2^nd Defendant and his wife became aware of their intention to buy a flat, the 2^nd Defendant said he would make a gift of the down payment of the property.  It seems to me that unless and until a particular property had been identified at a particular price, it would be most unlikely that the 2^nd Defendant, who was not a man of unlimited means, would make a gift of an uncertain amount in the manner which the Plaintiff’s evidence suggested he did.

64.Furthermore, it is significant, in my opinion, that when the Plaintiff and the 1^st Defendant terminated their engagement, the Plaintiff was content to look to the Defendants for the repayment to her of the sum of $438,000 for her interest in the Property.

65.The figure of $438,000 represented the sum of the following amounts: $200,000 being the repayment of the mortgage loan on 19 February 2002; $108,000 being approximately half of the mortgage instalment payments made from January 2002 to June 2003; $45,000 being half of the payment of $90,000 made to the 2^nd Defendant; and $85,000 being half of the balance of $170,000 in the couple’s joint savings account.

66.The precision of the figure for which the Plaintiff was prepared to relinquish her interest in the Property (albeit no binding agreement was reached) is unlikely, in my judgment, to have been mere coincidence and strongly supports an inference that the Plaintiff did not regard herself as the 50% owner of the Property but merely as having an interest to the extent of her own contributions towards the purchase of the Property.

67.Had the Plaintiff thought that the 2^nd Defendant’s contribution to the purchase price for the Property was a gift, her interest in the Property as at October 2003 would have been at least $700,000 being half of the sum of $1,000,800 and the sum of $200,000 which had been given to her by her father and which she applied to reduce the mortgage loan.

68.Indeed, she accepted in cross-examination that it was financially advantageous for her to recover what she had paid into the Property rather than to recover half of what it could be sold for.  It was also the case that she continued to be prepared to accept that sum even when on her own evidence she already knew, before 16 April 2005, that the value of the Property had risen to about $5 million.

69.Against the above considerations, it is necessary to weigh the fact that the conveyance of the Property was into the names of the Plaintiff and the 1^st Defendant alone and the 2^nd Defendant was not registered as a part-owner of the Property.

70.The 2^nd Defendant’s explanation for this was that given his age (he was in his mid-fifties in 2001), he was reluctant to shoulder an ongoing and relatively lengthy responsibility for the payment of the mortgage loan in respect of the Property, which was repayable over a period of 20 years.  Therefore, since the Plaintiff and the 1^st Defendant were to be responsible for the ongoing liabilities under the mortgage and he then intended only to pay for the 30% down payment for the Property, the Property was registered in the names of the Plaintiff and the 1^st Defendant.

71.I accept this evidence of the 2^nd Defendant.  I think it is a reasonable explanation for the fact that the conveyance of the Property was into the names of the Plaintiff and the 1^st Defendant only.  If the couple had not split up and had continued to pay off the mortgage until the Property was unencumbered as must have been the parties’ original intention, they would have then owned the greater share (70%) of the Property so it would be understandable that they should be the registered owners.

72.Mr Cheng also relied on the fact that the Plaintiff and the 1^st Defendant had been living in the Plaintiff’s father’s flat for one and a half years before the purchase of the Property and that the 2^nd Defendant accepted in his evidence that he wanted them to live with him.  As I understood it, the argument was that the alleged gift was made in order to save face for the 2^nd Defendant.  I would, in general, be slow to infer that a perceived loss of face would lead a man to make a gift of two-thirds of his life savings, even to a close family member.  However, the 2^nd Defendant expressly denied this suggestion when it was put to him in cross-examination and I accept his evidence in this regard.

73.Mr Cheng also relied on the fact that matching gifts of $200,000 were given by the Plaintiff’s father and by the 1^st Defendant’s grandfather, which were used to reduce the outstanding mortgage loan.  I do not think these gifts assist the Plaintiff to demonstrate that the 2^nd Defendant’s payment in respect of the Property was also a gift to them.  In my judgment, the fact of these payments cannot be probative, one way or another, of the 2^nd Defendant’s intention when making the earlier down payment for the Property.  They were separate payments and of a different scale to the down payment made by the 2^nd Defendant towards the purchase of the Property.  In addition, these payments were made at a time when the Plaintiff and the 1^st Defendant were paying off the mortgage loan from their joint income.  The fact they were matching amounts simply reflects an understanding that they were contributing equally to the repayment of the outstanding loan, rather than giving rise to an inference that they owned the entire Property beneficially, as Mr Cheng submitted.

74.In the circumstances, I therefore accept the evidence of the 2^nd Defendant, supported by that of the 1^st Defendant, that the 2^nd Defendant did not say he would make a gift of the down payment of the Property to the Plaintiff and the 1^st Defendant.  To the extent any presumption of advancement to the 1^st Defendant arises, I find that this is rebutted by the evidence of a contrary intention on the part of the 2^nd Defendant.

75.I should note in passing that Mr Cheng did not seek to rely on any presumption of advancement in favour of the Plaintiff.  Whilst a presumption of advancement arises where a father provides the consideration for a transfer into the name of his child, that presumption is rebuttable by evidence of a contrary intention.  Moreover, the presumption does not arise in respect of a purchase in favour of a son-in-law: see Knight v. Biss [1954] NZLR 55 at 57.  Nor can it therefore arise, by extension, to a daughter-in-law.  Nor a fortiori, in my judgment, can it arise in favour of a son’s fiancée.

If not, does the 2^nd Defendant have a beneficial interest in the Property held by the Plaintiff and the 1^st Defendant on trust for him?

76.Having found that the 2^nd Defendant did not make a gift of the down payment for the Property to the Plaintiff and the 1^st Defendant, it is necessary to consider what interest he has in the Property by reason of that payment and the nature of that interest.

77.As noted above, the 2^nd Defendant’s case is that the Plaintiff and the 1^st Defendant, as registered owners of the Property, hold the Property on trust for the 2^nd Defendant.  This is on the basis of either an express trust arising from a common understanding or agreement when the Property was acquired or a resulting trust by reason of his contribution towards the purchase price for the Property.

78.It was the 2^nd Defendant’s evidence that at the time of the purchase of the Property it was the common understanding of the parties that his contribution would be limited to 30% and the remaining expenses, such as stamp duty, would be the responsibility of the Plaintiff and the 1^st Defendant.  His evidence was that this understanding arose from a joint discussion between the parties before the Plaintiff and the 1^st Defendant identified the Property.  At that stage, the understanding was simply that they would jointly purchase a flat.  He had not indicated at that stage how much he would contribute or what proportion of any property he would acquire.  His evidence was that the Property was chosen because that was within his intended budget and that, at the time it was selected, he agreed to contribute the 30% down payment.

79.The evidence of the amounts actually paid by the 2^nd Defendant in the purchase of the Property clearly supports this.  He paid a total of $1,000,800 towards the purchase price, which was exactly 30% of that price.

80.The fact that the 2^nd Defendant was repaid $90,000 by the Plaintiff and the 1^st Defendant in March 2003 towards the total sum of $106,198 of other related expenses that he had paid at the time of the purchase also supports, in my judgment, the 2^nd Defendant’s contention that the parties’ intention at the outset was that he would contribute 30% towards the purchase of the Property and the Plaintiff and the 1^st Defendant would have the remaining 70% of the Property, including the continuing liability to discharge the mortgage loan. 

81.Although the Plaintiff denied the $90,000 payment was by way of partial reimbursement of the $106,198, the evidence shows that this payment was made to the 2^nd Defendant and I did not understand the Plaintiff to advance any positive case as to what else this payment could have been for.  In the circumstances, I find that that $90,000 was a partial repayment to the 2^nd Defendant in respect of those expenses paid by him at the time of the purchase, expenses which would otherwise be borne equally by the Plaintiff and the 1^st Defendant.

82.I think it is improbable that the parties specifically discussed the legal consequences of the contribution the 2^nd Defendant was going to make to the purchase of the Property explicitly in terms of an express trust.  However, I do accept the 2^nd Defendant’s evidence as to the parties’ common understanding at the time of the purchase.  I find, based on the 2^nd Defendant’s evidence, that the 2^nd Defendant did indicate initially that he would join in with the Plaintiff and the 1^st Defendant in their purchase.  When the Property was subsequently identified, I accept that the 2^nd Defendant then indicated to them that he would participate in the purchase to the extent of contributing 30% of the price, so that the couple could obtain the 5% price discount by taking out a 70% mortgage over the Property, and that he would have an interest in the Property to the extent of his contribution.

83.Consequently, I accept the 2^nd Defendant’s contention that, by reason of the common understanding of the parties at the time of the acquisition, the Plaintiff and the 1^st Defendant were to hold 30% of the beneficial interest in the Property on trust for the 2^nd Defendant.  Alternatively, it is clear from the facts of the case, in my judgment, that there is a presumption of a resulting trust in favour of the 2^nd Defendant to the extent of his contribution to the down payment for the Property.  It therefore follows, on either basis, that the Plaintiff and the 1^st Defendant hold the Property beneficially as to the 30% down payment on resulting trust for the 2^nd Defendant and as to the remaining 70% for themselves equally as to 35% each.

The appropriate disposition of the action

84.The Plaintiff’s claim was an action brought under the provisions of the Partition Ordinance.

85.Mr Chong submitted that there was a procedural objection to the Plaintiff’s claim in that service of the documents in the proceedings had not been effected on the Director of Lands as required by s.3 of the Ordinance and by rule 4 of the Partition Rules made under s.10 of the Ordinance.  Where due service of any document required to be served under the Ordinance or Rules has not been effected, rule 6(1)(d) of the Rules directs the Court to adjourn the hearing in order that service may be effected or an affidavit of service filed.  However, having identified this procedural difficulty, Mr Chong submitted that there was no point in adjourning the Plaintiff’s application to comply with the requirement of service.

86.Mr Cheng sought to cure this procedural defect by producing, at the conclusion of final submissions in the case, an affidavit of service of the requisite documents on the Director of Lands.  I have some doubt as to whether such late service would be compliant with the statutory requirements but no objection to this production was taken on behalf of the Defendants.

87.In any event, I do not need to deal with this procedural point for the further reason that, based on the conclusions I have reached, the Plaintiff’s applications for declaratory relief and for an order for sale under the Partition Ordinance stand to be dismissed in any event.

88.As for the Defendants’ counterclaim, it follows from my conclusions above that their claim for specific performance of the alleged agreement of sale must be dismissed.

89.However, the Defendants are entitled to a declaration that the Plaintiff, the 1^st Defendant and the 2^nd Defendant are beneficial owners of the Property.

90.As I have held, the Property is beneficially owned as to 35% in the case of each of the Plaintiff and the 1^st Defendant and as to 30% in the case of the 2^nd Defendant.  It follows that there should also be a declaration that the Plaintiff and the 1^st Defendant, as the registered owners of the Property, hold the legal and equitable interest and estate in the Property (i) as to 30% on trust for the 2^nd Defendant and also (ii) on behalf of themselves as to 35% equally.

91.This conclusion deals with the 2^nd Defendant’s initial contribution towards the down payment of the Property and his beneficial interest in the Property.

92.It remains necessary to deal with the further payments which the 2^nd Defendant has made towards the purchase of the Property.  In his written closing submissions, Mr Chong submitted (in paragraph 59):-

“But subsequent to the purchase of the suited premises, it turns out that [the 2^nd Defendant] has paid out of his own pocket certain amount of mortgage instalments as well as other expenses such as management fee, government rent and rate in relation to the suited premises.  [The 2^nd Defendant] is entitled to repayment from P therefor.”

93.As I have held, the parties’ intention as manifested in their common understanding was that the remaining 70% of the Property would be owned beneficially by the Plaintiff and the 1^st Defendant jointly and that they would be responsible on an equal basis for discharging all the mortgage payments and other expenses, such as Government rates and management fees, due in respect of the Property.

94.However, as noted above, the 2^nd Defendant paid a total sum of $106,198 by way of legal and other related expenses at the time of the purchase of the Property, of which only $90,000 has been reimbursed by the Plaintiff and the 1^st Defendant.  The further sum of $16,198 has therefore been paid by the 2nd Defendant towards the purchase of the Property which should have been borne by the Plaintiff and the 1^st Defendant equally.

95.In addition, although the Plaintiff and the 1^st Defendant duly made the mortgage instalment payments from January 2001 until June 2003, the 2^nd Defendant repaid to the Plaintiff the mortgage instalments for August and September 2003 in the sum of $25,000 and, in the interim period since the Property has been leased to date, has also has paid the shortfall between the rental income generated from the lease of the Property and the mortgage instalments and other expenses due in respect of it.  These sums should also have been borne by the Plaintiff and the 1^st Defendant equally.

96.Mr Chong included various annexes to his written closing submission analysing the parties’ respective contributions towards the purchase price of the Property.  Mr Chong indicated in his final submissions that he was not asking me to make findings as to the figures in these annexes but instead he invited me to direct that a Master should conduct an account and inquiry as to the precise extent of the parties’ respective contributions based on the declaration of the share of the interest of the parties (see Plaintiff’s written closing submissions, paragraph 60).

97.It seems to me that this is an appropriate procedure to adopt and I therefore make such a direction.  The 2^nd Defendant must also be entitled to an order for repayment to him of such sum as is found due to be repaid to him by the Plaintiff upon the taking of such account and inquiry.  Such sum will be 50% of those sums paid by the 2^nd Defendant towards the purchase of the Property, specifically the net mortgage repayments after accounting for the rental income, Government rates and management fees.  These are sums which should have been paid by the Plaintiff and the 1^st Defendant equally but which have been paid by the 2^nd Defendant instead.

Conclusion

98.I dismiss the Plaintiff’s applications and make the declarations, direction and order on the Defendants’ counterclaim as indicated above.  I leave it to the parties to agree the precise form of the order to give effect to my judgment.  In case they cannot agree, I give liberty to the parties to apply in respect of the drawing up of the order.

99.As to costs, since the Plaintiff has failed in her action and the Defendants have been substantially successful in their Defence and Counterclaim, it seems to me that the costs of the action, which should also include the costs of the Defendants’ action in HCA 48/2006 with which the Plaintiff’s Originating Summons was consolidated, should be paid by the Plaintiff to the 1^st and 2^nd Defendants, to be taxed if not agreed, and I make an order nisi to that effect.

Mr James C C Cheng, instructed by Messrs Johnnie Yam, Jacky Lee & Co., for the Plaintiff

Mr K M Chong & Mr David Tang, instructed by Messrs T S Tong & Co., for the 1^st and 2^nd Defendants