Cheung Kwan Kei v. Cheung Kwan Fai

DCCJ 838/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

ACTION NO. 838 OF 2008

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BETWEEN

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Coram: His Hon Judge Leung in chambers (open to public)

Date of hearing: 4 March 2009

Date of judgment: 11 March 2009

DECISION

1. Kei, the Plaintiff, is the registered owner of the residential property in question at Yen Chow Street, Kowloon.  He commenced this action against Fai, the Defendant, who is residing at the property with his mother.  Kei and Fai are brothers.  Pleadings have been closed.  Kei now applies for summary judgment under O.14, r.3 of the Rules of the District Court.

2.The applicable principles are not in dispute.  The court will consider whether the defence raises real issues in dispute which ought to be tried or there are some other reason for which the case ought to proceed to trial.  However the court will not embark on a mini-trial on affidavits.  See Hong Kong Civil Procedure 2009 at 14/4/2-14/4/4; 14/4/8-14/4/10.

Background

3.The brothers’ father used to own numerous properties.  The property in question was the home of most members of the family.  By an assignment dated 12 January 1998 (Memorial no. UB7481597), the father assigned the property to Kei.  Kei then went to the United States without collecting the title deeds and documents concerning the property.  In 2000, the father passed away.  Fai is still residing with the mother at the property.  These facts are not in dispute.

4.Kei claims that Fai used to live at the property as the father’s licensee.  After Kei has become the owner of the property, Fai continued to live there as Kei’s licensee.  Since 2001, Kei has requested and demanded Fai to move out of the property but Fai has failed and refused to do so.

5.Kei now claims against Fai for:

(1)  possession of the property;

(2)  mesne profits to be assessed; and

(3)  return of the title deeds and documents concerning the property.

Possession and mesne profits

Kei’s case

6.The impression created by the statement of claim is that the 1998 assignment represented Kei’s purchase of the property from his father and his father acknowledged receipt of his payment of the purchase price.

7.From the outset, Fai has contended that Kei has never paid the purchase price.  By way of reply and further affirmation, Kei admits that he has never paid the purchase price.  Kei explains that the assignment was executed after the father had repeated his intention to assign the property to him since 1992.  The consideration of HK$880,000 was fixed for good fortune only and neither the father nor the mother had ever asked Kei to pay the consideration or any part of it.  Effectively, the case of Kei is that this was the father’s gift to him by way of the assignment.

Fai's case

8.Fai denies that the assignment was a gift.  Fai alleges that at the requests of their eldest brother, Pang, and Kei, the father reluctantly assigned the property to Kei in consideration of HK$880,000 payable by Kei.  The father retained the title deeds and documents as security until the consideration was paid.  It would appear that this forms the basis for Fai’s contention that Kei has no equitable title to the property.

9.In her submissions, Miss Cheung also argued that even assuming that this was a gift, this was imperfect in the absence of the execution of a deed of gift and the delivery of the title deeds and documents.  This contention is not pleaded.

Discussion

10.Insofar as the dispute as to whether the assignment was a gift or a sale and purchase is concerned, parties put forward their respective versions of the alleged express intention of the father, the circumstances of Kei around the time of the assignment, the circumstances leading to the execution of the assignment and the alleged misappropriation of rental income by Fai.  It suffices for me to say that these factual disputes could not and should not be resolved on affidavits.

11.However, Kei is claiming as the assignee and registered owner of the property.  Whether this was a gift or a sale and purchase does not change the fact and the nature of the assignment whereby Kei was supposed to obtain all the interest in the property.  Section 17 of the Conveyancing and Property Ordinance, Cap.219 provides that:

“Unless the contrary intention is expressed in the assignment, an assignment shall operate to assign all the estate, right and interest in the land assigned which the assignor has in that land and which he had the power to assign.”

12.There is no dispute that a receipt for consideration in the body of a deed is not conclusive as between the parties to the deed that the money has in fact been paid.  The undisputed fact is that Kei has not paid the consideration for the assignment.

13.Notwithstanding that, as Mr Chong pointed out, there was no contrary intention expressed in the assignment such as reservation of any estate, right or interest.

14.There are allegations that the assignment was prepared by the solicitors arranged by Kei.  The father was not prepared for the execution of the assignment on the day.  But there is no allegation that the father was not aware of the nature or content of the assignment that he eventually executed.  There is also no allegation of duress or undue influence or any other unconscionable conduct that might have vitiated the assignment.

15.On the contrary, Fai’s case is that though reluctantly, the father executed the assignment with the understanding and on condition that Kei had to pay for the property.  In other words, the father intended the assignment to be a sale and purchase though the consideration had to be paid after execution.

16.If Fai is right, this would mean Kei was under the obligation to pay the father and is still under the obligation to pay the estate of the father the purchase price.  Unless and until the purchase price is paid, the father used to be and now his estate is entitled to retain the title deeds and documents as security.

17.While the title deeds and documents might be retained as security for the payment of consideration, this is not to say that payment of the consideration is a condition precedent to the validity or effect of the assignment as stipulated under section 17 of Cap.219.  Fai has not made such allegation anyway.

18.Nevertheless, Miss Cheung submitted that the equitable title in the property had not passed to Kei because of operation of law, namely, trust.

19.To begin with, no reference to trust is made in Fai’s pleading.  Regarding trust, as Mr Chong pointed out, the land search records show that the father had the experience of holding his other property with his son by way of trust.  He submitted that the father could have qualified the assignment by way of express trust if this was truly intended.  I share his observation.

20.What Miss Cheung argued was that there is an implied resulting trust which is an unwritten equity that section 17 of Cap.219 does not preclude.

21.In the context of transfer of landed property, a resulting trust may arise under certain circumstances.

22.Once parties entered into a specifically enforceable sale and purchase agreement, the beneficial ownership of the property passes at once to the purchaser.  The vendor, in whom the legal estate, is still vested, is to some extent a trustee for the purchaser to keep the property for completion: see Snell’s Equity (14^th ed) at 42-24 (cited by Miss Cheung).  This situation is irrelevant to the present case.

23.A resulting trust may also arise in favour of the provider of the purchase money.  When a party pays for the whole or part of the property which is vested in the name of another party, there is a presumption that the party in whose name the property is vested holds the property on resulting trust for himself and/or the paying party depending on their respective contribution towards the acquisition of the property.  The presumption may be displaced by proof of gift or advancement by the paying party.

24.A resulting trust may also arise upon the failure of an express trust.  When a party transfers the property to another on express trust but the trust declared does not exhaust the entire beneficial interest, a resulting trust arises in favour of the settlor of the trust.

25.The situations of resulting trust mentioned above were explained in Westdeutsche v Islington BC [1996] 2 All ER 961 at 990g-j cited by Miss Cheung.  Miss Cheung also referred to the court’s discussion in that case of the notion that resulting trust also arises wherever the money is paid under a mistake or when money is paid on a condition that is not subsequently satisfied: see Westdeutsche (above) at 991e-j.

26.The present case, according to Fai’s allegations, do not fall within any of the above sets of circumstances for Kei to become the resulting trustee of the property in favour of the father or his estate.

27.Miss Cheung then argued that until the consideration is paid, the father had and now his estate still has a vendor’s lien over the property.  Again such lien has not been mentioned in Fai’s pleading.  Miss Cheung confirmed in court that the lien being alleged is a common law lien.  In view of the conveyance by the assignment (subject only to payment of the purchase price), I do not think Miss Cheung is right.

28.As soon as a binding contract for sale and purchase of property (or agreement to assign) is made, the vendor has a lien at common law for the consideration and a right to retain the property until the consideration is paid on completion.  But if the vendor has somehow executed the assignment (and thereby transferred the legal estate absolutely to the assignee) before receipt of the purchase price, what he is still entitled to will be an equitable lien: see Snells’ Equity (above) at 42-25; 42-28.

29.Sihombing & Wilkinson, Hong Kong Conveyancing, Vol.1B at X[166] summarised the principle on the effect of the vendor executing the assignment without being paid:

“A vendor has an equitable lien over the property (which he formerly owned) when he imprudently executes an assignment in favour of the purchaser but does not at the time of delivery of the deed receive payment: Rice v Rice (1853) 61 ER 645.  Unlike a common law lien, the equitable lien is non-possessory; it arises because of the vendor’s right to specific performance and not from the deposit of personal property……The lien acts similarly to a security in relation to the payment of the purchase money……”

30.Gray, Elements of Land Law (4^th ed) also has the following to say (at 9.130):

“From the moment of entering into a contract of sale the vendor of land retains a lien at common law until the purchase price is paid.  More pertinently the vendor retains an equitable lien on the land if he transfers the legal estate to the purchaser or gives him possession before the purchase money is paid in full.  This ‘unpaid vendor’s lien’ arises automatically by operation of law, quite independently of the parties’ agreement or subjective intentions……”

It continues to describe the nature of such equitable lien (at 9.132):

“The unpaid vendor’s lien operates as the vendor’s security for full payment of the agreed purchase price and is regarded, for the purpose of the Law of Property Act 1925, as a species of mortgage.  Unlike most mortgages, however, the equitable lien transfers no title and confers on the unpaid vendor no right to possession of the land, but merely a right to enforce his lien through a declaration of charges and a court order for sale.  Such realisation by judicial process enables the vendor to recoup the unpaid money out of the sale proceeds, the equitable lien operating, in effect, as ‘a form of equitable charge’ implied by law.  The vendor is thus treated, in equity, as a secured creditor of the purchaser.  The lien is not a negative right to retain some legal or equitable interest, but essentially a positive right to obtain, in appropriate circumstances, an order for sale of property which, in equity, is bound by the contract concerned.”

(emphasis added)

31.Indeed, the title deeds and documents have been retained and some members of the family remained in possession of the property.  Had the father and Kei merely entered into a sale and purchase agreement or an agreement to assign the property, there might have been basis for suggesting that this would be a common law lien for the unpaid purchase price.

32.However the fact was that the father executed the assignment which, as mentioned above, operated as an absolute conveyance to Kei.  The unpaid vendor lien could only be an equitable lien.  As such, it does not confer on the father or now his estate any legal or equitable interest in the property.  Nor does it confer any right to possession of the property on the father or now his estate.

33.It follows from the above that the occupation of the property by the father or now his estate is not a manifestation or derivation of any right to possess the property conferred by such unpaid vendor’s lien.  Fai’s occupation of the property has always been subject to the consent of the father and, after the assignment, Kei.

34.In the circumstances, even assuming that this was not a gift but a sale and purchase subject to payment of the purchase price in terms of Fai’s pleaded case, I do not see how Fai, who does not even represent the estate of the father, could deny Kei’s right to possess the property or could claim to have any right to possess the property.

35.As mentioned at the beginning, Miss Cheung also submitted that this was an imperfect gift in the absence of the execution of a deed of gift and the delivery of the title deeds and documents concerning the property.  Again Fai has not pleaded this as an alternative case on the basis that the assignment was a gift.

36.In any event, the short answer to this submission is already contained in what I said earlier.  Kei is claiming in his position as the assignee of the property.  While he may have to prove that this was a gift if the estate of the father claims against him for the unpaid purchase price, he does not have to prove that insofar as the present claim against Fai as the occupier of the property is concerned.

37.Further this was not a gift of chattel but interest in the property.  I agree with what the learned authors say under footnote no.1 to the passage in Hong Kong Conveyancing cited above:

“A deed is a document which is signed, sealed, and delivered.  The strictness of these qualifications has been somehow lessened; nowadays physical delivery if unnecessary where the grantor of the deed executes it intending thereby to be bound.”

38.On the basis of the pleaded case, evidence and submissions made by counsel, I have to conclude that Kei is entitled to possession of the property against Fai.  It follows that he is entitled to claim mesne profits to be assessed.

Return of the title deeds and documents

39.According to the statement of claim, before leaving for the States, Kei asked his sister to collect the title deeds and documents concerning the property.  Yee did and passed all these documents to the mother to keep in the property.  But these documents were then kept by Fai and still are in his possession.  In his original homemade defence and the amended defence prepared by his solicitors, Fai categorically denies possession of these title deeds and documents.

40.Kei relies on a Chinese document appearing to be an agreement dated 1 December 2001 between Pang and Fai and witnessed by Yee.  Fai apparently agreed that he and the mother would move out of the property and Fai would return the title deeds and documents concerning the property to Kei.  Kei and the mother were not parties to the agreement.  But Kei suggested that the agreement evidences Fai’s acknowledgement of possession of the title deeds and documents as least as at that date.

41.Fai admits having signed this Chinese agreement.  But he alleges that the document was prepared by Pang.  He goes on to explain that he signed the document under oppression and out of concern about the mother’s condition.  He signed it without paying much attention.

42.Kei also referred to an alleged oral agreement whereby Fai allegedly agreed to return the title deeds and documents in November 2007 if Kei would pay him HK$60,000.  This allegedly led to the letter from Kei’s solicitors to Fai dated 30 December 2007.

43.Fai is not the representative of the estate of the father.  The claim for the return of the title deeds and documents is against him personally.  Irrespective of Kei’s entitlement or the above evidence, the dispute as to whether Fai is now in possession of the documents remains.  In her affirmation, the mother admits that the documents are with her.  But Kei suggests that Fai dictated her affirmation, the mother being so old now.

44.It is not for me to say whether Fai’s allegations in this regard are to be believed in on the basis of the affidavits.  Mr Chong seemed to acknowledge this and did not insist on this part of the application.

Conclusion

45.I refuse the application in respect of the claim for the return of the title deeds and documents concerning the property.  This part of the claim will proceed to trial.

46.Regarding possession, the deadline of 7 days proposed in the summons is clearly unreasonable and unrealistic.  Parties have not adduced evidence and counsel did not argue what reasonable time should be allowed for the delivery of possession.  I reserve the liberty to the parties to apply.  In view of the parties’ relationship in any event, I expect them to come to some senses in this regard.

47.The contentions and arguments mainly relate to the possession (and mesne profits) issue in respect of which Kei has succeeded.  Kei should have substantial part of the costs of the application in any event.  But it is inappropriate to deal with the costs of the action at this stage: see Hong Kong Civil Procedure at 14/7/10.

Order

48.I make the following order:

(1)  Order that Fai do deliver possession of the property or such part of the property as may be occupied by him to Kei;

(2)  Liberty to apply in respect of (1) above;

(3)  Order that Fai pay Kei mesne profits for his occupation of the property to be assessed;

(4)  70% of the costs of this application be to Kei in any event; such costs shall be taxed, if not agreed, with certificate for counsel.

Mr CHONG Tin Chun instructed by Messrs HO Wong Tai & Partners for the Plaintiff

Miss Janine CHEUNG instructed by Messrs Leung Tam & Wong for the Defendant

Please refer to HCMP1841/2012 for the relevant appeal(s) to the Court of Appeal.