Tsang Shuk Kwan v. Shiu Yim Fong Louisa and Another

DCCJ 893 of 2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION

ACTION NO. 893 OF 2008

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Before: Deputy District Judge C. Lee in Court

Dates of Trial: 26^th,27^th and 28^th July 2010

Date of Judgment: 24^th August 2010

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JUDGMENT

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A. Introduction

1.The main issue for determination at trial is whether the Plaintiff’s provision of the money to her son to fund the purchase of the Property (as particularized hereunder) constitutes a constructive trust, hence, the Defendants, having sold the Property, are required to account for the proceeds.  It is beyond debate that the issue of constructive trust hinges upon the intention of the money provider and the message conveyed to those who are the registered owners of a property.  Consequently, the next logical question is whether there is direct evidence from the Plaintiff to show her intention, as reasonably understood by the 1^stDefendant, that a total sum of HK$292,000 provided by the Plaintiff to fund the purchase of the Property, would entitle the Plaintiff to have the beneficial interest over the Property.  If there is no such direct evidence, whether common intention can be inferred from the words and conduct of the Plaintiff and the 1^st Defendant that the Plaintiff should have beneficial interest over the Property? Another issue is whose version on the terms of the oral agreement made in early 2005 is more credible, the version of the Plaintiff’s son or the 1^st Defendant’s version?  Whether the 1^st Defendant received HK$292,000 or HK$275,000 from the Plaintiff through the Plaintiff’s son, Mr. Lau Wai Lok(“Lau”)?   

B.      BACKGROUND

2.The Plaintiff's soncame to know the 1^stDefendant in about 2000.  They became lovers since then.  In or about early 2005, they planned to get married.  In light of the intended marriage, they began to search for a flat.  When the intended purchase was almost materialized, they discussed about pooling in a fund towards theintended purchase. 

3.In about early 2005, the Plaintiff agreed to provide financial assistance to Lau for him to contribute the payment for down payment and the initial expenses to acquire a property for Lau’s intended marriage.  The 1^st Defendant also looked to her mother, the 2^nd Defendant for financial assistance.  Whether by way of pleadings or from the Plaintiff's closing submissions, the Plaintiff accepted that there was no loan agreement between the Plaintiff and the 1^stDefendant, the loan agreement was made between the Plaintiff and her son, Lau.  Lau then reached a verbal agreement with the 1^stDefendant on who shall bear different kinds of expenses.   I shall come to Lau’s version later.

4.However, Lau and the 1^st Defendant had different versions on the terms of the verbal agreement, which was one of the main issues for trial.  What Lau alleged is that he would be responsible for paying the down payment and the initial expenses to acquire the Property. Whilst the 1^st Defendant would be solely responsible for paying the mortgage installments until Lau’s bankruptcy order was discharged and his financial condition improved.  This version was not clear from the Amended Statement of Claim until one looks at the Amended Reply.

Per paragraph 6 of the Amended Statement of Claim:  “During the course of the discussions in around February and March 2005, it was orally agreed between the Plaintiff's son [Lau] and the 1^st Defendant that the residential property known as Flat G, 34th Floor, Block 4, La Cite Noble, No. 1 Ngan O Road, Tseung Kwan O, Sai Kung, New Territories ("the Property") would be purchased at the price of HK$1,680,000 ("the Purchase Price").”

Per paragraph 7 of the Amended Statement of Claim:  “It was further agreed [between Lau and the 1^st Defendant] during the course of the discussions that whilst the Property would be registered in the joint names of the 1^st and 2^nd  Defendants, the Plaintiff would contribute towards the Purchase Price (whether by way of down payments or mortgage repayments) and the necessary costs and expenses incurred for acquiring the Property."

[Per paragraph 6 of the Amended Reply] “… there was an agreement between Mr. Lau and the 1^st Defendant that a residential property would be purchased to be used as their future matrimonial home after their contemplated marriage in about the end of 2005… By reason of Mr. Lau’s bankruptcy, the 1^st Defendant advised Mr. Lau that any residential property to be purchased would only be registered in the name of the 1^st Defendant. It was further agreed that apart from the contributions of down-payment and other initial expenses (the arrangement of which is more particularized hereinbelow), the 1^st Defendant would be solely responsible for the installment payments of any mortgage loan taken out in respect of the Property for the time being until the discharge of the bankruptcy order of Mr. Lau and his financial conditions improve in due course.”

5.The 1^stDefendant's version is that the verbal agreement was made in or about March 2005.  The terms of the agreement are that the 1^st Defendant and Lau would contribute equally to the purchase price of the Property, namely the down payment.  The 1^st Defendant and Lau would be equally liable for the reasonable and necessary costs and expenses of acquiring the residential property, including any mortgage repayments.  The 1^st Defendant and Lau would each be entitled to half of the beneficial interest in the Property.  In the event of sale, the 1^st Defendant and Lau would be entitled to half the proceeds or profits of the Property.  In other words, this is akin to a “50:50 agreement”. 

6.From the above, it is apparent why Lau's name would not appear in the title deed because on 17^thApril 2003, Lau was adjudged bankrupt and the bankruptcy order remained undischarged at the time of the purchase of the Property.

7.The purchase of the property was completed on or about 28^thApril 2005 at the price of HK$1.68million.  The 1^st and 2^nd Defendants were the registered owners of the Property.  The 2^nd Defendant is the 1^st Defendant’s mother.  It is common ground that both Lau and the 1^stDefendant obtained financial assistance from their own mother for the purchase. 

8.The intended marriage was not materialized because their relationship was stormy.  It was over in about November 2005.

9.The intended marriage fell through. The Plaintiff accepted that it was reasonable for the 1^stand 2^ndDefendants to sell the Property on or about 20^th January 2006 at the price of HK$1.63 million.    

C.      ISSUES

10.The Plaintiff’s pleaded case was that there was no loan agreement between the Plaintiff and the 1^st Defendant. The loan agreement was made between the Plaintiff and Lau.  As a result, the Plaintiff could not pursue the cause of action against the 1^st Defendant as if there was a loan agreement between them.  Although there was frequent change of front, Counsel for the Plaintiff, Mr. Lau finally and sensibly abandoned the cause of action on loan against the 1^st Defendant.  As a result, the remaining cause of action was one of constructive trust against the 1^st and 2^nd Defendants.  Another issue is whose version on the terms of the oral agreement made in early 2005 is more credible.  However, even if Lau’s version was accepted and entitles him to the repayment of the loan or the proceeds of the sale, his version on the loan agreement was made between the 1^st Defendant and him.   However, he is not a party to this action.  The consequence is that the Plaintiff can only rely on the cause of action on trust, that Counsel for the Plaintiff, Mr. Lau said that the 1^st and 2^nd Defendants are constructive trustees.  On the other hand, if the 1^st Defendant’s version was accepted, the 1^st Defendant shall refund to Lau his share of the net balance in accordance with the 50:50 agreement.  Likewise, Lau is not a party to this action.  Whoever’s version is to be accepted, it seems to me that the crux of the issue is whether there was a kind of common intention constructive trust between the Plaintiff and the 1^stDefendant that the Plaintiff's provision of money would entitle her to claim interest over the Property. 

11.On the question of constructive trust, Ms. Man submitted that it does not begin to fly as either the Plaintiff's pleadings or the witness statements did not disclose any primary facts for the Court to infer common intention constructive trust. 

12.The next question is one of quantum. Had the Defendants been held to be the constructive trustees, hence under the duty to account for the proceeds of the sale, the Defendants said that they should return $170,551.06 while the Plaintiff said that the amount should be $192,196.06.  Both parties have conceptual differences on the formula that will lead to a disputed amount of $21,645. 

13.Another subsidiary issue is how much isthe amount of the Plaintiff’s advancement had been passed to and received by the 1^st Defendant.  The Plaintiff and Lau said that the amount was $292,000 while the 1^st Defendant said that it should be $275,000.  The disputed amount is $17,000 that was allegedly given by Lau to the 1^st Defendant in cash.

D.      EVIDENCE & DISCUSSION

14.The Plaintiff gave evidence and called Lau to testify.  The 1^st Defendant also gave evidence.

D-1    The Plaintiff’s evidence

15.The Plaintiff’s relevant evidence can be summarized as follows:-

a)           When she advanced the sum of money, she had expected it to be repaid in full, sooner or later;

b)           Whether the Property ultimately results in a gain or a loss in capital value, the full sum of HK$292,000 needs to be repaid;

c)           She did not request for a greateramount to be repaid in the event that the value of the Property appreciates;

d)           She had not insisted that her name be added to the Property;

e)           She agreed that the advancement was made simply to help Lau so that the 1^st Defendant and Lau could purchase a property and get married;

f)            She had not thought about becoming entitled to a part of the Property.

g)           She had agreed that it was Lau who approached her and informed her of his intention to get married and to purchase a property;

h)           She had agreed that it was Lau who informed her that Lau and the 1^st Defendant were to each ask one’s own mother for funding for the purchase of a property;

i)             She had agreed that Lau and the 1^st Defendant are each to be responsible to their own respective mother for the amount of money they obtained from their own mother;

j)             She had agreed that as the 1^st Defendant is responsible to her own mother for the loan the mother advances, similarly Lau should also be responsible to her for the money advanced to him;

k)           In response to the question on whether the agreement to lend out the money was between the Plaintiff and Lau, the Plaintiff’s answer was “should be”.

16.It is lucid that all along in the Plaintiff’s mind, the money advanced by her was simply a loan that needs to be repaid by her son.

17.The above answers are candid and spontaneous.  It reflects the true position of her mind set when she advanced the money.  These answers are to be preferred over her denials when the defence case was put to her.

18.These crystal clear answers given by the Plaintiff displaces any answer provided by Lau or indeed the 1^st Defendant as to their interpretation on what was her intention or purpose of the advancement. 

19.In essence, the direct evidence on her actual intention, namely, money was provided as a loan to her son so that he could contribute his part towards the purchase of the Property and that she had no intention to claim any interest over the Property, displaces any suggestion of common intention constructive trust.  

D-2    Lau’s evidence

20.In respect of the different versions on the verbal agreement, I prefer the 1^st Defendant’s version than Lau’s version. 

21.Lau’s version is that any equal contribution agreement was subject to a “condition”, that he would only contribute to the monthly mortgage repayments after his bankruptcy order is discharged and he finds a job and is financially stable.

22.I am of the view that Lau’s version of the agreement between Lau and the 1^st Defendant is both unbelievable and contrary to the contemporaneous documents. 

23.Firstly, in his previous action (the “Previous Action”) commenced against the 1^st Defendant (DCCJ 5409/2006) which was discontinued shortly after the writ was issued. Lau’s then pleaded case was that the 1^st Defendant and he would contribute equally to the purchase price of the Property.  He did not mention in the Previous Action but he now alleged that the 1^st Defendant had agreed to shoulder all of the monthly instalment repayment until his bankruptcy order is dischargedandhe gets a job and is financially stable. Lau agrees to this during cross-examination.

24.Secondly, Lau failed to offer a satisfactory explanation as to why it would be reasonable and fair for him to have an equal share of the beneficial interest in the Property with the 1^st Defendant when he had only agreed to contribute to half of the down payment plus expenses without paying mortgage instalment.  He purported to explain that his mother had already contributed to half of the down payment and expenses. This is not sufficient to entitle Lau to have a half of the beneficial interest.

25.Thirdly, in a contemporaneous document given by Lau himself to the Official Receiver, it was still said by Lau himself that the agreement  was that each partyshall bear equally the payment for the purchase price (down payment) and the monthly mortgage repayments. Similarly, he failed to mention in this document of this so-called “condition” attached to the oral agreement.

26.It seems to me that this so-called “condition” attached to the oral agreement between Lau and the 1^st Defendant was simply an afterthought.

27.In relation to Lau’s evidence on the issue of who were the parties to the loan agreement, as set out by Lau himself in his witness statement, was that Lau and the 1^st Defendant would “separately and individually” seek help from their respective parents.

28.Small wonder that the consequence of such an arrangement is that the 1^stDefendant would only be liable to the 2^nd Defendant, her mother, for the 2^nd Defendant’s loan, and Lau would only be liable to the Plaintiff for the Plaintiff’s loan.

29.It had taken Lau more than 20 seconds to answer the question put to him as to whether the 2^nd Defendant can sue Lau for the loan she had given to the 1^st Defendant if the 1^st Defendant fails to repay such loan. 

30.I am of the view that the logical and reasonable conclusion, based on the evidence as set out in Lau’s own witness statement is that the 2^nd Defendant would only have recourse against the 1^st Defendant, her own daughter and would not be allowed to sue Lau if the 1^st Defendant fails to repay her loan.  Yet, in order to serve the Plaintiff’s case, Lau had provided answer that despite the arrangements were to seek help “separately and individually” rather than “jointly”, Lau had to say in a contrived manner that the 2^nd Defendant would be entitled to sue him for the 1^st Defendant’s loan from the 2^nd Defendant.  Such an answer is clearly incredible, illogical and out of common sense.

31.It is indisputable that the money advanced was a loan arrangement between the Plaintiff and Lau only, which in any event needs to be repaid. 

32.This is supported by the Plaintiff’s pleaded case that the loan agreement was made between Lau and the Plaintiff, and not between the 1^st Defendant and the Plaintiff. The Plaintiff’s witness statement and Lau’s witness statement which have both been adopted also confirms this stance.

D-3    1^st Defendant’s evidence

33.In contrast, the 1^st Defendant had given a consistent account of the oral agreement between her and Lau that there was to be equal contribution.  Her version also accords with logic and common sense.

34.The Plaintiff attempted to suggest that the 1^st Defendant had already had knowledge of the fact that Lau was jobless when the preliminary sale and purchaseagreement was signed (and thus had agreed to shoulder the monthly mortgage repayments alone) by saying that it should have been readily apparent at the time that he was without a job.  The 1^st Defendant’s version was that she had thought Lau had held a job until Lau informed her that he would go back to studying and that in the meantime his brother and mother would assist him financially.  She believed that Lau had a plan to further his study.  In the event that he had any financial difficulty, his brother who is a doctor, could assist. I agree that her version is sound and believable, and justifies why she had entered into the preliminary sale and purchase agreement at the time.  It is also reasonable for her to accept this arrangement at that time when marriage was contemplated.

D-4    Resulting Trust/Constructive Trust

35.The Parties once canvassed on whether this case is in the nature of a resulting trust.  Although Counsel for the Plaintiff finally chose to pursue along the line of constructive trust and decided not pursue on resulting trust, for completeness sake, it is more desirable to cover this point briefly. 

36.There is no dispute that a resulting trust arises where A made a voluntary payment to B or paid wholly or in part for the purchase of a property which was vested either in B alone or in the joint names of A and B.  However, this is only a presumption which is rebuttable.

“It is a prerequisite for the establishment of such a resulting trust that the claimant demonstrates that the contribution to the purchase price is not made for any purpose other than acquisition of a right in the property. For example, where it could be demonstrated that the contributor intended only to make a loan to some other person for the purpose of buying a house, that would not acquire the lender any rights in the property. Similarly, an intention to make a gift of money to someone so that they could buy a house would not grant the donor any right in the property. …” (§11.4.4, Equity & Trusts, Alastair Hudson)

“Where the purchase money is provided by a third party at the request of and by way of loan to the person to whom the property is conveyed there is no resulting trust in favour of the third party, for the lender did not advance the purchase money as purchaser, but merely as lender.” (§31.20, Underhill and Hayton, 17^th Ed.)

37.The imposition of a resulting trust or a constructive trust can only be made in the absence ofevidence to the contrary, since they are rebuttable presumptions.  Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at p.708, cited in Yuen Yat Shan Fiona v Sit Hin Kau [2005] 4 HKC 171 at 173 C.

38.As I have said before, the direct evidence on the Plaintiff’s actual intention, namely, money was provided as a loan to her son so that he could contribute his part towards the purchase of the Property. She had no intention to claim any interest over the Property.  This displaces any suggestion of common intention constructive trust.  

39.Besides, the Plaintiff relied heavily on the case of Ledger-Beadwell and another v Peach [2006] All ER (D) 245, a judgment given by Nicholas Strauss QC sitting as a Deputy Judge of the High Court.  The Plaintiff said that the facts of both cases are strikingly similar and the court found that the lady defendant held the proceeds of sale on constructive trust for the parents of the lady’s ex fiancé, less the amount of her expenditure on the property.

40.However, paragraphs 54 and 94 of the said judgment show that two cases bear material difference on facts.  In Ledger-Beadwell case, there was a direct communication between the money provider (male fiance’s parents) and the recipient (lady defendant).  The money provider stated clearly to the recipient in a letter dated 19^th May 2003 that the advancement was not a gift and it has been agreed between them that some form of trust and contract will be agreed.  The money provider also stated in the letter that “Please confirm receipt of this letter and, in due course, the funds referred to above”.  The lady defendant signed the letter. 

41.In paragraph 94 of the judgment, the learned judge held that:-

“The letter of 19^th May explicitly stated that the money was not a gift, and in my view made it clear that it was not a loan either.  The words “for want of a better term loaned” indicate that it was not regarded as a loan.  The letter in my view clearly indicates that it was an advance on terms which would be agreed in some form of trust or contract when the situation became clear and the parties knew what would be appropriate.”   

42.In the present case, not only there was no direct communication between the Plaintiff and the 1^st Defendant as to the Plaintiff’s intention of the advancement, it is the Plaintiff’s oral testimony that she agreed that the advancement was made simply to help Lau so that the 1^st Defendant and Lau could purchase a property and get married.  She had not thought of claiminginterest over the Property.

43.In summary, based on the evidence of the Plaintiff by way of her witness statement and her oral testimony, there is simply no basis for a claim based on resulting trust or constructive trust. In a nutshell, the Plaintiff’s case against the Defendants, whether it be on resulting trust or on constructive trust, must fail.

44.I shall now deal with the amount of advancement by the Plaintiff and received by the 1^st Defendant.

45.The 1^st Defendant only admitted receiving HK$275,000.  The Plaintiff said that she contributed HK$292,000 to the 1^st Defendant through Lau.  Lau said that he paid HK$292,000 to the 1^st Defendant.  The disputed amount was HK$17,000.  Lau said that HK$17,000 was paid in cash to the 1^st Defendant on two occasions.  The 1^st Defendant denied this.  It was one word against the other.  Nonetheless, the Plaintiff has stated in her witness statement that she is unclear as to the details concerning the passing to the 1^st Defendant the funds she transferred to Lau.

46.Despite the denial by the Plaintiff, she simply cannot be sure whether Lau had indeed duly transferred the entirety of HK$292,000 to the 1^st Defendant.  The only evidence that she can rely on is the testimony of Lau.  She said that Lau had informed her that he had passed all of the HK$292,000 to the 1^st Defendant.  However, under cross-examination, the Plaintiff could not justify why she thought Lau was always frank and honest with her and why she could believe Lau’s version when there is no dispute that he had previously withheld the fact that he had become bankrupt from her.  Lau agrees that since the disputed amount of HK$17,000 was tendered by him to the 1^st Defendant in cash, there is simply no documentary evidence tendered that the 1^st Defendant had received through Lau the total sum of HK$292,000. 

47.The ultimate question thus turns on whether Lau or the 1^st Defendant is more credible as to the amount of the money being passed by Lau to the 1^st Defendant.  It seems to me that the 1^st Defendant’s account on the issue is more credible among the two witnesses.  In the course of her oral evidence, the 1^st Defendant had explained clearly the purpose and dates to each of the payments that had been passed by Lau to her, such explanation coinciding with the plea in the Plaintiff’s Reply.  Such explanation accords with the version of events that had transpired: payment for the initial deposit in March 2005, partial payment for monthly instalments in July 2005 after the 1^st Defendant and Lau briefly got back together, then reimbursement for the payment of down payment in August 2005 by two cashier orders.  This is to be contrasted with the lack of explanation by Lau as to the purpose behind the two disputed payments ($10,000 and $7,000).  It must be noted that there is no detail provided at all as to the payment of $7,000 in cash in October 2005.

48.In short, I find that the amount of the advancement received by the 1^st Defendant was HK$275,000on the balance of probabilities.

E.      CONCLUSION

49.As a result, my findings can be stated as follows:-

(1)There was no common intention constructive trust between the Plaintiff and the Defendants;

(2)There was a verbal loan agreement between the Plaintiff and Lau in that the Plaintiff lent Lau the sum of HK$292,000 without any repayment schedule.

(3)There was a verbal agreement made between Lau and the 1^st Defendant in March 2005.  The terms of the agreement are that the 1^st Defendant and Lau would contribute equally for the payment of the purchase price of the Property, including the down payment.  The 1^st Defendant and Lau would be equally liable for the reasonable and necessary costs and expenses of acquiring the residential property, including any mortgage repayments.  The 1^st Defendant and Lau would each be entitled to half of the beneficial interest in the Property.  In the event of sale, the 1^st Defendant and Lau would be entitled to half the proceeds or profits of the Property.   Lau’s allegation of the 1^st Defendant to pay all mortgage installments until he is financially sound is rejected.

(4)I find that the loss and expenses arose out the sale of the Property shall be borne by Lau and the 1^st Defendant equally.  I do not accept the Defendants’ suggestion that the sale of the Property was caused solely by Lau (because he got a new girl friend) and that he ought to shoulder in full the loss in value in the amount of HK$50,000 and the penalty imposed by the Bank in the amount of HK$50,000.  I am of the view that when a relationship of love and passion was ended, there is no hard and fast rule as to who is right or wrong, especially having accepted the 1^st Defendant’s version, loss and expenses arose out the sale should be borne by Lau and the 1^st Defendant equally.

(5)I do not find it necessary to calculate the exact amount to be borne by Lau and the 1^st Defendant so long as I have accepted the 1^st Defendant’s “50:50” version.  There was a mechanism for them to calculate the exact amount had Lau instigated another claim in future.

F.      ORDERS

50.I hereby give the following orders:-

(1)  The Plaintiff’s claim be dismissed.

(2)  Costs order nisi that the Plaintiff do pay the costs of this action to the Defendant with certificate for counsel to be taxed if not agreed.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute 14 days from today.

Mr. Roland Lau instructed by Messrs Yu & Associates for the Plaintiff

Ms. Phoebe Man instructed by Messrs Ma Tang & Co for the Defendants