LO MAN YAU v. CHIU SUNG FAI AND ANOTHER

DCCJ 2516/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2516 OF 2013

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JUDGMENT

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A.   INTRODUCTION

1.  This case concerns competing claims to a residential property situated at Flat B7 and B8 on 3^rd Floor, Tung Lee Building, Nos 1C, 1D, 1E, 1F, 1G, 1H, 1J and 1K Water Street, Nos 1-15 On Ling Lane, Hong Kong (“the Property”). 

2.  The plaintiff, Lo Man Yau (羅文佑) (“Mr Lo”), is and has since 11 January 2013 been the registered owner of the Property.  He claims against the defendants for possession of the Property and mesne profits at the monthly rate of $30,000, or such other rate as the court considers just and appropriate, for the period from 2 March 2013 (or from 1 June 2013) until delivery up of vacant possession of the Property, on the basis that they are trespassers of the Property.

3.  The 1^st defendant, Chiu Sung Fai (趙崇輝) (“Sung Fai”), claims that he has a beneficial interest in the Property by virtue of a resulting or constructive trust.  He also claims that he has a life interest in the Property by virtue of two written agreements respectively dated 25 September 2009 and 29 November 2011.

4.  The 2^nd defendant is “all occupiers” of the Property.

B.   BACKGROUND AND MATERIAL FACTS NOT IN DISPUTE

5.  The following material facts, which are derived from documentary and unchallenged evidence, are not in dispute.

6.  Sung Fai has an elder sister, Chiu Shuk Ha (趙淑霞) (“Shuk Hai”), who was married to Daniel Ng Kin Man (伍健文) (“Daniel Ng”).  Sung Fai also has an elder brother, Chiu Sung Leung (趙崇亮) (“Sung Leung”). Their mother is Lam Ching Fun (林靜芬) (“Madam Lam”).

7.  On 16 July 1997, Sung Fai, Sung Leung, Shuk Hai and Daniel Ng set up Chun Tung Investments Limited (震東投資有限公司) (“Chun Tung”) to do retail business.  The directors and shareholders of Chun Tung were Sung Fai and Shuk Hai, each holding 50% of its shares.  Sung Leung and Daniel Ng were not registered as shareholders of Chun Tung and their interests were respectively held by Sung Fai and Shuk Hai on trust for them. This arrangement was necessary because Sung Leung always spent his time in Mainland China and Daniel Ng was then working full time in the police force.

8.  Chun Tung had a shop in Allied Plaza, Kowloon selling sports shoes.  It later also sold handbags.  Shun Fai was mainly responsible for retail business operation and did not participate in the financial end of the business.  Shuk Har, on the other hand, performed management and administrative work for the company.    

9.  On 9 January 2002, South Sea Holdings Limited (南海集團有限公司) (“South Sea”) was incorporated.  At the time of its incorporation, the shareholders of South Sea were Sung Fai and Shuk Ha, each holding one of its two issued shares.  The directors of South Sea were Sung Fai, Shuk Hai and Madam Lam.  Sung Fai was also appointed as a secretary of South Sea.

10.  On 12 May 2004, South Sea entered into a provisional sale and purchase agreement to purchase the Property at $1.5 million (“the 12.05.2004 PSPA”). The purchase was completed on 19 June 2004, on which date South Sea entered into a mortgage in favour of DBS Bank (Hong Kong) Limited (“DBS”).

11.  Soon after the Property was purchased, Sung Fai lived in the Property with his girlfriend, Sung Leung, Sung Leung’s wife and Madam Lam.  They were still living in the Property when the statement of claim in this action was issued on 10 July 2013 and at the time of the trial.  Sung Fai has been paying all the outgoings of the Property including management fees, government rates and utility charges etc.

12.  Meanwhile, South Sea purchased another property situated at Flat C, 13^th Floor, Cheong Ling Mansion, Nos 3, 5, 7, 9 & 11 Nullah Road and Nos 258 and 260 Sai Yeung Choi Street South, Kowloon, Hong Kong (“the Cheong Ling Property”) at $1.22 million.  The purchase was completed on 13 July 2004, on which date South Sea entered into a mortgage in favour of DBS. 

13.  Soon after the Cheong Ling Property was purchased, Shuk Hai and Daniel Ng lived there until on or about 23 October 2007 when it was sold.  Shuk Hai and Daniel Ng then moved to live in Flat 4C, Tower 4, Lakeside Garden, Sai Kung.

14.  On 23 July 2005, Femme Boutique Limited (“Femme Boutique”) and Femme Shoe Limited (“Femme Shoe”) were incorporated, and on 7 November 2007, Femme Group Limited (collectively “Femme”) was incorporated.  Femme was incorporated for tax purposes.  Specifically, Femme Boutique was incorporated for the purpose of taking over management of the shops from Chun Tung.  The shareholders of Femme Boutique were Shuk Har and Daniel Ng, each holding 50% of its shares. The 50% of the shares held by Shuk Hai was held by her for Sung Fai.

15.  In 2008, due to disagreement over the management of Femme, Sung Fai fell out with Daniel Ng and Shuk Hai.  He left Femme in August 2008, although he did not withdraw his share in Femme.

16.  On or about 26 August 2009, Shuk Hai called Sung Fai asking him to help Daniel Ng to borrow money from a bank.  Shuk Hai said that someone would be coming to inspect the Property.  Sung Fai refused Shuk Hai’s request, stating that he would not help Daniel Ng to borrow money from the bank.  Then, Daniel Ng himself called Sung Fai asking for help.  Daniel Ng asked Sung Fai to give him a chance.  He told Sung Fai that all Sung Fai needed to do was to allow a loss adjuster to look at the Property.  Sung Fai reluctantly agreed, stating that he would not sign any document.  Daniel Ng replied that he was not asking Sung Fai to sell or re-mortgage the Property and therefore no document was required to be signed.

17.  As a result, Sung Fai became suspicious of Daniel Ng’s behaviour.  He then conducted a search at the Companies Registry Electronic Search Service and discovered that Daniel Ng had, without his knowledge or consent, filed with the Companies Registry Notifications of Change of Secretary and Director dated 30 June 2009 (“the 1^st Set of Documents”) whereby Daniel Ng (a) appointed himself as a director of South Sea; (b) appointed Champion Secretarial Limited (“CSL”) as the secretary of South Sea; (c) caused Sung Fai to resign as a director and secretary of South Sea; (d) caused Shuk Har to resign as a director of South Sea; and (e) caused Madam Lam to resign as a director of South Sea.  The purported signatures of Sung Fai and Madam Lam on the 1^st Set of Documents were not theirs but were forgeries.  The 1^st Set of Documents was filed with the Companies Registry on 30 June 2009. 

18.  On 31 August 2009, Sung Fai reported the matter to the police and made his first police statement (“the 1^st Police Statement”).  It is significant to note that in the 1^st Police Statement, Sung Fai stated that a sum of $558,534 was paid from the joint account of himself and Sung Leung at the Bank of China (“the Joint Account”) towards the purchase of the Property.  Unknown to Sung Fai, Daniel Ng had also, without his knowledge or consent, transferred the two shares in South Sea held by each of Sung Fai and Shuk Hai to Daniel Ng himself on 12 August 2009, as a result of which Daniel Ng became the sole shareholder of South Sea.  Therefore, in his 1^st Police Statement, Sung Fai complained only about the change of office bearers of South Sea and did not complain about the transfer of the shares in South Sea.

19.  Also on 31 August 2009, Sung Fai visited CSL to find out more about the change of office bearers of South Sea, but he was told that the responsible person was not available.  Sung Fai then left.  Soon after he left Sung Fai received a call from Shuk Har, who told him that Daniel Ng would transfer the shares back to Sung Fai and Shuk Har.  Shuk Har then passed the phone to Daniel Ng who threatened Sung Fai not to go back to CSL again otherwise he would not transfer the share back to Sung Fai.  That was the first time Sung Fai became aware of the transfer of his and Suk Hai’s shares in South Sea to Daniel Ng.         

20.  On 25 September 2009, Sung Fai, Sung Leung, Madam Lam had a meeting with Daniel Ng and Shuk Hai.  This meeting was tape-recorded and a transcript of it was put in evidence before the court.[1] At this meeting:-

(a)  Daniel Ng brought with him a document which he claimed was for the purpose of transferring the shares in South Sea to Shuk Hai and Madam Lam. 

(b)  Daniel Ng also brought with him one page of the 12.05.2004 PSPA (“the one-page 12.05.2004 PSPA”) on which he wrote down Sung Fai’s payments towards the purchase of the Property.  According to Daniel Ng’s calculation, Sung Fai had paid a total of $418,263, comprising:- (i) further deposit of $100,000; (ii) second deposit of $300,000; and (iii) miscellaneous expenses of respectively $6,703 and $11,560.  Daniel Ng issued a cheque for the sum of $418,263 to Sung Fai post-dated to 1 March 2010, which he said was for repayment of the monies which Sung Fai had paid for the purchase of the Property. 

(c)  Daniel Ng also issued 25 cheques to each of Sung Fai, Sung Leung and Madam Lam, posted-dated from 10 October 2009 to 10 October 2011 for $20,000 each (ie 25 x $20,000 = $500,000 for each of Sung Fai, Sung Leung and Madam Lam). 

(d)  Daniel Ng said that if Sung Fai, Sung Leung and Madam Lam did not sign the document and accept the cheques, he would not transfer the shares to Shuk Hai and Madam Lam. 

21.  Under these circumstances, Sung Fai, Sung Leung and Madam Lam accepted the cheques and signed the document (“the 1^st Compromise Agreement”).  However, they did not cash any of the cheques.  The 1^st Compromise Agreement provided, inter alia, that Daniel Ng would transfer his 100% shares in South Sea to Shuk Hai and Madam Lam in equal proportion on the following conditions:-

(a)  The Property could only be used for self-occupation;

(b)  The Property could not be sold or otherwise disposed of without prior written approval by Sung Fai, Sung Leung, Shuk Har and Madam Lam; and

(c)  The repair and maintenance expenses of the Property would be paid by Daniel Ng until his demise.  

The 1^st Compromise Agreement contained a term that it would become effective only if it was stamped.  On the date of the signing of the 1^st Compromise Agreement, each of Shuk Har and Madam Lam also signed an Instrument of Transfer and a Bought Note to purchase one share in South Sea from Daniel Ng and minutes of meeting of board of directors of South Sea whereby it was resolved that Shuk Har and Madam Lam were appointed as new directors of South Sea.

22.  On 28 September 2009, Sung Fai again conducted a search at the Companies Registry Electronic Search Service and discovered four additional documents which were previously unknown to him (“the 2^nd Set of Documents”): (a) a Notification of Change of Secretary and Director dated 30 June 2009 whereby Daniel Ng’s son Ng Pui Chung (“NPC”) was appointed as a director of South Sea; (b) a Special Resolution of South Sea dated 2 July 2009 whereby Article Nos 5, 11, 14 and 24 of its Articles of Association were deleted; (c) a Notification of Resignation of Secretary and Director dated 15 July 2009 whereby NPC resigned as a director of South Sea; and (d) a Notification of Change of Secretary and Director dated 15 July 2009 whereby NPC resigned as a director of South Sea.  The 2^nd Set of Documents was filed with the Companies Registry on 25 September 2009.

23.  Furthermore, by 5 October 2009, Daniel Ng had not transferred the shares to Shuk Har and Madam Lam.  Therefore, on 12 October 2009, Sung Fai, Sung Leung and Madam Lam had another meeting with Shuk Hai.  This meeting was video-taped and a transcript of that video tape was tendered at the trial.[2] In that meeting, Shuk Hai admitted that her signature on the 1^st Set of Documents and NPC’s purported signatures on the 2^nd Set of Documents were not theirs but were forgeries.  The matter was further discussed at the subsequent meetings between Sung Fai and Sung Leung and Shuk Hai respectively on 23 October 2009 and 11 November 2009, but no conclusion was reached.  The meeting on 11 November 2009 was also video-recorded and a transcript of that video recording was also tendered at the trial.[3]

24.  On 5 December 2009, Sung Fai again reported the matter to the police and made another police statement (“the 2^nd Police Statement”, which, together with “the 1^st Police Statement”, is collectively referred to as “the Police Statements”).  It is also significant to note that in the 2^nd Police Statement, Sung Fai again stated that the sum of $558,534 was paid from the Joint Account towards the purchase of the Property.

25.  On 29 November 2011, Sung Fai and Madam Lam entered into the 2^nd Compromise Agreement, the material times of which were as follows:-

(a)  Daniel Ng acknowledged that the sole purpose of South Sea was to hold the Property;

(b)  Daniel Ng agreed to unconditionally give the Property to Sung Fai and Madam Lam for them to live rent-free, and the maintenance expenses would be paid by Daniel Ng or South Sea.  The Property was for self-occupation only and could not be sold or let;

(c)  Daniel Ng agreed to issue 20 post-dated cheques each of $10,000 to be made payable to Madam Lam as living expenses for the period from 1 January 2012 to 1 August 2013; and

(d)  Daniel Ng further agreed that from 1 September 2013, he would be paying a monthly sum of $5,000 in cash to Madam Lam as living expenses.

26.  Unknown to Sung Fai, on 6 November 2012, South Sea entered into a provisional sale and purchase agreement to sell the Property to Mr Lo at $6 million (“the 06.11.2012 PSPA”).  The 06.11.2012 PSPA was signed by Daniel Ng for and on behalf of South Sea.  The initial deposit of $600,000 was paid by two cheques for $60,000 and $540,000 respectively dated 6 November 2012 and 10 November 2012.  Although the Property was registered in the name of South Sea, the two cheques were issued to Daniel Ng personally, not South Sea.  The completion date was to be on or before 6 December 2012.  It is not clear whether the Property was sold with vacant possession or subject to tenancy because the same was not specified in the relevant clause (clause 8) in the 06.11.2012 PSPA.

27.  On 13 November 2012, South Sea and Mr Lo entered into a formal sale and purchase agreement.  The formal agreement was signed by Daniel Ng for and on behalf of South Sea.  The sale was completed on 11 January 2013.   

28.  By letter dated 30 April 2013, Messrs Fung & Fung, then solicitors acting for Mr Lo, informed Sung Fai that Mr Lo was the registered owner of the Property and demanded Sung Fai to quit and deliver vacant possession of the Property to Mr Lo by 31 May 2013, failing which legal proceedings would be instituted against Sung Fai for recovery of possession of the Property.  That was the first time that Sung Fai knew about the sale of the Property by South Sea to Mr Lo.

C.   THE ISSUES AND FACTS IN DISPUTE 

29.  I shall now deal with the facts which are in dispute.  These can be taken from the list of issues in dispute as agreed between the parties.

(a)  Whether Sung Fai had contributed to the costs and expenses in relation to the purchase of the Property and thereby he has beneficial interests in the Property or portion thereof?  If so, what was the percentage of shares of and in the Property of which Sung Fai’s contribution represented for (Issue (a))?

(b)  Whether South Sea and Daniel Ng were the trustee of Sung Fai’s beneficial interest held on a resulting and/or constructive trust in respect of the Property or portion thereof (Issue (b))?

(c)  Whether Mr Lo’s title in the Property is subject to Sung Fai’s beneficial interests of the Property held by South Sea and Daniel Ng as trustees under a resulting trust and/or constructive trust (Issue (c))?

(d)  Whether Mr Lo knew or ought to have known that Sung Fai has beneficial interests in the Property (Issue (d))?

(e)  Whether Mr Lo is a bona fide purchaser of the Property for value without notice of Sung Fai’s beneficial interests in the Property (Issue (e))?

(f)  Whether, in the entire circumstances of the present case, it is just and equitable for Mr Lo to recover possession of the Property from Sung Fai?

30.  Some of these issues overlap to a large extent and where appropriate they will be dealt with together.  

D.   THE APPLICABLE LAW ON RESULTING TRUST AND CONSTRUCTIVE NOTICE

31.  In Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669 at 708-709, Lord Browne-Wilkinson said:-

“Where A makes a voluntary payment to B or pays (wholly or in part) for the purchase of property which is vested in B alone or in the joint names of A and B, there is a presumption that A did not intend to make a gift to B: the money or property is held on trust for A (if he is the sole provider of the money) or in the case of joint purchase by A and B in shares proportionate to their contributions”

32.  The presumption of resulting trust can be rebutted by proof that A did in fact intend B to take the property as beneficial owner.  This intention may be established by direct evidence or to a degree by reliance on the presumption of advancement: Snell’s Equity, 33^rd Ed., §25-003. 

33.  In Wong Chim-Ying v Cheng Kam-Wing [1991] 2 HKLR 253, a husband paid for a flat but it was transferred into the name of his wife.  He lived in the flat with her and their children.  The wife sold the flat and absconded. The husband refused to leave and the purchaser sought possession of the property.  At first instance ([1990] 1 HKC 418), Godfrey J (as he then was) dismissed the purchaser’s claim, holding that:- (a) a purchaser of land takes subject to the rights of every person in actual possession of the land, save where enquiry is made of such person and the rights are not disclosed (at 425A-B, applying Williams & Glyn’s Bank Ltd v Boland [1981] 1 AC 487); (b) notice of occupation is notice of the occupier’s rights (at 425D-E); and (c) a purchaser who fails to make inquiry of a wife or a husband as to his or her rights in the matrimonial home which he or she shares with his or her spouse will be treated as having taken the property subject to those rights (at 425G).  

34.  The purchaser then appealed to the Court of Appeal: [1991] 2 HKLR 253. The Court of Appeal affirmed the judge’s holding that the purchaser, who had made no inquiries of the husband regarding the rights of the husband in the flat, was fixed with constructive notice of those rights: at 262C-D per Clough JA.  The Court of Appeal said (at 273E-G per Clough JA):-

“No authority since Boland has been cited to the contrary and we respectfully agree with the statement of the law by the editor of Snell at p.54 where it is asserted that:

‘...it is now settled that if the land is occupied by a person jointly with the vendor, usually his wife or other relative, this occupation will be constructive notice of any rights stemming from a contribution to the purchase price ...’”   

35.  It should also be noted that after the judgment in Wong Chim Ying, on 25 June 1992, the Law Society of Hong Kong issued Circular 92-125 reminding its members that in any purchase of residential property, the purchaser should be advised to inspect the property to ascertain the identity of those residing on the property.  

36.  Wong Chim Ying was recently reaffirmed by the Court of Appeal in Mo Ying v Brillex Development Ltd & Anor [2015] 3 HKC 104.  Yuen JA observed (at paragraphs 11.6 and 11.7):-

“In 1980 the House of Lords held in Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 that in the case of a property held in the name of the husband, the wife who had contributed to the purchase price and had thereby acquired a beneficial interest in the property had an ‘overriding interest’ which took priority over a bank to whom the husband had charged the property. The bank had not inspected the property before lending money on the security of the charge and was thus not aware of the wife’s interest, and the wife testified that she was not aware of the charge. Boland was followed by this court (Clough and Penlington JJA and Mayo J) in Wong Chim Ying.

In the present case the purchaser had failed to inspect the property before purchase and must be fixed with constructive notice of the wife’s interest ...”         

37.  As fairly accepted by Mr Shum (Mr Cheung with him), counsel for Mr Lo, in order for a purchaser not to be fixed with constructive notice, he must have made all the usual and proper inquiries.[4]

E.   FINDINGS OF FACT AND APPLYING THE LAW TO THE FACTS FOUND

38.  Before making the findings of fact that I do on the evidence, I shall say a few words on the approach in assessing credibility of the witnesses. 

1.  Test for assessing the credibility of the witnesses

39.  In Lee Fu Wing v Yan Po Ting Paul [2009] 5 HKLRD 513, Deputy High Court Judge Thomas Au (as he then was) observed that in assessing the credibility of a party’s case, the court should take into consideration the following (at paragraph 53):-

“(1)  Whether the party’s case is inherently plausible or implausible;

(2)  Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable;

(3)  Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility; and

(4)  The demeanour of the witness.”

40.  This dicta was cited with approval by the Court of Appeal in Ageas Insurance Company (Asia) Ltd v Lam Hau Wah Inneo, CACV65/2014 (unreported, 9 January 2015) at paragraph 38 per Kwan JA.  See: Singh Harjit v Determination Business Ltd t/a Muse Studio, DCEC 1082/2011 (unreported, 27 February 2015) at paragraph 12 per Deputy District Judge Sanjay A Sakhrani. 

41.  In my view, the contemporaneous documents provide the best guide as to what actually happened.  As the Court of Appeal observed in Esquire (Electronics) Ltd v Hong Kong & Shanghai Banking Corp Ltd [2007] 3 HKLRD 439, perStock JA (as he then was) at paragraph 158 at p 494, where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them. 

42.  In the present case, Mr Lo is the registered owner of the Property.  There is no dispute that the burden is on Sung Fai to prove his case of resulting and/or constructive trust and/or that he had a life interest in the Property. 

43.  Sung Fai, Sung Leung and Madam Lam gave evidence for the defendants. The main witness is Sung Fai.  He gave evidence in a straightforward and candid manner and impressed me as a truthful witness.   His evidence is also corroborated by the evidence of Sung Leung and Madam Lam, both of whom I also find to be truthful witnesses.  Applying the test set out in §39 above, I find that Sung Fai’s case is consistent with probabilities and generally with the contemporaneous documents.  

44.  On the other hand, as a witness Mr Lo was unsatisfactory: the lack of candour in his witness statements was demonstrated by his cross-examination and his evidence appeared to me to be implausible.  Furthermore, generally, where Mr Lo’s evidence conflicts with that of the defence witnesses, I prefer the latter.  I will explain this later when I deal with specific parts of Mr Lo’s evidence below.

2.  Issues (a) and (c): Whether Sung Fai had contributed to the costs and expenses in relation to the purchase of the Property and thereby he has beneficial interests in the Property or portion thereof, and whether South Sea and Daniel Ng were the trustee of Sung Fai’s beneficial interest held on a resulting trust in respect of the Property?

45.  Sung Fai’s case is that he contributed a total of $558,534 towards the purchase of the Property.[5] In my judgment, Sung Fai’s case is supported by the 10 cheques drawn on the Joint Account at around the time the Property was purchased.  His evidence as to the purpose for which the cheques were issued was largely unchallenged.  The table below is a summary of his evidence.  I see no reason to disbelieve his evidence.     

Date of cheque	Amount ($)	Payee	Purpose
16.5.2004	$50,000	Chun Tung Group Limited	Repayment of initial deposit
19.5.2004	$100,000	Yip & Partners	Payment of deposit
23.5.2004	$11,560	C C Lee & Co	Payment of stamp duty
16.6.2004	$300,000	C C Lee & Co	Payment of balance of purchase price
16.6.2004	$6,703	C C Lee & Co	Payment of legal costs
22.6.2004	$3,500	The Hong Kong Electric Co Ltd	Payment of electricity deposit
22.6.2004	$65,000	Yeung Chit Fat	Payment of decoration fees
9.7.2004	$900	The Incorporated Owners of Tung Lee Building	Payment of management fees
20.7.2004	$871	The Government of the HKSAR	Payment of rates
20.7.2004	$20,000	Lee Sau Hing	Payment of decoration fees
Total:	$558,534

46.  Sung Fai’s evidence that he contributed $558,534 to the purchase of the Property is also supported by other contemporaneous documents, namely the Police Statements, which came into existence long before this action was commenced on 10 July 2013.  As noted above, in the Police Statements, Sung Fai stated that the sum of $558,534 was paid from the Joint Account towards the purchase of the Property.  In cross-examination, it was not suggested to him that what he said in the Police Statements was untrue.

47.  Sung Fai’s evidence is also supported by the one-page 12.05.2004 PSPA on which Daniel Ng wrote down Sung Fai’s payments towards the purchase of the Property in the total sum of $418,263.  As shown by the transcript of the meeting held on 25 September 2009, Daniel Ng also said in that meeting that this sum was Sung Fai’s investment in the Property.  Although the amount stated in the one-page 12.05.2004 PSPA differed from the amount which Sung Fai claimed he had contributed, the one-page 12.05.2004 PSPA clearly supports Sung Fai’s case that he had contributed monies towards the purchase of the Property.    

48.  Mr Shum ( Mr Cheung with him), counsel for Mr Lo, submitted that Sung Fai’s case is inconsistent with the 1^st Compromise Agreement which made no mention of any contribution to the purchase price of the Property by him or any resulting trust.  With respect, this submission overlooked the fact that apart from the 1^st Compromise Agreement, the one-page 12.05.2004 PSPA with Daniel Ng’s calculation of Sung Fai’s payments towards the purchase of the Property also came into existence at the same time as the 1^st Compromise Agreement and must be read together with the 1^st Compromise Agreement.

49.  Mr Shum further submitted that the payments by Sung Fai were not contributions to the purchase price of the Property but were loans to South Sea which had been repaid to Sung Fai by the cheques issued on 25 September 2009. In my judgment, there is no evidential basis for such a submission.  It is not Mr Lo’s pleaded case that the sum of $558,534 was a loan from Sung Fai to South Sea.  As fairly accepted by Mr Shum, it was not suggested to Sung Fai in cross-examination that the sum was a loan.  There is also no basis to suggest that the sum had been repaid.  As noted in Section B above, none of the cheques issued on 25 September 2009 has been cashed. 

50.  In conclusion, I am satisfied and find as a fact that Sung Fai had paid $558,534 towards the purchase of the Property.  Applying the law set out in Section D above, I find that a resulting trust existed in favour of Sung Fai to the extent of his contribution to the purchase price and that South Sea held the Property on a resulting trust for itself and Sung Fai in proportion to their contributions to the purchase price.  I will deal with the issue of whether the whole sum of $558,534, or just part of it, was Sung Fai’s contribution to the purchase price after dealing with issue (d), ie, whether Mr Lo is fixed with constructive knowledge of Sung Fai’s beneficial interest in the Property.

3.  Issue (d): Whether Mr Lo knew or ought to have known that Sung Fai has beneficial interests in the Property?

51.  In my judgment, for the following reasons, Mr Lo is fixed with constructive notice of Sung Fai’s beneficial interest in the Property:-

(a)  Firstly, it is not in dispute that before entering into the 06.11.2012 PSPA, Mr Lo had not inspected the Property.[6] In failing to inspect the Property before entering into the 06.11.2012 PSPA, Mr Lo has failed to make all the usual and proper inquiries.

(b)  Secondly, Mr Lo’s failure to inspect the Property is compounded by the fact that, even on his case, he knew that at least Daniel Ng’s brother-in-law (ie Sung Fai) and mother-in-law (ie Madam Lam) were occupying the Property.

(c)  Thirdly, under cross-examination, Mr Lo admitted that at the time he purchased the Property from South Sea, Daniel Ng owed him debts, that Daniel Ng agreed to sell the Property to him on favourable terms and that both he and Daniel Ng knew that the then market price of the Property was around $6.5 to $7 million.  This admission is consistent with the notes taken by Mr Lo’s then solicitor Andy Tang of a meeting held on 25 November 2013 in the chambers of Mr Lo’s then counsel, in which both Mr Lo and Daniel Ng also attended.[7] The above suggests that the Property was sold to Mr Lo at undervalue.  Mr Lo’s witness statements were completely silent on these issues.  The lack of candour in Mr Lo’s witness statements was demonstrated by his cross-examination.

(d)  Fourthly, under cross-examination, Mr Lo also admitted that the stamp duty payable on the sale transaction was paid by Daniel Ng, that normally stamp duty would be paid by the purchaser and that the actual price he had paid for the Property was $180,000 less than the purchase price of $6 million, ie, only $5,820,000.  This also suggests that the Property was sold to Mr Lo at undervalue.  Mr Lo’s witness statements were again completely silent on this issue.  Again, the lack of candour in Mr Lo’s witness statements was demonstrated by his cross-examination.

(e)  Fifthly, the 6.11.2012 PSPA was home-made and no estate agent was involved.  No satisfactory explanation has been given by Mr Lo as to why the two cheques in the total sum of $600,000 for payment of the initial deposit were not issued to South Sea, the registered owner of the Property, but was issued to Daniel Ng, who was not the registered owner of the Property. 

(f)  Sixthly, According to clause 6.1 of the PSPA, the formal sale and purchase agreement was to be signed on or before 13 November 2012, a mere seven days from the date of the PSPA.  This is unusual to say the least.  Again, no satisfactory explanation has been given as to why the sale transaction was carried out in such an unusual manner. 

52.  In his closing,[8] Mr Shum sought to distinguish Wong Chim Ying on the basis that in that case the purchaser had actual notice of the husband’s occupation but ignored to ascertain his interest.  With respect, I do not agree that Wong Chim Ying can be distinguished on this basis, because in the present case Mr Lo also had notice of Sung Fai and Madam Lam’s occupation of the Property but he failed to make the usual and proper inquiries.

53.  Mr Shum also sought to argue[9] that in the present case, South Sea as a limited company could not occupy a residential unit which must be occupied by individuals, that occupation by occupiers is not inconsistent with the interest of South Sea and that inspection of the Property is superfluous and would not reveal any conflicting interest over the Property.  With respect, I do not agree.  In my judgment, the fact that the Property was owned by a limited company does not relieve the obligation of a purchaser to make all usual and proper inquiries.  There is nothing in Wong Yim Ying or Mo Ying suggesting that a purchaser would be relieved of his obligation to make the usual and proper inquires if the property is owned by a company.  Furthermore, I think I can take judicial notice of the fact that there are many Hong Kong residential properties which are owned by a company.  There is no reason why the law should be different in a case when a residential property is owned by a company.

54.  Mr Shum also submitted that Mr Lo’s inspection of the Property was denied and that Mr Lo was deceived by Daniel Ng.[10]  Mr Shum’s submission must be based on Mr Lo’s evidence that before entering into the 06.11.2012 PSPA, he had attempted to inspect the Property with Daniel Ng but Daniel Ng told him that he had forgotten to bring the key to the front door of the Property and therefore Mr Lo could not inspect the Property and that Sung Fai and Madam Lam occupied the Property as mere licensees.  I do not find Mr Lo’s evidence convincing.  It is unconvincing that a purchaser would solely rely on the representation of a person who to his knowledge was not occupying the Property, but would not take any steps to ascertain the facts from the occupants themselves.  In my opinion, this is a lame excuse and does not justify Mr Lo’s failure to make all usual and proper inquiries including inspection of the Property.  Furthermore, with the greatest respect, Counsel’s argument is also unsound in law because as the Court of Appeal pointed out in Wong Chim Ying (at 273I per Clough JA):-

“The purchasers’ inquiry must ultimately be addressed to the person in occupation and, as Russell, L.J. observed in Hodgson v Marks at p.931 (cited above) ‘Reliance upon the untrue ipse dixit of the vendor will not suffice.”

55.  To conclude, I find that in the present case, no inquiry of Sung Fai and Madam Lam was made at all.  Mr Lo should have made such inquiry and because he did not, he took the Property subject to Sung Fai’s beneficial interest in the Property.

4.  Issue (a): What was the percentage of shares of and in the Property of which Sung Fai’s contribution represented for?

56.  Sung Fai’s case is that he has a 37.24% beneficial interest in the Property because he contributed $558,534 to the purchase price of $1.5 million, calculated as follows:-

$558,534	x 100% = 37.24%.
$1,500,000

57.  There are two questions to be considered: Is the denominator of the equation $1.5 million?  Is the numerator of the equation $558,534? 

58.  As noted in paragraph 10 above, the balance of the purchase price was financed through a mortgage taken out by South Sea with DBS.  With respect to the denominator, Mr Shum submitted that the Court is not able to ascertain the exact percentage of Sung Fai’s beneficial interest because he has failed to prove the terms of the mortgage.[11] With respect, I do not agree. 

(a)  As the High Court of Australia observed in Calverley v Green (184) 155 CLR 244, at 252 per Gibbs CJ:-

“The extent of the beneficial interest of the respective parties must be determined at the time when the property was purchased and the trust created. The fact that the mortgage debt was repaid by the appellant is therefore not relevant in determining the extent of the interests of the parties in the land ....”

At p.257, Mason J and Brennan J also said:-

“It is understandable but erroneous to regard the payment of mortgage instalments as payment of the purchase price of a home. The purchase price is what is paid in order to acquire the property; the mortgage instalments are paid to the lender from whom the money to pay some or all of the purchase price is borrowed.”

(b)  In Sivritas v Sivritas [2008] VSC 374, Kyrou J of the Supreme Court of Australia said (at paragraph 123) that “mortgage repayments do not constitute a direct contribution to the purchase price ...”  

(c)  Ultimately, Mr Shum accepted that mortgage repayments at later dates do not constitute a direct contribution to the purchase price.^[12]  As such, I do not see how the alleged failure of Sung Fai to prove the terms of the mortgage would impact on the Court’s assessment of the percentage of Sung Fai’s beneficial interest in the Property.     

59.  In the premises, I hold that the alleged failure of Sung Fai to prove the terms of the mortgage would not impact on the Court’s assessment of the percentage of his beneficial interest in the property and that the denominator of the equation should be $1.5 million.

60.  With respect to the numerator, in my judgment, it should consist of at least the following sums of money, totalling $461,560:-

(a)  Initial deposit: $50,000

(b)  Deposit: $100,000

(c)  Balance of purchase price: $300,000

(d)  Stamp duty: $11,560

61.  As to other costs and expenses, it was held in Sivritas v Sivritas (at §126) that “only costs necessarily incurred prior to and as a condition of obtaining registration of the interest which is to be held on trust should be included in the purchase price.  On this basis, stamp duty and registration fees would be included but legal fees and bank fees would not be.  Although legal fees and bank fees are normally incurred in the purchase of property, they are not always incurred, and where they are incurred, their amounts may vary significantly depending on the purchaser’s circumstances, more importantly, they may be incurred as debts that are paid after the registration of the interest which is to be held on trust...” (Underlining provided.)  On this basis, I find that the following expenses are not contribution to the purchase price and thus should be disregarded from the numerator:-

(a)  Legal cost: $6,703

(b)  Electricity deposit: $3,500

(c)  Decoration fees: $65,000

(d)  Management fees: $900

(e)  Rates: $871

(f)  Decoration fees: $20,000

62.  In the premises, I hold that Sung Fai has a 30.77% beneficial interest in the Property, calculated as follows:- 

$461,560	x 100% =30.77%
$1,500,000

63.  Lastly, Mr Shum submitted that on the basis of Sung Fai’s pleaded case, any resulting trust the court may find in his favour was personal to him.  It was further submitted that whether in Sung Fai’s or Sung Leung’s witness statements, it was stated that the said sum of $558,534 was paid by Sung Fai and Sung Leung.  Mr Shum thus submitted that Sung Fai’s percentage of entitlement to the Property, if any (which is denied), should be reduced by half.[13] In my view the submission is without merit.  As noted in paragraph 20(b) above, Daniel Ng regarded the sum of $418,263 as Sung Fai’s contribution towards the purchase of the Property.  In any event, Sung Leung was all along aware of the counterclaim of resulting trust raised by Sung Fai on the basis of Sung Fai’s contribution of $558,534 towards the purchase of the Property.  In fact, Sung Leung has filed a witness statement and given evidence in support of Sung Fai’s case.  Sung Leung must have approved and authorised Sung Fai to raise the counterclaim on such basis, irrespective of whether half of Sung Fai’s contribution came from him.  It is wholly artificial for Mr Lo to now contend that Sung Leung must be joined as a party failing which Sung Fai’s percentage of entitlement to the Property should be reduced by half.  Furthermore, Sung Fai has in any event confirmed in his evidence that he was authorised by Sung Leung to raise the counterclaim for and on his behalf and that he would hold half of the award made by the Court on trust for Sung Leung.  In my judgment, the merits of Sung Fai’s case should not be defeated on technicalities.

5.  Issue (b): Constructive trust?

64.  Having found that Sung Fai was entitled to a 30.77% beneficial interest in the Property by virtue of a resulting trust and that Mr Lo’s interest is subject to it, it is strictly speaking not necessary for me to consider the question of constructive trust.  However, since this question has been raised in the pleadings and counsel’s submissions, I shall deal it very briefly.

65.  In Ho Tak Ming v Chiu Ka Tsin & Others (unreported, 16 December 2003), HCA 3130/2001, Lam J (as he then was) said (at §77):-

“Constructive trust requires agreement, arrangement or understanding reached between the trustee and the beneficiary when the property was acquired ... The common intention to support a constructive trust need not be as specific as the certainty of words for creation of express trust ... Such common intention can be inferred from evidence of express discussion between the parties or from conducts of the parties. But, apart from the case of subsequent fresh agreement redistributing the beneficial ownership ... the relevant intention is still the intention at the time of acquisition ...” (Underlining provided.)

66.  In the present case, Sung Fai’s pleaded case of constructive trust is based solely on the 1^st and 2^nd Compromise Agreements.[14] As noted above, the 1^st and 2^nd Compromise Agreements were respectively dated 25 September 2009 and 29 November 2011, approximately five and a half years and seven and a half years respectively after the Property was purchased by South Sea.  It is not pleaded in D1’s D&C that at the time of the acquisition of the Property, there was any agreement, arrangement or understanding reached between South Sea and Sung Fai as to how the beneficial ownership in the Property was to be shared.  The 1^st and 2^nd Compromise Agreements also did not touch upon the redistribution of any beneficial ownership in the Property.  In the circumstances, I fail to see how the plea of constructive trust can assist Sung Fai.  

67.  However, as I have found that Sung Fai was entitled to              a 30.77% beneficial interest in the Property by virtue of a resulting trust and that Mr Lo’s interest is subject to it, my decision on the issue of constructive trust would not affect the outcome of this case.

F.   LIFE INTEREST?

68.  Again, as I have found that Sung Fai was entitled to a 30.77% beneficial interest in the Property by virtue of a resulting trust and that Mr Lo’s interest is subject to it, it is strictly speaking not necessary for me to deal with the issue of whether he and Madam Lam have a life interest in the Property.  However, for completeness, I shall deal with it very briefly.  

69.  On his pleaded case, the sole basis of Sung Fai’s claim for a life interest is the 1^st and 2^nd Compromise Agreements.[15]

70.  Ss 3(2) and 4 of the Land Registration Ordinance, Cap 128 (“the LRO”) provide, respectively, that:-

“All such deeds, conveyances, and other instruments in writing, and judgments, as last aforesaid, which are not registered shall, as against any subsequent bona fide purchaser or mortgagee for valuable consideration of the same parcels of ground, tenements, or premises, be absolutely null and void to all intents and purposes ...”

“No notice whatsoever, either actual or constructive, of any prior unregistered deed, conveyance, or other instrument in writing, or judgment, shall affect the priority of any such instrument as aforesaid as is duly registered.”

71.  In the present case, the 1^st and 2^nd Compromise Agreements were not registered in the Lands Registry, but the assignment dated 11 January 2013 by which South Sea assigned the Property to Mr Lo was.  The question is therefore whether the 1^st and 2^nd Compromise Agreements are absolutely null and void against Mr Lo, a subsequent purchaser for valuable consideration of the Property.   

72.  It is not contended that the 1^st and 2^nd Compromise Agreements were deeds or conveyances.  The question is whether they were “instruments in writing” within the meaning of s 3(2) of the LRO.  “Instrument” is not defined in the LRO.  It is, however, defined in s 2 of the Land Registration Regulations, Cap 128A to include any deed, conveyance, lis pendens, judgment or other instrument in writing. 

73.  A document confirming an earlier oral agreement which allowed the defendant to build a house upon the land at his own expense, and allowed his family to live there for a period of 50 years after the house had been constructed was held to be an instrument related to an interest in land and was therefore registrable: see Citibank NA v Lai Tat Cheung [1986] 2 HKLR 250.  The test appears to be whether the document “relates to an interest in land”.  As Jones J said (at 888E-G):-

“The document executed by the first and second defendants was clearly an instrument in writing which confirmed the earlier oral agreement, but with the addition of the date when the tenancy was to commence. The defendants clearly intended to rely upon this document whereby the first defendant agreed to hold the land upon trust for the second defendant for a period of 50 years. The document relates to an interest in land and in order to obtain priority over the plaintiff’s mortgage, the document required to be registered under s 2(1) of the [LRO].”

74.  In the present case, it is Sung Fai’s case that under the 1^st and 2^nd Compromise Agreements he and Madam Lam had a life interest in the Property.  In the circumstances, if it were necessary to consider the question, I am inclined to hold that the 1^st and 2^nd Compromise Agreements relate to land and are therefore registrable.

75.  The next question is whether the 1^st and 2^nd Compromise Agreements are void against Mr Lo.  Where a prior registrable instrument is not registered, it is void against a bona fide purchaser or mortgagee for valuable consideration, whose instrument has been duly registered under s3(2) of the LRO, irrespective of his notice, actual or constructive, of the first instrument: see Kwok Siu Lau v Kan Yang  Che [1913] HKLR 52; Chu Yam On v Li Tam Toi Hing [1956] HKLR 250 (PC); Ma Sum v Ma Choi Kee [1967] HKLR 177; Citibank NA v Lai Tat Cheung [1986] HKLR 885; Fast Forward Ltd v Magicsound Co Ltd [1991] HKLR 277; Keep Point Development Ltd v Chan Chi Yim [2000] 2 HKLRD 14, unless his conduct amounts to actual fraud: see Mak Him v Chan Hung Pak [1965] HKLR 87.

76.  Again, if it were necessary to consider the question, I am inclined to hold that the 1^st and 2^nd Compromise Agreements are void against Mr Lo because there is no evidence of actual fraud on his part.

77.  However, as accepted by both counsel, ss 3(1) of 4 of the LRO have no application to the 1^st defendant’s claim arising from a resulting trust which is an unwritten equity.

78.  Similar to the case of constructive trust, as I have found that Sung Fai was entitled to a 30.77% beneficial interest in the Property by virtue of a resulting trust and that Mr Lo’s interest is subject to it, my decision on the issue of life interest would not affect the outcome of this case.

G.   CONCLUSION AND ORDER 

79.  As Sung Fai was entitled to a 30.77% beneficial interest in the Property by virtue of a resulting trust and as Mr Lo’s interest is subject to it, Mr Lo’s claim for possession and mesne profits falls to be dismissed.  I grant a declaration that Sung Fai is the beneficial owner of the Property to the extent of 30.77% under a resulting trust.

80.  There is no reason why costs should not follow the event.  I therefore order the plaintiff to pay the 1^st defendant’s costs of this action to be taxed if not agreed with certificate of counsel.  The 1^st defendant’s own costs are to be taxed in accordance with the Legal Aid Regulations.

81.  Last but not least, I thank counsel for their assistance.