LIU KAM TAI v. LAU LAI PING AND ANOTHER

HCMP 267/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 267OF 2013

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J U D G M E N T

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Introduction

1.  The plaintiff in this case applied for an order for sale of a property (“Property”) by public auction under section 6 of the Partition Ordinance Cap 357 (“Ordinance”), under Order 14 rule 1 and Order 31 rule 1 of the Rules of High Court (“RHC”), and for 90% of the net sale proceedings be paid out to her.

2.  The Property consists of a 3 story building (“House”) and 3 pieces of land (“Land”) in Shap Pat Heung in Yuen Long.  The  House was purchased on 3 December 2012 at  a consideration of HK$6,450,000, and the registered owners were the plaintiff (“P”) and the 1^st defendant (“D1”) as tenants in common, with P holding 9/10 share and D1 holding the balance of  1/10.

3.  The Land was purchased on the same day for a total consideration of HK$30,000 and was registered in the sole name of P.

4.  This action was commenced by the plaintiff (“P”) on 6 February2013 by way of an originating summons against the1^st defendant (“D1”) only, seeking a declaration, among other things, that D1 held the 1/10 interest in the House in trust for P.  P then issued a summons on 3 May 2013, under Order 28 rule 4 of RHC, and among other things, applied for judgment and a declaration as sought in her originating summons (“1^st Summons”).

5.  In P’s affirmation filed on the same day as her originating summons (“P’s 1^st Affirmation”), she made a number of allegations including fraud and unconscionable conduct against D1 and a Mr Chan, which was denied by D1.  This court was of the view that Mr Chan should be joined as a defendant, and on this basis, dismissed P’s 1^st Summonson 7 May 2013, but gave leave for P to join Mr Chan as 2^nd defendant (“D2”). Subsequently, on application by the defendants, on 19 May 2013, this court directed that the action to continue as if begun by writ and P to file a statement of claim and other consequential directions.

6.  P duly filed her statement of claim on 4 July 2013 (“Statement of Claim”), and on 12 August 2013,  issued her present summons (“2^nd Summons”), which as mentioned earlier, was for an order for sale of the Property and for 90% of the net sale proceeds be paid out to her.

7.  At the time of P’s issue of the 2^nd Summons, the defendants had not yet filed their defence.  On 27 August 2013,the defendants filed their joint defence and counterclaim (“Defence”).

8.  Initially, Counsel for D1 and D2, Ms Siu, raised an objection to the 2^nd Summons on it being neither necessary nor expedient for the court to direct a sale of land under Order 31 rule 1 of RHC. At the return date on 28 August 2013 (“Hearing”), Ms Siu, however, indicated that the defendants would not oppose an order for sale of the Property, subject to the reserved price and the manner of sale being agreed, and the only dispute at the Hearing was on the amount of the net sale proceeds which should be paid to P and/or into court.   The defendants proposed that 50% be paid to P, 5% to D1, and 45% be paid to D2, or alternatively all the net sale proceeds be paid into court pending the determination of the ownership dispute.

9.  The Hearing was only fixed for 30 minutes for directions, but P’s Counsel Mr Lam did not want any further adjournment and elected to present his substantive submissions then and there. In any event, Ms Siu did not seek any adjournment for the defendants to file any further evidence.  All she sought in her Skeleton Submissions was a dismissal of the 2^nd Summons, but during the Hearing, as mentioned above, she then indicated that the defendants agreed to a sale.

10.  Subsequent to the Hearing, the parties were able to agree to the reserved price and manner of sale of the Property, and an order for sale of the Property by public auction with a reserved price of HK$6,710,000 was made by consent on 26 August 2013 with consequential directions (“Sale Order”).  The parties agreed to 50% of the net sale proceeds to be distributed to the plaintiff and the balance of 50% be paid into court pending this judgment or the final disposition of the action.

Background

11.  P and D2 started a relationship in May 2011.  P said the relationship lasted until August 2012, but D2 said it was only in December 2012 that their relationship broke down irrevocably.   At all material times, D2 was/is working for AIA Insurance Company (“AIA”) as a district manager.

12.  In August 2011, P and D2 were planning to get married and they started to look for a residential property to be their matrimonial home, and P said she had complete trust and confidence in D2.

13.  They found the Property in mid August 2011.

14.  According to P, D2 represented to her that –

(i)   P was not financially strong enough to borrow a mortgage loan as P did not have a regular job at that time;

(ii)   D2 was not financially strong either, as he was substantially in debts;

(iii)   D1, who was D2’s colleague at AIA, held a regular job and was a good nominal tenant- in- common, for the purpose of applying for a mortgage loan (“1^st Representation”).

15.  P said relying on D2’s 1^st Representation, she agreed to D1 being a nominee tenant-in-common holding 1/10 interest for P,  P and D1 then entered into an agreement on 14 September 2012to purchase the House.  P paid a total sum of HK$1,296,000 as deposit for the House.  The completion date was initially scheduled to be 6 November 2012.

16.  According to P, the then plan was to borrow a loan from a finance company Prime Credit Limited.  She was subsequently told by D2 in early November 2012 that Prime Credit found out that D1 had a debt of HK$320,000 and was therefore not eligible for any mortgage loan and that P should lend D1 the sum of HK$320,000 to discharge D1’s debt first.  Eventually, according to P, upon D2’s representation and request, P lent D1 HK$330,000 in order to help D1 clear her then debt so that the application for the mortgage loan could be approved (“2^nd Representation”).

17.  Then, on about 15 November 2012, P, D1 and D2 signed a tripartite agreement/letter of undertaking, which was drafted by D2 (“Undertaking Letter”).  The effect of the Undertaking Letter will be set out later in this judgment.

18.  Also, on about 15 November 2012, D2 also personally wrote and signed a letter to P, stating that, among other things, if D2 could not comply with his undertakings in the Undertaking Letter in time, as P could lose everything, a sum of HK $ 4,730,000 would be regarded as D2’s personal loan to P, such sum was to include P’s payments for the Property and all loans to D2(“Handwritten Letter”).

19.  Eventually, on the final completion date, 3 December 2012,   a tripartite Legal Charge/Mortgage (“Charge”) was entered into between  P and D1 with a finance company Easy Fortune Property Limited (“Easy Fortune”)for ‘all moneys’, charged against the Property.  A loan of HK$4,500,000 was obtained under the Charge for one year, which had torepaid to Easy Fortune on or before 3 December 2013.

20.  It was P’s case that D1 failed to honour her post dated cheque to repay P HK$330,000.  Further, D2 failed to pay for the mortgage repayments to Easy Fortune pursuant to the terms of the Undertaking Letter, and thus D2 was liable to pay P HK$4,730,000 under the Handwritten Letter, which he had also failed to pay.

21.  P further claimed that she had been defrauded by D1 and D2 and in this respect, she had made a report to the Yuen Long Police on about 17 January 2013.

22.  In P’s statement of claim, she claimed, among other things[1]:

(i)   Liquidated sum of HK$330,000 against D1;

(ii)   Liquidated sum of HK$4,730,000 against D2;

(iii)   A declaration that P was the sole beneficial owner of the Property;

(iv)   An order of sale of the House under s 6 of the Partition Ordinance  with consequential directions;

(v)   All sale proceeds  to be paid to P;

(vi)   Costs

23.  P had filed a total of 3 affirmations in these proceedings.  As mentioned earlier, P’s 1^st Affirmation was in support her originating summons.  Her 2^nd and 3^rd affirmations were in support of her 2^nd Summons.  D1 had also filed 3 affirmations, but all in response to P’s 1^st Affirmation, and none in opposition to the 2^nd Summons.  D2 had not filed any affirmations at all throughout the proceedings.

24.  In D1’s 1^st affirmation, filed on 3 May 2013, she said she had repaid the sum of HK$330,000 by instalments to D2, and that she could provide banks statements as records of part or all of those transactions.  D1’s explanation as to why she repaid to D2 instead of P was because P and D2 were going to get married, and as D1 would see D2 at work every day, it would be more convenient for D1 to pay D2.  D1 later then said subsequently when P found out that D1 had repaid D2 instead of her, she became angry at D1.

25.  D1 accepted that she had not made any payments towards the Property, but said it was D2’s responsibility under the Undertaking Letter to fund renovation and refurbishment of the Property, and to make all mortgage repayments.  According to D1, D2 had told D1 he was running out of money. D1 said she borrowed funds and lent him HK$350,000. Further, upon completion of the renovation of the Property around January 2013, D2 had managed to find a prospective tenant for the Property at a rental of HK$24,000 per month, and this would greatly relieve D2’s burden of making the mortgage repayments, but P refused to rent out the Property.

26.  D1 had also claimed said in her 1^st affirmation that on 15 January 2013, the 3 of them had a meeting and P brought along a potential purchaser for the Property.  The meeting ended in hostility.

27.  In the Defence, it was pleaded that the defendants and P agreed and they were all aware that the Property was purchased by D2 and P as their matrimonial home, and that it was intended that D2 and P should have 50% beneficial interest each[2].   It was pleaded that it was agreed and understood by the three of them that (i) D1 was holding the 10% interest on behalf of D2 as at 14 September 2012, and that (ii) P was holding 40% out of her 90% interest on behalf of D2 as at 14 September 2012[3].

28.  It was further pleaded in the Defence that on 28 January 2013, D2 decided to assign 5% of his beneficial interest in the Property to D1[4].  Anyway, the defendants said that P was not entitled to any of the claims in her Statement of Claim, and the defendants counterclaimed against P for, among other things:

(i)   Declaration that D1 was the beneficial owner of 5% interest in the Property;

(ii)   Declaration that D2 was the beneficial owner of 45% interest in the Property;

(iii)   Pro rata rental income of the Property from 17 May 2013;

(iv)   Damages to be assessed.

Discussion

29.  P’s Counsel Mr Lam based his submissions on mainly three points, namely (i) there were no particulars to the above claims in the Defence, and that to oppose the 2^nd Summons,  D1 and D2 had to descend upon particulars; (ii) Any disposal of beneficial interest had to be in writing and Mr Lam referred this court to section 5 of the Conveyancing and Property Ordinance, which states that “Subject to section 6, no equitable interest in land can be created or disposed of except by writing, signed by the parties creating or disposing of the same” and none was produced by D2; and (iii) No matter what the defendants alleged to have been agreed on 14 September 2012, this was superseded by the Undertaking Letter.

30.  What is clear from the Defence is that the defendants did not deny that they and P signed the Undertaking Letter which was dated 15 November 2012.  Thus,as submitted by Mr Lam and which I accept, whatever agreement P and the defendants had on 14 September 2012 would have been superseded by the Undertaking Letter, unless there was evidence to the contrary and there was none so far.

31.  The Undertaking Letter was signed by all three parties.  It was in Chinese.  It set out the parties’ full names in English and Chinese, identity card numbers,  addresses and telephone numbers, and the subject matter was the particulars of the Property, namely the House and the Land,  and the Undertaking Letter went on to state, among other things:-

(i)   With reference to the sale and purchase agreement signed by P and D1 on 14 September 2012, the ownership was to be held  90% by P and 10% by D1;

(ii)   As P was concerned over her income problem, D1 agreed to join in as one of the borrowers, in order to apply for a mortgage loan from bank, and D1 had no interest in the Property and had not invested any sums in the Property;

(iii)   As D1 had financial problems (personal debts), which resulted in the bank failing to approve the mortgage loan, P would personally lend HK$330,000 to repay on behalf of D1 her personal debts, in order to complete the purchase of the Property;

(iv)   D1 undertook to repay to P the sum of HK$330,000 within 3 weeks (ie before 14 December 2012) and at the same time enclosed a personal cash cheque pursuant thereto;

(v)   Upon completion of the purchase of the Property, all mortgage loan repayments were to be paid by D2, and this had nothing to do with P and D1.  No matter whether the Property could be sold or not, any profits would have nothing to do with P and D1.  Similarly, prior to the sale of the Property,  any losses also had nothing to do with P or D1, and would be solely borne by D2;

(vi)   P and D1 undertook  that the sale price  or the  rental rights  within 3 years could only be controlled by D2, and P and D1 would authorise D2 to rent out the Property on their behalf, and all rental income would belong to D2 (P and D1 would execute another letter of authrozation in favour of D2 for this purpose);

(vii)   Upon sale of the Property, irrespective of the sale price,  D2 undertook to repay HK$4,380,000 to P, being the price of P’s former property, plus monthly interest of HK$8,000  to be calculated from date of  completion of sale (maximum of 3 years), the total principal and interest be capped at  HK$4,668,000;

(viii)      D2 undertook to purchase an insurance policy in the sum of  HK$1,600,000 with P as beneficiary, as security for P in case of D2’s death within 3 years;

(ix)   P undertook if she were to die within 3 years, D2 would be the beneficiary of the Property, and D2 also undertook to pay the sum of HK$4,380,000 to P’s two children as beneficiaries in equal shares;

(x)   If  D1 were to die within 3 years before sale of the Property, P would be the holder of  100 % ;

(xi)   P, D1 and D2 clearly understood that the beneficial owner of the Property was D2, and P and D1 would not breach the agreement in the Undertaking Letter and if any one was in breach, he or she should bear all legal responsibility.

32.  Further, in the Defence, D2 did not deny signing the Handwritten Letter, except that D2 claimed he was at P’s home on 15 November 2012 and that P woke him up from sleep and told him that she felt insecure and to sooth P, D2 wrote the Handwritten Letter.

33.  Ms Siu submitted that when the parties signed the Undertaking Letter, their intention was that D2 was 100% owner of the beneficial interest of the Property, as stated in the last paragraph of the Undertaking Letter. 

34.  P had said she trusted D2 and it was D2 who drafted the Undertaking Letter.  Although there seemed to be inconsistencies in the Undertaking Letter as to beneficial ownership, however, if one reads the Undertaking Letter as a whole, even though D2 seemed to have ‘control’ of the sale price or rental, any renting out was stated to be on behalf of P and D1, and P and D1 would separately sign a letter of authorization and there was no evidence that this was ever signed.  Further, P agreed that the beneficiary of the Property would be D2 if she were to die within 3 years. These provisions did not seem to support D2 being in fact the sole beneficial owner of the Property at the time.

35.  In any event, as seen from paragraph 14 of the Defence,at the time when D1 signed the sale and purchase agreement, all she said was that she held her 10% for D2.  It was not pleaded in the Defence that D1 had understood that D2 was the 100% beneficial owner of the Property, nor was it ever D1’s case that D2 was the 100% beneficial owner of the Property.

36.  Moreover, as seen from paragraph 46 of the Defence, it was not even D2’s own case that he was 100% beneficial owner of the Property.  D2’s case was that the intention was that D2 and P was to each hold 50%, and he therefore held 50% beneficial interest.  He thus claimed only 50% beneficial interest in the Property.

37.  As pointed out by Mr Lam, there was nothing in writing, nor any details provided by D2 in relation to how he actually came to acquire his 50% beneficial interest in the Property.  A mere intention would not be sufficient to create any beneficial interest.

38.  There was also nothing in writing, nor any evidence from D1 herself to support D2’s alleged decision to assign 5% of his beneficial interest in the Property to D1.   All D1 had said in her 1^st affirmation was that she believed that she and D1 were entitled to “some interest, but in any event totaling 10% of the pool of undivided shares” [5].  There was no mention in D1’s 1^st affirmation, which was filed in May 2013 that she was assigned 5% beneficial interest by D2, nor was there any evidence that she was even aware of the fact that D1 had assigned her 5% on 28 January 2013. What D1 had in fact said was she and D2 had a total of 10% interest.

39.  D1 admitted in her 1^st affirmation that she had not made any payment towards the Property[6].  She had said she repaid the HK$330,000 loan from P to her to D2 by instalments[7], and further that she lent about HK$350,000 to D2 for him to renovate the Property[8].  She said she would reserve the right to produce documentary evidence, and yet nothing had been was produced by her up until the Hearing.  All these transactions took place less than a year ago, and she had had plenty of time to produce her supporting evidence.  In the Defence, the defendants pleaded that the said HK$330,000 was advanced to D1 by P and D2.   P had, however,  produced her bank passbook to show that the HK$330,000 were withdrawn from her bank account on 15 and 16 November 2012.  There was no evidence from D2 at all at this stage as to how any part of that sum came from him, and no evidence as to why he should keep all the alleged repayments from D1.

40.  So far as this court can see , there was no evidence at this stage of D1 having made any payments towards the Property, and even if she did make loans to D2 for renovation expenses, these would only be loans to D2 and would be recoverable as such.  These were not payments made by D1 to the Property.

41.  The defendants in the Defence had counterclaimed “pro rata income”, but any such income would have to be offset by the mortgage repayments.  Further, it seemed to be the defendants’ case that P had breached the terms of the Undertaking Letter in insisting on a sale and refusing to rent out the Property. The relevant term in the Undertaking Letter in Chinese was that   “廖金娣，劉麗萍雙方承諾一切出售之價值或3年內之租賃權只可由陳永耀全權控制，而廖金娣，劉麗萍亦會授權陳永耀可代為出租，同時所收取之租金全部歸回陳永耀擁有（廖金娣，劉麗萍另外可以確立一份量授權書给陳永耀）” (emphasis added).

42.  It appears from the above that there was an option that the Property could be either sold or rented out , and that D2 was to have full control of the renting within 3 years only in the event it was to be rented out.  There were no particulars set out by the defendants in the Defence as to what damage they had suffered, since neither of them had paid anything towardsthe mortgage repayments. There was also no explanation at this stage from the defendants as to why they would insist on renting out the Property as opposed to P selling, when the D1’s evidence was that the defendants understood P decided to sell in January 2013 as the value of the Property had almost doubled[9].

43.  P1 had produced copies of her bank passbook to show the 3 payments she made towards the purchase price of the Property up untilthe time of completion, and the balance was paid from the HK$4.5m loan under the Charge.

44.  When the 1^st mortgage instalment fell due on about 11 January 2013, P’s evidence was  that  D2 failed to pay as promised in the Undertaking Letter, and she had to borrow money  to meet the mortgage repayments.  Further, on 17 January 2013, when P tried to deposit the post dated cheque given to her by D1, she found out that D1’s bank account was cancelled, and the cheque could not be honoured.   All of this led P into reporting the matter to the Yuen Long Police alleging D1 and D2 of conspiracy to defraud.

45.  P said that on 21 January 2013, she had borrowed from a company called Wing Sun Group Holdings Limited to pay the mortgage instalments, and she had produced copies of the relevant cheques from Wing Sun.  Up until 2 May 2013, she had borrowed a total of HK$402,000.  Eventually, on 17 May 2013, P entered into a tenancy agreement for rent of HK$23,000 per month for 3 years, which helped towards her mortgage repayments.

46.  There was no sufficient evidence from D1 or D2 to contradict what P had said, namely that D1 or D2 had not paid any sums at all towards the Property.  So far, there was also no supporting evidence produced by D2 at all as to any alleged renovation expenses paid by him.  Even D1 had said D2 was running out of money and that she had to borrow HK$350,000 in order to lend D2 money for renovation[10]. 

47.  The purchase price of the House was HK$6,450,000.  There were also stamp duty and other expenses paid by P, and of course interest on the mortgage loan.  It thus seems from the evidence that even if there had been renovation expenses of HK$350,000 paid by D2, this did not seem to have to come to more than 10%  of the total expenses incurred for the Property so far.

48.  It is for the defendants to show that there is a triable issue or an arguable defence to P’s claim that she should be paid 90% of the net sale proceeds under the Sale Order.  In light of all the above circumstances, I am of the view that so far the defendants had not discharged their burden.

Conclusion

49.  I therefore direct that under paragraph 4(4) of the Schedule of the Order dated 26 September 2013, a further 40% be released to P, making a total of 90% being released to P under paragraphs 4(3) and 4(4) of the Schedule in the Sale Order.

50.  Costs of this application be to P’s, to be summarily assessed.  P to submit her statement of costs within 14 days, and the defendants to file their opposition within 14 days thereafter.