LEUNG CHI FONG MAGGIE v. LEUNG CHI WAI

DCMP 911/2023

[2023] HKDC 943

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 911 OF 2023

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BETWEEN

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JUDGMENT

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Introduction

1.  This is an application by way of Originating Summons dated 24 February 2023 for a declaration of right in respect of the property in question, namely Flat D, 28^th Floor, Tower 1, Ocean Court, 3 Aberdeen Praya Road, Hong Kong (“the Property”).

2.  In the Originating Summons, the plaintiff seeks a declaration that the plaintiff is one of the two beneficial owners of the Property while the other beneficial owner is the defendant; and that they are holding the Property as tenants in common in equal shares.

3.  On 4 April 2023, the defendant filed the Acknowledgment of Service and indicated that he would not contest the proceedings.

4.  I have read the Affirmation of Service, and I am satisfied that the Notice of Appointment to Hear the Originating Summons has been validly served on the defendant. The defendant is absent today (as was in the last hearing).

5.  The rateable value of the Property for 2022-2023 was assessed at HK$134,640, which falls within the jurisdiction of the District Court.

Background

6.  The plaintiff is the elder sister of the defendant. They are now at the age of 55 and 51 respectively. They have an elder brother, but he was never involved in the purchase of the Property.

7.  The plaintiff’s family, including her parents and siblings, used to live in a public housing unit at the old Wong Chuk Hang Estate, Aberdeen, which was demolished in 2003 for re-development by the government.

8.  The plaintiff lived in that public housing until about January 1996 (at the age of 29) when she was financially self-sufficient and moved out to live by herself. In fact, the plaintiff had purchased her own apartment nearby at Grandview Garden in August 1995. The elder brother also moved out as he got married and had a baby at that time. He bought another property under the Home Ownership Scheme on his own. The plaintiff said her elder brother had remained rather distant since then and seldom took part in the family affairs. Only the defendant remained living with the parents in the public housing unit.

9.  In around 1997 or 1998 when the news of re-developing the Wong Chuk Hang Estate was widely discussed in the locality, the mother (Madam Ng Woon Kam) was thinking of buying a flat, instead of relocating to another public housing unit, as she very much wanted to improve the living standard of the family as well as wanted to help the younger brother (ie the defendant herein) to buy property. The plaintiff said that her mother was always the dominant figure in the family and her father was supportive of staying in the background.

10.  At that time, however, neither the mother nor the younger brother would have the financial capability of buying a property under the Home Ownership Scheme. The younger brother was only in his late 20s without any significant savings on his own. The mother was a retired sailor, and the father was a retired captain of leisure boats. They did not have sufficient savings, or they did not want to exhaust their lifetime savings, either.

11.  In the circumstances, the mother asked the plaintiff to have a family discussion. At the instigation of the mother, the plaintiff, the mother and the defendant had reached an oral agreement, and it was the common intention amongst themselves, as follows:-

(a) The plaintiff would be the one to provide the down payment and all other associated costs and expenses (including legal fees, decorating fees and furniture etc) of the intended purchase;

(b) The mother’s contribution would be to give up the public housing unit in anticipation of buying the new property under the Scheme; and

(c) As to the balance of the purchase price, the defendant would be responsible for making the monthly repayments under a mortgage and paying all the utility charges and outgoings, and if for whatever reason the defendant would not be able to make those payments, the plaintiff would cover the same and be expected to be like a “financer” or “guarantor” in the background.

12.  At the same time, it was decided that the property to be purchased would only be registered in the joint names of the mother and the defendant, as the plaintiff had her own property at the time and was not qualified under the Scheme. It was also decided that, in terms of beneficial ownership, the defendant would be entitled to one half, and the other half would be held by the mother on behalf of the plaintiff (ie the trust arrangement).

13.  It was then on that basis the Property was purchased under the Home Ownership Scheme.

14.  According to the Land Registry record, the Property was purchased by way of a Sale and Purchase Agreement dated 19 April 1999 and an Assignment dated 10 January 2000 at a consideration of HK$1,247,100. There was also a mortgage (by way of a legal charge) granted by HSBC at completion. According to the plaintiff, the size of the Property was around 400 sq ft net and there were two bedrooms in the Property.

15.  The plaintiff said, since then, the parents and the defendant began to live there happily.

16.  In November 2009, the defendant got married and moved out to live with his wife. However, they eventually separated from each other in 2021 and the defendant moved back to live in the Property again.

17.  It was in October 2018, the mother died of illness. As the family members did not receive any legal advice at the time when the Property was purchased in 2000, the Property was registered in the names of the mother and the defendant as “joint tenants”. As such, the legal title of the Property had been vested in the defendant solely upon the death of the mother by virtue of the right of survivorship. But neither the plaintiff nor the defendant had paid any attention to that effect. The death certificate of the mother was only registered in the Land Registry as late as April 2022.

18.  After the mother had passed away, the plaintiff moved in to live there in order to look after the elderly father on a full-time basis. The father later passed away in March 2020.

19.  Most unfortunately, the defendant suffered a stroke in May 2021. He has not been able to work ever since. The plaintiff continued to live in the Property to take care of the defendant. The plaintiff later sold her own apartment at Grandview Garden at HK$5.9 million in September 2021.

20.  As for the subject Property, the plaintiff said that there was no dispute about the ownership of the Property between the defendant and herself. But they both agreed that it is high time to set the record straight, by taking out the present proceedings and seeking relief and orders as prayed in the Originating Summons.

Restrictions on alienation

21.  In a normal situation, if the defendant would not oppose the application (ie the defendant is agreeing that the plaintiff is entitled to half of the interest of the Property), the parties could simply correct the entitlement of ownership between them by way of executing conveyancing documents without coming to the court.

22.  Mr Ching, the solicitor appearing for the plaintiff, submits that, since the Property is a Home Ownership Scheme property, it is subject to the usual restrictions on alienation under the terms and conditions of the Scheme, and a declaration from the court is required before the Housing Authority would entertain the plaintiff’s request. He submits that, based on his professional experience, the Housing Authority would need to see the court’s declaration when they approve the intended assignment of transferring half of the interest of the Property.

23.  The plaintiff refers to the Terms, Covenants and Conditions in the Schedule of the Housing Ordinance, Cap 283, which was being incorporated into the Assignment of the Property, at paragraph 1:-

“1. Subject to paragraph 4 of this Schedule, the purchaser shall not at any time alienate, convey, charge or part with possession or purport to alienate, convey, charge or part with possession or enter into any agreement to alienate, convey, charge or part with possession of the land sold other than to the Authority, or such person as the Authority may nominate, unless—

(a) a period of 5 years has elapsed from the date of the first assignment of the land ……; and

(b) the purchaser has first paid to the Authority the amount of the premium calculated under the following formula ……”

24.  Mr Ching pointed out that it was the plaintiff’s case that the defendant or, more exactly, the parties did not intend to pay the premium as they had no intention to sell the Property and they only intended to live there by themselves.

25.  Mr Ching submits that, as the parties have no intention to pay the necessary premium to remove the alienation restrictions despite the expiry of the 5-year period, a declaration granted from the court, to reflect the beneficial ownership of the Property, would be one of the categories that the Housing Authority would accept as a ground for transferring the ownership before the payment of premium. Mr Ching refers to “the specified application form for transfer before payment of premium” provided by the Housing Authority and the general discretionary powers which can be exercised by the Housing Authority under s 4(2)(k) of the Housing Ordinance.

26.  I have no difficulty in accepting all Mr Ching’s submissions mentioned above. However, there was an issue raised about whether the creation of the plaintiff’s beneficial interest would be forbidden by s 17B of the Housing Ordinance.

27.  Section 17B prohibits alienation as follows:-

“17B. Void alienations, etc.

(1) Where—

(a)	(i)	land in an estate is sold under section 17A; or
	(ii)	land in respect of which the Authority is authorized to nominate purchasers is sold and the person selling the land acts without the written permission of the Authority; and
(b)	the person to whom the land is sold purports to mortgage or otherwise charge the land or to assign or otherwise alienate it; and
(c)	that person acts in breach of—
	(i)	any term or condition of the agreement for sale and purchase or any covenant in the deed of assignment relating to the land; or
	(ii)	in the case of such a mortgage or other charge, any term authorized under paragraph 4(a) of the Schedule as regards the mortgage or other charge,
	the purported mortgage, other charge, assignment or other alienation, together with any agreement so to mortgage, charge, assign or otherwise alienate, shall be void.

……”

28.  Basically, s 17B prohibited all sorts of ways in dealing with or disposing of the interest of the property under the Home Ownership Scheme without first paying the premium or having the written permission of the Housing Authority.

29.  As to the issue in question, I would respectfully refer to the decision of the Court of Final Appeal in Cheuk Shu Yin v Yip So Wan (2012) 15 HKCFAR 344, [2013] 1 HKLRD 656. It was held by the final court that the creation of an equitable interest in HOS flats under a constructive trust or resulting trust was not an alienation of the land assigned to the purchaser and thus, the creation of such beneficial interest did not come within s 17B of the Housing Ordinance.

30.  As Lord Hoffmann NPJ explained at paragraph 30 of the judgment:-

“…… For my part, I do not see how the creation of equitable interests in the flat [under a constructive trust or resulting trust] can give rise to the abuses which s.17B was intended to prevent. What can the owner of an equitable interest do to enforce his rights? In the ordinary way and apart from statutory restrictions, a person for whom property is held on trust absolutely can terminate the trust and require the trustee to convey him the legal estate. In the case of a HOS flat, however, this remedy is not open to him. An assignment of the legal estate would be unlawful under s.17B. If the equitable owner has only a part beneficial interest, the normal remedy is for him to obtain an order that the property be sold and the proceeds distributed. But he cannot have the flat sold, because this would also be unlawful under s.17B. Nor can he require that the property be let to provide him with an income, because the statutory terms and conditions in Schedule 4 of the Ordinance contain a covenant against parting with possession. Until the expiration of the restriction period, all the equitable owner’s normal means of realizing the value of his interest are barred. So there is nothing which he can do which would interfere with the occupation of the flat by the eligible purchasers to whom it was sold.” (Emphasis added)

31.  At paragraph 36, His Lordship continued:-

“…… The reason why the creation of a beneficial interest does not come within s.17B is not because the trust arises by operation of law rather than by an intentional act but because the creation of an equitable interest is not in my opinion an alienation of the land assigned to the purchaser. It is the creation of a new interest in that land. It would in my opinion be very strange if the parties could create a constructive trust by their common intention but were required at all costs to avoid reducing this to an express declaration in writing.” (Emphasis added)

32.  Accordingly, I do not find that the creation of the plaintiff’s equitable interest in the Property would be an “alienation” forbidden by s 17B of the Housing Ordinance.

Common intention constructive trust of land

33.  Mr Ching submits that the plaintiff’s case is based on common intention constructive trust, not resulting trust. He submits that, therefore, the agreement made amongst the parties was of the utmost importance for the court’s determination. I agree. (This court is not concerned with the other elements of constructive trust, ie reliance and detriments, as they were taken as proved when the defendant does not contest the proceedings).

34.  It is trite that a constructive trust may arise when a property is purchased as a joint home but where the registered legal title does not reflect the beneficial shares which the proprietors intended for themselves. In such case, a constructive trust may arise which binds the legal estate and gives effect to the parties’ common intentions as to their beneficial shares in the property (Snell’s Equity, 34^th ed (2020), at para 24-041).

35.  However, this court would not hastily grant a declaration merely based on a self-serving affirmation, whether or not the application had been opposed by the defendant. This is the case which I consider necessary to hear oral evidence. Therefore, during the last adjourned hearing, I ordered the plaintiff to attend the court for an oral examination under Order 28 rule 4 of the Rules of the District Court.

36.  It might also be helpful if the plaintiff could bring along all the relevant documents (if available) to support her assertion. For instance, the payment records, which the plaintiff claimed, for the down payment of the Property.

Oral evidence

37.  At today’s hearing, the plaintiff gave oral evidence in court explaining why the rectification of beneficial interest was not done before or immediately after her mother passed away in 2018. I am satisfied that it did not occur to her that she needed to take any immediate action as there was no dispute as to the ownership of the Property with the defendant.

38.  The plaintiff further explained that she discovered that the defendant had charged the Property for a loan from a finance company in 2020 which he was unable to repay. The plaintiff had to make a lump sum payment of HK$700,000 to bail the defendant out and clear the Charging Order Absolute entered against the Property in 2021. This aroused her attention that it might be necessary for her to rectify the record and have her ownership of the Property to be properly reflected in the Land Registry.

39.  The plaintiff has gone through quite a number of supporting documents with the court (see pages 96 to 145 of the Hearing Bundle). Those include the payment she made for the nomination fee (ie down payment), the legal fees paid at the completion of the transaction, the invoices and vouchers she paid for the decoration and furniture for the new Property, and the bank voucher receipts that the plaintiff paid for some of the monthly instalments of the mortgage when the defendant was unable to pay. I find that those documents do support the existence of the said agreement.

40.  More significantly, I note that those invoices and vouchers for decoration and furniture were either marked with “MAG Cheque No” (which stands for paid by Maggie’s Cheque No) or “公數” or “(公數) Total÷ 2” (Shared expenses). The plaintiff has shown to the court that all those invoices and vouchers were actually paid by her. I accept her evidence. In my finding, the marking of “公數” must have meant the amount to be shared between the defendant and the plaintiff, and it indicated that the Property was not 100% owned by the defendant. It would be very unlikely that in a Chinese family, the children would mark the invoices as “公數” charging against the parents. I find those payments and the markings well supported her assertion that she was in fact half of the beneficial owners of the Property.

41.  Having said that, the plaintiff also mentioned that part of the reasons for bringing this application was due to her worries that the defendant may have a divorce with his wife, perhaps implying that her beneficial interest in the Property would be at stake if not taken action. It did cross my mind whether the plaintiff’s application was for a genuine need or was it for an ulterior purpose in assisting the defendant to stifle any third party’s claim against the Property. Having considered all the evidence before the court, I am satisfied that if the plaintiff were entitled to half of the beneficial interest of the Property, it is permissible for her to seek a declaration from the court regardless of the potential risk of any divorce proceedings of the defendant. All in all, I do not hold this evidence against the plaintiff.

42.  I find the plaintiff as a credible witness and I accept her evidence entirely. I am prepared to grant her the declaration and the orders she sought.

43.  However, there is one more outstanding matter.

The existing Legal Charge

44.  I have noticed from the land search record that the HSBC Legal Charge dated 10 January 2000 was still subsisting. Obviously, the defendant has not paid off the mortgage of the Property yet. Therefore, it is my view that the legal chargee (HSBC) is an interested party and it should have been joined for the current proceedings.

45.  Mr Ching explains that it was the plaintiff’s evidence that she is now the only one who is responsible for making the mortgage repayments as her brother (the defendant) has suffered from a stroke and cannot work in the foreseeable future. He says that the mortgage has almost reached the end of its term and it is the plaintiff’s plan to pay off the mortgage soon. He also submits that, as the declaration would only bind the plaintiff and the defendant, it would not affect the interest of the bank, which would be adequately protected by the Land Registry’s registration system. Mr Ching submits that the chance of leading to a round of litigation with the bank would be very low.

46.  I am afraid to say that, although I have every sympathy for the plaintiff and the defendant, the legal parameters are strict. I would have to grant the declaration subject to the mortgagee's interest, as I consider that it would not be right to grant a declaration that would affect a third party’s (the bank’s) interest without bringing that third party to have his day in court.

47.  Having said so, I would also give the plaintiff ‘liberty to apply’. If the mortgage is to be paid off in the near future (as the plaintiff intends to do so) and the plaintiff should then consider that it will be necessary to remove the “subject to mortgagee’s interest” clause, she may come back to the court again, if it is really necessary.

48.  To conclude, I am satisfied that the plaintiff has a genuine need for declaratory relief in the present case. I am satisfied that the plaintiff is entitled to half of the interest of the Property and that interest had been held by her late mother (Madam Ng Woon Kam) under a common intention constructive trust from 10 January 2000 to 16 October 2018 when she passed away and thereafter by the defendant since 16 October 2018. I would also declare that the plaintiff and the defendant hold the Property as tenants in common (instead of joint tenants), to which I consider that the parties are entitled to have a severance in any event (Conveyancing and Property Ordinance, Cap 219, s 8).

Disposition

49.  I order in terms of the Originating Summons, as amended by me, that:-

(1) A Declaration that:-

(a) subject to and without prejudice to the right and interest of HSBC pursuant to the Legal Charge dated 10 January 2000 (Memorial No UB7976623), the plaintiff is one of the two beneficial owners of the Property, together with the defendant being the other beneficial owner thereof, holding the Property as tenants in common in equal shares; and

(b) the defendant has been holding one moiety of all the right, title, interest and estate of and in the Property now registered under his name in the Land Registry on trust for the Plaintiff since 16 October 2018;

(2) An Order that, subject to the necessary prior approval or authorization of the Housing Authority having been obtained, the defendant shall, within 30 days of his receipt of the written request of the plaintiff and at the costs and expenses of the plaintiff, forthwith assign and transfer one moiety of all the right, title, interest and estate of and in the Property now registered under his sole name in the Land Registry to the plaintiff without any consideration or payment from the plaintiff;

(3) Liberty to apply; and

(4) There be no order as to costs of these proceedings.