ROSE PALACE LTD v. JUNG CHRISTOPHER LAM AND ANOTHER

HCMP 1976/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1976 OF 2012

____________

____________

BETWEEN

____________

___________________

J U D G M E N T

____________________

1.  This is a vendor and purchaser summons. The plaintiff is the vendor and the defendants are the purchasers. The parties take part in these proceedings with an agreement that each party would bear its own costs. They have also postponed the completion date under the sale and purchase agreement to 10 days after the judgment to be given in these proceedings.

2.  The parties entered into a formal sale and purchase agreement dated 3 July 2012 in respect of the flat in question.  It is a flat in Yu Fung Building in Happy Valley.  Completion was originally fixed on 23 August 2012 which has now been postponed as aforesaid.

The requisition

3.  There was a sale and purchase agreement dated 12 September 1988 whereby Messrs Wu Lap Kung and Chui Kai Chuen agreed to purchase the property as tenants in common in equal shares for HK$925,000.  They had together paid 10% of the purchase price as deposit and part payment to the vendor.

4.  Wu and Chui on 12 October 1988 executed a memorandum of direction directing that the flat be assigned to Chui solely.  The memorandum stated:

“MEMORANDUM OF DIRECTION

WE, CHUI KAI CHUEN (徐繼存) and WU LAP KUNG (鄔立功) … as Tenants in Common in equal shares Do hereby direct that the property, … agreed to be purchased by us under an Agreement for Sale and Purchase dated 12th day of September 1988 in respect of the above property be assigned to the said CHUI KAI CHUEN solely.”

The signing of the memorandum by Wu & Chui was witnessed by Mr Ong Tong Sing Lawrence, a solicitor.  The interpretation of the memorandum was by Mr Tong’s clerk, Mr Lau Kwok Kwong.

5.  The flat was however not assigned to Chui because Chui had on 18 October 1988 entered into a sub-sale agreement with one Senior Field Limited at HK$1,330,000.  The flat was then assigned on 30 December 1988 directly by the vendor to Senior Field Limited with Chui acting as the confirmor.  Wu did not join in the assignment.

6.  The plaintiff herein acquired the flat in August 1993 from subsequent purchasers.  It then entered into a sale and purchase agreement with one Moral Kind Limited agreeing to sell it to Moral Kind.  Moral Kind then raised the requisition that Wu had not divested of his interest in the flat by his signing of the memorandum of direction and his payment of half of the deposit had given rise to a presumption of a resulting trust over the flat in his favour.  The matter was later dealt with by a vendor and purchase summons in HCMP 742 of 2008.  Mayo J in his judgment dated 12 December 2008 declared that Moral Kind was right as the plaintiff herein had failed to provide any sufficient and satisfactory conveyancing proof that Wu retained no beneficial interest in the flat. 

7.  The Limitation Ordinance was also raised as an answer to the requisition.  But it was only raised at the hearing and not in the correspondence between the parties when the requisition was considered. Mayo J therefore did not find it necessary to consider this issue as it had not been tendered as an answer to the requisition when it was raised. 

8.  After the plaintiff has entered into the sale and purchase agreement with the defendants herein on 3 July 2012, the defendants raised the same requisition on the plaintiff’s title to the flat.  The plaintiff under the agreement is obliged to show and covey a good title to the flat to the defendants. 

The answer of rebuttal of the presumption

9.  The plaintiff in these proceedings accepts that the nomination in the form of the memorandum of direction did not put an end to the presumption of resulting trust in favour of Wu by virtue of his payment of half of the deposit to his vendor.  The plaintiff sought to answer this requisition by relying on two statutory declarations by the solicitor, Mr Ong Tong Sing Lawrence.  It also relied on the Limitation Ordinance by way of further answer.  I deal with the answer by the two declarations first.  Mr Ong declared in his 1st declaration dated 25 March 2009 that:

“3. I remember that in early October 1988, the Purchasers Chui Kai Chuen and Wu Lap Kung instructed our Firm to engross a document to transfer the interest of Chu Kai Chuen and Wu Lap Kung in the Property to Chui Kai Chuen solely. Accordingly, I instructed our clerk Lau Kwok Kwong to engross a Memorandum of Direction for their execution on 12^th October 1988. It is and has always been our firm’s practice when interpreting a Memorandum of Direction the responsible clerk will explain to the nominator that his/her interest in the property shall cease upon execution. In this particular case our clerk Lau Kwok Kwong should have told Chui Kai Chuen and Wu Lap Kung that Wu’s interest in the property would pass to Chui Kai Chuen solely and he would have no interest in the property upon execution of the Memorandum of Direction. Wu Lap Kung should have confirmed to me that he knew the legal effect and agreed with it before he signed the document. Subsequently, Wu Lap Kung and Chui Kai Chuen signed the Memorandum of Direction before me on 12^th October 1988. The Memorandum of Direction was later registered in the Land Registry by memorial …”

10.  Mr Ong further declared in his 2nd declaration dated 5 September 2012 that:

“5. … wish to solemnly and truly state as follows:

(a) The reason why I stated in the said statutory declaration that (i) Lau Kwok Kwong should have told Chui Kai Chuen and Wu Lap Kung that Wu’s interest in the property would pass to Chui Kai Chuen solely and so on and (ii) Wu Lap Kung should have confirmed to me and so on is that Lau Kwok Kwong had left our firm’s employ in around early 1990s and we do not know his present whereabouts.

(b) I recall that at the material time, i.e. October 1988, which predates Law Society Circular No. 132 of 1990, there was no uniform, standard practice among solicitors that the specimen nomination recommended by the Law Society be used whenever a nomination was involved. That was why in cases involving a nomination at the material time, our firm would not use the said specimen nomination.

(c) Notwithstanding this, our firm was well aware of the need, in cases where a nomination was involved, for the nominator to indicate that he/she has relinquished his interest in the property concerned. That was why our firm had this invariable practice that when interpreting a Memorandum of Direction the responsible clerk would explain to the nominator that his/her interest in the property shall cease upon execution. As to this day, our firm still adopts the said practice in addition to asking the nominator to sign a nomination along the lines of the said specimen nomination.

(d)      Based on the above, I have no reason to believe that in the case of the said Memorandum of Direction executed by Chui Kai Chuen and Wu Lap King in October 1988, the said invariable practice of our firm was not followed by Lau Kwok Kong.”

11.  Mr Yim, counsel for the plaintiff vendor, submitted that the two statutory declarations of Mr Ong are admissible as similar facts evidence to rebut the presumption of resulting trust in favour of Wu.  Mr Yim wants to use the two declarations to show that Wu had in fact agreed to divest all his interest in the flat in favour of Chui and hence no resulting trust had arisen.

12.  Mr Yim submitted that though Mr Ong’s 2nd declaration may not be the best evidence as it was not made by the clerk Mr Lau Kwok Kong, it was still proper conveyancing evidence that satisfied the requisition.

13.  Mr Yim also relied on Yeung Kit Lam v Lau Yiu Shing, HCMP 3392/1994, a decision of Finley J given on 19 January 1995.  In that case, there was a memorandum by two purchasers directing the property to be assigned to one of them and also a 3rd person.  The terms of the memorandum are similar to the one in this case and the nominator also did not expressly relinquish his interest in the property.  There was a statutory declaration by the Senior Conveyancing Clerk who witnessed the signatures of the purchasers in the nomination.  He said:

“I remember that in the end of February 1982, the Purchasers Leung Wing Yu and Lau Fung Sin instructed our Firm to engross a document to transfer the interest of Leung Wing Yu in [the property] to Cheng Pui Mei Sephina. Accordingly I engrossed a Nomination Agreement for his execution on 2 March 1983. It is and has always been my practice that when interpreting a Nomination Agreement I will explain to the nominator that his/her interest in the property shall cease upon execution. In this particular instance, I told Leung Wing Yu that his interest would pass to Cheng Pui Mei Sephina and he would have no interest in [the property] upon execution of the Nomination Agreement. He confirmed he knew the legal effect and agreed with it. Subsequently he signed the Nomination Agreement dated 2nd March 1983 which was later registered in the Land Registry by Memorial.”

14.  Mr Yim further submitted that any resulting trust in favour of Wu would involve no more than 1/20^th equal undivided share of the flat.  The fact that Mr Wu’s inaction for over 24 years since the making of the memorandum dated 12 October 1988 would rebut the presumption of resulting trust from his payment of half of the deposit.

15.  Mr Chan and Miss Li, counsel for the defendants attacked the declarations and submitted that they cannot afford an inference to be drawn beyond reasonable doubt that the defendants would not be at the risk of a successful assertion against them by Wu by virtue of a resulting trust presumed to have arisen from Wu’s payment of half of the deposit and hence the plaintiff has a good title beyond reasonable doubt (see MEPC Limited v Christian Edwards [1981] AC 205).

16.  They referred to a number of deficiencies in the declarations which rendered them not proper conveyancing evidence.  They pointed out the fact that Mr Ong did not personally deal with Wu in respect of the memorandum.  Mr Ong did not even refer to anything that his clerk had told him.  He only set out his subjective belief of his firm’s practice and did not say what he had done to ensure that the practice was followed.  Mr Ong did not witness the execution of the sub-sale agreement and assignment by Chui but merely verified the signatures of his clerk.  If it was the invariable practice of Mr Wong’s firm to explain to the nominator of the cessation of interest upon execution of the nomination, it was curious why the memorandum did not so provide.

17.  I take the last point first.  I do not think it curious for Mr Wong’s firm to have the said practice but did not state the cessation of the nominator’s interest in the nomination.  I think most of the nominators executed their nominations in the past for the purpose of relinquishing their interests in the properties to their nominees.  However, before the issuance of Circular No 132 of 1990 by the Law Society in 1988, many of these nominations did not provide for the relinquishment of interest by the nominators.  The nomination in Yeung Kit Lam is one.  Mr Yim wants me to hold that Wu’s memorandum in this case is another.

18.  Regarding Mr Yim’s point of lack of any action by Wu for over 24 years since his execution of the memorandum on 12 October 1988, I have doubt about this point when considered in isolation.  This is not a limitation point but a rebuttal of presumption point.  I would not lightly hold that the lack of subsequent action by the person, in favour of whom a resulting trust by presumption could have arisen, can without more rebut the presumption ab initio.  Mr Yim has not cited any authority to that effect.  It is also uncertain on how many years of inaction would be enough to invoke the rebuttal ab initio.

19.  I would however say that the two declarations by Mr Ong, if not enough to rebut the presumption beyond reasonable doubt for the reasons/deficiencies referred to by counsel for the defendants (save the last one which has been dealt with about), then the lack of any action by Wu to claim or enforce any interest in the flat under resulting trust for over 24 years would have strengthened the case built up by the two declarations to the requisite standard of proof. 

20.  In the light of the two statutory declarations by Mr Ong, the effect of which is strengthened by the lack of action by Wu pursuant to any resulting trust arose from his payment of half of the deposit, I declare that the presumption that a resulting trust has arisen from such payment is rebutted.  Hence, the plaintiff has answered the requisition satisfactorily.

The answer of limitation of action

21.  In case I were wrong on the above analysis and conclusion, I would also consider the plaintiff’s 2nd answer in reliance of the Limited Ordinance.

22.  Section 7(2) of the Limitation Ordinance bars any right of any person to recover any land after the expiration of 12 years from the date on which the right of action accrued to him or to some person through whom he claims.  The plaintiff therefore says that the claim of Wu, if any, under any resulting trust arose by presumption from his payment of half of the deposit on 12 September 1988 would have been barred.  The defendants however rely on section 20(1)(b) of the Limitation Ordinance, section 20(1) of the Ordinance provides:

“(1) No period of limitation prescribed by this Ordinance shall apply to an action by a beneficiary under a trust, being an action-

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.”

23.  The plaintiff however argued that it is not a trustee of Wu within the scope of section 20(1)(b) of the Ordinance.  The decision of the Court of Appeal in Sun Sek How & Ors v Au So Kum [1999] 3 HKLRD 12 is against the plaintiff.  Rogers JA took the view in that case that purchasers who took a property with notice of the rights of the beneficiaries of an intestate, from whose estate the property was wrongly disposed by the administrator to the administrator himself, would have become constructive trustees of the property and any cause of action by the beneficiaries against the purchasers would not be barred.

24.  The decision of the English Court of Appeal in Paragon Finance plc v DB Thakerar & Co (a firm) [1999] 1 All ER 400 is however to the opposite.  That case decided that not all constructive trustees are within section 21 of the Limitation Act 1980 (from which section 20 of the Limitation Ordinance is derived).

25.  The Court of Final Appeal in Peconic Industrial Development Ltd v Lau Kwok Fai [2009] HKCFAR 139 cited Paragon with approval.  Lord Hoffmann NPJ construed section 20 of the Limitation Ordinance as follows:

“18. The terms “trust” and “trustee” are defined to extend to constructive trusts: s.2(1) and s.2 of the Trustee Ordinance, Cap. 29. …

19. The language of s.20, like most of the Ordinance, is taken word for word from the UK Limitation Act 1939. It was obviously intended to have the same meaning. … On a literal reading … a stranger to a trust who dishonestly assists in its breach is traditionally described as a constructive trustee. For the purposes of limitation, however, there are two kinds of constructive trustees. The distinction between them has been explained by judges on numerous occasions, from Sir William Grant in Beckford v. Wade(1805) 17 Ves Jr 87, pp.95-96 to Mr Richard Sheldon QC (sitting as a deputy High Court judge) in Cattley v. Pollard[2007] Ch 353, 360-376. First, there are persons who, without any express trust, have assumed fiduciary obligations in relation to the trust property; for example as purchaser on behalf of another, trustee de son tort, company director or agent holding the property for a trustee. I shall call them fiduciaries. They are treated in the same way as express trustees and no limitation period applies to their fraudulent breaches of trust. Then there are strangers to the trust who have not assumed any prior fiduciary liability but make themselves liable by dishonest acts of interference. I shall call them non-fiduciaries. They are also called constructive trustees but this, as Ungoed-Thomas J said in Selangor United Rubber Estates Ltd v. Cradock (No. 3)[1968] 1 WLR 1555, 1582 is a fiction: “nothing more than a formula for equitable relief”. They are not constructive trustees within the meaning of the law of limitation.

…

21. In Taylor v. Davies[1920] AC 636 it was argued that an Ontario statute in terms identical to s.8 of the 1888 Act had not only given express trustees and fiduciaries the right to rely on limitation in all but the excepted cases but had taken away the previous right of non-fiduciaries to rely upon limitation even in the cases in which fiduciaries could not. This was said to follow from the definition of trustees to include constructive trustees. The argument was rejected by the Privy Council. Lord Cave said:

“If this contention be correct, then the section, which was presumably passed for the relief of trustees, has seriously altered for the worse the position of a constructive trustee…  It does not appear to their Lordships that the section has this effect.  The expressions ‘trust property’ and ‘retained by the trustee’ properly apply, not to a case where a person having taken possession of property on his own behalf, is liable to be declared a trustee by the Court; but rather to a case where he originally took possession upon trust for or on behalf of others.  In other words, they refer to cases where a trust arose before the occurrence of the transaction impeached and not to cases where it arises only by reason of that transaction.”

22. This was an authoritative statement on the construction of the 1888 Act and although the 1939 Act amended as well as consolidated the previous law, it is hard to believe that the slight changes of language in s.19 were intended to introduce a fundamental change.  In Paragon Finance plc v. DB Thakerar & Co.[1999] 1 All ER 400, 412-414 Millett LJ offered what he called ‘formidable arguments’ against such a construction which I find entirely convincing.

23. In my opinion, therefore, non-fiduciaries do not come within the definition of trustees in s.19 of the 1939 Act or s.20 of the Ordinance.  …”

26.  If Wu had any interest in the flat by presumption of resulting trust by reason of his payment of half of the deposit, the plaintiff only became liable to be declared a trustee of the flat for Wu by its agreement to purchase of flat in August 1993 and not before.  It was not a trustee or fiduciary of Wu before the purchase.  It was a non-fiduciary and it only became liable to Wu by the purchase.  The plaintiff is therefore not within the definition of trustees in section 20 of the Limitation Ordinance.

27.  Mr Chan for the defendants argued that Peconic is not a conveyancing case.  But I do not think this a ground for me not to follow the reasoning in that case.  I therefore further declare that any claim by Wu of any interest in the flat pursuant to a presumption of resulting trust arising from his payment of half of the deposit on 12 September 1988, if any, would have been barred by 12 September 2000 under section 7(2) of the Limitation Ordinance.

28.  Now that the requisition based on Wu’s payment of deposit is held to have been satisfactorily answered, the parties will be able to proceed to completion.  In line with the agreement of the parties, I make no order as to costs.