CHEN KAM NGA v. LEE HO YIN

CACV 315/2021

[2022] HKCA 1150

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 315 OF 2021

(ON APPEAL FROM HCA NOS 553 OF 2016 AND 356 OF 2017)

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(Consolidated by the Order of Mr Registrar Ho dated the 20^th day of December 2017)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

Overview

1.  This appeal is brought by the plaintiff against the judgment of Au-Yeung J on 12 May 2021 (“the Judgment”), which was given after a four-day trial in February 2021. The parties were former lovers and the action was brought by the plaintiff to recover interests in four assets. This appeal is concerned with only two of them; both are properties in Tuen Mun acquired for investment purpose. One is an industrial property referred to as “Delya Property” and held by the parties as joint tenants. The other is a residential property referred to as “Flat 1C” and held in the sole name of the defendant. The plaintiff claims she has sole beneficial interest in Delya Property and a half share of the beneficial interest in Flat 1C.

2.  The judge dismissed the plaintiff’s claim as regards Delya Property. In respect of Flat 1C, the judge made a declaration that the defendant held and continues to hold 15.3% of the beneficial interest in Flat 1C on trust for the plaintiff and ordered an account be taken of monies received by the defendant in connection with this property to the extent of 15.3% and payment of sums found due to the plaintiff upon taking of the account. The judge ordered the two properties be sold and the net proceeds distributed to each party in the proportion of their beneficial interests as found.

3.  The plaintiff seeks to set aside the above orders on appeal and replace them with orders pursuant to her claims for these properties in this action. She seeks to challenge the judge’s findings of fact that (1) on the express agreement of the parties when Delya Property was purchased in their names, their common intention was for the defendant to have beneficial interest as a joint tenant; and (2) there is insufficient evidence by reference to inferred common intention (that Flat 1C was held by the parties in equal shares) to displace the presumption of resulting trust, hence the beneficial interests of the parties in this property should be proportional to their respective contributions to the purchase price, namely, in the ratio of 15.3% and 84.7%.

4.  For the appeal court to interfere with findings of fact of the trial judge, it must be satisfied that the findings are plainly wrong. As mentioned in the Judgment[1], this is a “one-to-one case in which credibility is important”. Having heard the parties who were the only witnesses, the judge found neither was “entirely reliable”. There was illogicality in the case of each, the plaintiff failed to call important witnesses and the defendant had come up with new evidence in the witness box.

5.  As the courts have emphasised on quite a number of occasions, in exercising the right to challenge findings of fact made by the trial judge, litigants should bear in mind that the trial before the judge would be “the main event” and not a “tryout on the road”. The appellate process is not designed to give litigants a platform to advance again with greater or different emphasis submissions on evidence and factual aspects which did not find favour with the trial judge, in the hope that the appeal court might be persuaded to reach a different view[2].

6.  The plaintiff failed to satisfy us that the judge’s findings are plainly wrong. We therefore dismissed her appeal at the conclusion of the hearing. These are the reasons for our judgment.

Background

7.  The background matters relevant to this appeal may be stated as follows.

8.  The parties began a romantic relationship in 2002 and commenced cohabitation in 2008. The plaintiff was a licensed real estate agent. The defendant was an electrical engineer. He also obtained the qualifications of a licensed real estate agent in 2013.

9.  In July 2009, the parties purchased a property referred to as “Flat 6E” as joint tenants and lived there until May 2010 when they broke up. In August 2010, to achieve a “clean break”, the defendant assigned to the plaintiff his interest in Flat 6E for a stated consideration of $1 million, although no money had changed hands.

10.  The parties later resumed their intimate relationship and cohabited again in Flat 6E. According to the plaintiff, this occurred in around mid-2011. According to the defendant, this was in around March 2012. They broke up once more in July 2014. It was during the second period of cohabitation that Delya Property and Flat 1C were purchased.

11.  The parties took an assignment of Delya Property as joint tenants at the consideration of $938,000 in March 2012. The property was purchased subject to a tenancy agreement with a monthly rent of $5,500. The purchase was financed by (1) a loan of $500,000 secured by a mortgage over Flat 6E and (2) a loan of $438,000 secured by a mortgage over Delya Property. The monthly instalments under these mortgages were $2,625.22 and $4,331.20 and repayments were largely covered by the rent. The rental income was all deposited into the plaintiff’s bank account and the mortgage repayments were made out of her account. The management fees, rates, fire insurance premium were also settled out of the plaintiff’s account.

12.  The sale and purchase agreement of Flat 1C was executed by the defendant as the purchaser in April 2012 and the property was assigned to him in June 2012. Of the purchase price of $1.9 million, $290,000 was provided by the plaintiff, $280,000 was provided by the defendant (he also paid legal fees of $7,704.96) and $1.33 million was funded by a mortgage over Flat 1C. The property was rented out in November 2012 at a monthly rent of $8,000. The monthly mortgage instalment was $5,017 and repayments were made by the defendant out of his account. The entire monthly rentals paid into the defendant’s account were transferred by him to the plaintiff’s account as household expenses, until the parties ceased cohabitation in mid-2014.

Delya Property

13.  The judge found on the evidence that when Delya Property was acquired, there was an express agreement or understanding between the parties that the defendant was to have beneficial interest in the property as a joint tenant[3]. The judge arrived at this finding having regard to six factors[4].

14.  Mr Thomas Wong, who appeared for the plaintiff on appeal and below, took three broad points.

15.  First, he submitted that the judge was wrong to find a common intention that the defendant was to have beneficial interest as a joint tenant and rejecting the plaintiff’s case of a common intention that she was to be the sole beneficial owner without considering whether her case of common intention could be inferred. The judge’s entire analysis was confined to determining whether there was any express common intention. She should assess the common intention by “a holistic approach having regard to the context” (Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 at §1.6).

16.  Second, he took issue with four of the six factors considered by the judge to contend that her reasoning was flawed.

17.  Third, he challenged the finding that the defendant had contributed in part to the mortgage repayments[5] as “wholly unsupported by evidence” and criticised other parts of the Judgment regarding the judge’s acceptance of the defendant’s evidence of the two options he gave to the plaintiff when they resumed cohabitation regarding the transfer of his interest in Flat 6E to her[6] and the judge’s observation that the plaintiff had “conceded” in her amended witness statement that the parties wanted to have a joint bank account to collect the rent from Delya Property[7].

18.  The first point is not a valid one. There is a clear distinction between the two situations in which a common intention constructive trust may arise (Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 at §5.8, quoting from Lord Bridge of Harwich in Lloyds Bank Plc v Rosset [1991] 1 AC 107 at 132; Primecredit Ltd v Yeung Chun Pang Barry at §§2.3, 2.4).

19.  The first situation is where there is evidence of an agreement, arrangement or understanding between the parties that the property is to be shared beneficially, at any time prior to the acquisition or, exceptionally, at some later date. The finding of such an agreement, arrangement or understanding can only be based on evidence of express discussions between the parties, however imperfectly remembered and however imprecise the terms. This is independently of any inference to be drawn from the conduct of the parties. Once a finding to this effect is made, the party asserting a beneficial interest has to show he has acted to his detriment or significantly altered his position in reliance on the agreement in order to give rise to a constructive trust.

20.  In contrast to the above is the situation where there is no evidence to support a finding of an agreement or arrangement to share, and the court must rely entirely on the conduct of the parties, both as the basis from which to infer a common intention to share the property beneficially and as the conduct relied on to give rise to a constructive trust. In this situation, direct contributions to the purchase price by the party who is not the legal owner, whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust.

21.  The parties gave evidence of their express agreement or understanding when Delya Property was purchased in the names of both as joint tenants. The judge rejected the plaintiff’s evidence and preferred the defendant’s testimony. Leaving aside for the time being the criticisms made in respect of her reasoning process, once the finding of express agreement or understanding was made, and as the addition of the defendant’s name as joint owner was unreserved, whether the plaintiff had contributed to the mortgage and other expenses in relation to Delya Property would not have affected the judge’s conclusion on beneficial ownership. As the judge has stated: “Once [the plaintiff’s] version is rejected, there was no agreement to decide beneficial interest based on monetary contribution. This excluded even the application of resulting trust.”[8]

22.  Hence, it is wholly unnecessary for the judge to consider whether her conclusion on beneficial ownership could be supported by inference drawn from the conduct of the parties. The judge only dealt with the question of mortgage repayments and other expenses and the defendant’s case as to the plaintiff’s treatment of the $400,000 debt “for completeness sake”[9].

23.  Turning to the second broad point being criticisms regarding four of the six factors considered by the judge, there is nothing in the contention that the judge was wrong to hold that the plaintiff’s allegation of an express agreement (that the defendant would not have beneficial interest in Delya Property and was merely to manage the property for the plaintiff) was “inherently incredible”[10]. Mr Thomas Wong was merely repeating his closing submissions at the trial that had been rejected by the judge. The fact that the judge did not mention his submissions specifically does not mean she had overlooked his contentions. The judge was clearly aware that “the parties effectively did not need to use their own monies” to fund the purchase of Delya Property[11]. She did not disagree with the suggestion “there was little risk faced by [the defendant] in that the Delya Property was a good investment with low price and high return from a sitting tenant”, but remarked that “the same would apply to [the plaintiff]”. That is a view she is entitled to take, and these considerations do not detract from her conclusion that it was inherently incredible for the defendant to agree he was merely to be a nominal co-owner for this property.

24.  Mr Thomas Wong complained it was unfair to the plaintiff for the judge to draw an adverse inference against her that her brother-in-law would not have given evidence in her favour because he was not called to give evidence[12]. The plaintiff mentioned for the first time in the witness box that her brother-in-law was also present when she told the defendant he did not have beneficial interest in Delya Property. In the questioning from the judge, the judge had pointed out to the plaintiff that she did not call the brother-in-law[13]. Mr Wong complained that the judge merely pointed this out without giving the plaintiff a chance to respond. Counsel on both sides were given the opportunity to ask further questions arising from the judge’s questioning[14]. Mr Thomas Wong did ask further questions but not in respect of why the brother-in-law was not called. There is no substance in this complaint.

25.  It was submitted that the judge had ignored part of the plaintiff’s evidence regarding the defendant’s right of survivorship if she were to die[15]. We do not agree with this submission. We have been referred to the relevant parts of the plaintiff’s evidence[16]. The judge is entitled to form the view that the plaintiff “plainly knew and intended the legal consequence of adding [the defendant’s] name” and that the plaintiff’s evidence that she hoped the defendant would do the decent thing was an afterthought.

26.  Mr Thomas Wong took issue with the judge’s rejection of the plaintiff’s evidence she was able to meet the mortgage instalments of the two mortgages on her own[17]. The judge reasoned that “if only [the plaintiff] had to bear the mortgage repayments, there was no need to make [the defendant] one of the mortgagors” and “no need to inform him how much the interest rate and mortgage instalments were and how they could have retrieved the deposit ‘they paid’ if 2 mortgages were taken out”. The judge took into account the WhatsApp messages dated 7 March 2012 and rejected the plaintiff’s explanation she was just inviting suggestions from the defendant whereas she was to remain the decision-maker[18].

27.  Mr Thomas Wong further submitted that the judge’s finding that the plaintiff would not have been able to meet the mortgage instalments on her own is plainly wrong, in that the mortgage instalments were largely covered by the rent, Delya Property was initially purchased in the plaintiff’s name alone, and the defendant had at best made only limited contribution towards the mortgage instalments. He also complained it was not put to the plaintiff she could not have met the mortgage instalments on her own.

28.  We do not agree with his submissions. The judge is entitled to place much weight on the WhatsApp messages. They indicated that the plaintiff had let the defendant decide whether one or both mortgages should be taken out and he did decide that both mortgages should be taken out. The fact that the defendant was told about the details of the mortgages – the duration of the loans, the monthly instalments, the rates of interest – would tend to support the view that the defendant was meant to have actual and substantive interest in the property and not a nominal interest. As the judge had also found, it was “more likely than not that [the plaintiff] had acceded to [the defendant’s] request to add his name in order to mend the relationship”[19]. Whether the plaintiff could actually afford to meet the mortgage instalments on her own is relatively not so important. The important thing is that the parties had plainly intended this acquisition to be a joint undertaking and both would be committed to incurring liability to fund the purchase.

29.  Whether there could be other relevant WhatsApp messages apart from the exchanges on 7 March 2012 is wholly speculative. There is no basis to interfere with the judge’s refusal to view the messages of 7 March 2012 with “the greatest degree of circumspection”, as Mr Thomas Wong had invited her to do[20].

30.  The matters complained of in the third broad point do not form the basis of the judge’s conclusion on the beneficial ownership of Delya Property. We will endeavour to deal with them shortly.

31.  The judge is entitled to find on the evidence that the defendant did contribute at least in part to meeting the shortfall between the mortgage instalments of the two mortgages and the rentals received. She recognised that he had produced only a “broken series of [bank] statements as samples available for the relevant period of 25 months” and that for nearly the whole of 2013, he had not paid the mortgage. This is a view the judge is entitled to take.

32.  As for the judge’s acceptance of the defendant’s evidence of the two options he gave to the plaintiff when they resumed cohabitation and that the plaintiff initially chose to revert Flat 6E to joint ownership and later changed her mind and agreed to repay $400,000 to the defendant[21], this is not inconsistent with the judge’s rejection of part of the defendant’s evidence concerning his offer to pay the plaintiff $250,000 and the alleged counter-offer of the plaintiff[22]. As the judge has explained[23], she found the facts in §§125 and 127 of the Judgment proved and “the rest of the details were created to boost [the defendant’s] case”, which she did not accept[24]. The matters are somewhat entangled but there is no inconsistency when properly understood. In any event, the judge did not find the parties’ discussion on the $400,000 debt important in the overall context[25].

33.  The last matter relates to another part of the Judgment[26] in which the judge accepted the defendant’s evidence that the parties wanted to have a joint name account to collect rent for Delya Property and the judge went on to remark this was a point the plaintiff had conceded in her amended witness statement. Mr Thomas Wong submitted that is plainly wrong. The amendment in the witness statement merely corrected the error the parties already had a joint bank account in March 2012, it was not a concession that the parties wanted to have a joint bank account to collect the rent as alleged by the defendant. The judge is entitled to prefer the defendant’s evidence on the reason why the joint name account was opened in March 2012, even if she had made an error about the plaintiff’s concession. The judge did not rely on the concession in making her finding on beneficial ownership of Delya Property.

Flat 1C

34.  The judge rejected each party’s case as to the agreement or conversations before the purchase of Flat 1C and did not find any express agreement or understanding between them on sharing the beneficial interest in this property purchased in the sole name of the defendant. The judge accepted the plaintiff’s evidence about her contribution to the down payments but found that the other expenses paid by her were insufficient to infer that she was to have a 50% interest in the property. Applying the principles of resulting trust, as the plaintiff had contributed to the purchase price to the extent of 15.3%, it was held that the plaintiff’s interest should be proportional to her contribution[27].

35.  It was submitted on the plaintiff’s behalf that the judge had failed to have regard to the fact that the parties contributed to the down payments of Flat 1C in virtually equal shares. The judge had made findings of the respective contributions made by the parties towards the purchase price and was unlikely to have overlooked their virtually equal contributions to the down payments. But one cannot stop at the down payments. The balance of the purchase price of $1.33 million was funded by a mortgage loan and the defendant was at all times solely responsible for repaying the mortgage instalments.

36.  The evidence accepted by the judge was that after Flat 1C was rented out about five months after completion, the defendant paid the entirety of the rentals received to the plaintiff’s account to be used as family expenses, and this practice continued until the parties ceased cohabitation[28]. We do not think the plaintiff’s sharing of the rentals as household expenses could be regarded as conduct to infer that she was intended to take a beneficial interest in the property, let alone a half share. This is very different from the situation of the plaintiff making direct contribution to the purchase price. The defendant’s agreement to apply the rentals received to the household expenses has no bearing on any understanding or arrangement how the beneficial interest in the property was to be held.

37.  The plaintiff gave evidence it was agreed between the parties that any rental generated from Flat 1C should first be used for repaying the mortgage instalments and any rental income from this property would be given to her as living expenses[29]. The judge regarded the plaintiff’s case as self-contradictory and queried how rent could be used both for repaying the mortgage and her living expenses at the same time[30]. Mr Thomas Wong submitted there was no contradiction and the judge had misunderstood the plaintiff’s evidence as she was talking about an initial proposal and subsequent counter-proposal. It is a minor point whether the plaintiff was rightly criticised as self-contradictory. What is important and what the judge did get right is that the mortgage repayments would be and were borne by the defendant alone, whether they came out of the rentals received or from the defendant’s own funds is immaterial.

38.  In respect of the management fees and rates of Flat 1C paid by the plaintiff, the judge made the comment that “an occupier without beneficial interest would have paid management fees and rates anyway”[31]. Mr Thomas Wong submitted that the judge had misunderstood the evidence as Flat 1C was held as an investment and was not occupied by the parties. Even if valid, this is a peripheral criticism. The important point is that the judge found the amount of outgoings and isolated expenses on air conditioners and repairs paid by the plaintiff were insufficient to establish a 50% interest in her favour. It could not be said that the judge is plainly wrong.

39.  There is nothing in the contention that the judge did not deal with the plaintiff’s allegation the defendant had taken away most of the invoices and receipts relating to the expenses she paid for Flat 1C. The judge had noted that the plaintiff amended §46 of her witness statement to delete the sentence that the amount of expenses paid by her in respect of this property until they separated in June 2014 was equal to the mortgage repayments made by the defendant, and found that the plaintiff had exaggerated her contribution in her original witness statement to boost her case[32].

Conclusion

40.  Mr Thomas Wong tried to pick holes in the judge’s reasoning but the errors he managed to identify are immaterial and clearly not sufficient to undermine the judge’s findings of fact. We have therefore dismissed the appeal and ordered the plaintiff to pay the defendant’s costs on appeal.