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CACV 355/2005
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 355 OF 2005
(on appeal from DCMP NO. 2017 OF 2002)
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IN THE MATTER OF ALL THAT one equal undivided 37th part or share of and in ALL THOSE pieces or parcels of ground registered in the Land Registry as THE REMAINING PORTION OF NEW KOWLOON INLAND LOT NO.1547 and THE REMAINING PORTION OF NEW KOWLOON INLAND LOT NO.1979 And of and in the messuages erections and buildings thereon known as Nos.212 and 214 Fuk Wing Street and Nos.118, 120 and 122 Camp Street TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT the SEVENTH FLOOR of the said No.120 Camp Street |
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and |
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IN THE MATTER OF a Deed of Mortgage dated the 23rd day of May 2001 and registered in the Land Registry by Memorial No.8410068 |
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and
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IN THE MATTER OF Order 88 of the Rules of District Court |
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BETWEEN
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HKCB FINANCE LIMITED |
Plaintiff |
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and |
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YUEN YI WAN SANDY |
1st Defendant |
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WONG CHIU MUI |
2nd Defendant |
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Before: Hon Tang JA in Chambers
Date of Decision: 6 February 2006
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D E C I S I O N
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1. The plaintiff was the mortgagee bank of the property which was registered in the name of the 2nd defendant’s husband, Au Chi Pang (“Au”), between 1977 and 4 May 2001. The property had been free of any mortgage from 1978 to 4 May 2001.
2. The 2nd defendant and Au were married in 1979. The marriage broke down in 2000. Indeed, as a result of the 2nd defendant’s complaint to the mainland authorities, Au was sentenced to imprisonment for 18 months for bigamy. He was however released shortly afterwards on account of his poor health.
3. On 4 May 2001, Au entered into an agreement to sell the property to one Wong Lo Tim (“Wong”) for $350,000. On the same day Wong, as confirmor, sold the property for $700,000 to the 1st defendant.
4. On the following day, the 1st defendant applied for a mortgage with the plaintiff for $360,000 which was granted.
5. The sale and purchase was completed on 23 May 2001.
6. In June 2001, the 2nd defendant was granted legal aid to commence divorce proceedings against Au. Amongst the reliefs claimed, she also applied under section 17 of the Matrimonial Proceedings and Property Ordinance (“the Ordinance”) to set aside the disposition made by Au to Wong.
7. On 15 July 2002, the plaintiff commenced the present action as mortgagee against the 1st defendant.
8. The 2nd defendant was granted leave to join as a defendant on the 4 October 2002.
9. The plaintiff obtained judgment against the 1st defendant on 14 November 2002.
10. On 19 December 2002, District Judge Gill in the Family Court ordered that:
“ … (1) the disposition made by Au on 4 May 2001 by entering into an agreement for sale and purchase with Wong in respect of the property be set aside, (2) the disposition made by Au in respect of the property by an assignment dated 23 May 2001 made between Au as vendor, Wong as the confirmor and the 1st Defendant as purchaser be set aside and (3) Au to transfer all his interest in the property to the 2nd Defendant to take effect on decree absolute.”
11. On 29 November 2004, District Judge To gave judgment in favour of the plaintiff for possession against the 2nd defendant.
12. The judge summarised the issues raised before him as follows:
“6. The Plaintiff’s claim in this action is based on the legal charge executed by the 1st Defendant. The 2nd Defendant’s defences are: (1) she is entitled to the beneficial ownership of the property by virtue of an order under section 17 of the Matrimonial Proceedings and Property Ordinance; (2) she has acquired an unregistrable equitable interest in the property because of her contribution to the family; (3) the 1st Defendant as the purchaser of the property and the Plaintiff as the legal chargee had actual or constructive notice of the interest of the 2nd Defendant as the wife of Au in the property and (4) the legal charge, being part and parcel of the fraudulent dispositions by Au is tainted with illegality and void. I should note that the 2nd Defendant’s interest as pleaded in her defence is an “occupation right” in the property. However, at the end of the trial, Ms Tsui confirmed that the 2nd Defendant is not relying on a deserted wife’s right to remain in the matrimonial home but only on her contribution to the family. If that was a concession, it was one that was properly made in view of the decision of the House of Lords in National Provincial Bank Ltd v Ainsworth [1965] AC 1175.”
13. On 28 October 2005, I granted leave to appeal.
14. The Notice of Appeal was filed on 2 November 2005 and contained 5 grounds.
15. I am of the view that ground 4 has a reasonable prospect of success though not quite in the way in which it is currently couched.
16. I express no view on the other grounds.
17. Ground 4 refers to para. 45 of the judgment where the judge said:
“45. The sale and sub-sale of the property were carried out under very suspicious circumstances with the two provisional agreements being concluded on the same day but with a 100% increase in the purchase price and the 1st Defendant who purchased from Wong and signed on behalf of Wong in the provisional sale and purchase agreement was related to Wong and shared the same address (see paragraphs 53 and 54 below). Though the Plaintiff had no knowledge of the provisional sale and purchase agreement and did not know of the sub-sale arrangement, it had imputed knowledge of the sale and sub-sale arrangement through the actual knowledge of its solicitor Messrs T L Ip & Co who had copies of these documents. But according to Ms Wong of Messrs T L Ip & Co who handled the sale and sub-sale transaction in the solicitor’s firm, she had asked Au if there were others living in the property, but Au did not mention there were any. There is nothing to contradict that evidence. In addition, Au warranted in Clause 24 of the sale and purchase agreement that there was no person other than himself who was occupying the property and had interest whether legal or equitable in the property. There was a similar clause in the sub-sale and sub-purchase agreement in which Wong made a similar warranty. Though these clauses were drafted by Messrs T L Ip & Co, they had been explained to Au and Wong and assented to by them. Ms Wong did not know that Au was not in occupation of the property and did not know about his matrimonial discord. On the face, the transactions were just a confirmor sale of the property with vacant possession, with the vendor confirming that there were no other occupiers in the property. In my view, though suspicious in other aspects, there was nothing to put the Plaintiff on enquiry as to whether Au’s wife, i.e. the 2nd Defendant, had any claim against the property for financial provision.”
Essentially, the issue is whether the bank had constructive notice.
18. The judge was undoubtedly correct that:
“45. The sale and sub-sale of the property were carried out under very suspicious circumstances …”
But it is arguable that he was wrong in concluding that there was nothing to put the plaintiff on enquiry, or that the duty to enquire was satisfied because the bank’s solicitors:
“ … had asked Au if there were others living in the property, , but Au did not mention there were any.”
19. So the question really is this: the bank having been put on enquiry because of the “very suspicious circumstances” of the sale and sub-sale, should the bank have rested its enquiry with Au.
20. The judge said:
“ … On the face, the transactions were just a confirmor sale of the property with vacant possession, with the vendor confirming that there were no other occupiers in the property … ”
21. With respect, the property was not “just a confirmor sale”. As the judge has said:
“45. The sale and sub-sale of the property were carried out under very suspicious circumstances … ”
22. It was obvious that Au’s sale to Wong was at a gross undervalue. It is common sense that very often sales at gross undervalues were made because the vendors were hoping to defraud somebody, usually their creditors or spouses. That being the case, it is arguable that a reasonably prudent banker would not have relied on the answer of the possible fraudster himself.
23. As the judge has correctly pointed out in para. 48 of his judgment where he said:
“ … Of course, on the facts of the present case, as Au, Wong and the 1st Defendant had conspired to defraud the bank by misrepresenting to the bank that the property was sold with vacant possession and that Au was in occupation, Wong’s and the 1st Defendant’s lack of response to such advice would not put Messrs T L Ip & Co and accordingly the Plaintiff on notice of Au’s intention to defeat the 2nd Defendant’s claim for financial provision. Of course, had that been sufficient to put the Plaintiff on enquiry and had the Plaintiff inspected the property, the presence of the 2nd Defendant on the property would have been discovered and the 2nd Defendant would have told the Plaintiff that she was contemplating divorce proceedings against Au and would make a claim in respect of the property.”
24. I believe that the plaintiff having been put on enquiry, it is arguable that the plaintiff should have inspected the property in which event the presence of the 2nd defendant would have been discovered and the 2nd defendant would have undoubtedly told the plaintiff that she would make a claim in respect of the property.
25. The learned judge said that the case was on all fours with National Provincial Bank Ltd v Ainsworth [1965] AC 1175.
26. With respect, he was arguably wrong. The important difference between that case and the present one is that in that case, there was nothing in the transactions which led to the mortgage or the mortgage to the bank itself which put the bank on enquiry. It was not an authority that if those transactions had put the bank on enquiry, the bank’s duty to enquire would have been discharged, simply by relying on what the husband told them. The judge’s conclusion was probably the result of the rather different legal submissions made to him on behalf of the 2nd defendant. Such arguments, unfortunately, have been repeated in ground 4, sub-paragraphs (2) and (3) of the Notice of Appeal. The 2nd defendant has not correctly distinguished Ainsworth and her reliance on Wong Chim Ying v Cheng Kam Wing [1991] 2 HKLR 253 for the purpose of ground 4 is misplaced.
27. As Clough JA has made clear in Wong Chim Ying v Cheng Kam Wing [1991] 2 HKLR at page 274A:
“We were pressed, as was Godfrey, J., with arguments based on National Provincial Bank Ltd. v. Ainsworth [1965] AC 1175 (H.L.) but we derive no assistance from that case which was concerned with the fatally nebulous rights formerly claimed for the deserted spouse in the matrimonial home and not a claim, by a spouse, as in the present case, to a recognised beneficial interest in land based on resulting trust. This important distinguishing factor was, as Mr. Li pointed out in argument, identified by Ormrod, L.J. at the beginning of his judgment in Boland [1979] Ch 312 at p.333.”
28. However, ground 4 is concerned with section 17(2) of the Ordinance, and whether the plaintiff:
“… acted in good faith and without notice of Au’s intention of defeating the 2nd defendant’s claim for financial provision, …”
The question is whether the plaintiff who has been put on enquiry by the “very suspicious circumstances” of the sale and sub-sale, has failed to make reasonable enquiry, which had it been made, would have revealed the 2nd defendant’s claim under section 17 of the Ordinance.
29. Since in my opinion, the appeal has a reasonable prospect of success. I believe in all the circumstances it is right that execution of the order should be stayed pending the determination of the appeal. The parties have reached an agreement that a stay pending appeal should be granted on terms. I make an order in terms of the consent summons dated 2 February 2006.
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(Robert Tang)
Justice of Appeal |
Attendance of the parties was not required.
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