CHINA WEAL LTD. v. LAM SAU WAH

HCA 12281/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12281 OF 1997

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J U D G M E N T

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1. In these proceedings the plaintiff seeks a declaration that a property in Tai Koo Shing purchased in 1992, and assigned to the defendant on 21 February 1992, is held by the defendant on trust for the plaintiff. The plaintiff also seeks consequential orders for the transfer or sale of the property.

2. It is not in dispute that the defendant entered into a provisional sale and purchase agreement in respect of the property, Flat G, 27th Floor, Yee Shan Mansion, Kao Shan Terrace, Tai Koo Shing, on 24 January 1992. The purchase price of the property was $2,405,000.00 and the defendant paid an initial deposit of $50,000.00 to the vendors and the estate agent's commission of $24,050.00. A further payment in respect of the deposit of $190,500.00 was made by way of a cheque from the plaintiff to the defendant's solicitors on 30 January 1992 and a formal sale and purchase agreement signed by the defendant and the vendors the same day. On 17 February 1992, the plaintiff issued a further cheque payable to the defendant's solicitors for $2,249,147.50, which included the balance of the purchase price, and gave it to the defendant, and on 21 February 1992 the property was assigned to the defendant. She and her husband then spent some $630,000.00 decorating and furnishing the property and moved in with their family, paid all outgoings by way of rates and management fees, and remained there as their residence until emigrating to the USA in 1997.

3. The plaintiff's case is that the property was purchased with its money to assist a Mr Yuen Hau Ting (Yuen), an acquaintance of its chairman and chief executive officer, Mr Deng Liu Gen (Deng), as Yuen, who was then resident in Foshan, Guangdong, China, where he was what is referred to in evidence as "Chief" of the branch of the Bank of China, and who intended to shortly move to Hong Kong. Upon his arrival in Hong Kong, it was intended that he should reimburse the plaintiff and the property would be reassigned to him, and that the assignment in the name of the defendant was merely temporary. The plaintiff further maintains that the defendant, apart from the $50,000.00 deposit, contributed nothing to the purchase price.

4. The defendant's case is that, at the request of Deng, she made a loan to him of $2,440,000.00 in cash and received the cheques in exchange, for the purchase of the property which she had already arranged, and for which she had paid the deposit.

5. The plaintiff relied almost entirely on the evidence of Deng to support its case. He said that he had had business dealings with Yuen, presumably in his official capacity, for about two years before the events in question here, and regarded him as good friend. At some time in late 1991 or early 1992 Yuen told him that he was coming to Hong Kong in about two months to take up a position in a company here, and asked Deng to help him purchase a property in Tai Koo Shing and hold it on his behalf. Deng said that he was told by Yuen that it was inconvenient for him to be named as legal owner as he was then a resident of China. Why this should be was never explained, particularly as Yuen had already, Deng said, set up a company here called Eastern World Co. Ltd, which he controlled and which Deng believed had assets here. Deng's evidence at first was that the property was for Yuen. However, he later claimed that he believed it was being purchased on behalf of the Bank of China. I am therefore left with the further query as to why the Bank of China would need the assistance of Deng or the plaintiff.

6. Deng went on to say that he told Yuen that the plaintiff did not wish to be named as legal owner of the property, and, as he states in his witness statement, to be subject to the burden that comes with legal ownership. He explained this in evidence to mean the liability for management fees and rates and that it may involve a change in value. He accordingly agreed with Yuen that the property would be paid for by the plaintiff and put into the defendant's name, who he says he did not know well. He also says that he discussed the matter with his other directors, who also knew Yuen, and they agreed to it. Indeed, at least one other director would have to sign the cheques. However, no other director gave evidence about this, or what transpired when the cheques were signed.

7. It is not in dispute that the defendant is also a friend of Yuen. Indeed, her acquaintance with Deng seems to have been largely through Yuen, although Deng disputes the number of times that they met. In particular, he says that the first time they met was with Yuen at an apartment in Convention Plaza owned by the plaintiff, while the defendant says that this was in fact the fourth time, the first having been over a year earlier. Deng also denied meeting the defendant more than once after the property transaction. This again the defendant disputes, saying that they met on at least three occasions with others. This is supported by one other witness, Mr Lam Ling Tak, whose evidence I have no reason to disbelieve, and who says that he was present at two meetings in 1992, well after February when the transaction was completed. The defendant says that she became well acquainted with Deng and that they were good friends. Having heard both give evidence, and Mr Lam, I accept her evidence and prefer it where it differs from that of Deng.

8. The defendant's account of the events leading up to the purchase of the property is that she and her husband had been looking for a larger apartment for themselves and their two young children and had found the property through an agent at Midland Realty. They viewed the property twice before deciding to buy it, and paid the deposit of $50,000.00. In order to pay the balance the defendant and her husband had kept at their residence the sum required in cash. At the same time, at one of the defendant's meetings with Deng she had told him of the proposed purchase and the price in the course of discussion. She said that she was telephoned by Deng about 25 January when he told her he was in urgent need of a large sum in cash and asked if she would do him a favour by lending him the cash in exchange for a cheque or cheques from the plaintiff company. The defendant knew Deng by this time, knew that he was a successful businessman, and a friend of Yuen, and consequently trusted him. She was also telephoned by Yuen who asked her to help Deng, and who told her that if she wanted to buy shares in the plaintiff later she would have an advantage. She accordingly agreed to give him the money and he came to their flat to collect it, taking about an hour to count it and giving her a receipt, telling her he would reward her with shares later. The sum loaned was $2,440,000.00. There is evidence that the promise as to shares was later carried out. Mr Lam Ling Tak, a shareholder and director of a company called Smart Hero Ltd, gave evidence that there was a discussion with Deng in about June 1992 at a meeting over dinner, which Deng hosted, at which Yuen, the defendant, and a number of others were present, as a result of which an investment was made by Smart Hero in a company in which Deng had an interest, and the defendant gave a sum of money to Smart hero which was included in the money invested. Although Deng had guaranteed his investors a profit, it appears that this has not in fact materialised.

9. The defendant says that her husband had already worked out, on a piece of headed notepaper from a company with whom he used to work, the total cost of the purchase with legal fees, commission and stamp duty, and calculated how much the total cost per square foot would be. As the defendant was concerned when she did not receive a cheque as promised in two or three days, she met Deng and took the paper and the provisional sale and purchase agreement with her to show how important it was to have the money back and when she had to pay for the flat, as she might lose her deposit.

10. She went to collect the first cheque from Deng on 30 January 1992, and he wrote on the paper the words: "Agree to pay, charge it to my account", and signed it. He also put a yellow post-it note on the paper, upon which he wrote the following:

"Accounting Department:

Please issue cheques and pay on the dates specified according to this agreement and to take party to the contract Lam Sau Wah to be the purchaser of this property."

He then signed and dated that.

11. The defendant also gave him a copy of the provisional sale and purchase agreement. A cheque for $190,500.00 was issued by the plaintiff's accounts department payable to the defendant's solicitors. She signed the sale and purchase agreement the same day. However, the cheque was not issued in time for it to be cleared by the defendant's solicitors, so the defendant's husband issued a cheque for the same sum direct to the vendors' solicitors, and the plaintiff's cheque paid to the defendant's solicitors was paid into their account and later refunded to her.

12. The second cheque was issued on 17 February 1992 for the sum of $2,249,147.50. Deng's account of this occasion is that on that day the defendant came by herself but with a note from Yuen which read as follows:

"Deng General (Manager): the balance of the total sum for the payment of the living quarters for Miss Lam Sau Wah is $2,249,147.50. For auspicious purposes she wants to pay earlier. Please act accordingly. See you later."

This was signed by Yuen and dated 16 February 1992. Deng wrote on it:

"Agreed: Accounting Department please act accordingly."

Deng signed this and dated it 17 February 1992. A cheque was issued in the sum requested in Yuen's note, payable to the defendant's solicitors, again signed by two directors.

13. The defendant's agrees that she was given the cheque although she says that she did not see Deng that day but dealt with a lady in the accounts department. She says that she had brought forward the date of completion, and was concerned that the balance of the money owed had not been paid, so she asked Yuen to assist by writing a note to Deng to expedite the payment.

14. With this payment, the total paid by the plaintiff via Deng was $2,439,647.50. The loan the defendant says she made to Deng was $2,440,000.00.

15. There are a number of unusual aspects to this matter, and several left unexplained by both sides, which might have been clarified by other witnesses who were not called. On the plaintiff's side, the evidence of the other directors who, Deng says, agreed to the purchase, would have been useful, if that account is true, or a minute of a board meeting agreeing to it, of which there is none. The evidence of Yuen would probably have settled the matter once and for all. However, Yuen, I am told, was arrested in China later in 1992, was under house arrest for some time, until he was convicted of unspecified offences in 1998 and sentenced to 15 years imprisonment. For the defendant, her husband could have supported her version of these events, and did sign a witness statement, but was not called. However, I accept her explanation that relations between her and her husband have not always run smoothly, and he blames her for the trouble this incident has caused. Both accounts are extremely odd stories which beg a number of questions, and to decide which is more likely to be the truth I find that I must decide which is least credible. On this basis, I have to say that I prefer the account of the defendant to that of the plaintiff for the following reasons.

16. Deng's evidence was that, although the plaintiff was buying the property for Yuen, it would be the property of the plaintiff until Yuen came to Hong Kong and bought it back. However, it was never recorded in the company's accounts as an asset of the company. The only entry in the accounts was under "Amounts due from Directors" showing a debit due from Deng to the company, with no reference to the property at all, nor to the precise amount paid. All the accounts show is that on 1 April 1992 he owed the company $8,400,000.00, and by 31 March 1993 that had reversed to a credit due from the company of $714,424.00. It is clear from the evidence of the plaintiff's accounting officer, Miss Seto Yee Mai, Kimmy, that no other record of the transaction being a purchase for the plaintiff exists. Although all documents over 7 years old are destroyed, the evidence of the payments made here were kept and handed to their solicitors, and I have no doubt that if there was any document showing the plaintiff's interest as owner in this property, that would have been kept also. There is however no evidence that such a document exists, nor that the sum debited to Deng's account was for purchase of the property. This was a company whose business, or part of it, involved dealing in and owning property, and those properties it owned were recorded in the accounts. There is no record of this property. I accept that it could not be listed as a fixed asset while the plaintiff had no legal title to it, but the fact that there is no mention of it in any accounts, or notes to the accounts, indicates to me that the plaintiff had no beneficial interest in it.

17. Deng tried to say that it was not unusual for such a purchase to be made in someone else's name and placed temporarily in a director's account, but he could give no example of it ever being done before, except an incident in relation to purchase of shares, of which there was no documentary evidence, and there was no evidence from Miss Seto or the plaintiff's accountant, Mr Wong Wing Hon, of a similar incident. Indeed, Mr Wong pointed out that if the plaintiff had a property held on trust by another, there would be a "note" in the accounts. Here there is none. The obvious inference is that the payment by the plaintiff of these cheques were at the personal request of Deng, for his own purposes, and the most telling of the documentary evidence is the note from him saying "charge to my account".

18. A further inexplicable aspect of this is that, if this was a purchase for the plaintiff, I would expect some attempt to protect its position as owner. After all, Deng may not have been a lawyer but was an experienced businessman. Yet there is no deed of trust, no written acknowledgement at all that the defendant is not the beneficial owner. It would have been a simple matter merely to request the deposit with the plaintiff of the title deeds to protect its position, yet this too was not even suggested. After the payments were made, and the property assigned to the defendant, the plaintiff and Deng appear to have lost all interest in the property until shortly before these proceedings were commenced. His reason for this, that he was waiting for Yuen, who he thought would still come to Hong Kong and settle the matter, does not make sense considering the time that had passed.

19. Miss Catton for the plaintiff has submitted that the note from Yuen referring to the property as "living quarters for Miss Lam Sau Wah" is evidence that Yuen was planning to employ the defendant in his company when he came to Hong Kong. I cannot accept that. There is no convincing evidence that Yuen intended to employ the defendant, and, even if he did, I can see no reason why he should supply her with quarters. She was not coming here as an expatriate employee, and already had a flat of her own. I am of the view that the words in the note meant exactly what they say, that this property was to be the defendant's and where she intended to live.

20. As against this, the defendant's evidence that she was buying this property for herself and her family is fully supported by the evidence. She and her husband paid the deposit and the estate agent's commission, which the plaintiff has never suggested refunding, paid for the decoration and furnishing, and moved in to live there and remained there undisturbed until leaving Hong Kong in 1997. During this time they accepted all the responsibilities of ownership, paying management fees, rates and utilities, and permitting it's use by friends after their departure, and then renting it out.

21. In an effort to cast doubt on the defendant's version of these events, Miss Catton has pointed to the unlikelihood of the defendant having such a sum of money at her disposal. The defendant was cross-examined at some length on this aspect and her apparent rapid accumulation of wealth.

22. The defendant said that, coming from a comparatively modest background in Fujian, China, she came to Hong Kong in 1982, and had for a few years prior to 1992 been engaged in a business arranging emigration for residents of the area from which she came, and where she still had contacts, to Europe, USA and Japan. The head of the organization is an overseas Chinese living in USA and the defendant's role is to make introductions, and, more importantly, to collect the fees for the service in cash from the emigrants who pass through Hong Kong. It is clear from her evidence that a great deal of money is involved, which appears to be brought from China in cash. The defendant's responsibility was to collect and keep the money paid until a representative of the person in charge of the business came to collect it, keeping for herself a commission which varied from US$5,000.00-10,000.00. It was clearly a profitable business for her, as she had accumulated several million dollars by 1992. She said that she kept no records, paid no tax, and that her savings were usually kept in cash at home in a secret compartment that they had had built in their flat.

23. While I agree with Miss Catton that it is an extraordinary story, the defendant and her husband were obviously not poor, already owning their own flat with no mortgage, and I do not find it impossible to believe that they were going to buy the property with cash and had that amount available. However, for the reasons given above, I do find the account of the plaintiff so unbelievable that I have no hesitation in preferring that of the defendant.

24. I accordingly find that, although the property was paid for largely by way of cheques provided by the plaintiff, it was not in circumstances that gave rise to a resulting trust and was by way of repayment of a loan from the defendant to Deng, who was then solely responsible to the plaintiff to account for the payments made by the cheques.

25. The plaintiff's claim will therefore be dismissed and there will be judgment for the defendant on her counterclaim for a declaration that the plaintiff is and was not entitled to register the writ of summons herein against the property, and an order that that registration be vacated. There will also be an order that the plaintiff pay the defendant damages to be assessed by a Master, and an order nisi for costs in favour of the defendant to be taxed.