TONG KA NIN v. TAM CHUN WAH AND ANOTHER

HCMP 912/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 912 OF 2011

BETWEEN

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DECISION

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Introduction

1.  This is a dispute as to the share of the beneficial ownership of the Plaintiff and the 1^st Defendant in the subject property.

Background

2.  On 19 May 2011, the Plaintiff commenced the present proceedings against the 1^st Defendant.

3.  Briefly, the Plaintiff deposed that he obtained a judgment under HCA No.2619/2008 against the 1^st Defendant in the sum of about 1.15 million together with interest and costs. He further obtained a charging order absolute on 2 March 2009 upon two properties of the 1^st Defendant. Thereafter, one of the properties was sold by the Plaintiff, but still leaving an outstanding balance of about 250,000.

4.  By the present proceedings, the Plaintiff sought to sell the other property, namely, Flat D, 25/F, Tower 1, Ocean Pointe, No. 8 Sham Tsz Street, Sham Tseng, New Territories (“the Property”).  

5.  To understand the argument of the parties, the following circumstances are noted. The Plaintiff and the 1^st Defendant indeed jointly purchased the Property together with two car parking spaces on 20 December 2001 as tenants in common. They paid equally the down payments and thereafter the mortgage instalments. However, since about 20 November 2004, the Defendant failed to pay his share in the 2^nd Mortgage. Then, from about 21 July 2007, the Defendant further started failing to contribute his share in the 1^st Mortgage.

6.  The Plaintiff nonetheless shouldered all the mortgage payments. It is the Plaintiff’s case that, on a common understanding, their respective share of interest in the Property was to be varied accordingly. As of the date of the commencement of the present proceedings, their shares were no longer 50%: 50%, but 73%: 27%.

7.  In the meantime, the Defendant was adjudged bankrupt on 9 November 2009 and leave was subsequently granted by the bankruptcy court for the issuance of the proceedings herein.

8.  According to the land search record, there are three encumbrances ranking prior to that of the Plaintiff, namely, the said two mortgages and a memorandum of outstanding management fees. After the charging order obtained by the Plaintiff, there come two made in favour of  one Loyal Luck Trading Limited (“Loyal Luck”) and a further one concerning again outstanding management fees.

9.  The Plaintiff proposed that, after the sale of the Property and payment of the usual expenses costs and the three prior encumbrances, 73% of the remaining sale proceeds should go to him, being his share of the Property as beneficial owner.  As to the other 27% thereof, it would be used to pay the said outstanding balance of about 250,000 together with interest and costs. The remaining balance, if any, was then payable to settle the sums due to Loyal Luck and the further outstanding management fees.

10.  The Defendant did not contest the proceedings.

11.  However, Loyal Luck issued a summons on 8 July 2011 to apply to join in the present proceedings. His solicitor deposed that Loyal Luck had obtained the two charging orders. Although he conceded that these two charging orders ranked subsequent to that of the Plaintiff and he did not oppose to the proposed sale of the Property, Loyal Luck did object to the said proposed apportionment ratio of 73%: 27%. It was said that Loyal Luck wanted to be heard on such issue.

12.  On 12 July 2011, Master Levy allowed the summons, made Loyal Luck (hereinafter referred to as “the 2^nd Defendant”) the 2^nd Defendant herein and gave a number of directions regarding the filing and serving of affidavit evidence.

13.  The Plaintiff thereafter prepared two affirmations in reply, one from him and the other from the 1^st Defendant. 

14.  The Plaintiff explained that the 1^st Defendant had been and was still the boyfriend of his mother. When the Property was purchased, it was the intention of the Plaintiff and the 1^st Defendant that they would each hold 50% of the interest thereof. They together with the Plaintiff’s mother lived together there until mid-2007 when the mother and the 1^st Defendant moved out. However, in the meantime, in or around the end of 2004, the jewellery business of the 1^st Defendant was failing and he could no longer contribute the mortgage payments. As the property prices were still rising at that time, it was eventually agreed between them that the Plaintiff would continue repaying the entire mortgage but in return, he would obtain an increase in his beneficial holding in the Property, which corresponded with the additional mortgage contributions.  Pursuant to and in reliance of the agreement, the Plaintiff repaid the mortgage instalments even after the moving out of his mother and the 1^st Defendant. It was also said that he did not view the additional contributions as part of the loan under the judgment and the charging order in HCA No.2619/2008. The Plaintiff also produced copies of various deposit forms evidencing his mortgage repayments.           

15.  On the other hand, the 1^st Defendant also prepared an affirmation. In short, he confirmed the case put forwarded by the Plaintiff that “…經雙方同意下，所有本人未能支付的50%的按揭供款之責任，將由原告人承擔及支付，而本人在該物業及車位之權益，則按照雙方最終的出資比例計算，而不是各自佔50% (Paragraph 7) …除此以外，本人亦向原告人借款 (“債項”) 。債項與本人的50%按揭供款完全無關(Paragraph 10)” .

16.  On 31 August 2011, Master Ko allowed the application of the Plaintiff for the purpose of sale but, with respect to the question of the extent of the 1^st Defendant’s beneficial interest in the Property, it was adjourned for further argument.

17.  The matter then came before me on 11 November 2011. Mr. Lester Lee of Counsel acted for the Plaintiff and Mr. Chan of Messrs. Chow, Griffiths & Chan, for the 2^nd Defendant. The 1^st Defendant was absent. Having heard from them, I reserved my decision to be handed down. I now do so.

Rulings

18.  Upon consideration of all the evidence authorities and submissions from the parties, I have decided to rule in favour of the Plaintiff. I am satisfied that the disputes of the parties can be decided summarily before me by way of affidavit evidence, and on balance, I agree to accept the case advanced by the Plaintiff. My reasons appear in below.  

Reasons

19.  The primary case of the Plaintiff is that there was “a post-acquisition common intention of constructive trust in P’s favour rendering his beneficial interest in the Property proportionate to his total contribution” (paragraph 15 of Mr. Lee’s skeleton) On balance, I am satisfied that such case has been proved.

(a)  There is un-contradicted contemporaneous payment record produced by the Plaintiff about the mortgage payments.

(b)  There is also un-contradicted evidence produced by both the Plaintiff and the 1^st Defendant about the arrangement of payment of mortgage payments, the common intention and the agreement.

(c)  Mr. Chan diligently referred me to the “changes” of the case of the Plaintiff by reference to the pre-action letter, the supporting affirmation and the affirmation in reply. It was said the Plaintiff started to rely on “the monthly payment” in the beginning, then “common intention”, and only finally, “an agreement between the 1^st Defendant and him”. Mr. Chan further suggested that the relation between the Plaintiff and the 1^st Defendant through the Plaintiff’s mother also gave rise to a possibility of concerted practice.

(d)  However, the difficulty with Mr. Chan is that the 2^nd Defendant does not have any positive evidence to contradict those of the Plaintiff and the 1^st Defendant. As such, the best that he could do is to try to cast doubt on the reliability of the Plaintiff’s case.

(e)  Having weighed (c) against (a) and (b) above, as well as taken into account the circumstances in the proceedings HCA No.2619/2008, including the claim of various loans lent by the Plaintiff to the 1^st Defendant and the subsequent execution thereof, I take the view that the Plaintiff has adduced sufficient and/or compelling evidence to prove his case on balance.

(f)  One further observation may be added. There is no argument between the Plaintiff and the 2^nd Defendant that the charging order of the former ranks prior to those of the latter. If the Plaintiff had included the “mortgage repayments” as “loans” in HCA No.2619/2008, such part of “judgment” would also enjoy priority over the charging orders of the 2^nd Defendant.

20.  Both Mr. Lee and Mr. Chan also had some disputes over the applicable rules of law. After thought, I will agree with the submissions of Mr. Lee.

(a)  The authority of Chan Chui Mee v. Mak Chi Choi [2009] 1 HKLRD 343 put forward by Mr. Lee clearly supports that charging order can only imposed on the beneficial interest of a debtor.  The determination of beneficial ownership under a common intention constructive trust involves a two-stage test.

(i)  Whether there is in fact such common intention that the claimant should have a beneficial interest in the property (or in the present case, a larger share)?

(ii)  What is the extent of the parties’ respective interests in the property? 

(b)  By the authority, the argument of Mr. Chan that the “beneficial” interest of the Plaintiff in the Property not being made in writing as per sections 5 and 6 of the Conveyancing and Property Ordinance (Cap. 219) will collapse.

(c)  The authority went further to explain the distinction between pre-acquisition common intention and post- acquisition common intention. Lam J. took the view that the former could be inferred more readily when the latter, in the absence of an express post-acquisition agreement, compelling evidence was required.

(d)  The learned Judge also discussed “a change of common intention in the course of dealings”, similar to what was deposed by the Plaintiff and the 1^st Defendant.

“38. Problems arise when there has been a change of common intention in the course of dealings between A and B. Suppose the common intention at the beginning was that A and B will be beneficial owner in equal shares. In the course of dealings, that intention was changed to a distribution between A and B of 25: 75. If the equitable interest of C cannot be fully satisfied by 25% of the property and if that equitable interest was acquired by C prior to the change of common intention, should C have priority over B? The answer to that question depends on the correct analysis on the effect of the change in common intention: whether it is a disposition of beneficial interest or it merely enlarges the extent of an indeterminate existing beneficial interest.

39…

40. Since the plaintiff and the third party did not have legal representation, I do not have the benefit of full arguments on the law. My tentative view is that in a case where the initial common intention is to have the share distribution to be quantified later the beneficial interest of A and B can be regarded as indeterminate and the increase and decrease in its size during the course of the dealings will not be treated as the disposition of any beneficial interest. In that sort of scenario, C cannot contend for any priority over B simply because the extent of B’s interest has increased over time.

41. On the other hand, if it is a case of change of common intention which led to change in the share distribution, it must be regarded as a disposition of beneficial interest. If C acquired an equitable interest prior to such disposition (and assuming his interest is equal to that of B in the eyes of equity), he would be able to claim priority over B’s increase in beneficial ownership.”               

(e)    In the present case, Mr. Lee asked me to adopt the tentative view of the learned Judge, i.e. the imposition of a common intention constructive trust with the common intention being that the share distribution would be undetermined to be quantified later in light of the total contribution by the Plaintiff. I agree with such proposition and the reasons to support the same.

“(a) both P and D1 are lay persons and not familiar with legal niceties. When the subsequent common intention was formed, it is obvious that the less complex arrangement would be preferred;

(b) D1 had in mid-2007 moved out of the Property at about the same time when P had assumed D1’s mortgage obligations under the First Mortgage. D1 had, for all intents and purposes ceased to be engaged in the affairs of the Property; and

(c) had the subsequent common intention been that D1 would dispose of his beneficial interest in a piece meal manner, it would have been illogical and commercially unsound for P to have continued contributing to the entire mortgage repayment after D2’s Charging Orders and D1 being adjudged bankrupt. That P continued to make such contributions is evident of the common understanding that the share distribution in the Property would be undetermined to be quantified later in light of the total contribution by P.”

(Paragraph 27 of Mr. Lee’s skeleton)

Conclusion

21.  In the circumstances, ruling is to be made in favour of the Plaintiff in relation to the argument before me. As I understand that the Plaintiff is still paying the mortgages, the share of his beneficial interest in the Property will increase and exceed 73%. I will leave the exact terms of the order to be agreed by the parties, failing agreement within 14 days from the date hereof, the matter can be referred to me.

22.  As to costs, I take the view that the concern of the 2^nd Plaintiff is not entirely unmeritorious and the Plaintiff has to prove the sharing of his beneficial interest in the Property in any event. Hence, there will be no order as to costs as between the Plaintiff and the 2^nd Defendant in respect of their argument and the hearing before me as well as all costs reserved.

23.  Regarding the costs of the proceedings, I will allow the sum of $30,000, i.e. the usual bench mark costs plus some more for the purpose of the matter relating to the Official Receiver. The extra costs incurred by the Plaintiff to satisfy this Court of his actual beneficial interest in the Property should be taken up by him.

24.  The above costs orders are made in the nature of order nisi and will become absolute within 14 days from the date hereof, unless there will be any application of variation by summons issued by any of the parties.