WYM v. LYM

CACV 89/2023, [2024] HKCA 499

On appeal from [2022] HKFC 95

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 89 OF 2023

(ON APPEAL FROM FCMC No. 14114 OF 2015)

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REASONS FOR JUDGMENT

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

Introduction

1.  In this appeal, the intervener seeks to overturn the determination of His Honour Judge Own (“the Judge”) sitting in the Family Court given on 4 May 2022.  By the determination[1], the Judge held that the intervener’s beneficial interests in a property under a mortgage created by the respondent in its favour, were acquired with constructive notice of the petitioner’s beneficial interests that arose out of her spousal relationship and occupation of the property.  

2.  At the conclusion of the hearing, we allowed the appeal and made consequential declarations and costs orders (see [31] below).  We now give our reasons.

Background

3.  The intervener (“GFL”) is a licensed money lender registered under the Money Lenders Ordinance, Cap, 163.

4.  The respondent and the petitioner were formerly husband and wife.  They married in May 1971 and have two children.  The parties are now in their late 70s and their children are in their late 40s and early 50s.  On 4 November 2015, the petitioner presented a petition for divorce in FCMC 14115/2015 (“Matrimonial Proceedings”).  The decree absolute was granted on 25 July 2017. 

5.  The present appeal arose from the determination of a preliminary issue in the ancillary relief proceedings.  The dispute in question concerns the matrimonial home situated at Flat 11 on 5th floor and Corresponding Roof of a building on Sha Tsui Road, Tsuen Wan, New Territories (“the Property”).  In her notice of application for ancillary relief, the petitioner sought monetary relief and property orders in respect of the Property.

6.  The Property was purchased in March 1971 in the joint name of the respondent and his mother, holding as joint tenants.  Subsequently, the Property became registered in the sole name of the respondent.  After the parties’ marriage in May 1971, they had been residing in the Property.

7.  On 11 June 2015, the respondent entered into a loan agreement with GFL for a loan of HK$ 1.8 million.  On the same day, the respondent also executed a mortgage over the Property in favour of GFL as security for the loan.  The mortgage was registered in the Land Registry on 17 June 2015.  

8.  Since February 2016, the respondent had defaulted in making repayment under the loan agreement.

9.  On 2 March 2016, GFL commenced an action in HCMP 499/2016 (“Mortgagee Action”) to recover the monies due under the loan agreement.  On 28 September 2016 the petitioner joined in the Mortgagee Action, claiming she has a beneficial interest in the Property.

10.  On 14 October 2016, GFL obtained a monetary judgment against the respondent in the Mortgagee Action, with the claim for possession being adjourned sine dine with liberty to restore pending the determination of the petitioner’s claim for beneficial interest in the Property.

11.  On 18 October 2017, the Judge ordered that GFL be joined as an intervener in the Matrimonial Proceedings, and that the issue of competing interest between the petitioner and GFL be determined as a preliminary issue in the Matrimonial Proceedings.  Pursuant to directions given by the Judge, GFL and the petitioner had filed pleadings and witness statements.

The petitioner’s claim.

12.  The petitioner pleaded in the Points of Defence and Counterclaim that she had a beneficial interest in the Property by reason of (1) common intention constructive interest; (2) resulting trust; and/or (3) proprietary estoppel.

13.  In essence, the petitioner’s case on common intention constructive trust is that it was the common intention of the respondent, his mother and the petitioner that the Property was purchased for the petitioner and the respondent as their matrimonial home.  Her case on resulting trust is that she had discharged the mortgage repayments and had also given the respondent’s mother a sum of HK$8,000 in 1974 for the purpose of redeeming the Property.  As to the claim on proprietary estoppel, the petitioner’s case is that she had paid for the refurbishment and maintenance as well as the utilities of the Property.     

The Judge’s decision

14.  The Judge considered there were two main issues to be determined by way of preliminary issues: first, whether the petitioner has any, and if so, how much, beneficial interest in the Property by way of (a) a common intention constructive trust, (b) a resulting trust, or (c) proprietary estoppel; and second, whether GFL was a bona fide mortgagee for value without notice so that its interest prevails over that of the petitioner.

15.  On the first issue, the Judge held that: (1) the claim in common intention constructive trust lacks evidential basis in that it was neither pleaded nor proved that there was an express discussion of the claimed common intention among the respondent, his mother and the petitioner; (2) the claim in resulting trust is not made out on the evidence in that the petitioner’s evidence on the payment of HK$8,000 was not credible and there was no cogent evidence to show that she had discharged the mortgage repayments; and (3) the claim of proprietary estoppel was not made out in that two of the expenses paid by the petitioner over the years were day to day general expenses for the benefit of the petitioner and the family’s use and occupation of the Property and not in anticipation of any common intention for acquisition by the petitioner, and the rest of the expenses were made after the acquisition of the Property that were not referable to the acquisition of the Property.

16.  The Judge concluded at [64] of the decision that:

“[the petitioner] does not have any legitimate defence of beneficial interest to the Intervener’s claim over the Property by way of (a) common intention constructive trust; (b) resulting trust; and (c) proprietary estoppel. There was no detriment caused to [the petitioner] for any beneficial interest over the Property that could be established or inferred by way of defence.”

17.  The Judge then went on to state in [65] that:

“It is important for me to re-iterate that such finding was not determinative or indicative of W’s claim for beneficial interest (if any) over the Property within the matrimonial regime (emphasis added) nor would such finding prejudice W’s position in her subsequent ancillary reliefs claim, which has yet to begin. As said, such claim would have to be decided upon the matrimonial framework which was different from the present proceedings.”

18.  As to the second issue, the Judge was of the view that the respondent’s personal details available to GFL, which showed that he was married and resided at the Property but did not name the spouse nor reveal with whom he was residing at the Property, were important and alarming facts that put GFL on notice, obliging it to make enquiry as to the possible existence of others’ interests in the Property.  He considered that possession of title deeds and records of ownership of legal title could not dispense with the need for making usual and proper inquiry of any other possible beneficial interests in existence.  The Judge held at [84] and [85] of the decision that:

“84. … [GFL] acquired their beneficial interests over the Property with constructive notice of [the petitioner’s] beneficial interests under her spousal relationship and presence in occupation in the Property.

85. That said, [GFL’s] beneficial interests acquired through the Deed(s) of Mortgage rank after [the petitioner’s] beneficial interests. The extent of [the petitioner’s] beneficial interests vis-à-vis [the respondent] had yet to be determined at the ancillary reliefs trial.”.

19.  The Judge accordingly made the following orders (at [89]):

(1)  GFL’s beneficial interests in the Property was subject to constructive notice of the petitioner’s beneficial interests;

(2)  The petitioner’s counterclaim for beneficial interests in the preliminary issue proceedings be dismissed;

(3)  No order as to costs between all parties including all costs reserved; and

(4)  The respondent’s own costs be taxed in accordance with Legal Aid Regulations.

Grounds of appeal

20.  In this appeal, GFL raised four main grounds of appeal as follows (respectively “Ground (1)” to “Ground (4)”):

(1)  Constructive notice was no longer a relevant issue after the petitioner’s claim for common intention constructive trust, resulting trust and proprietary estoppel was rejected (Grounds 1 and 4 in the Notice of Appeal).

(2)  The encumbered part of the Property does not form part of the respondent’s asset available for distribution in the petitioner’s ancillary relief application (Ground 2 in the Notice of Appeal).

(3)  Spousal relationship and occupation of the Property do not give rise to recognized or defined proprietary interest in land (Ground 3 in the Notice of Appeal).

(4)  Even if constructive notice was relevant, any further enquiry made by GFL prior to granting a mortgage on the Property would not have revealed a probable existence of any right of the petitioner given that her claim of beneficial interest has been rejected by the Judge (Ground 5 in the Notice of Appeal).    

Our reasons for judgment

21.  As had been rightly recognized by the Judge, the core issues between the petitioner and GFL are: (1) whether the petitioner has a beneficial interest in the Property as claimed; and (2) whether GFL was a bona fide mortgagee for value without notice so that its interest prevails over that of the petitioner.  The second question, however, is not a standalone question and will only arise if the petitioner succeeds on the first issue.  This is because if the petitioner does not have any competing beneficial interest in the Property, there is neither basis nor need to consider whether GFL’s interest in the Property is subject to the petitioner’s interest.  The question of notice, whether actual or constructive, will also be irrelevant if the petitioner has no recognized interest in the Property: Wong Chim-ying v Cheng Kwan-wing [1991] 3 HKLR 253 at 274H.   

22.  The Judge found on the evidence that the petitioner does not have any beneficial interest in the Property as claimed, i.e. by way of (a) a common intention constructive trust, (b) a resulting trust, or (c) proprietary estoppel.  It follows from the Judge’s findings that the petitioner’s claim for beneficial interest is not made out and her counterclaim falls to be dismissed.  This is also the Judge’s order (at [89(2)] of the decision, see [19] above).  It would also follow from the Judge’s findings that when the respondent mortgaged the property to GFL in 2015, the petitioner did not have any beneficial interests in the Property. There is thus nothing which GFL’s interests acquired under the legal charge could be subject to. 

23.  In HKCB Finance Limited v Yuen Yi Wan Sandy & Anor (unreported) CACV 355/2005, 1 August 2006, the 2nd defendant, who was a deserted wife, sought to defend the plaintiff’s claim under a legal charge created by the purchaser of the matrimonial home on the grounds, inter alia, that (i) she had beneficial ownership of the property by reason of section 17 of the Matrimonial Proceedings and Property Ordinance, Cap. 192 (“MPPO”); (ii) she had acquired an equitable interest by reason of her contribution to the family; and (iii) the purchaser and the plaintiff had actual or constructive notice of the interest of her interest in the property.  The trial judge rejected the wife’s defences.  The wife’s appeal was dismissed by the majority decision of the Court of Appeal.  After upholding the trial judge’s conclusion that the wife failed to establish any interest in the property, Rogers VP, who gave the majority judgment, went on to consider the question of notice and held at [17],

“In the absence of the second defendant establishing that she had any equitable proprietary interest in the property I see no basis for disturbing the judge's conclusions. Even if it could be said that the plaintiff should have inspected the property prior to accepting a mortgage on it, it would have not have been put on notice of any proprietary claim by the second defendant because the second defendant had no proprietary claim. Any claim for maintenance would, at the stage that the mortgage was created, not have created any equitable interest in the property in favour of the second defendant.”

24.  The same analysis applies to the present case.  Given the Judge’s finding that the petitioner did not have any proprietary interest and his dismissal of her counterclaim, GFL could not have been put on notice of any beneficial interest of the petitioner as she did not have any interest in the Property.  It is of no consequence whether GFL had inspected the Property and/or made the usual enquiry.  In short, the issue of notice does not arise for consideration.  There is no legal and evidential basis for holding that GFL acquired its interests under the mortgage with constructive notice of the petitioner’s beneficial interest in the Property and that GFL’s interests should rank after the petitioner’s interest.

25.  This brings us to the Judge’s holding that the petitioner has a beneficial interest in the Property based on her spousal relationship and occupation of the Property.  It should be noted at the outset that this is not the basis of the petitioner’s pleaded counterclaim or her case at the trial.  The Judge stated that his finding that the petitioner did not have any beneficial interest as claimed would not be determinative or indicative of her “claim for beneficial interest over the Property within the matrimonial regime”; “nor would such finding prejudice [her] position in her ancillary reliefs claim” ([65] of the decision, see [17] above).  He did not elaborate on the nature, content or basis of the beneficial interest said to have arisen within the matrimonial regime.  It seems to us that the Judge was probably having in mind the petitioner’s claim for ancillary relief against the respondent in the Matrimonial Proceedings. 

26.  Between the petitioner and the respondent, it might well be right that the petitioner may have a claim against the respondent by way of ancillary relief under the MPPO, notwithstanding her failure to establish trust or estoppel over the Property.  However, the dispositive powers of the court under the MPPO only extend to matrimonial assets belonging to the petitioner and/or the respondent.  The mortgage in favour of GFL is an incumbrance on the Property.  The encumbered part of the Property does not form part of the respondent’s asset.  Further, as mentioned above, the Judge had found against the petitioner on her proprietary claim over the Property, and she did not have any proprietary interest in the Property whether by way of trust or estoppel.  Hence, as Mr Cheung for GFL pointed out, what will be available for distribution under the matrimonial regime is confined to the unencumbered value of the Property.  It follows that the petitioner’s entitlement to claim ancillary reliefs under the matrimonial regime cannot give rise to a proprietary interest in the Property that ranks before GFL’s interest under the mortgage.

27.  Mr Chow, who appeared for the petitioner, sought to support the Judge’s holding by relying on the dissenting judgment of Cheung JA in HKCB Finance Limited, supra.  In that case, Cheung JA held that the wife had established an interest in the matrimonial property by reason of her contribution, which took the form of looking after the family and financial contribution, in that a common intention that she would have an interest could be inferred objectively from her contribution.  In our view, the reliance on Cheung JA’s judgment is misplaced.  This is because the finding that the wife had a beneficial interest was premised on constructive trust and Cheung JA’s discussions have to viewed in that context: see [(42(3)] and [43] to [73].  As pointed out above, the Judge had rejected the petitioner’s constructive trust claim, and there is no cross-appeal against this holding.                       

28.  In short, we are of the view that the Judge’s conclusion that the petitioner has a beneficial interest in the Property based on her spousal relationship and occupation of the Property cannot be supported as a matter of law.

29.  For the above reasons, we had allowed the appeal. 

30.  Applying the usual rule of costs follow the event, we had also ordered the petitioner to pay the intervener the costs of this appeal and below, including the costs of the applications for leave to appeal made to the Judge and in CAMP 4/2023, to be taxed if not agreed.  We had declined to certify the matter fit for two counsel and ordered the petitioner’s and the respondent’s own costs be taxed in accordance with the Legal Aid Regulations.  We also made no order as to the costs between the petitioner and the respondent and the costs between the intervener and the respondent.

Disposition

31.  The orders that we made are as follows:

(1)  The intervener’s appeal is allowed.

(2)  The Judge’s order is set aside.

(3)  It is declared that the respondent is the sole legal and beneficial owner of the Property.

(4)  The petitioner’s counterclaim is dismissed.

(5)  The petitioner pays the intervener the costs (including the costs reserved) of this appeal, the trial of the preliminary issue and the leave to appeal made to the Judge together with a certificate for counsel, and the application for leave to appeal made in CAMP 4/2023, to be taxed if not agreed.

(6)  No order is made on the costs as between (a) the petitioner and the respondent; and (b) the intervener and the respondent in relation to this appeal, the trial of the preliminary issue and the leave to appeal applications.

(7)  The petitioner’s and the respondent’s own costs of this appeal, the trial of the preliminary issue and the leave to appeal applications be taxed in accordance with the Legal Aid Regulations.