NEW CENTURY CREDIT SERVICES CO., LTD v. LEUNG WAI PUI AND OTHERS

DCMP 2610/2017

[2018] HKDC 504

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 2610 OF 2017

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DECISION

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Introduction

1.  This Originating Summons was issued by the plaintiff, a licensed money lender, for an order for sale of Flat A, 10^th Floor, Shun Hing Building No 319 Ferry Street, Kowloon, in enforcement of a charge dated 14 October 2015 whereby the 1^st defendant charged his interest of and in the said property.  The charge was to secure a loan of HK$500,000 repayable in a year.  The charge contained a power to sell the charged property upon default.  

2.  As the 1^st defendant defaulted repayment, and later also, appearance in the legal action commenced by the plaintiff to enforce the loan agreement, money judgment was obtained on 17 August 2017, for HK$577,000 as well as interests at the rate of 36% per annum on the loan amount from May 2017, and costs. 

3.  The 1^st defendant debtor is one of the three joint legal owners of the property, along with the 2^nd and 3^rd defendants.  The 2^nd defendant is a brother of the debtor, and the 3^rd defendant is the mother.  Only the 2^nd defendant appeared in these proceedings.  

4.  On 7 September 2017, the plaintiff proceeded with enforcing the charge seeking an order for sale of the property, by issuing this Originating Summons on the basis of Order 88 of the Rules of District Court, and Sections 2, 3 and 6 of the Partition Ordinance.

5.  According to the plaintiff, the property has a market value of HK4.72 million as of September 2017.

6.  The 2^nd defendant, a brother of the 1^st defendant and an occupant of the property, argued at the hearing that there were circumstances pointing to the existence of resulting trust or constructive trust such that only the 3^rd defendant/the mother being one of the three joint legal owners, is the beneficial owner of the entire property.

7.  Ms Yvonne So, for the 2^nd defendant, reasonably confined her case to be that there were circumstances warranting adjournment of the hearing and for the matter to be treated as a writ action.

8.  It is common ground that there is no contemporaneous document to corroborate with or support the alleged trust, be it resulting or constructive.  On the other hand, contemporaneous documents heavily come down in favour of the plaintiff:-

(a)   The 3^rd defendant and her husband used to be the joint owners, and upon the passing away of the husband in 1991, there was an assignment dated 12 March 1992 in which the 3^rd defendant represented herself as vendor, and the 2^nd defendant, 3^rd defendant and Leung Wai Ming (another brother who is no longer a joint owner since 2002) as purchasers; they all represented that consideration was paid and received among the parties at HK$500,000; 

(b)   In 2002, there was another assignment dated 26 November 2002 whereby the vendors were the 2^nd and 3^rd defendants and Leung Wai Ming, and the purchasers were the 1^st, 2^nd and 3^rd defendants; the parties represented that a consideration of HK$870,000 was paid and received; this 2002 assignment set the background of the present proceedings;

(c)   The parties’ signatures on the assignments have been attested before solicitors; and

(d)   The two assignments were registered in the Land Registry, and the land search reveals that the parties as such are joint tenants; there is no entry or notice as to the alleged trust in the land search.   

9.  In the affirmation of the 2^nd defendant, he claimed that the mother is the sole beneficial owner by way of resulting trust in that all the purchase money was being paid by the parents; the sons did not pay a cent, and that despite of what were stated in the assignments, there was no money changing hands.

10.  In her skeleton submissions, Ms So for the 2^nd defendant, also argued on the basis of a constructive trust by way of which the parties intended that the sons, despite having legal titles, are to have beneficial ownership only when the mother passes away.  It was argued that the 3^rd defendant mother controlled the property by possessing the title deeds, by directing the distribution and change of legal ownership under the two assignments, and by replacing Leung Wai Ming with the 1^st defendant in the 2^nd assignment in 2002.  These controls meant, as Ms So argued, that the mother was the sole beneficial owner of the entire property.

11.  It is the plaintiff’s evidence, which is not disputed, that it acted upon the land search at the time of granting the loan and entering into the charge, and there was no entry or notice suggesting the alleged trust. 

Real live issue – whether to wait for 3^rd defendant’s evidence

12.  All the key facts being set out above, they are merely background.

13.  The real live issue is basically one only - whether the court should wait for the 3^rd defendant’s evidence to be made available.  The 2^nd defendant said that he and the 1^st defendant debtor were mere trustees and so it was for the 3^rd defendant to make good the claim that she is the sole beneficiary

14.  According to the 2^nd defendant, the 3^rd defendant is 87 year of age now, senile and residing in an elderly home.  At the hearing, the 2^nd defendant is only insisting that as another sibling has just applied for legal aid on 27 April 2018 (to act as guardian ad litem for the 3^rd defendant[1]), the court should adjourn the matter until the evidence of the 3^rd defendant in the form of documents or from other witnesses for her to be available. Given the application of legal aid just before this hearing, the first preliminary issue to decide is whether to lift the automatic stay effected upon application of a party or an intended party for legal aid.  This preliminary issue is in fact the same real live issue as in whether to wait for the 3^rd defendant’s evidence.  I have decided to lift the stay and proceeded with continuing to deal with the matter.  The reasons were reserved, and are basically the same as the analysis leading to the granting of order for sale as set out below.   

Bona fide purchaser for value without notice

15.  I believe that the complete answer to the issue whether to wait for the 3^rd defendant’s evidence lies in the doctrine of bona fide purchaser without notice.  Even if the court waits for the 3^rd defendant, and even if the 3^rd defendant succeeds in establishing trust, her interest (in the 1^st defendant’s share) is equitable.  The plaintiff however acquired the interest in the 1^st defendant’s share by legal charge, without notice of any alleged unwritten interest of the 3^rd defendant, and for value of advancing the loan.  It should take free of the mother’s equitable interest, if any is to be established.  A bona fide purchaser for valuable consideration who obtained a legal estate at the time of his purchase without notice of a prior equitable right was entitled to priority in equity as well as in law (Snell on Equity, 2015 ed, at para 4-018).  Such doctrine was also recently applied by the Court of Appeal in Si Tou Choi Kam v Wealth Credit Limited, CACV 167 of 2017/[2018] HKCA 250, dated 30 April 2018 at para 17, and also in The Bank of East Asia v Chan Wing Hung & Anor, DCMP 1816 of 2017/[2018] HKDC 271 dated 22 March 2018 at para. 44 and 49.  The Bank of East Asia applied the doctrine in a similar way as in here.

16.  I have given a direction on 30 April 2018, before the hearing, inviting both the plaintiff and the 2^nd defendant to address the court on this doctrine.  It seems that the 2^nd defendant has not argued for its being not applicable.  

17.  Ms Shannon Leung, counsel for the plaintiff, interestingly chose not to avail herself of this doctrine.  She said that the doctrine applied only when trust has been established, and so it is quite irrelevant at this stage. 

Resulting trust precluded by estoppel and inadmissibility of evidence contradicting registered deeds

18.  Ms Leung instead relied heavily on the doctrines of inadmissibility of evidence contradicting deed, and estoppel. Rightly, she argued that evidence directly contradicting with the plain terms of a deed should be inadmissible and should not be received by the court, and furthermore, that the terms of a registered deed bars the submitting party from contending otherwise and alleging a trust (Tsang Chuen v Li Po Kwai [1932] AC 715, at 729-730, referred to in Fast Forward Ltd v Magicsound Co Ltd & Anor [1990] 2 HKC 494 at 516B-C).  It is also true, as shown in this line of authorities, that registration in the Land Registry of the assignments is a valid additional basis on which the submitting party should be estopped from contending contradicting position, or adducing contradicting evidence.   

The 2^nd defendant’s case of alleged constructive trust

19.  However, it seems to me that the plaintiff’s reliance on the representation in the assignments, estoppel, and inadmissibility of contradicting evidence seems to answer only the case of resulting trust but not also constructive trust.  The representation of payment made and the receipt seem to concern the validity of the allegation of resulting trust only.  The existence of constructive trust can be quite independent from the purchase payment.  For example, even after a member of the family has paid for the purchase of a property, or after parties have made representation as to who had paid for the property, such payment, representation and registration do not preclude the existence of an understanding, agreement or course of conduct, whether at the same time or afterwards, for another way of beneficial ownership distribution.      

20.  I believe that the doctrine of bona fide purchaser for value without notice answers the case of constructive trust as well, and renders future availability of 3^rd defendant’s evidence on this irrelevant, and so there is no need to wait for her evidence.

21.  In case I am wrong on the application of the doctrine of bona fide purchaser without notice, in relation to the possibility of constructive trust, it seems to me that the existing factual dynamics according to the 2^nd defendant’s evidence render constructive trust somewhat unarguable.

22.  First, the 2^nd defendant deposed[2] that in 2002, Leung Wai Ming was not able to pay his debts by his own means; his mother directed in 2002 for Leung Wai Ming’s name to be replaced by the 1^st defendant debtor such that a loan could be raised on the security of the property for repaying Leung Wai Ming’s debt.  This speaks of Leung Wai Ming’s share being beneficial.  If Leung Wai Ming’s interest was beneficial, the same should go for the 1^st defendant debtor and the 2^nd defendant.  Sensibly, Ms So did not argue otherwise; she relied on this fact to only argue for control of the mother. 

23.  Secondly, I believe that any kind of agreement, arrangement or conduct on which a constructive trust bases inevitably involve the alleged trustee as a party.  The 2^nd defendant ought to be a party to or was involved in such agreement, arrangement or course of conduct.  However, the 2^nd defendant has not deposed anything to this effect.  On the other hand, he impressed upon the court that he could say nothing more, and the matters required the 3^rd defendant to give evidence.

24.  It seems quite clear that the facts of this case are very different from those in Primecredit v Yeung Chun Pang Barry & Anor, CACV 246 of 2016, dated 21 July 2018, relied on by Ms So for the constructive trust arguments.  Among other things, as rightly pointed out by Ms Leung, the mother in that case was not a maker of any former representation contradicting to her case.  I believe also that the control argument of the mother in Primecredit did not avail the mother here because in this case, the control before death was carried out by holding the legal title as one of the joint owners throughout all the relevant times.  In Primecredit, the mother was not named in the title, and hence, the trust in such terms as she alleged to exercise the control was valid.    

Other matters

25.  It may be worthwhile to note two more matters which have arisen but were no longer live issues at the hearing. 

(1)   Hardship - The total sum of the indebtedness being about 1/5^th or 1/4^th of the market value of the property.  It does not render a suggestion of hardship easy to be made out.  In addition, the avowed position of being a mere trustee of his share apparently precluded the 2^nd defendant from complaining hardship.  Ms So sensibly indicated at the hearing that she no longer asked me to deal with a claim of hardship. 

(2)   Official Solicitor - The prospect of the Official Solicitor’s office to represent the 3^rd defendant had already been explored.  On 27 April 2018, before the hearing, the office has indicated that it would not represent the 3^rd defendant as there was no need for them to, given Leung Wai Yin’s intended involvement as guardian ad litem.  The point is that I was not insensitive to the fact or possibility of the 3^rd defendant being senile, and allowance has been given for any potential complication arising from that.  It seems, though, that the issue of her representation should have received enough attention since January 2018 when the 2^nd defendant’s solicitors was on board, and since their approaching of the Official Solicitor in April 2018.[3]

26.  In all these considerations concerning the 3^rd defendant’s representation and whether the court should wait for her evidence, I am also assuming the best case scenario for the 2^nd and the 3^rd defendants assuming the evidence be relevant and probative to the issues of trusts despite the fact that she is senile.

Orders

27.  The order for sale should be granted as the case of trusts could not be made good or otherwise be engaged to defeat the plaintiff’s application here.  There is no point for the legal aid automatic stay to continue, and there is no point to wait for any evidence that may be adduced on behalf of the 3^rd defendant.  The papers are in order and I have inspected the original copy of the charge.

28.  At the end of the hearing, the parties agreed on de bene esse basis the terms of the order for sale as follows.  I so adopt them and make the following my order:-

(1)   The 1^st, 2^nd and 3^rd defendants do deliver up vacant possession of the Property to the plaintiff within 56 days after service of the order;

(2)   Upon the 1^st defendant paying to the plaintiff (a) the sum of HK$577,000; (b) interest accrued on the sum of HK$500,000 at the rate of 36% per annum from 9 May 2017 until payment in full; (c) interest accrued on the sum of HK$77,000 at judgment rate from the date of judgment until payment in full and (d) costs of the action in DCCJ 2128 of 2017 assessed at HK$9,200 as adjudged under the judgment dated 17 August 2017 (the “Judgment Debt”) and the costs of these proceedings, the plaintiff do redeliver possession of the Property to the 1^st, 2^nd and 3^rd defendants, and release the 1^st defendant from the security constituted by the mortgage;

(3)   The Property be sold pursuant to section 6 of the Partition Ordinance (Cap 352) at open market value at not less than $4 million;

(4)   The conduct of the sale be given to the plaintiff’s solicitors;

(5)   The sale proceeds of the Property shall be applied by the plaintiff’s solicitors in the following manner and priority:-

(a)   In discharge of all rent, taxes, rates and other outgoings due and affecting the Property;

(b)   In payment of all encumbrances having priority to the Mortgage, if any;

(c)   In payment of all lawful remuneration, legal costs, charges and expenses properly incurred in the sale or other dealing in respect of the Property;

(d)   In payment of all the plaintiff’s costs of these proceedings;

(e)   One-third of the remaining proceeds be paid to the 2^nd defendant, one-third of the remaining proceeds be paid to the 3^rd defendant, who both owns one-third of the Property with the 1^st defendant as joint tenants;

(f)   The remaining one-third of the proceeds in payment of the Judgment Debt, interest and costs due under the judgment; and

(g)   The balance, if any, after deduction of the costs and disbursements for handling the encumbrances affecting the Property and ranking immediately behind the Mortgage, or if there is no such subsequent charge, to the 1^st defendant;

(6)   There be liberty to apply, including for (but without limitation to) directions on the terms and manner of the sale of the Property;

(7)   Costs of the application be paid by the 1^st defendant to the plaintiff plus valuation fee of $5,000.

29.  As to para 7 of the above agreed order, there is apparently a need to provide for costs “to be taxed if not agreed”, and also “the 2^nd defendant’s own costs to be taxed pursuant to the Legal Aid Regulations”.  To avoid the need to come back to the court, I order also that these terms be added to the agreed order unless the parties agree between themselves otherwise. 

30.  I thank Ms Leung and Ms So for their assistance. I am impressed by Ms Leung’s in-depth examination of the cases she relied on and Ms So’s demonstrated professionalism to the aided person.