KO SHA LAM v. KEI FONG

HCA 3971/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3971 OF 2000

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J U D G M E N T

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Background

1.  By this proceeding, the Defendant’s ex-husband, Mr Chan (“Chan”), seeks to show cause that a property at Flat D on 15/F of Block 10 of Royal Ascot in Shatin (the “Property”), held in his joint name with the Defendant should not stand charged with the payment of judgment debt made against the Defendant.  Chan’s case is that the Property was purchased solely with his own funds but was held under his joint name with the Defendant as a matter of convenience only.  The Defendant did not contribute to the purchase price of the Property and Chan had never made a gift of any share of any interest in the Property to the Defendant.  The question raised in this proceeding is whether the Defendant has any beneficial interest over the Property chargeable under the charging order nisi, and if yes, what is the extent of that interest.  The answer to this question depends on my finding on the following factual issues:

(1)  whether the Defendant contributed to the purchase price of the Property and if she did, the extent of her contribution; and

(2)  if the Defendant did not, whether the presumption of advancement operates to vest in her any beneficial interest in the Property.

2.  Both Chan and the Defendant did not have an impeccable character.  Chan had served a prison term in 1989 before he started his cohabitation with the Defendant in 1991.  He is now engaged in restaurant and gambling business in China and Macau.  The Defendant was convicted of three counts of fraud in 2004.  The Defendant admitted obtaining credit facilities for gambling by using bank cards belonging to another person in 2000 and incurred gambling debt of $650,000.  The Defendant could not be located.  The evidence relied on by the Plaintiff is mainly based on what she was told by the Defendant, which is hearsay and of doubtful credibility in the light of the totality of the evidence.

3.  The judgment debt and the charging order nisi were obtained under the following circumstances.  According to the Plaintiff, she was acquainted with the Defendant in China in 1989 before they came to Hong Kong.  On 15 April 2000, the Plaintiff visited the Defendant in St Paul’s Hospital in Causeway Bay and     was told by the Defendant that she was assaulted by Chan for having incurred $800,000 in gambling debts from “loan sharks”.  Later at about 11 pm that night,     the Plaintiff gave $800,000 in cash to the Defendant and went with her to Macau to repay the debt to the loan sharks.  The Plaintiff and Defendant returned to     Hong Kong on 16 April 2000, but the Defendant failed to repay her.  On 17 April 2000, the Plaintiff’s solicitors issued a writ of summons against the Defendant seeking to recover the money lent.  On 18 April 2000, the Defendant filed an acknowledgment of service of the writ of summons stating that she did not intend         to defend the action.  On 10 May 2000, the Plaintiff’s solicitors entered judgment against the Defendant in the said sum of $800,000 with interest and fixed costs.  Remarkably, on that very day, the Plaintiff went with the Defendant to the Plaintiff’s solicitors’ office to accept service of a sealed copy of the judgment.  On 19 May 2000, the Defendant applied to set aside the judgment on the ground that she had never borrowed the said sum of $800,000 from the Plaintiff and was     trapped into signing the acknowledgement of service in the Plaintiff’s solicitors’ office on 17 April 2000.  On 23 May 2000, the Plaintiff’s solicitors obtained a charging order nisi against the Property in respect of the judgment debt.  On 21 June 2000, the Defendant withdrew her application to set aside the judgment by consent.  For five years, the Plaintiff took no action to have the charging order made absolute.  The circumstances surrounding the obtaining of the judgment, the Defendant’s application to have the judgment set aside and then consented to withdraw her application are strongly suggestive of collaboration between the     Plaintiff and the Defendant.  Furthermore, just shortly before those events the Defendant had entered into a deed of separation with Chan disclaiming her interest     in the Property.  The judgment against the Defendant could not now be challenged by Chan.  Nor am I permitted go behind that judgment and query its propriety.

4.  The following is a chronology of the relevant events.  Those events are either incontrovertible or incapable of challenge by the opposing parties due to lack of contradicting evidence.

Whether the Defendant contributed to the purchase price of the Property

5.  Chan seeks to show cause that the charging order should not be made absolute.  The burden is on him to prove that the Defendant had no interest in the Property chargeable to answer for any unsatisfied judgment against the Defendant.  He has to show that the Defendant did not contribute at all to the purchase     price of the Property, in other words, that he and/or someone else other than the Defendant, contributed to the purchase price of the Property.  Chan’s case is     that he purchased the Property with a loan of $6,000,000 from his brother and a mortgage loan of $4,880,000 from Citibank N.A. which he repaid by monthly instalments through auto-pay from his own bank account.  His case is very straight-forward and documented.  His brother sold his flat in Royal Ascot on 16 April 1997 for $6,850,000 which was paid into his brother’s bank account with The Yien Yieh Commercial Bank Ltd.  His brother then issued a cheque in the amount     of $6,158,150 to Chan, which was deposited into Chan’s bank account with Hang Seng Bank Limited on 18 April 1997.  On 6 May 1997, Chan entered into an agreement for the purchase of the Property at a consideration of $9,900,000.  On 20 May 1997, Chan obtained a mortgage loan of $4,880,000 from Citibank N.A. with monthly instalments being debited from Chan’s bank account by auto-pay.  The loan from Chan’s brother and the mortgage loan from Citibank N.A. coincided with the purchase of the Property in terms of amount and timing.

6.  The Plaintiff disputed Chan’s case.  The Plaintiff’s case is that the Defendant was a business-woman of some means whereas Chan was a person of no means after his release from prison in 1989.  Her evidence is based on what the Defendant had allegedly told her.  She said that she was told the following events by the Defendant.  The Defendant had given Chan $200,000 for his business.  The Defendant was the legal and beneficial owner of the Happy Valley Property in which she lived with Chan until it was sold at a profit.  Then the Defendant and Chan moved to rented accommodation in Happy Valley.  The proceeds of sale of the Happy Valley Property was used to purchase the Kingswood Property.  Then the Defendant and Chan started to engage in property speculation business with     funds provided by the Defendant.  The Property was purchased from the profits generated from the said business.  The Plaintiff also obtained bank statements of     the Defendant showing there were substantial money transactions in her bank account as evidence of the means of the Defendant and that the Defendant transferred money to Chan’s account.

7.  Chan denied that he ever borrowed money from the Defendant for his business.  He said it was his mother who provided funds for his business.  He explained that the transfers from the Defendant’s bank account to his bank account were payments by gamblers introduced by the Defendant to his gambling business in Macau.  On the other hand, the Defendant’s criminal convictions show that she was a woman of no means and had incurred gambling debts of $650,000 which     she was unable to repay and for which she was prosecuted.  On the Plaintiff’s case, the Defendant owed her $800,000.  Furthermore, the Plaintiff’s case is also contradicted by her 2^nd affirmation dated 2 June 2000 filed in opposition to the Defendant’s application to set aside the judgment.  In that affirmation, the Plaintiff said that the Defendant had always told her that Chan was a very rich man and would give the Defendant anything if she requested.  If that was what the Defendant had always impressed upon the Plaintiff, the Plaintiff evidence of what she was told by the Defendant is unreliable.  On the totality of the evidence, the Plaintiff was debt-ridden.  Whatever might have been his business or his previous convictions, Chan, at least, is a man of good credit.  He was able to obtain a mortgage for $4,880,000 from Citibank N.A. which must have carefully scrutinised his financial ability to repay.  I have no difficulties in dismissing the Plaintiff’s evidence that     the Defendant was a rich business-woman.  I find it more likely than not that Chan had a stable income and provided for the living expenses of the family.

8.  In view of the Plaintiff’s allegations, Chan disclosed all his property transactions.  His evidence is that when he came to know the Defendant in June 1991, the Defendant was unemployed.  Soon, they cohabited together and Chan provided all the family expenses.  He provided the funds for the purchase of the Happy Valley Property but the property was held in the name of the Defendant.  The reason was because the Defendant was familiar with the developer of the Happy Valley Property and was able to obtain an internal allocation for the purchase of the property.  Hence the property was held in the name of the Defendant.  Chan and the Defendant cohabited there until the property was sold and he recovered all the proceeds.  He could not recall if he made any profit out of the sale of that property.  Neither party could produce any details of the sale and purchase of that property.  I do not think the profit would have been significant as the property was only held for a short time and at a time when the property market was not very volatile. 

9.  According to Chan, he then purchased the Kingswood Property in February 1994.  He said he queued up for the purchase of the property which was hence registered in his sole name and he solely provided the purchase price.  According to the record from the Land Registry, the purchase of the property was financed by a mortgage from the developer.  The down payment required was about $280,000.  There is nothing to suggest it was unaffordable for Chan.  Chan and the Defendant moved into the Kingswood Property to continue with their cohabitation.  Chan and the Defendant formally married on 12 July 1995.  According to the particulars on the marriage certificate, the Defendant was residing in the Kingswood Property and Chan was residing in Pau Chung Street before their marriage.  Chan’s explanation is that as the Defendant did not have an address of her own, he allowed her to use the Kingswood Property address while he used his mother’s address for the purpose of registering of their marriage.  His evidence is consistent with the history of his cohabitation with the Defendant and with the fact that he was the sole registered owner of the Kingswood Property.  I cannot draw any inference from the Defendant’s use of the Kingswood Property address for the registration of their marriage as evidence that she provided part of the purchase price for that property.

10.  Then Chan sold the Kingswood Property in May 1996 and moved into his brother’s property in Royal Ascot with the Defendant where they lived until 16     April 1997 when his brother sold the property.  All along, Chan was desirous of buying a property in Royal Ascot but was unable to find any suitable property for purchase.  In the meantime, Chan purchased the Hanley Property in Tsuen Wan and lived there for a short while.  As he had to travel regularly out of Hong Kong     in connection with his business, the Hanely Villa Property was held in joint names with the Defendant for convenience in the management of the property.  Some inference could be drawn from the fact that the property was held in joint names that the Defendant had provided part of the purchase price or had been given a share of the property by way of advancement from Chan.  In the totality of the evidence I am unable to draw that inference.

11.  After Chan’s brother sold his property in Royal Ascot.  Chan and the Defendant purchased and moved into the Property on 13 June 1997.  I have referred to those transactions in paragraphs 5 above.

12.  On 15 August 1997, the Hanley Property was sold.  The proceeds of sale was applied to reduce Chan’s mortgage payment in respect of the mortgage over     the Property.

13.  Apart from being hearsay, the Plaintiff’s evidence about the Defendant’s interest in the series of property transactions is very fragmented.  On the other hand, Chan’s evidence about the purchase of the Property and how the purchase was financed is fully documented.  Mr Chu, counsel for the Plaintiff, queried Chan’s evidence about his brother’s loan of $6 million for lack of documentary support and the absence of definite term of repayment.  Despite that criticism, I cannot wholly ignore the relationship between Chan and his brother.  Chan also suggested that his brother was grateful to him for recommending the purchase of the property in Royal Ascot, which brought his brother a profit of about $3.1 million.  The issue of the cheque in the amount of $6,158,150 by Chan’s brother and its clearance into Chan’s account could not have been fabricated.  It was too much of a coincidence to be untrue.  In the light of the state of the evidence, there is no reason not to accept Chan’s evidence.  The payment of the monthly instalment by auto-pay through Chan’s bank account could not be disputed.  Chan’s case that he solely provided for the purchase price for the Property is virtually unassailable.

14.  According to Chan, he and the Defendant separated in March 1999, and the Defendant moved out of the Property.  On 19 June 1999, the Defendant executed a general power of attorney appointing Chan as her attorney.  On 22 November 1999, Chan and the Defendant executed a deed of separation.  In the preamble was recited the fact that Chan and the Defendant had been living apart since 1 March 1999.  Clauses 6 and 7 of the deed of separation provide:

“6.  The wife warrants and agrees that she shall have no claims over the interest, benefits enjoyment or equity rights over the property known as Flat D, 15^th floor, Block 10, Royal Ascot, Fotan, New Territories, Hong Kong (“the said property”) despite the fact that she is one of the registered joint tenants of the said property.

  7.  The wife further warrant and agree that she shall have no objection to the Husband to sell the said property at anytime and at any price at the Husband’s absolute discretion, and undertake to deliver vacant possession of the said property to the purchaser upon the completion of the sale and purchase without claiming for any damages or compensation from the Husband or any party concerned.”

On 20 May 2000, the Defendant filed a petition for divorce.  On 14 November 2000, Chan and the Defendant obtained an order by consent that the Defendant shall transfer all her legal and beneficial interest in the Property to Chan and Chan shall pay the Defendant maintenance of $10,000 per month upon the making of the Decree Absolute.

15.  Ms Fung, counsel for Chan, relied on the above events as evidence that the Defendant had not contributed to the purchase price of the Property.  She argued that if the Defendant had any beneficial interest in the Property or if she had contributed to the purchase price of the Property, she would not have agreed to the above terms in the deed of separation and would not have consented to an order to be made against her requiring her to transfer the Property to Chan.  The deed     of separation was executed by the parties before their common solicitor, Messrs So & Co who subsequently represented the Defendant in the divorce proceedings.  The Defendant must have been fully advised of her right in respect of the Property which was held in their joint names.  If she had contributed to the purchase price of the Property as was suggested by the Plaintiff, she would not have given it away so lightly in the deed of separation and later in the consent order.  The terms of the deed of separation and the consent order are some evidence on which the inference could be drawn that the Defendant had not contributed to the purchase price of the Property.  That inference supports Chan’s case that he alone provided the entirety of the purchase price for the Property.

16.  I am satisfied that Chan alone provided the funds for the purchase of the Property and that the Defendant had made no contribution towards its purchase.

Whether the presumption of advancement operates

17.  There are two presumptions which could operate under the present factual situation: the presumption of a resulting trust that the Defendant held the interest in the Property on trust for Chan who provided the purchase price and the presumption of advancement that Chan made a gift of the interest in the Property to the Defendant.  These presumptions can be rebutted by evidence of the actual intention of the purchaser at the time of the purchase of property.  The clearest evidence is an express declaration of trust on the face of the conveyance of the legal estate.  Where such evidence is not available, the court puts itself in the position of a jury and considers all the circumstances of the case, so as to reach a conclusion of what the purchaser’s real intention was.  It is only where there is no evidence to contradict it that the presumption of resulting trust, or of advancement, as the case may be, will prevail.  Counsel have no dispute as to the above legal principle which is succinctly summarized in the leading case of Pettitt and Pettitt [1970] AC 777 per Lord Upjohn at 813:

“In the first place, the beneficial ownership of the property in   question must depend upon the agreement of the parties determined at the time of its acquisition.  If the property in question is land there must be some lease or conveyance which shows how it was acquired.  If that document declares not merely in whom the legal title is to vest but in whom the beneficial title is to vest that necessarily concludes the question of title as between the spouses for all time, and in the absence of fraud or mistake at the time of the transaction the parties cannot go behind it at any time thereafter even on death or the break-up of the marriage.

The observations of Davies LJ in Bedson v Bedson [1965] 2 QB 666, 685 were plainly made only upon the footing that section 17 had the wider construction.

But the document may be silent as to the beneficial title.  The property may be conveyed into the name of one or other or into the names of both spouses jointly in which case parol evidence is admissible as to the beneficial ownership that was intended by them at the time of acquisition and if, as very frequently happens as between husband and wife, such evidence is not forthcoming, the court may be able to draw an inference as to their intentions from their conduct.  If there is no such available evidence then what are called the presumptions come into play.  They have been criticized as being out of touch with the realities of today but when properly understood and properly applied to the circumstances of today I remain of the opinion that they remain as useful as ever in solving questions of title.”

18.  Chan’s case is that he had told the Defendant that the Hanley Property was held in their joint names for the convenience of management of the property and     to facilitate its sale while he was out of Hong Kong as he had to travel frequently in China and Asia; and he had never indicated to the Defendant that the property     was a gift to her.  Chan said that at all material times it was their mutual understanding that the Defendant was holding the legal title in the Hanley Property on his behalf and that was also their mutual understanding when the Property in question was purchased.  On Chan’s evidence, nothing was said in respect of the Property, but that mutual understanding in respect of the Hanley Property was carried over at the time the Property was purchased when it was known to the Defendant that     Chan and his brother provided for the whole of the purchase price of the Property.

19.  Ms Fung further submits that the Defendant made it very clear that she had no interest or equity over the Property in the deed of separation she signed on 22 November 1999 and by agreeing to transfer the Property to Chan in the Family Court proceedings on 3 November 2000.  On the other hand, Mr Chu submits that the Court should only look at the intention of the parties at the time of purchase of the Property and whatever was their intention subsequently when signing the deed of separation or when consenting to the order to transfer the Property is irrelevant and cannot be used to rebut the intention at the time of purchase.  Mr Chu is certainly right.  However, that does not mean the evidence is of no value at all to Chan.  As have been explained in paragraph 15, Messrs So & Co represented the Defendant when she executed the deed of separation and subsequently in the divorce proceedings.  The Defendant must have been fully advised of the presumption of advancement in respect of the Property in her favour.  The Property was purchased at $9.9 million, even assuming a 50% fall in the property market in 1999, her 50% share in the Property net of the charging order would still be worth about $2 million.  If it had been her understanding that the Property was intended to be a gift to her, she would not have given it away so lightly, especially when their marital relationship was going to be dissolved.  The terms of the deed of separation and the consent order are some evidence on which the inference could be drawn that the Defendant never entertained any understanding that she was given a share of the beneficial interest of the Property by way of advancement from Chan.

20.  Mr Chu submits that despite the Defendant had made no contribution to the purchase price of the Property, Chan successively put her as a joint tenant on the title documents of the various properties he purchased, whilst the Defendant is the younger party in a survivorship dispute.  He submits that Chan’s explanation that the Defendant was named as a joint tenant for convenience of management of the various properties and the Property in question cannot stand as it is not practical and contrary to common sense.  Hence, Mr Chu submits, the only inference that the Court could draw is that Chan intended giving a share of the beneficial interest in the Property to the Defendant as a gift.  He quoted the following dicta of Yeung J, as he then was, in The Secretary For Justice and Chau Mei Ha trading as Ramco International Co, HCA 787/1992 (unreported) in support of the presumption of advancement:

“The allegation that there had been an agreement to the effect that the defendant was not to have any interest in the said property was easy to make.  Such an agreement between a husband and wife is inherently improbable as observed by Godfrey J in Cheung Lily v Commissioner of Estate Duty [1987] 3 HKC 307 at page 312:-

 ‘There are few cases, indeed, in which husband and wife can be found to have come to any express agreement about their respective beneficial interests in the matrimonial home.  Accordingly, the court, finding it impossible to ascertain the actual intention, has to search for the presumed intention of the parties, the matter thus resolving itself into a battle of competing presumptions.  These are the presumption of resulting trust and the presumption of advancement.’

In most cases, the husband would be asked, ‘If you did not want the wife to have an interest in the property, why allow her to be registered as one of the owners?’ and the question would be extremely difficult to answer.”

The question why a purchaser had the property purchased held in joint names is often difficult to answer.  Common sense therefore presumes the property was intended as a gift by the purchaser to the other, especially if the parties are in some kind of a familial relationship, such as husband and wife or parent and child.      The question, though difficult, is not unanswerable.  That question was indeed answered in The Secretary For Justice and Chau Mei Ha trading as Ramco International Co quoted by Mr Chu.

21.  In the present case, the Defendant could not be called by either party.  There is no evidence to contradict Chan’s.  By the time Chan purchased the Property, Chan and the Defendant had been married for two years after four years’ prior cohabitation, which is neither a long nor a short relationship.  The Property was purchased at $9.9 million with a loan of $6 million from Chan’s brother.  If Chan had intended the Property to be a gift and if he would become unable to repay his brother for whatever cause such as death or illness, he would effectively be turning his brother’s loan to him a gift to the Defendant.  I do not think this could have been in the contemplation of Chan or the Defendant.  While a husband’s generosity to his wife could not be fathomed, Chan’s uncontradicted evidence is that he was not that generous and that the Property was never meant to be a gift to the Defendant.  On the other hand, on the uncontradicted evidence of Chan, the proceeds of sale of the Hanley Property were applied towards partial repayment of the mortgage over the Property without any resistance or complaint from the Defendant.  Not only that, the Defendant’s conduct as shown in the deed of separation and the consent order is consistent with Chan’s evidence that there never was any understanding that the Property was meant to be a gift.  The conflict between the presumption of resulting trust and of advancement is never easy to resolve.  But given the state of the evidence in this case, I think the balance tilts in favour of the presumption of resulting trust.  Accordingly, I hold that the presumption of advancement has been displaced.

Conclusion

22.  I find as a fact that Chan alone provided the funds for the purchase of the Property.  I also find that despite their relationship as husband and wife, when Chan purchased the Property and have the Property conveyed in joint names with the Defendant, the common intention of Chan and the Defendant was that the Defendant would hold the beneficial interest in the Property on trust for Chan and not as a gift to the Defendant absolutely.  In the circumstances, there is no interest in the Property belonging to the Defendant chargeable to satisfy the Plaintiff’s judgment against the Defendant.  The application for charging order absolute must be dismissed.  The charging order nisi dated 23 May 2000 against the Property must also be discharged.  I also make a costs order nisi that the Plaintiff shall pay Chan’s costs of the application.