CHAN LING LING AND OTHERS v. CHAN CHING KIT

HCA 2534/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2534 OF 2013

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JUDGMENT

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Introduction

1.  This action concerns two units of an industrial building (collectively “the Properties”) currently registered in the joint names of all the parties to these proceedings as tenants in common. Each of them has one-fourth beneficial interest in the Properties. The plaintiffs wish to obtain an order for sale under the Partition Ordinance, Cap. 352. They further seek an account of all the rental incomes yielded from the Properties by the defendant from February 1998 till the present.

2.  Chan Ching Kit (“Kit”), the defendant, actually agrees to a sale of the Properties. He also accepts that the common intention among the parties before and at the time of the acquisition of the Properties was to hold the Properties in equal shares. He however contends that there was a change of common intention afterwards and he should despite the apparent equal shares have a lion share due to his substantial contribution to the purchase price. Kit further denies that he has a duty to account for the rental incomes to the plaintiffs by reason of an alleged arrangement agreed by the parties made in or about 1999. By his counterclaim, Kit claims almost 80% interest in the Properties in accordance with his financial contribution to the purchase price. He also claims that the sale proceeds of the Properties should be distributed in accordance with his beneficial interest as found by this court. 

3.  The principal issues to be determined are thus the beneficial interest of Kit in the Properties (and in particular whether there was a post-acquisition change of common intention) and whether the parties have ever agreed on the alleged arrangement.

Key characters and uncontroversial background facts

4.  First, I should give a brief introduction of all the key characters and entities and a summary of the uncontroversial background facts before I deal with the parties’ respective contentions.

5.  All the parties are the children of the late Mr Chan Siu Wai (“the Father”) and the late Madam Ng Shun Wai (“the Mother”). The 3^rd plaintiff, Mr Chan Kwan Chiu (“Chiu”) is their eldest child and Kit is the second. Madam Chan Ling Ling (“Ling”), the 1^st plaintiff, is the third and Madam Chan Lana Velaso (“Velasco”) is the youngest member of the family.

6.  The Father alone had since the 1930s settled down in the Philippines and had another family there. The Mother and the four children resided in the Mainland China. In the early 1970s, the Mother together with Ling and Velaso came to settle in Hong Kong. Chiu and Kit and their families came a bit later. Since the 1980s, Velaso and Chiu have long been residents in the Philippines.

7.  Mr Ngan Yan Kit (“Ngan”) is the husband of Ling. He dealt with Kit and his wife Madam Choi Mun Chuk (“Madam Choi”) on behalf of Ling, Velasco and Chiu in respect of the Properties in the 1990s.

8.  Both the Father and the Mother passed away in 2000.

9.  Mr Chan Peng Fei (“the Cousin”) is the cousin of the parties. He together with Kit founded the partnership business under the trade name “Wai Choy Company” (“Wai Choy”) to take over the business of his former employer. All the parties were at some stage the partners of Wai Choy. Wai Choy carried on its business in the Properties.

10.  The following information of Wai Choy is obtained from its business registration records. First, Wai Choy commenced its business in product manufacturing on 8 December 1987. Its founding partners included the Cousin, Kit and Ling. Chiu joined in December 1987 and Velasco joined in August 1988.

11.  In the minutes of the partners meeting held on 6 November 1988 signed by the Cousin, Kit, Chiu, Ling and Velasco, it was stated that each of the Cousin and Kit had three shares, and each of Ling and Velasco had 1 share in the partnership. Chiu owned the remaining two shares. There were changes in their shares subsequently but for present purposes such changes are irrelevant.

12.  It was further stated in the minutes that the Cousin’s position was executive manager and Kit was in charge of product sales and development of new products. Velasco was in charge of accounting and secretarial matters. There was no mention about the duties of Chiu and Ling. 

13.  Velasco left the partnership in October 1989 and the Cousin left in December 1990. Velasco’s share was cancelled as a result and the Cousin’s three shares were transferred to Kit upon his departure. Ling and Chiu left in December 1995. Madam Choi became a partner of Wai Choy upon the departure of Chiu.

14.  Wai Choy was dissolved in December 2011.

15.  The Properties are known as Workshop Nos. 19 and 20 (“Workshop 19” and “Workshop 20”) on 9/F, Sino Industrial Plaza, No.9 Kai Cheung Road, Kowloon. Kit, Ling, Velasco and the Mother became the registered owners of the Properties by virtue of an assignment dated 16 August 1988, each of them holding ¼ of the beneficial interest in the Properties as tenants in common. The Properties were acquired for the business purpose of Wai Choy and the parties agreed that the Properties should be rented to Wai Choy for its business use.     

16.  The purchase price of the Properties was HK$994,160.00. Each of Ling, Velasco and Chiu made a contribution of HK$25,000. The down payment of HK$198,832.00 was paid by a cashier order in the sum of HK$99,416 issued by Kit and a cheque issued by Easy Industries Co., a sole proprietorship business of Kit. The balance of the purchase price was funded by a mortgage loan extended by Bank of China (Hong Kong) Limited (“BOC”). The total amount of the mortgage loan was HK$795,328 to be repaid by 180 equal installments of HK$8,425.71 each.

17.  On 9 January 1991, the four registered owners of the Properties granted a new mortgage to Hong Kong Shanghai Banking Corporation Limited (“HSBC”) to secure an overdraft of HK$250,000 (“the Overdraft”) and a loan of HK$750,000. The new mortgage loan was repayable by 83 equal monthly instalments of HK$9,000 with a payment of HK$3,000 commencing one month after drawdown to the debit of their current account. With the new mortgage loan, the BOC mortgage was released. The monthly instalments of the HSBC mortgage were fully repaid in January 1998 and eventually the HSBC mortgage was released on or about 27 June 2008.

18.  On or about 26 January 1993, Wai Choy International Limited (“the Company”) was incorporated. Ling, Chiu and Kit are the founding members and the Company has been dormant throughout.

19.  Upon the death of the Mother, pursuant to her disposition in her will made in 1995, Kit as the executor by a Deed of Assent dated 29 April 2013 transferred the Mother’s legal title to the Properties to Chiu.

Beneficial Interest in the Properties

Plaintiffs’ case

20.  The plaintiffs’ case is simple and straightforward. It has always been the common intention of the siblings from start to finish that all four of them have equal beneficial ownership in the Properties. The Mother at the outset merely held the ¼ share on trust for Chiu out of expediency and this explains her testamentary disposition of the same. The distribution of the beneficial interests of the Properties is accurately reflected in the legal ownership.

21.  For the undisputed common intention of the siblings before and at the time of the acquisition, the plaintiffs rely on an oral agreement to the effect that the siblings would jointly acquire the Properties as tenants in common in equal shares. The plaintiffs’ case is that the siblings agreed that the purchase price of the Properties should be settled in the following manner:

(1)   the down payment in the sum of HK$198,832.00 (being 20% of the purchase price) in the sum together with other costs and expenses in the total sum of HK$59,190.72 should be settled by:

 (i) a sum of HK$100,000 paid by the Father to Kit in or about May or June 1988 (“the Father’s Sum”);

 (ii) a further sum of HK$100,000 paid by the siblings in equal shares;

 (iii) the balance of HK$58,022.72 to be paid by Wai Choy as proposed by Kit and accepted by all the partners of Wai Choy.

(2)   The balance of the purchase price was to be paid by mortgage loans extended first by the BOC mortgage and then the HSBC mortgage.

(3)   The mortgage loans were to be paid off by the rental incomes yielded as a result of leasing the Properties to Wai Choy and/or other tenants by Kit on behalf of the registered owners of the Properties.

22.  The case of the plaintiffs is that the rental incomes generated should be sufficient to cover the monthly mortgage instalments under both the BOC mortgage (HK$8,425.71) and the HSBC mortgage (HK$9,000) and all such mortgage loans were repaid by January 1998.

23.  There is an averment in the pleading that Kit produced to Ngan as an authorized agent of the plaintiffs an account for some rental incomes received for Workshop 20 for the period from 16 January 1999 to 30 September 2012 as well as for Workshop 19 for the period from 1 April 1999 to November 1999. Despite repeated requests, Kit has failed to provide Ngan with a full account covering the entire period since January 1998.

24.  At this juncture, I have to mention two documents produced by Kit. First, on the evidence of Ngan, at a dinner gathering attended by Velasco, Ling, Ngan and Kit’s family around Christmas in 2011, Kit gave them a handwritten document entitled “Information relating to the two units of Sino Centre” (“the 2011 Document”). By the 2011 Document, Kit purportedly gave an account of the financial matters relating to the acquisition of and rental incomes generated from the Properties.

25.  Another important document is a 2-page typed-up document entitled “Capital Injection Information of Workshops 19 and 20 of Sino Centre” (“the 2012 Document”). Kit produced to Ngan this document when he demanded him to account for the rental incomes in October 2012. This document purportedly supports Kit’s allegation that Wai Choy had paid an enormous amount for the Properties on behalf of the registered owners and could hardly be reimbursed by the rental incomes.

Kit’s case

26.  Kit’s pleaded case on his beneficial interest in the Properties is convoluted. The following is a summary and the focus is on the allegations concerning his beneficial interest in the Properties.

27.  In July 1988, Kit invited Ling, Velasco and the Mother to contribute to the purchase of the Properties. He did not ask Chiu because he carried on business in the Philippines. He believed that the Mother would hold her share in the Properties on trust for Chiu.

28.  The Mother proposed that each of them was to contribute 25% of the purchase price so that each of them could have 25% of the beneficial interests in the Properties. She also proposed that the Properties should be rented out and the rental incomes would be used to settle any mortgage payments. If the rental incomes did not suffice, all four of them should make contribution on the basis of their respective shares in the Properties.

29.  As a result, each of Ling, Velasco and the Mother gave Kit HK$25,000 as their respective contribution to the purchase price. It was further agreed among them that Kit would settle the down payment together with all other incidental expenses and they would subsequently reimburse him in accordance with their respective shares in the Properties.

30.  Kit alleges that he had made the following payments for the purchase of the Properties:

(1)   The down payment in the total sum of HK$198,832.00.

(2)   Conveyancing expenses in the sum of HK$36,000.

(3)   Commission to the estate agent in the sum of HK$9,9411.00.

(4)   Insurance expenses for one year in the sum of HK$4,473.72.

(5)   The down payment in the total sum of HK$198,832.00.

(6)   Decoration expenses to the former owner in the sum of HK$20,000.

(7)   Water, electricity and other expenses in the sum of HK$8,761.00.

(8)   Cashier order charge in the sum of HK$5.00.

(9)   Bank charge of HK$10.00.

31.  Though the balance of the purchase price was paid by the BOC mortgage loan, Kit believes the Mother, Ling and Velasco should in addition to their payments of HK$25,000 each reimburse him the foregoing expenses and the balance of the down payment (collectively “Additional Expenses”). He claims that he made a written record of the foregoing payments and presented it to Ling and the Mother (“the Record”). However, Ngan told him expressly that they would not make any further contribution and asked Kit to use the rental incomes as their contributions and if they did not suffice Kit should pay with his own money.

32.  This alleged express indication of Ngan made on behalf of Ling, Velasco and the Mother provides the entire basis for Kit’s case of a change in the common intention regarding beneficial ownership in the Properties. It is pleaded that by not making any further contribution other than the initial sum of HK$25,000, each of Ling, Velasco and the Mother holding her share on trust for Chiu had evinced an intention to give up and had in fact given up their original 25% beneficial interest in the Properties and the actual beneficial interest in the Properties was to be calculated on the basis of the parties’ actual contribution to the purchase price of the Properties.

33.  Incidentally, Kit denies that the Father’s Sum was used to pay the down payment. Instead, it was given to him 2 days after the setting up of the partnership business in December 1987 as financial assistance and it had nothing to do with the acquisition of the Properties.

34.  As regards the mortgage payment, Kit admits that it was also his intention that the Properties should be leased to Wai Choy as its office and the parties agreed that the monthly rent should be HK$10,000 and it should be applied to settle the BOC mortgage loan and other expenses of the Properties.

35.  However, Kit changed his mind later and proposed to Ling, Ngan and Velasco that in view of the advanced age of the Mother, it would be better if the rents payable by Wai Choy could be given to the Mother so that she could have more savings. As a result, the rent payable by Wai Choy for the first 29 months of the tenancy in the total sum of HK$290,000 were gifted to the Mother whereas Kit out of his own pocket paid the first 29^th mortgage payments in the total sum of HK$244,336.89.

36.  Kit goes on to plead that in breach of the arrangement, Ling, Velasco and Chiu did not contribute their respective share of the monthly mortgage repayment to Kit despite repeated demands. I am not sure what the arrangement was given the earlier plea that they had already given up their respective 25% beneficial interests in the Properties and refused to make further payment for the Properties.

37.  After the Cousin left Wai Choy in February 1990, Kit alone ran the business until 29 November 1995 and he was under financial pressure. He thus asked Ling, Velasco and Ngan to make contributions to the repayment of the mortgage loan but they refused. They instead suggested Kit to repay the mortgage loan with the rental income or to obtain another mortgage loan.

38.  In early 1991, Kit wanted to purchase a property as his matrimonial home and the Mother showed her support by agreeing not to receive the HK$10,000 rental income of the Properties starting from 15 January 1991. Kit’s matrimonial home was purchased on 12 March 1991.

39.  It is also pleaded that in January 1991, there was an agreement among Kit, Ling, Velasco and the Mother concerning the HSBC mortgage. It was allegedly agreed that the rental income of the Properties was to be applied to the repayment of the new mortgage loan. Kit would repay the said loan and interest with the rental income and his own money. Pursuant to this agreement, the HSBC mortgage loan was allegedly repaid in full in November 1999 though according to the HSBC mortgage, the last instalment fell in January 1998.

40.  Kit alleges that from 15 January 1991 to 28 November 1995 Wai Choy repaid about 58 monthly instalments of the HSBC mortgage loan in the total sum of HK$720,757.58. He hence considers each of the then partners had personally contributed to the purchase price in accordance with their shares in Wai Choy. For the remaining instalments (from the 59^th to 85^th), Kit alleges that he himself paid all of them in the total sum of HK$803,603.26.

41.  Kit therefore denies that the Properties are presently owned by the registered owners in equal shares. In his pleading, he set out the following table to show their respective financial contributions and hence their actual beneficial interests in the Properties:

Item of Contributions	Kit	Ling	Velasco	Chiu	Total
Down Payment and other expenses	$203,022.72	$25,000	$25,000	$25,000	$278,022.72
BOC mortgage Loan with interest	$244,336.89	-	-	-	$244,336.89
HSBC mortgage Loan with interest	$803,603.26	$80,084.18 (1/9 x $720,757.58)		$160,168.36 (2/9 x $720,757.58)	$1,043,855.80
Total individual contribution	$1,250,962.87		$25,000	$185,168.36	$1,566,215.41
Share of beneficial interest	79.9%	6.7%	1.6%	11.8%	100%

34.  Based on these allegations, Kit counterclaims for a declaration that he has almost 80% beneficial interest in the Properties or alternatively such portion of beneficial interest by reference to his actual financial contribution as found by this court.

Analysis on the beneficial interest issue

35.  Ms Ng, for Kit, helpfully refers this court to Chan Chui Mee v Mak Chi Choi [2009] 1 HKLRD 343. In that case, Johnson Lam J (as he then was) explained the legal principles relating to post-acquisition changes of common intention in respect of beneficial interest in properties.

36.  The following paragraphs of the judgment shred light on the evidential requirements to establish such a change and are of particular relevance:

“34. In Ip Man Shan Henry v Ching Hing Construction Co Ltd [2003] 1 HKC 256 at paras. 70 to 74, I referred to the conceptual distinction between pre-acquisition common intention and post-acquisition common intention. At para. 74, I said,

“If the common understanding was arrived at prior to the acquisition of the property, the beneficial ownership had not yet been crystallized and one may infer a common intention more readily.  On the other hand, if the common understanding were only formed after the acquisition of the property, this would imply a change in the beneficial ownership of the property.  The evidence must support an inference that there was a fresh agreement as to beneficial ownership before the court can give effect to the common understanding.  In other words in that situation, there must be some evidence to infer that the original beneficial owner has agreed to give up some of his interest in the property in favour of the other party.”

35. I do not think Stack v Dowden and Abbott v Abbott bring about any changes in this regard. In James v Thomas [2007] 3 FCR 696, a Court of Appeal decision after Stack v Dowden, Chadwick LJ said at p.705,

“More pertinently, if the circumstances so demand, a constructive trust can arise some years after the property has been acquired by, and registered in the sole name of, one party who (at the time of the acquisition) was, beyond dispute, the sole beneficial owner: Gissing v Gissing [1971] AC 886 at 901, Bernard v Josephs [1982] Ch 391 at 404.  But, as those cases show, in the absence of an express post-acquisition agreement, a court will be slow to infer from conduct alone that parties intended to vary existing beneficial interests established at the time of acquisition.”

36.   In the same vein, in his dissenting judgment in Stack v Dowden, Lord Neuberger said at para. 138,

“The fact that the ownership of the beneficial interest in a home is determined at the date of acquisition does not mean that it cannot alter thereafter. My noble and learned friend Lord Hoffmann suggested during argument that the trust which arises at the date of acquisition, whether resulting or constructive, is of an ambulatory nature. That elegant characterization does not justify a departure from the application of established legal principles any more than such a departure is justified at the time of acquisition. It seems to me that ‘compelling evidence’ … is required before one can infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership is held. Such evidence would normally involve discussions, statements or actions, subsequent to the acquisition, from which an agreement or common understanding as to such a change can properly be inferred.”

37.  Applying the guiding principles in Ip Man Shan Henry and James v Thomas, the judge required compelling evidence to justify an inference of a change in beneficial ownership to be drawn: §96.

38.  On these authorities, this court should require Kit to prove with compelling evidence that there was indeed the pleaded post-acquisition change in beneficial ownership among the beneficial owners from their equal shares to such shares as determinable by reference to their respective financial contributions. If there was no express post-acquisition agreement, this court should be slow to infer from conduct alone that the parties had such an intention to change.

39.  I should start with the pleaded case of Kit. Brushing aside the issue of creditability, I have grave difficulties with his plea of change in beneficial ownership. First and foremost, it is not pleaded that Ling, Velasco and the Mother expressly agreed to reduce any part of their respective 25% shares and let Kit have larger shares in accordance with his actual contribution. Kit merely relies on Ngan’s indication that they would not make any further payments.

40.  There is, nevertheless, a quantum leap between the refusal of the equal beneficial owners to make further contribution to the Additional Expenses and their intention to abandon their equal shares in the Properties.

41.  In his pleaded case, the exact amount which the other registered owners refused to pay is not specified. The Additional Expenses to be shared among the registered owners should be HK$178,022.72 (HK$278,022.72 - 100,000). Each of Ling, Velasco and the Mother should be required to pay ¼ of the said sum, i.e., HK$44,505.68. 

42.  The alleged refusal of the plaintiffs to pay such shares should be viewed in its context. The allegation is that they merely asked Kit to pay such Additional Expenses out of the rental incomes of the Properties (of which they had beneficial interest as landlords) and Kit should cover any shortfall himself. The alleged refusal to pay cannot possibly be construed as an outright denial of liability at all.

43.  Moreover, given the agreement that the 80% of the purchase price would be paid by the BOC mortgage and the rental incomes would be applied to repay such mortgage loan, which was repeatedly pleaded by Kit, the mere alleged refusal to pay HK$44,505.68 on the part of each of them, even if this can be established as a matter of fact, can hardly be treated to be an unequivocal indication to the effect that they wanted to disturb their original agreement of equal ownership and desired that the beneficial ownership to be determined in light of Kit’s payment of the Additional Expenses. After all, such a payment represented a relatively small portion of the purchase price.

44.  I hence reach the conclusion that on the pleading level alone, the plea of a post-acquisition change of the common intention of the parties as to their respective beneficial interests in the Properties is not sustainable.  

45.  I now turn to the evidence. Ling, Ngan, Chiu and the Cousin testified for the plaintiffs’ case whilst the defence witnesses included Kit, Madam Choi and one Mr Lau who did the accounting work for Wai Choy on a part time basis. I bear in mind that to prove the alleged abandonment of equal beneficial ownership, Kit is obliged to come up with compelling evidence.

46.  I should make it clear that the defence has all along accepted that the original intention of the parties at the time of the acquisition was that all the four siblings had equal shares in the Properties and the Mother merely held the legal title on trust for Chiu (“the Original Intention”).

47.  For the change of the Original Intention, Kit alone (and perhaps Madam Choi) could testify in support of this contention. His underlying allegations of such a change are:

(1)   Kit received the Father’s Sum from the Father not for the acquisition of the Properties but as a general financial assistance rendered to him in his new business.

(2)   As indicated by Ngan, the other beneficial owners refused to pay the Additional Expenses, which were sizable given the outstanding amount of the down payment (HK$98,832.00).

(3)   Kit indeed out of his own pocket paid the Additional Expenses in view of the indication of Ngan.

Father’s Sum

48.  It is common ground that Kit received the Father’s Sum. The question is whether it had been used to settle part of the down payment. Kit alleges that the former employer of the Cousin demanded HK$238,000 for transferring his business under the trade name of Hip Hing Hong (“HHH”) to the new partnership business to be set up by the Cousin on or about 30 November 1987. The Cousin turned to the Father for help. Desirous of providing business opportunities for Kit, the Father agreed on condition that Kit should be a partner of the new business and remitted to Kit from the Philippines the Father’s Sum on 10 December 1987. Kit then used it together with his own fund to issue a cheque in favour of HHH in the sum of HK$188,000 on 31 December 1987.

49.  Kit only became interested in the Properties in June 1988. The preliminary agreement was signed on 4 July1988 whereupon the deposit of HK$10,000 was paid. By that time, the Father’s Sum had already been used for the acquisition of the business of HHH. Thus, the Father’s Sum had no bearing on the Properties.

50.  In support of the foregoing account, Kit produced a cheque stub dated 30 November 1987 marked “Each of the Cousin and Kit half”. He also produced a remittance record dated 10 December 1987 (“the Remittance Record”) evidencing the remittance of the Father’s Sum.

51.  On the other hand, it is the evidence of Chiu that he personally made a request to the Father for financial assistance so that Wai Choy could operate business in the premises owned by the siblings. The Father agreed to give them HK$100,000 as his contribution to the down payment. Chiu related this agreement to the Cousin and the Cousin agreed that Wai Choy would pay rent so that the mortgage payments and all other incidental expenses could be covered. Against this background, in or about June and July 1988, the Father gave Kit the Father’s Sum.

52.  When Kit asked Ling, Velasco and Chiu to contribute to the down payment, his demand was made on the basis that the Father’s Sum would be used to settle half of the down payment and so each of the siblings was required to pay HK$25,000 only.

53.  The Cousin had no personal knowledge of the Father’s Sum. He only learnt from the Mother and Chiu that it was for the acquisition of a property to be used by Wai Choy.

54.  I am confident in my preference of the evidence of Chiu to those of Kit. I find as a matter of fact that Kit did apply the Father’s Sum to settle the down payment partially for the following reasons:

(1)   In the 2011 Document, Kit gave a detailed breakdown of the financial information concerning the Properties. There was a clear mention of the Father’s remittance of HK$100,000 after the registered owners’ contribution of HK$100,000. It was further stated that the shortfall of $58,022.72 was to be paid by Wai Choy.

(2)   In the 2012 Document, the same information was contained. Further, it was stated that the Father paid 39% of the down payment. I do not accept that the Father’s Sum merely covered 39% of the down payment but it clearly shows that even Kit accepted that the Father did make some financial contributions to the down payment contrary to his own case.

(3)   These two documents were carefully prepared by Kit. Minute details were included in the two documents and the specific mention of the Father’s remittance was repeated over a years’ time. I cannot accept his explanation that they were prepared in great haste and thus contained a lot of mistakes. Kit even alleged that he had already informed the other side of the existence of such mistakes. I do not believe they were sheer mistakes. Nor can I accept Kit had ever told the plaintiffs about them. On the one hand, he tried to explain away such mistakes by saying that these documents were informal in nature but on the other hand he found it necessary to ask Ngan to correct them. I cannot accept his evidence. Kit gave me a very bad impression in his desperate attempt to retract such contents in his own documents without proffering any credible reasons.  

(4)   The undisputed evidence is that Kit required the other registered owners to pay HK$25,000 to settle the down payment only. If the Father’s Sum had not been available to pay the down payment, there was no reason why he did not ask them to pay a much larger amount so as to pay the full amount of the down payment. Nor was there any reason why Kit decided to dig into his own pocket to pay more in advance. There is no evidence that his siblings were unable or unwilling to pay more for the down payment prior to the acquisition of the Properties.

(5)   Under cross-examination, Kit agreed that at the outset of the partnership business, he was financially unsound and to set up the business of Wai Choy, he could not do without the financial assistance of the Father, who was a rather successful businessman in the Philippines. Had the Father’s Sum not been available to him to pay the down payment, he should not have been able to settle the down payment with the insufficient contribution by his siblings.

(6)   Chiu impressed me as an honest witness. I have confidence in his testimony. I accept his evidence to the effect that he did ask the Father and the Father did agree to provide financial assistance in the sum of HK$100,000 to the siblings so that they could acquire a property for the use of their partnership business.

(7)   I have not lost sight of the evidence of Chiu that the Father’s agreement to make remittance of the Father’s Sum was made in mid-1988 whilst the Remittance Record was actually made in December 1987. There is apparently a timing problem. Kit alleges that that was the only remittance the Father made and it was for the purpose of his payment made to acquire the business of HHH. I can agree that the remittance evidenced by the Remittance Record should not be the one applied to settle the down payment in August 1988. Kit did require such assistance. However, given my acceptance of Chiu’s evidence, on a balance of probabilities, the Father should make another remittance as the Father’s Sum after his agreement with Chiu was made. I am not persuaded that the lack of documentary proof of such a remittance can sufficiently negate its existence. Kit handled the conveyancing transaction and not his siblings. The Father’s Sum was remitted to him. I have little confidence in Kit’s frankness regarding his disclosures in these proceedings.

Additional Expenses – Kit paid personally due to the plaintiffs’ refusal to pay?

55.  The evidence of Kit is that after the payment of or the additional expenses subsequent to the acquisition, he gave Ling and the Mother the Record together with all the documentary proof including receipts so as to remind them to make reimbursement. The total amount stated in the Record is HK$258,022.72 (inclusive of the payment of HK$198,832 as down payment) whereas Kit now contends that it should be HK$278,022.72 with the payment of HK$20,000 to HHH omitted in the Record.

56.  I am satisfied that such Additional Expenses were indeed incurred and paid, as evidenced by documentary proof produced by Kit. Nevertheless, I do not accept that Kit had ever asked any of Ling, the Mother and Ngan to reimburse him with the Record for the following reasons:

(1)   To start with, the Record contained no demand of any reimbursement. It did not mention any distribution of shares of such expenses, either.

(2)   On the other hand, I accept the evidence of Chiu that after completion, Kit asked him about the payment of all the additional expenses in the sum of about HK$58,000. In light of my rejection of Kit’s allegation that the Additional Expenses should also include the other siblings’ unpaid shares of the down payment, the additional expenses should be about HK$78,000 though at that time Chiu forgot about the said sum of HK$20,000 paid to HHH. Chiu proposed that it should be settled by Wai Choy if all other partners agreed.

(3)   His evidence is supported by the evidence of the Cousin. The Cousin recalled that he had been asked about such a proposal and he did agree to it.  The Cousin is a neutral and independent witness. He struck me as a forthcoming and truthful witness overall speaking. I note his dissatisfaction with Kit as a partner resulting in his early departure from Wai Choy. He actually made some serious allegations against Kit in his witness statement which I do not think I need to deal with here. Nevertheless, I do not think he would give false evidence against Kit in regard to his dealings in the acquisition of the Properties. 

(4)   I accept Ngan’s evidence that Kit had not ever asked him to reimburse him any part of the Additional Expenses. He was not cross-examined on this at all.

(5)   Kit conveniently told this court for the first time that he actually told the Mother that the other siblings would lose their equal beneficial ownership if they refused to reimburse him. However, the Mother with embarrassment related to him that the other siblings were adamant that they would not pay him the Additional Expenses and that she could do nothing, knowing very well that there could be no denial on the part of the Mother. I anyhow cannot accept his evidence. There is no reason why he did not make this relevant allegation in his witness statement.  

(6)   In a similar vein, Kit, in a bid to strengthen the inference to be drawn from the alleged refusal to pay the Additional Expenses, even said for the first time that he did warn Ngan that their reaction might affect their shares in the beneficial interests in the Properties. I have no doubt that he was not telling the truth. There is again no reason why he did not make this relevant allegation in his witness statement. 

(7)   Indeed, in both the 2011 Document and the 2012 Document, it was expressly stated that the miscellaneous expenses in the total sum of HK$58,022.72 was paid by Wai Choy. I cannot accept the explanation of Kit that they were mere careless errors. These provide cogent evidence in support of the plaintiffs’ contention and to negate the allegation of Kit that he himself paid these expenses.

(8)   Ms Ng points out that any such payment made by Wai Choy could not escape the attention of the Cousin or Chiu by reason of their being the signatories of the current account of Wai Choy. She further submits that a cash payment of HK$58,000 was rather impossible. In light of my finding of the agreement that Wai Choy would pay that amount, coupled with the fact that in his own written records Kit acknowledged such a payment was made, I do not believe I need to delve into how the payment was made. In any event, the Cousin did not categorically deny having signed any cheque of Wai Choy to make the payment. After all, the payment was made almost 30 years ago and I find it excusable that either Chiu or the Cousin has forgotten that he did or did not sign such a cheque. Moreover, I am unable to accept that cash payment was impossible.

(9)   Ms Ng is right in pointing out that there is no documentary proof of any reimbursement of the additional expenses by Wai Choy to Kit. Again, I do not think that I could put the blame on the plaintiffs. The books and accounts of Wai Choy have long been in the control, possession and custody of Kit and all the plaintiffs have left the partnership for more than a decade. They could not be in a position to produce such documents even if they still exist. On the other hand, I need not repeat my skepticism about Kit’s conduct in these proceedings and there is every reason for Kit to conceal such documentary proof, having told this court that he personally bore the Additional Expenses despite the Father’s Sum.

57.  My conclusion is thus that it was Wai Choy and not Kit that settled the Additional Expenses excluding the balance of the down payment settled by the Father’s Sum. Kit has asked none of the plaintiffs to pay any part of the same and none of them has ever refused to pay, let alone thereby evincing any intention to change the Original Intention.  

58.  The Record does not lie. It was expressly stated in the Record that the Properties would be leased to Wai Choy for a term of three years at a monthly rent of HK$10,000. In the 2011 Document and the 2012 Document, on his own records, the rent that Wai Choy paid was actually increased over the years. The rental incomes could well cover the monthly BOC and HSBC mortgage payments and the agreement of the parties could and should be performed in the normal course of event.

59.  However, Kit invented a story to raise his allegation that the BOC mortgage was paid off by his own fund instead of the rents paid by Wai Choi. He alleges that the siblings agreed that instead of settling the monthly mortgage payments, the rent paid by Wai Choy should be gifted to the Mother. The Mother accepted the gift and pocketed the rents until 1991. Therefore, Kit had to make all of the 1^st to 29^th monthly BOC mortgage payments out of his own pocket. In this action, Kit heavily relies on some receipts issued by the Mother acknowledging the rental payments of Wai Choy.

60.  For the following reasons, I am unable to accept his allegation.

(1)   It is improbable that no sooner had the agreement concerning the use of the rental income been made than the parties changed their mind to gift the aging Mother with the rental incomes. Even the rent payable by Wai Choy for the first month was given to the Mother for her personal use and so Kit had to make the 1^st mortgage payment himself. The age of the Mother could not possibly change materially between the two agreements.

(2)   On the other hand, I accept the evidence of Ling, Chiu and Ngan that no such agreement has ever been made. I believe their testimony to the effect that it was never suggested or mentioned to them by Kit that the rental income expected to cover mortgage payments would turn into a personal gift to the Mother. I see no reason why they would agree to this thereby giving up their equal shares in the Properties.

(3)   Under cross-examination, Kit accepted that the financial conditions of Wai Choy and he himself were not satisfactory. At the commencement of the partnership business, he only had about HK$100,000 as his savings and he depended heavily on the financial support of the Father. He also required the assistance of the Father to purchase his matrimonial home in 1991. As such, in light of his financial condition, it would be improbable that he found a sudden urge to enable the Mother to have more savings his financial detriment and let him be solely saddled with the obligation to make mortgage payments.

(4)   I accept the evidence of the siblings and Ngan to the effect that the siblings did not actually take part in the operation of Wai Choy. Velasco and Chiu were mostly out-of-town and Ling was occupied with her own job and family. It is perfectly understandable that the Mother collected the rents paid by Wai Choy on behalf of all other registered owners of the Properties. I can accept the evidence of Mr Lau that the Mother had received payment cheques of Wai Choy for its rental payments. The fact that she signed the rental receipts does not mean that the rents received were for her personal use.

(5)   Under the BOC mortgage, all the registered owners of the Properties including the Mother were the borrowers having the primary obligation to make mortgage payments. Wai Choy was not privy to the BOC Mortgage. Under these circumstances, it is probable that the Mother applied the rents received from Wai Choy to settle the mortgage payments pursuant to the BOC mortgage.

(6)   Among the large volume of documents produced to this court, some of them were created in the 1980s, I cannot find a single document evidencing the monthly payment of the BOC mortgage. I would have thought that in the normal course of events there should be an account opened with the BOC designated for the purpose of mortgage repayment.

(7)   Indeed, there is a receipt issued by the BOC dated 16 January 1991. It bore the account number of 01288740003470 in the name of Kit, Ling and Others. Apparently, this account was used to settle the BOC mortgage payments. Kit did not explain to this court how he made the alleged mortgage payments through this account. He said nothing about this account at all. I believe if the bank statements of this account together with all the bank statements of the Mother are made available to this court, the picture as to how the 29 monthly mortgage payments were made could be much clearer.

(8)   On the other hand, in fact in the 2012 Document, it was clearly stated that the monthly rents of HK$10,000 from August 1988 to January 1991 in the total amount HK$290,000 were received by the Mother as a representative. From September 1999 onwards to September 2012, such rents were received by Kit as a representative. In the latter case, he could not possibly claim that there had been an agreement that he could pocket the rents as a gift to him by his siblings. This record is in stark contradiction to Kit’s allegation that the Mother received such rents as her personal gift. I cannot accept Kit’s explanation that again it was only a mistake in the record.

61.  As regards the HSBC mortgage, Wai Choy was the borrower and the registered owners of the Properties were the mortgagors. I accept the evidence of Ling, Ngan and Chiu that it was arranged by Kit under the pretext that the interest rate was better and that they did not really know the details. In fact, under the HSBC mortgage, apart from the new mortgage loan applied to discharge the BOC mortgage, Wai Choy was also granted the Overdraft. By that time Velasco was no longer a partner and Kit held the majority shares in the partnership.

62.  Irrespective of the real reason why the HSBC mortgage was taken out, the fact remains the rental incomes should well suffice to cover the new mortgage payments. According to the 2011 Document, starting from January 1991, Wai Choy should pay a monthly rent of HK$12,000. The new monthly mortgage payment was only HK$9,000. The Original Intention should still be able to be carried out and in accordance with the agreement, the rental incomes should be applied to pay off the HSBC mortgage without any further contribution by the beneficial owners.

63.  In addition, I make it clear that I accept the evidence of Ling, Chiu and Ngan that prior to the discharge of the HSBC mortgage, Kit never requested them to make any contribution to the mortgage payments at all.

64.  In the premises, the whole case of Kit of a change of the common intention regarding the beneficial ownership in the Properties has no evidential basis, let alone being supported by compelling evidence and it must fail. I find that throughout the years the Original Intention remains intact. The four siblings do have equal beneficial interests in the Properties.

65.  For completeness, I should expressly reject the contention of Kit that his siblings’ offer (“the Offer”) to sell to him their 75% beneficial interests at the price of HK$1.8 million, which was much lower than 75% of the market price of the Properties in or about 2012, is indicative of their acceptance of the alleged change of common intention and acknowledgment of his increased share in the Properties.

66.  Regarding the Offer, I fully accept the evidence of Ngan relating to his negotiations with Kit and Madam Choi commencing from 2011. His evidence was not shaken in the slightest under cross-examination. He told the court how Kit and Madam Choi extracted from the plaintiffs their agreement to sell their interests in the Properties at such a low price even by a threat that Kit would refuse to execute the Assent to transfer the legal title of the Mother to Chiu. The price of HK$1.8 million was actually proposed and insisted by them. It was indeed below the market price. The plaintiffs merely accepted this because of their blood relation and not because of any acknowledgement of their reduced beneficial interests.

67.  After the repeated demands of Madam Choi to transfer the beneficial interests to Kit, Ngan drafted a preliminary sale and purchase agreement and gave a copy to Kit in March 2013. In the draft agreement, it was clearly stated that the subject matter of the sale was the ¾ beneficial interests in the Properties of Ling, Velasco and Chiu. They still insisted on their equal beneficial ownership.

68.  I found the conduct of Kit and Madam Choi egregious. Driven by greed, they abuse the kindness of the plaintiffs and covet their beneficial interests in the Properties.

The alleged family fund set up in 1999

69.  Kit alleges that in 1999, the parties made a new agreement to set up a family fund by the rental incomes. It is alleged that the Mother and Kit were very upset about the financial difficulties of Chiu and so they found it necessary to use the rental incomes to set up a family fund to cater for any future mishaps of the family members. Eventually the whole family including the plaintiffs agreed to this proposal of Kit.

70.  It was allegedly agreed that starting from April 1999, the monthly rent of HK$11,000 of the Properties would go to the family fund, out of which the Mother would be given HK$3,000 per month as her living expenses. Starting from September 1999, Ngan took over the management of the family fund.

71.  Kit further alleges that in November 1999, he told Ngan that since the rental income had not been sufficient to pay the mortgage loans in the past and he had paid a substantial sum out of his pocket to settle such mortgage loans. Hence, Kit suggested to Ngan that he should be entitled to the rental income of Workshop 19 whereas those generated from Workshop 20 would be managed by Ngan as family fund. Allegedly, Ngan on behalf of all the plaintiffs agreed to this proposal.

72.  Therefore, starting from March 2000 until September 2012, the rental incomes of the Properties were distributed/utilised in accordance with this new arrangement.

73.  The plaintiffs deny this agreement and the existence of the family fund. Chiu found out in late 1998 that the HSBC mortgage payments were completed in January 1998. It follows that thereafter any rental income should be paid to the beneficial owners of the Properties. Hence, it was agreed by the four siblings that Ngan should be authorised to manage all the rental incomes derived from the Properties. It was further agreed that with the consent of two registered owners of the Properties such rental incomes could be used. Further, Wai Choy was obliged to pay rent directly to Ngan and Kit was obliged to account to him all rental incomes previously obtained since February 1998.

74.  Against this background, in September 1999, Kit handed over a 2-page report together with some rental receipts to Ngan. It was stated in the report that Wai Choy should pay the outstanding rent of HK$6,062 after deduction of all the expenses.

75.  In January 2000, Madam Choi told Ngan that Workshop 19 was left vacant and Wai Choy only occupied Workshop 20. She alleged that it was very difficult to rent out Workshop 19 and it would be better to leave it vacant. Only HK$5,500 per month was received from Wai Choy for its occupation of Workshop 20 as a result. Later Kit asked for a reduction of rent and eventually it was agreed that Wai Choy only needed to pay HK$4,000 per month for Workshop. It was subsequently increased to HK4,500 per month in August 2007.

76.  However, subsequently, Chiu and Ngan found out that in fact Workshop 19 had been rented out and rental incomes were indeed generated without the knowledge and consent of the plaintiffs. And starting from November 2012, Kit stopped accounting for the rent income of Workshop 20 altogether.

77.  Based on my previous observations about the credibility of Kit and Ngan, I should prefer the evidence of Ngan to those of Kit on this matter. In the first place, the reasons given for the setting up of the family fund are not convincing. I am not persuaded that the plaintiffs would ever agree with Kit that all the rental incomes generated from Workshop 19 would become his personal property in acknowledgement of his past contribution to the settlement of the mortgage loans and at the same time, he was also entitled to the use of the family fund. Factually I am unable to accept that he had personally paid any mortgage loans.

78.  Moreover, if Kit was solely entitled to the rental incomes of Workshop 19, I do not believe that Madam Choi would prefer the unit to remain vacant just to avoid the troubles arising from any lease of the same. It does not make any sense to me.

79.  I accept the evidence of Ngan that Workshop 19 has been surreptitiously leased out. Kit must account to the plaintiffs for any rental incomes derived.

80.  On the other hand, as shown in the records compiled by Ngan, starting from September 1999, the rental incomes of Workshop 20 were made available to pay certain expenses including entertainment and funeral expenses. Such expenses were deducted openly from the rental incomes and they do appear to have been incurred on family occasions. Such a use of the rental incomes tallies more with the case of Ngan than that of Kit. Such expenses were all minor in quantum and could not be set to have incurred in mishaps to be met by a family fund. These expenses cannot support Kit’s allegation of the existence of a family fund by the rental incomes of Workshop 20.

81.  On the evidence before me, I am not at all convinced that Kit has been frank about all the incomes derived from the Properties after the HSBC mortgage payments were completely discharged in January 1998. I am satisfied that the plaintiffs are entitled to an account and Kit must provide a full disclosure of all the relevant documents showing all the income source and expenses relating to the Properties.

Conclusion and orders

82.  By reason of the foregoing matters, I am of the firm view that the four registered owners have equal beneficial interests in the Properties. Kit cannot begin to prove any post-acquisition change of common intention despite his allegations.

83.  On the other hand, I agree that any rental incomes derived from the Properties since February 1998 must be collected and held by Kit on trust for all the beneficial owners of the Properties. He must give an account.

84.  In the premises, I enter judgement against Kit in favour of the plaintiffs and I also dismiss the counterclaim of Kit. I grant the declaration sought by the plaintiffs relating to the beneficial interests of the Properties and an order for account and enquiries. I also give the following directions for the purpose of the order for sale as proposed by Mr Koo, for the plaintiffs:

(1)   the Properties, known as Workshop No. 19 (“Workshop 19”) and Workshop No. 20 (“Workshop 20”) on the 9^th Floor, Sino Industrial Plaza, No. Kai Cheung Road, Kowloon (collectively, the “Properties”), be sold under section 6 of the Partition Ordinance, Cap. 352, subject to existing tenancy, by way of private treaty at the respective prices of no less than HK$5.5 million.

(2)   The Provisional Agreements or the Formal Sale & Purchase Agreements of the Properties, or any of them, shall be executed within 3 months from the date of this Order, provided that the parties shall be at liberty to extend the time limits with unanimous consent in writing.

(3)   The conduct of the sales of the Properties shall be committed to Messrs Simon C W Yung & Co, the solicitors for the 1^st, 2^nd and 3^rd plaintiffs’ (the “plaintiffs’ solicitors”), subject to the terms and directions of this Order.

(4)   Should the Defendant fail and/or refuse to execute such conveyance, contract or other document(s) in respect of the any of Properties reasonably necessary for the purpose of carrying out into effect the sale of the Properties ordered herein, within 5 clear working days after written notice requiring them to do so has been served on them by the plaintiffs’ solicitors, or should any of the Defendant cannot after reasonable inquiry be found, Mr Alrick T S Mak (the partner of the Plaintiffs solicitors) or such other person(s) as may be appointed by the Registrar of the High Court shall be authorized under section 25A of the High Court Ordinance, Cap. 4, to execute, in place of the defendant, all such conveyance, contract or other document(s) as maybe necessary to vest the title of the Properties and /or the defendant’s interests therein to the purchaser(s) thereof.

(5)   Upon the sale of the Properties or any of them, the proceeds thereof shall be paid to the plaintiffs’ solicitors, who shall apply the same in the following manner and priority :

(i) To discharge any cleaning costs, management fees, government rent, rates, title document custody fee payable in relation to the Properties and which remains outstanding and unpaid immediately before the completion of sale.

(ii) In case of any of the Properties is subject to any incumbrance which may be discharged by payment, to discharge that prior incumbrance by payment immediately before the completion of sale.

(iii) to pay all reasonable estate agent’s commission, legal costs and disbursements and all other reasonable expenses payable or incurred for the purpose of or in connection with the sale of the Properties.

(iv) The remaining proceeds shall be divided into 4 equal shares for distribution among the parties.  Each of the said equal shares shall be paid to each of the 1^st, 2^nd and 3^rd plaintiffs and the defendant.

(v) There be liberty to apply for further directions.

85.  There is no reason why the general principle of costs following the event does not apply. I make an order nisi that Kit should pay the costs of the plaintiffs of the action including all costs previously reserved, to be taxed if not agreed.

86.  Last but not least, I thank Mr Koo and Ms Ng for their assistance in this matter and the exemplary manner in which Ms Ng handled her difficult case is very much appreciated.