LAI SAU KING v. LAM CHARP FAT

IN THE COURT OF APPEAL

1995, No. 117
(Civil)

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J U D G M E N T

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Litton, V.-P.:

1. This is an appeal from a judgment of Barnett J given on 10 March 1995 after trial which lasted 11 hearing days. The appellant Mr Lam Charp Fat and the respondent Madam Lai Sau King had lived together at one time. They have since fallen out.

2. Before the judge there were four claims made by Madam Lai (the plaintiff) against Mr Lam (the defendant) which the judge had to determine. There was a substantial body of evidence put before him. The plaintiff gave evidence at the trial and she called three witnesses. The defendant gave evidence and he called four witnesses. The judge evaluated the testimony with pains-taking care and concluded that upon the evidence before him the defendant's credibility on the main issues was completely destroyed and likewise that of three of his four witnesses.

3. Barnett J gave judgment in favour of the plaintiff on all four claims. The defendant's appeal is now confined in effect to one of those claims: that relating to Flat A, 1/F, Block One, Shiu Yat House, Yuen Long held in the joint names of the parties under a conveyance dated 30 June 1982. The judge acceded to the plaintiff's claim of beneficial interest and, having made a declaration that the defendant held his undivided half share in trust for the plaintiff, ordered that he should execute a conveyance of his legal interest in her favour.

The issue between the parties

4. Each of the parties put up a straight-forward case. The plaintiff's case in essence was as follows:

(1) By an agreement of sale and purchase dated 23 April 1982 she bought the flat. She paid the initial deposit of $30,000 under the agreement.

(2) Upon completion of the sale she paid the balance of $270,000, but by a deed of nomination directed that the assignment be in the joint names of the defendant and herself.

(3) As she provided the whole purchase price of $300,000 the defendant held his undivided half share upon a resulting trust for her.

5. The law in this regard is clear. It has not been suggested that any presumption of advancement arose in favour of the defendant. So, if the facts as asserted by the plaintiff were established, she was clearly entitled to judgment.

6. The defendant's pleaded case as put to the judge was equally simple. Except for the initial deposit of $30,000 the entire purchase price for the flat was provided by his mother who intended the whole beneficial interest in the flat to vest in him. He had since the completion of the sale repaid his mother the $270,000. He therefore counter-claimed for a declaration that the plaintiff held her undivided half share in trust for him.

Credibility

7. Obviously, one of the crucial issues for the judge was this: Who had the means of providing the $270,000 to complete the purchase in June 1982? This issue was not determined in isolation but was considered together with the other three claims brought by the plaintiff, including one relating to a shop held in the defendant's name. So the issue boiled down essentially to this: Who was more likely to have had the means of providing the money for the purchase? In this regard the plaintiff was closely cross-examined. She had owned at one time a property comprising a house and a restaurant with a garden and yard in the Netherlands but it was mortgaged. She ran the restaurant as its sole proprietress.

8. On 7 March 1980 a creditor petitioned for her bankruptcy on account of debts incurred by her former husband, a Mr Ottens, for which she was the guarantor. There might have been other debts as well.

9. Her evidence was to the effect that on 24 March 1980 (about two weeks after the presentation of the bankruptcy petition) she entered into an agreement to sell the restaurant business to her brother for 160,000 Guilders. No money changed hands at that time but when her brother in turn sold the restaurant in April 1981 he paid her the agreed price of 160,000 Guilders.

10. The written agreement with her brother understated the price by half. This was, she said, to avoid the attention of the tax authorities in Holland. When she eventually returned to Hong Kong in February 1982 she brought with her about 190,000 Guilders, the equivalence of about HK$450,000. This was in essence her source of funds for the purchase of the flat.

11. The judge examined her case critically; but notwithstanding her bankruptcy, the fact that her creditors eventually received only 25% of their claims, and despite the absence of documentation in support of her case, the judge found as a fact that it was the plaintiff who provided the whole of the purchase price for the flat. This was however not a difficult finding for the judge to make. Having, for good reasons, rejected the defendant's evidence that the $270,000 came from his mother, who else could have provided the money for the completion of the purchase if not the plaintiff? To tip the evidential scales in the plaintiff's favour in these circumstances was an easy matter.

The appeal before this court

12. Mr Wong, QC, counsel for the defendant, advances in effect two points on this appeal:

(a) The judge, on the evidence before him, should have rejected the plaintiff's evidence that she provided the purchase price for the flat. In other words, the judge's finding of fact was unsustainable on the evidence before him.

(b) In any case she should have been refused equitable relief because she did not come to equity with "clean hands".

The judge's finding of fact

13. As to point (a) I confess to considerable difficulty in following Mr Wong's argument. He does not challenge the judge's rejection of the defendant's case. He accepts - as on the evidence he must - that the plaintiff contracted with the vendor to buy the flat for $300,000. The parties were, in that transaction, represented by the same firm of solicitors who were presumably put in funds in the usual way prior to the completion. If the plaintiff did not provide the money, who did?

14. Mr Wong relied heavily on two documents to discredit the plaintiff's case: (1) the agreement with the plaintiff's brother reciting the consideration as only 80,000 Guilders for the sale of the restaurant and (2) the report of the trustee-in-bankruptcy, or rather an English translation of it.

15. As to the agreement with the brother (understating the consideration) the judge accepted the plaintiff's explanation that it was to avoid the attention of the Dutch tax authorities. There was nothing inherently improbable in this. The defendant in his testimony advanced the same explanation when he tried to persuade the judge that he had provided the whole of the consideration for the purchase of the shop registered in his sole name. (This constituted one of the four claims I have referred to earlier.)

16. As to the trustees' report, I cannot see what is so damaging about it, as Mr Wong, QC asserts. The property in the Netherlands - burdened by two mortgages - still had, on the face of that report, an equity estimated to be worth 100,000 Guilders, with the restaurant inventory worth about 24,500 Guilders. Unencumbered, the property would then have been worth about 267,000 Guilders. The report refers to the sale of the restaurant to the brother at the stated consideration of 80,000 Guilders as a "Paulianistic act": That expression, according to counsel, meant that it was virtually a gift to the brother. If any weight is to be attached to the opinion of the writer of that report, it seems if anything to indicate that, perhaps, the true worth of the restaurant was more than 80,000 Guilders: a statement consistent with the plaintiff's case. The attack on the judge's finding of fact that the plaintiff had provided the whole of the consideration for the flat is, in my judgment, totally groundless.

The "clean hands" point

17. In the court below junior counsel advanced the proposition that even if the plaintiff did provide the purchase money for the flat it was "tainted money" and therefore the plaintiff should be denied relief against the defendant in equity. Mr Wong, QC, rightly in my view, does not seek to support that proposition - one which on its face is quite startling: That, in an action between a plaintiff and a defendant, the plaintiff's remedy in equity could be affected by the plaintiff's own conduct vis-à-vis third parties: here Madam Lai's conduct vis-à-vis her creditors and perhaps the tax authorities in the Netherlands. No cases were cited in support of that proposition. There can be none.

18. But relying on Tinsley v. Milligan [1994] 1 AC 340 Mr Wong argues that relief should in any case have been refused in equity because the plaintiff's "act in defrauding her creditors was an integral part of her case". I fail to understand this argument. The plaintiff relied on no fraudulent act to establish her case against the defendant. The defence pleaded no such act. And if it had, such pleading would, I apprehend, have been struck out as irrelevant to the issues as between the parties. It would have been scandalous and vexatious.

Conclusion

19. This appeal is, in my judgment, wholly lacking in merit. Before I conclude this judgment I express my dismay at the prolixity of the original notice of appeal, with twenty-two so-called grounds of appeal, seeking to tease out of the fabric of the judgment microscopic points in an attempt to impeach the judge's findings of fact: points which leading counsel has barely sought to argue in this court. Riding on the back of this worthless document are six arch-lever files containing hundreds of documents, the vast majority of which have not been referred to in the course of the appeal. The waste in time, legal expenses and photocopying charges must be very considerable.

20. In my judgment this appeal should be dismissed with costs.

Mayo, J.A.:

21. We were advised that the appeal would be confined to the finding that Madam Lai had a 100% interest in the flat which was bought at Shiu Yat House.

22. Mr Wong, QC for the appellant submitted that on the evidence which was before Barnett J it was not open to him to make a finding of fact that Madam Lai had paid the purchase monies for the flat which were payable under the Sale and Purchase Agreement dated 23 April 1982. He accepted that he could not realistically argue that Barnett J was wrong to hold that the appellant Mr Lam had not contributed towards the flat. He based his argument upon the submission that because the flat was in the joint names of Mr Lam and Madam Lai, it was incumbent upon Madam Lai to prove that she had provided the purchase monies. If she was unable to establish this, the status quo would have to be maintained and the beneficial ownership would then correspond with the legal ownership. He went on to argue that Madam Lai had been unable to produce any credible evidence to support her assertion that she had provided the purchase monies.

23. Her evidence to the effect that the proceeds of the sale of her restaurant business in Holland for 160,000 Guilders had been used for the purchase was contrary to the evidence which was available concerning the bankruptcy proceedings which had been instituted against her. In particular, reliance was placed upon some notes which had been prepared by the Receiver who had been appointed to administer Madam Lai's affairs. The Receiver had expressed the opinion that the agreement for the sale of the restaurant business by Madam Lai to her brother on 24 March 1980, for 80,000 Guilders, had been in effect an arms-length transaction. It is clear from the tentative manner in which this opinion is expressed that it was not a conclusive view which precluded any possibility that the value of the assets being transferred might have been more than this amount.

24. As against this evidence Barnett J had the evidence of Madam Lai when she stated that the amount of the consideration had been understated for the reasons she gave. One of the factors which clearly would have been weighed by the judge would have been whether it was more likely that the purchase price of the flat had been provided by Mr Lam. He rejected this possibility for the reasons he gave. It would also appear that he would have rejected the idea that some unspecified third party had provided the monies. On the basis of the evidence which was before him I do not think Barnett J can be faulted for accepting Madam Lai's evidence. The purchase monies had indeed derived from the proceeds of sale of the restaurant business.

25. Before Barnett J it had been contended that no order should be made in Madam Lai's favour as the purchase monies were "tainted" by virtue of the fact that the full claims of the creditors in her bankruptcy had been circumvented. Mr Wong did not pursue this contention before us. He did however submit that on the authority of Tinsley v. Milligan [1994] 1 AC 340 the Court should have refused to grant relief to Madam Lai. He placed particular reliance upon a passage from the speech of Lord Browne-Wilkinson at p370 of the report:

"From these authorities the following propositions emerge:(1) property in chattels and land can pass under a contract which is illegal and therefore would have been unenforceable as a contract; (2) a plaintiff can at law enforce property rights so acquired provided that he does not need to rely on the illegal contract for any purpose other than providing the basis of his claim to a property right; (3) it is irrelevant that the illegality of the underlying agreement was either pleaded or emerged in evidence: if the plaintiff has acquired legal title under the illegal contract that is enough."

26. I do not think that this passage assists the appellant. Madam Lai does not need to place any reliance upon the sale and purchase agreement for the restaurant. She places reliance upon the sale and purchase contract for the flat, and her testimony which was accepted by Barnett J that she paid the purchase price payable under the agreement. For these reasons and for the reasons given by my Lord Litton I am of the opinion that this appeal should be dismissed.

Sears, J.:

27. I also agree that this appeal should be dismissed and I would just like to add a few words to what the Vice-President has said with regard to the documentation in this appeal.

28. It is becoming very common that the judges both in this court and at first instance are presented with vast quantities of documents, many of which are never referred to in the course of the trial or the appeal. This places an unnecessary burden on the judge who has to try to read the papers before the case and causes unnecessary expense for the client. For example, in this appeal there were some 1,200 pages of documents: less than 10 were referred to in the course of the appeal.

29. In my judgment it should be the duty of solicitors and counsel, particularly senior counsel, to agree prior to an appeal or hearing before a single judge a core bundle of documents; that is, the documents of importance which will be referred to either by counsel in his submissions or witnesses in their evidence. If that practice were followed, the client would be saved a vast amount of unnecessary expense. As I said earlier, I agree that this appeal should be dismissed.