IP SAU SHU v. SHAM LAI HING

HCMP3452/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.3452 OF 1999

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J U D G M E N T

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Introduction

1. In these proceedings, the plaintiff claims for a declaration that the property situated at Unit B, 15/F, and Carport No.15, 1/F, Lai Shing Garden, Shatin, New Territories ("the Property") is held by the plaintiff and the defendant as tenants in common in equal shares; an order for sale of the Property under section 6 of the Partition Ordinance, Cap.352 ("the Ordinance"), and consequential relief. The defendant counterclaims for a declaration that the Property is held by the plaintiff, the defendant and her father as tenants in common in the share ratio of 20%, 60% and 20% respectively.

2. The background facts giving rise to this dispute are not seriously in dispute. They are summarised below.

Background facts

3. The plaintiff and the defendant came to know each other in about 1982 when they were working in the same factory. They fell in love. In about 1985, they started their own partnership business by setting up a small factory known as Luen Fat Fashion Shoulder Pad Factory ("Luen Fat"). It carried on the business of manufacturing and assembling of shoulders pads to manufactured garments. They opened an account no.298-6-109441 with Hang Seng Bank in their joint names for Luen Fat's business ("the Joint Account"). All the profits derived from the business were deposited in the Joint Account. In 1987, the defendant's father joined Luen Fat as a partner. There is, however, a dispute as to the father's interest in the partnership. The plaintiff alleges that he was only a nominee partner and did not have any beneficial interest. The defendant disagrees and says that the father had made capital contribution to the partnership and the three of them were equal partners.

4. In 1988, the business was thriving. The plaintiff and the defendant were planning to get married. In contemplation of marriage, they purchased the Property as their future matrimonial home, which was registered in their joint names, by way of an assignment dated 1 June 1988. The purchase price of HK$695,000 was paid in the following manner :

5. On 6 April 1988, the defendant's father lent HK$300,000 to the plaintiff ("the Loan"). The Loan is evidenced by an IOU signed by the plaintiff ("the IOU"). It read :

6. It is the plaintiff's case that the proceeds of the Loan were then applied to finance the Third Payment and to discharge other expenses incidental to the purchase of the Property including legal costs and stamp duty ("Miscellaneous Expenses"). The defendant's case is that the Third Payment was paid out of her own money. She had no idea how the plaintiff had used the sum of HK$300,000. In 2001, the defendant's father commenced DCCA No.21727 of 2001 in the District Court to recover the Loan. In the event, he obtained a default judgment and later a charging order absolute in respect of the plaintiff's interest in the Property on 18 February 2002. The charging order was registered with the Land Registry on 25 February 2002. The plaintiff accepts that he has not repaid the loan but it is his case that he was not aware of the District Court proceedings and had never been served with any documents in those proceedings. He will apply to set aside the default judgment and the charging order in due course.

7. The Property was completed in about 1990. The couple then moved into the Property and began to cohabit although they had never been married. On 18 November 1990, the defendant gave birth to a girl.

8. In about May 1994, Luen Fat's business was about to collapse. At the same time, the couple's relationship had become extremely disharmonious. The plaintiff was alleged to have an affair with another woman. In about July 1994, he left the Property and had since never returned. The defendant and the daughter have been living in the Property up to now.

9. In 1997, the defendant commenced HCMP No.2321 of 1997 against the plaintiff claiming custody of the daughter and maintenance ("the 1997 Proceedings"). On 22 July 1997, Yam J made an order, inter alia, that the custody of the daughter be granted to the defendant and that the plaintiff should pay a monthly maintenance of HK$700 until she reached the age of 16. The plaintiff did pay the maintenance up to August 1998 but had since stopped doing so because, according to him, he simply had no money to meet his obligation.

10. On 30 April 1999, the plaintiff's solicitors served on the defendant a notice of severance of joint tenant, severing the joint tenancy of the Property into tenancy in common ("the Notice"). The Notice was registered with the Land Registry by Memorial No.1088520 on 14 May 1999.

11. The present proceedings were commenced on 11 June 1999 by originating summons. By a letter dated 5 July 1999, the Directors of Land confirmed that he had no objection to the proceedings. (Under section 3(2) of the Ordinance, the Director shall be served with the documents relating to the present proceedings as prescribed by the Partition Rules.)

12. Other than the Property, the defendant has been the registered owner of another commercial property situated at Unit 4, 5/F, Guardforce Centre, No.3 Hok Yuen Street East, Kowloon ("the Guardforce Property") since June 1991. The purchase price thereof was HK$2,500,000. The mortgage payments had been fully discharged already. In other words, it is now "mortgage-free". When Luen Fat was still operating, the Guardforce Property was divided into two units. One was rented out and the other was used by Luen Fat. Since the cessation of Luen Fat's business, the whole unit has been rented out. As at present, the rent is HK$16,000 per month, from which the defendant receives HK$7,000 as living expenses of the daughter and herself. There is apparently a dispute as to the beneficial ownership of the Guardforce Property, the plaintiff having commenced HCA No.14484 of 1996. No further step has been taken since filing of pleadings because, I am told, the plaintiff does not have sufficient means to proceed with the proceedings.

Central questions

13. There are two central questions that I need to decide. The first relates to the extent of the plaintiff's beneficial interest in the Property. The plaintiff says he owns half of the beneficial interest although his financial contributions towards the purchase of the Property far exceeded half of the purchase price. The defendant's case is the in light of the parties' respective contributions, the plaintiff's interest is at most 20%. Mr Shum, counsel for the defendant, submits that in the event that I find in favour of the plaintiff, I need not proceed to make any finding on the extent of the interest of the defendant's father in the Property, if any. The second question is whether I should make any order for sale under section 6 of the Ordinance. I will deal with the questions in turn.

Extent of the plaintiff's beneficial interest

14. Section 8(1) of the Conveyancing and Property Ordinance, Cap.219 provides that a joint tenancy of an estate or interest in land may be severed at law only by, inter alia, a notice served by a joint tenant on the other joint tenants. It is common ground that the Notice has effectively severed the joint tenancy and converted the parties' interest into a tenancy in common. Ms Ma, counsel for the plaintiff, submits that given only the plaintiff and the defendant were the joint owners before severance, a presumption of tenancy in common in equal shares between them has been raised. The burden therefore lies on the defendant to rebut the presumption. Mr Shum, on the other hand, argues that as the extent of the parties' beneficial interest is always in issue, no such presumption arose : see The Hong Kong Conveyancing and Property Ordinance (1988 edn) at p.32. For present purposes, I do not think it is necessary to rule if any presumption contended by Ms Ma arose. After all, it is an evidential presumption which only affects the burden of proof. In any event, I will have to examine the evidence to determine the extent of the parties' beneficial interest in the Property. I will therefore go straight to the evidence. It is convenient to first look at the Third Payment.

15. The plaintiff said that the Loan was paid to him by a deposit of HK$270,000 into his savings account no.283-3-108620 with Hang Seng Bank on 6 April 1988 and by cash of HK$30,000 later on the same day. Both the deposit and the cash payment were made by the defendant. He then bought a bank draft of HK$285,000 and delivered the same to the handling solicitors for the sale. He put up an additional sum of HK$25,000 from his own money and added it to the remainder of HK$15,000 of the loan, totalling HK$40,000, to pay for the Miscellaneous Expenses. There is no documentary evidence on the discharge of the Miscellaneous Expenses.

16. It is common ground that on 13 February 1988, the plaintiff and the defendant received HK$200,000 each as distribution of profits of Luen Fat. The defendant said that she was not aware of the Loan at the time. She did not transfer the sum of HK$270,000 to the plaintiff as part of the Loan. It was her own money consisting of the profit of HK$200,000 distributed to her on 13 February 1988 and her own savings. She did not know how the plaintiff had applied the Loan. Her evidence is in stark contradiction of what she had deposed to in her 4th affirmation dated 25 November 1997 filed in the 1997 Proceedings ("the Affirmation") and testified at the hearing before Yam J on 22 July 1997. In the Affirmation, she said that as the couple did not have sufficient money to pay the purchase price of the Property, her father lent to the plaintiff HK$300,000 as part of the purchase price. She even accepted that the plaintiff had half of the beneficial interest in the Property. She gave similar oral evidence before Yam J at the hearing and referred to the IOU as evidence of the Loan. In her witness statement dated 25 May 2002 filed in the present proceedings, she said :

17. Under cross-examination by Ms Ma, the defendant gave yet another explanation. She said she had a poor memory ever since the plaintiff assaulted her in the early 1990s. She could not remember the incident clearly and was only able to recall that she paid HK$270,000 out of her own money after she had found the passbook of her personal account.

18. It is the evidence of the defendant's father that he had not mentioned the Loan to the defendant at the time. He said it was his habit not to let others know how he utilised his money. (Before joining Luen Fat in 1985, he worked as a supervisor in a factory in San Po Kong. From time to time, he lent money to others to earn interest.) It is his evidence, not disputed by either the plaintiff or the defendant, that the IOU was prepared by the defendant, signed by the plaintiff and given to him several days after 6 April 1988. He said the money was given to the plaintiff personally by him at a certain branch of the Hang Seng Bank. He did not know how the plaintiff applied the money.

19. I reject the defendant's evidence. In the 1997 Proceedings, one of the questions raised was whether the plaintiff's interest in the Property should be transferred to the defendant. She deposed to in the Affirmation and admitted in open court that the plaintiff owned half of the beneficial interest in the Property and the Loan was applied towards part payment of the price. The admission is unequivocal and without any reservation. Had she really paid the Third Payment out of her own money, common sense dictates that she should have mentioned it in the 1997 Proceedings. Worse still, she went on to make the admission concerning the Loan and the plaintiff's interest in the Property. Her explanations in the witness statement are hardly convincing. She first said that she was not aware that under the law, extent of the beneficial interest would be determined by the amount of the parties' financial contributions. It should be noted that when she prepared the Affirmation, she was legally represented. She cannot avail herself of the excuse of ignorance of the law. She then said that she mentioned that the Loan was applied towards part payment of the Property in order to protect her father's interest. In my view, it is only a hopeless attempt to rationalize what she had said in the 1997 Proceedings. The defendant then said in oral testimony for the first time that she had a poor memory and could only recall what had happened after looking at the passbook. Given the importance of the Third Payment, I see no reason why it would have skipped her mind. She was in my view making up as she went along. Her evidence in the 1997 Proceedings reflects badly on her credibility. I find her a poor and untruthful witness. This fundamental inconsistency is also fatal to her case on the Third Payment.

20. I am unable to accept the evidence of the defendant's father either. It is common ground that when the Loan was made, the couple had a very good relationship and was contemplating marriage. The Property was intended to be their matrimonial home. When the plaintiff turned to the father for financial assistance, it is only reasonable that he would at least mention this matter to his daughter. I reject his evidence that he did not tell the defendant about the Loan at the time. Further, according to his evidence, when the IOU was prepared several days later, the defendant must have become aware of the Loan. By that time, the Third Payment had already been made. With the Loan, the balance of the purchase price, namely, HK$300,000 could be discharged forthwith. There was no need to take out the mortgage. And it would be very odd indeed that with her knowledge of the Loan, the defendant would simply allow the plaintiff to apply the proceeds for some unknown purposes other than for paying the balance of the price.

21. By comparison, the plaintiff's version of the events is more credible. It is supported by the terms of the IOU. The date of both the Loan and the IOU coincided with the time when the Third Payment was made. The transfer of HK$270,000 into his personal account is consistent with his case that the proceeds of Loan were advanced separately. Although the sum of HK$270,000 was transferred from the defendant's personal account, it dose not impose any particular difficulty. It is consistent with the reasonable inference that she transferred the money on behalf of her father to effect part payment of the Loan. I find the plaintiff a truthful and credible witness and accept his view of the events.

22. For the above reasons, I find that on a balance of probabilities, the Third Payment was made by the plaintiff by utilising HK$285,000 of the Loan.

23. I now turn to the other payments. The parties have been unable to produce any documentary evidence in support and rely purely on oral testimony.

24. It is the plaintiff's evidence that he paid the Deposits Payments by cheque. No copy cheque is now available since the long lapse of time. The money came from his personal bank account no.283-3-108620 with Hang Seng Bank. However, the copy passbook of this account did not show the relevant transfers. He also gave evidence to support his case on the payment of the Miscellaneous Expenses. (See paragraph 15 above) On the Mortgage Instalments, his evidence is that they were all paid by him. An account with the Bank of East Asia was opened for the purpose of effecting mortgage payments. Each month, he deposited money into that account for repayment of the mortgage instalment for that particular month.

25. The defendant said the Deposits Payments, the Miscellaneous Expenses and the Mortgage Instalments were all paid out of funds of Luen Fat's account. The copy passbook of the Joint Account, however, did not evidence such payments. She then said for the first time in these proceedings that Luen Fat in fact had three accounts and it was out of the cheque account that the payments were settled. No record of the cheque account has been produced because, according to the defendant, Luen Fat ceased business a long time ago and she could no longer locate the documents. In the Affirmation, the defendant did not mention that the payments were paid out of the Luen Fat's cheque account. Nor did she raise this point at the hearing before Yam J on 22 July 1997.

26. The differences in the parties' oral evidence can only be resolved by their credibility. I have already ruled that the defendant is a poor and untruthful witness. Further, she had failed to put forward her case on the above payments when she had the opportunity to do so in the 1997 Proceedings. No credible explanation has been offered. In the circumstances, I reject the defendant's version. I accept that the plaintiff was confused as to which particular account he had used to effect payment of the Deposits Payments. But in my view, because of the long lapse of time, it is not surprising that the plaintiff was confused. That does not affect his credibility as a whole. On balance of probabilities, I find that the plaintiff had made those payments as claimed.

27. I next turn to the Redemption Payment. It is common ground that it came from the Joint Account although it was paid by the defendant's personal cheque. However, it is worthy to note that in the Affirmation, the defendant, relying on her personal cheque, said that the redemption was her own money. The defendant now alleges that the couple and her father had 1/3 interest in the money and indeed in all the money coming from Luen Fat because of her father's interest in the partnership. The plaintiff contends that since it was Luen Fat's money, of which the defendant had no interest, he was entitled to claim half of the interest arising from the Redemption Payment. This brings me to examine more closely the evidence on the parties' interest in Luen Fat.

28. It is the plaintiff's case that the defendant's father was a labourer at all material times. He started to work for Luen Fat in about 1985 when it was formed but he was never a partner in the real sense. In about 1987 when the couple's still enjoyed a harmonious relationship and was planning to get married, the defendant asked that her father be joined as a partner. Upon such request and out of respect to her father, the plaintiff agreed. But it was the parties' common intention that her father would become a nominee partner only. The couple would continue to share the profits of Luen Fat equally. Her father had not made any capital contribution to the partnership. Nor had he shared any profits.

29. The defendant says that the business was difficult in the initial years. When they did not have money, they asked her father for help, which he did. He had put up a total of about HK$30,000 from time to time between 1985 and 1987. In 1987, it was decided that he should be joined as a partner to recognise his capital contributions. No documentary evidence is available to substantiate what she said. The defendant's father corroborates her evidence. But he points out that he had never received any distribution of profits from Luen Fat. This point is not disputed by the defendant.

30. There is no record of the father's financial contributions. More importantly, neither the defendant or her father could satisfactorily explain why he was not distributed any profits of the business. And I fail to see why the defendant did not disclose her father's interest in the 1997 Proceedings. It must be apparent to her that her father had an interest in the Property and that would affect the extent of the plaintiff's share. Had the court accepted her version, it would obviously have a bearing on whether the court should order a transfer of the plaintiff's interest in the Property to her. In the circumstances, I reject the evidence of the defendant and her father and find the plaintiff's version more credible. I find that the defendant's father was only a nominee partner and did not accordingly have any beneficial interest in Luen Fat or any money originating from Luen Fat towards the payment of the price of the Property.

31. For the above reasons, I find that the plaintiff has proved his case. He had contributed the following sums towards the payment of the price of the Property :

This amounts to about 80% of the total price.

32. I also find that the plaintiff has proved that he had paid the Miscellaneous Expenses in the sum of HK$40,000. Despite his actual financial contributions, the plaintiff is prepared to accept that the Property is held between the defendant and him as tenants in common in equal share.

Whether an order for sale should be made

33. I now come to the more difficult question whether an order for sale under section 6 of the Ordinance should be made.

34. Section 6 provides :

35. The Property is a two bed-room flat with a car park. The residential part is about 600 square feet in size. There is no evidence to suggest that a partition of the Property is possible physically. The plaintiff had not returned to it since July 1994. He apparently has no intention of moving back and the defendant will certainly not allow him to do so. Any partition, even if physically possible, is thus meaningless. The defendant has not given any undertaking to purchase the plaintiff's interest.

36. Section 6 requires to court to take into account the circumstances of the persons interested in the Property. For it is well-established that a court will only make no order for sale when the interests of all the parties would be better served by their continuing to remain as co-owners, or where the order would result in very great hardship to one co-owner: Fook Sun Enterprises Co. Ltd v. Cromwell Investment Co. Ltd & Others [1973-76] HKC 335, Chow Doi Kwai v. Chan Cho Yuk [2000] 2 HKLRD 235.

37. The Property used to be the couple's "matrimonial home" although they had never married. The daughter has been living there for 13 years since her birth. The question arose as to whether regard should be given to the daughter's interest. Proceedings under the Ordinance are brought by persons interested in the property concerned : see section 3(1) of the Ordinance. Thus, in order to achieve consistency with section 3(1), "all the persons interested" in section 6 must mean "all the persons interested in the property concerned". The daughter does not have any legal or beneficial interest in the Property. She does not fall within "the persons interested" under section 6. However, counsel agreed, and rightly so in my view, that her circumstances are relevant and must be taken into account. Submissions have been made on how I should approach her circumstances. Various cases including Burke v. Burke [1974] 2 All ER 944, Re Bailey [1977] 2 All ER 26 and Re Holliday (a bankrupt) [1980] 3 All ER 386 were cited. These cases are decided under different statutory regimes and in different contexts (involving family or bankruptcy proceedings). They are not directly on the point and provide little, if any, assistance. Accordingly, I do not propose to deal with them any further. In my view, the court looks at primarily the interest and circumstances of the plaintiff and the defendant, who are the persons interested in the Property. Regard should be given to the daughter's circumstances only if they form part of the personal circumstances of the defendant. Other than that, the daughter's circumstances, standing on their own, are not relevant. In the course of submissions, I indicated to counsel how I would deal with the daughter's circumstances. And they agreed with me. With that in mind, I now deal with the parties' circumstances. (In light of my finding that the defendant's father does not have any beneficial interest in the Property, I will ignore his circumstances.)

38. The plaintiff was born in the Mainland in 1948 and emigrated to Hong Kong in 1971. He is now 55 years of age. He had been unemployed for several years and was on public assistance. He now works as a scavenger, earning about HK$1,000 per month. He stays in a hostel for singles, occupying a bed space there. He applied for public assistance three months ago and the result of the application is not known yet. He has no savings and no assets other than the Property. Several days before the trial, an estate agent told him that the asking price of properties comparable to the Property was in the region of HK$1,600,000. If an order for sale is granted, he will pay up all the arrears of maintenance and continue to pay the maintenance in the future.

39. The defendant is a housewife. She takes care of her daughter, who studies in a school in Shatin. She alleges that her daughter's studies would be disturbed if they were to move out of the Property. She also complains that it would not be possible to find alternative accommodation with the proceeds of sale from the Property should an order for sale be ordered. She denies that she is the beneficial owner of the Guardforce Property. Her father gives her HK$7,000 out of the rental income as living expenses and in return, she takes care of the property for him. But she says that it is not enough to cover the monthly living expenses, which amount to about HK$8,000 to HK$9,000.

40. Having considered all the circumstances carefully, I am of the view that the plaintiff's predicament far outweighs the defendant's circumstances (including the daughter's). He is now in his mid-fifties and leads a very poor life indeed. The Property is the only asset that he has. It is wrong, in my view, to deprive him of the fruit of his financial contributions of the Property (which accounted for nearly 80% of its price). Further, if an order for sale is made, the plaintiff will be able to discharge his duty to provide maintenance.

41. On the other hand, the defendant is much better off than the plaintiff. Although she is a housewife and has to take care of her daughter, she has a steady income or financial assistance of HK$7,000 per month derived from the rental of the Guardforce Property. I note that the defendant alleges that her father is the real beneficial owner of that property. And that is disputed. For present purposes, I am not asked to make a finding on this issue. On the evidence before me, given the close and caring relationship between the defendant and her father, it is reasonable to infer and I so infer that if necessary, the portion of the rental derived from the Gruadforce Property may be increased to meet the defendant's needs. There is no evidence to substantiate the disruption that may be caused to the defendant's daughter. I accept that there bound to be inconvenience when one is to move from one place to another. But I do not accept the defendant's bare allegation in the absence of evidence. The defendant is burdened to provide accommodation to her daughter. She complains that the proceeds will not be enough to enable her to buy suitable alternative accommodation. There is no evidence on the valuation of the Property. (I do not accept the asking price quoted by the estate agent as evidence of the market value of the Property.) However, there is no suggestion that it cannot fetch a proper market price. There is no evidence to substantiate the defendant's allegation that she will be unable to buy a suitable accommodation with half of the sale proceeds. Indeed, in the 1997 Proceedings, the defendant was prepared to have the Property sold and the proceeds of sale distributed equally and she would then buy a smaller accommodation. The defendant has not satisfied me that there has been significant change in circumstances that justifies her present stance.

42. In my view, an order for sale is appropriate. And I will so order.

Conclusion

43. For the above reasons, I will make a declaration that the Property is held by the plaintiff and the defendant as tenants in common in equal shares. I will also make an order that the Property be sold under section 6 of the Ordinance.

44. On making an order for sale the court may direct a distribution of the proceeds of sale and give all other necessary or proper consequential directions. The proceeds of the sale may be paid to the trustees appointed by the court who must apply them in the following order : (a) in the discharge of liabilities due to the Government in respect of the property; (b) in the discharge of any encumbrance, such as a mortgage, affecting the property sold; and (c) in a payment of the residue to the persons interested : see section 7 of the Ordinance. The plaintiff agrees that out of the proceeds of sale payable to him, all the arrears of maintenance should be paid to the defendant. He also agrees that the remaining balance should be paid into court pending the disposal of the District Court action commenced by the defendant's father. I will ask the parties to consider the consequential orders and directions, including the distribution of proceeds of sale, with the above matters and section 6(5) of the Ordinance in mind. The parties should submit within 14 days from the date of handing down of this judgment a draft order on the consequential directions by consent for my approval. If they cannot agree on the terms of the directions, they are at liberty to submit to court their own proposals with reasons in support and serve the same on the other side within the same time limit. I will then dispose of the matter on paper if possible or invite further submissions from the parties if necessary.

45. The defendant's counterclaim is dismissed.

46. I will make an order nisi that the plaintiff will have the costs of the action, including all the costs reserved, to be taxed if not agreed, and his own costs will be taxed in accordance with the Legal Aid Regulations.