CHONG HING BANK LTD v. YIP YUK KWAN

HCMP 1405/2017

[2018] HKCFI 2712

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1405 OF 2017

______________________

______________________

________________

J U D G M E N T

________________

Background

1.  This is an application by the plaintiff bank (“the Bank”) to enforce a mortgage dated 15 March 2011 (“the Mortgage”).

2.  The Mortgage was executed by the defendant (“Madam Yip”) as mortgagor. It concerns a property known as Flat A7, 11^th Floor, Block A, Hay Wah Building, No 71-85 Hennessy Road, Wan Chai, Hong Kong (“the Property”).

3.  The Mortgage was to secure the repayment of instalment loan (“the Instalment Loan”) in the sum of HK$2 million granted by the Bank to Madam Yip under a facility letter dated 18 January 2011 (“the Facility Letter”).

4.  There is no dispute that Madam Yip had fallen into default in respect of the Instalment Loan. The Bank therefore took out the present Originating Summons on 16 June 2017, seeking the usual money judgment, possession order and costs.

5.  All the indications are that Madam Yip does not desire to defend the Bank’s claim. 

6.  There is before me evidence of proper service of the Originating Summons on Madam Yip. But she did not file any acknowledgement of service. 

7.  Money judgment was entered against Madam Yip on 16 March 2018.

8.  In respect of the possession order, the Intended 2nd Defendant (“Mr Ho”) and the Intended 3rd Defendant (“Madam He”) (“the Interveners”) took out a summons on 20 October 2017, seeking to be joined to these proceedings on the premise that they are the beneficial owners of the Property (“the Joinder Application”).

9.  The Interveners have also filed a writ (HCA 2420/2017) against the Bank and Madam Yip seeking, among other things, a declaration that the Bank is bound by the equitable interest of the Interveners in the Property.  But the Interveners have not served the writ on the Bank during the period of its validity.  Hence this writ is not material to the issues before me.

10.  The Bank opposes the Joinder Application, and seeks an immediate order for possession of the Property. 

11.  Madam Yip also opposes the Joinder Application, and contends that a possession order should be granted to the Bank without further delay. She submitted that the Property should be sold as soon as possible and that the proceeds be applied to pay off her liability to the Bank, such that (i) interest can stop accruing; and that (ii) she can be paid the balance of the proceeds of sale and to apply them to the education and maintenance of her children.

12.  Madam Yip appeared in person at the hearing, but she has indicated that she does not object to this judgment being rendered in English.

13.  Mr Ho is the estranged husband of Madam Yip.  Madam Yip petitioned for divorce on 22 November 2011.  In other words, when the Mortgage was executed, and when the Instalment Loan was granted, Mr Ho and Madam Yip were legally still husband and wife.

14.  Madam He is the elder sister of Mr Ho.

15.  It is the Interveners' case that Madam Yip held the Property on trust for their late father (“the Father”).

16.  Their case is that:

(1)  In late 2006 and early 2007, the Father was ill and was hospitalised.

(2)  Also, at around that time (ie from January to August 2007), Mr Ho was imprisoned for having used a false document. 

(3)  The Father (along with his wife, ie the mother of Mr Ho and Madam He (“the Mother”)) was keen to raise funds to settle judgment debts owed by him to other people.

(4)  Accordingly, the Father entrusted Ho Kin Man, the Father’s grandson, and the nephew of Mr Ho, to sell building materials and equipment owned by the Father's business. Also, the Mother entrusted some jewellery for Madam Yip to sell on her behalf. In so doing, the Father and the Mother endeavoured to raise funds to pay off the Father’s judgment debts.

(5)  These fundraising attempts were successful and raised money which more than enabled the Father to pay off the various judgment debts. Various sums raised were paid to Madam Yip.

(6)  It appears to be the position of the Interveners that the proceeds of sale of the jewellery of the Mother also belonged to the Father.

17.  The Property was originally in the name of the Father.  There is no dispute that during the period when Father was the registered owner of the Property, he was also the beneficial owner.

18.  The Father executed a General Power of Attorney in favour of Ho Kin Man dated 24 March 2007 (“the GPOA”),

19.  Ho Kin Man, in his capacity as the attorney of the Father, procured the discharge of an earlier mortgage over the Property in favour of Hang Seng Finance Ltd (“Hang Seng”).

20.  At around the same time, Ho Kin Man (again in his capacity as the attorney of the Father) entered into a Memorandum of Agreement for Sale and Purchase of the Property dated 10 August 2007 (“Memorandum”) with Madam Yip. The consideration for this sale was stated to be HK$1,650,000.  The Memorandum was registered with the Land Registry.

21.  By a cheque dated 18 September 2007, Madam Yip paid this sum (ie HK$1,650,000) to the account of the solicitors then acting for Ho Kin Man. There is also a receipt issued by those solicitors dated the same date for this sum.

22.  This was followed by assignment (“the Assignment”) dated 20 September 2007 in respect of the Property, executed by Ho Kin Man (as attorney of the Father) as vendor, and Madam Yip as purchaser. The Assignment was also registered with the Land Registry. 

23.  There is in the papers a copy of the written instructions given by the Father to his then solicitors on how the proceeds of this sale should be dealt with. On the face of this document, the Father instructed his solicitors to pay the net sale proceeds (after deducting costs and monies owed to Hang Seng) to Ho Kin Man. It appears that this instruction was followed, such that a sum of HK$411,209.34 was paid to Ho Kin Man on 21 September 2007.

24.  The Interveners say that the Father was “tricked” into executing the GPOA. They also say that Ho Kin Man agreed to sell, and assigned, the Property to Madam Yip without the knowledge and consent of the Father. It is likewise said that the instruction to pay the net proceeds to Ho Kin Man was without the knowledge and consent of the Father.

25.  The Father passed away in June 2010. The Mother became the personal representative of the Father's estate in June 2012.  On 19 April 2014, the Mother died. 

26.  On 21 September 2016, Madam He was granted probate of the Mother's estate. On 26 January 2017, by an order of the court, Madam He became the administratrix of the Father's estate in place of the Mother.

27.  Mr Ho is a beneficiary of both the Father's estate and the Mother's estate.

28.  As stated above, the Bank extended the Instalment Loan to Madam Yip in January 2011.

29.  The Mortgage was executed to secure this loan.  It was executed on 15 March 2011.  The HK$2 million was advanced on that date.

Issues

30.  Miss Elizabeth Cheung (for the Bank) and Miss Cindy Kong (for the Interveners) agreed that there are only two issues which call for determination. In my judgment, that is the correct analysis.

31.  The two issues are whether, on the evidence filed by the parties, the Interveners have demonstrated a prima facie case that:

(1)  Madam Yip did not pay for the purchase of the Property in 2007 by using her own monies, and the purchase price in fact came from the money of the Father, without any gift of the money or the Property to Madam Yip; and

(2)  Mr Ho was in actual occupation of the Property in 2011 when the Mortgage was executed.

32.  Essentially, as accepted by counsel, and I think it is right, that:

(1)   If the Interveners succeed on the first factual issue, then it would be arguable that Madam Yip purchased the Property on resulting trust for the Father.

(2)  If the Interveners succeed also on the second factual issue, then it would be arguable that had the Bank inspected the Property (and it is common ground that it did not), it would have been put on notice of the beneficial interest of the Father by virtue of the actual occupation of Mr Ho (who was a beneficiary of the estate of the Father). And that would mean that the Bank would be bound by the trust in favour of the Father.

33.  In respect of the significance of the second factual issue, I should add that:

(1)  Miss Kong has drawn my attention to the case of China & South Sea Bank Ltd v Ma Koon Ah & Anor (HCMP 3000/1994) where Deputy High Court Judge Longley held §29 that “occupation by itself is sufficient to put the purchaser or mortgagee on an enquiry and will amount to constructive notice of occupier's right”.

(2)  I do not believe Miss Cheung challenges the correctness of that proposition.

(3)  However, Mr Ho's interest in the Property at the time of the Mortgage, ie 2011, was only qua a beneficiary of an unadministered estate (ie that of the Father), and there might be a question as to whether his occupation would have put the Bank on enquiry of such an interest.

(4)  Yet, I am of the view that this question is at least eminently debatable and not suitable for summary determination in an Order 88 application.

(5)  Accordingly, I remain of the view that if the Interveners succeed in showing a triable issue in respect of both of the factual issues outlined above, summary judgment should be refused and the Joinder Application should be allowed.

Relevant principles governing Order 88 summary applications

34.  Miss Cheung cited Wing Hang Bank Limited v Liu Kam Ying & Anor (HCMP 2519/2001, 6 March 2002) at §10 (Ma J, as he then was) for the applicable principles concerning Order 88 summary judgment applications such as the present one:

“Unlike Order 14 applications where the defendant is obliged to provide sufficient grounds to justify the action continuing to trial, the burden in summary judgment applications under the originating summons procedure is on the plaintiff to justify its entitlement to summary judgment. However, once this is prima facie demonstrated on the evidence, it is then up to the defendant to show that he does have a defence or defences to the claim. In this way, there may in practice be little difference between an application for summary judgment in originating summonses and an application for summary judgment under RHC, Order 14.”

35.  I agree these are the principles I should apply.

Discussion

36.  I now deal with the first factual issue, ie whether the purchase money for the Property in 2007 came from the Father and whether there was any gift to Madam Yip.

37.  Miss Kong submitted that, on the evidence, there is no dispute that Madam Yip never had any significant income which would enable her to purchase the Property by her own means.  There was no other source of monies which could have financed her purchase of the Property in 2007, except the sale of property (ie the building materials, equipment and jewellery) of the Father and the Mother mentioned above.

38.  Indeed, although Madam Yip has filed an affirmation opposing the Joinder Application, she has not disputed in that affirmation that she had received the proceeds of sale of the Father's and the Mother's property, and had used such proceeds to purchase the Property.  And her only explanation concerning her purchase of the Property in 2007 is that (i) Mr Ho knew about and consented to the purchase; and (ii) the Father likewise knew about and consented to the purchase.  There is conspicuously no allegation that Madam Yip had purchased the Property in 2007 using her own monies which were not derived from the sale of property belonging to the Father or Mother.

39.  I agree with Miss Kong’s analysis of the state of the evidence.

40.  In this regard, I should mention that during the hearing, Madam Yip indicated that she wanted to rely on new evidence that she had another source of money in 2007, namely sale proceeds of the former matrimonial home occupied by her and Mr Ho.  However, after having been apprised of the possible adjournment that the new evidence might cause, and the possible adverse costs consequences against her, Madam Yip abandoned her application to adduce such new evidence.  Accordingly, I shall pay no regard to them.

41.  It therefore remains the case that as submitted by Miss Kong, on the evidence before the court, there is no dispute that Madam Yip had no source of money which could enable her to purchase the Property in 2007, except the sale proceeds of the Father's and the Mother's property mentioned above.

42.  Miss Kong then went on to submit that for Madam Yip to become the beneficial owner of the Property by purchasing it using the monies belonging to the Father and the Mother, it would have to be contended that the Property, or the purchase monies, was gifted to her. However, there are a number of reasons militating against this conclusion:

(1)  First, if the Father and the Mother wanted to gift the Property to Madam Yip, the simplest thing would be for them to directly gift the Property to her, and there was no need to arrange a sale through Ho Kin Man.

(2)  Secondly, the evidence at least shows that it was arguable that at the time the Father and the Mother were much in need of funds, so much so that they had to sell materials and machinery in the Father’s business, and the Mother's jewellery, to raise funds to pay off debtors. It would be very odd that after such seemingly desperate fundraising measures, the Father and the Mother would then gift the Property to Madam Yip.

(3)  Thirdly, even in Madam Yip’s affirmation, she does not expressly allege that there was a gift of the Property, or its purchase monies, from the Father and Mother.

43.  I agree that these reasons raise eminently triable issues.

44.  Miss Cheung submitted that the contemporaneous documents all speak against the case that Madam Yip was holding the Property on trust for the Father and/or the Mother.

45.  However, the conveyancing documents effecting the sale were predominantly signed by Ho Kin Man as agent of the Father.  For that reason, they are not particularly cogent evidence against the trust contended by the Interveners.

46.  The high point of the case against the Interveners would appear to be the instruction on how to apply the sale proceeds of Property signed by the Father, bearing a date of 20 September 2007.

47.  Mr Kong made clear that she does not allege that this instruction was forged.  She also accepts that she would have to say that this instruction was signed under some misrepresentation by Ho Kin Man or other people (or at least the Father did not fully understand that a sale of the Property to Madam Yip had taken place); and since this is a serious allegation, she accepts that the principles in Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563, 586D-H (Lord Nicholls) apply. 

48.  Even with these principles in mind, in light of the considerations I have alluded above, I am satisfied that the Interveners have an arguable case that, notwithstanding the contemporaneous documents, including the instructions on the application of the sale proceeds signed by the Father, there was no intention on the part of the Father to gift the Property to Madam Yip.

49.  Miss Cheung further relies on the fact that on Mr Ho’s own evidence, he had found out that Madam Yip had become the registered owner of the Property in as early as October 2007. It is therefore remarkable that legal proceedings asserting the trust were only commenced recently.

50.  Miss Kong’s answer is that the Interveners’ evidence is that there were repeated assurances by Madam Yip that she would return the Property to Mr Ho’s family, and it would not be a light decision for the Father to commence proceedings against Madam Yip, given that Mr Ho and Madam Yip remained married up to the date of the Father’s death.  However, after the Father’s death in June 2010, the Mother became the Father’s personal representative.  The Mother was also of advanced age at the time, who then died in 2012.

51.  I must say that I see some force in Miss Cheung’s argument of delay in action, because it is indeed extraordinary for the Interveners not to have taken any legal action for so long after October 2007.  But on reflection I do not think this point suffices to dispel the strength of the inherent unlikelihood of a gift from the Father to Madam Yip as explained above.

52.  I now turn to the second factual issue, ie whether Mr Ho was in actual occupation of the Property in 2011.

53.  In this regard, Miss Kong made a very powerful point that in August 2012, Mr Ho made an affirmation in the context of divorce proceedings with Madam Yip, giving the Property as his residential address.  At that time, there was no reason why Mr Ho would say that, except because it was true.  August 2012 was way before any dispute concerning the Bank’s right to the Property came to the fore.  And if Mr Ho was residing in the Property in August 2012, it is likely that he also resided there in 2011.

54.  I accept that submission.

55.  There is evidence from Madam Yip that in 2011, Mr Ho had reported to a probation officer that he resided at a different address.  But no document has been exhibited to substantiate that averment, and I do not think that assertion enables me to say that there is no triable issue as to whether Mr Ho resided at the Property in 2011.

56.  I should record that a number of submissions were made by the parties on whether Mr Ho was living in the Property in 2017 when the Notice to Occupants of the present proceedings was fixed in a conspicuous place at the entrance of the Property. But I do not regard those submissions are important to my determination, given that the material time for this issue was 2011.

57.  I therefore conclude that there is a triable issue in respect of the second factual issue.

58.  For the above reasons, I would refuse to enter summary judgment in favour of the Bank, and would accede to the Joinder Application.

59.  I also make the following directions:

(1)  The Interveners do submit a draft order (including a suggested costs order and suggested directions on the further conduct of these proceedings) within 7 days hereof, with explanatory submissions;

(2)  The Bank and Madam Yip do submit their proposed amendment (if any) to the aforesaid draft order within 7 days thereafter, with explanatory submissions;

(3)  The terms of the order will be settled by the court on paper.

60.  It remains for me to thank counsel and Madam Yip for their assistance at the hearing.