LEUNG HAI and Another v. LEE KUI KWAN

1995, No.MP1960

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

_______________

_______________

_______________

J U D G M E N T

_______________

1. There are two sets of proceedings before me which have been consolidated by order of the Registrar dated 4 November 1996. Somewhat unusually, an originating summons was consolidated with a writ action without any directions being given or sought as to the further conduct of the consolidated proceedings. An appointment was taken out for the hearing of the originating summons with the result that the normal steps to be taken in a writ action before it could be set down for trial were effectively bypassed. Unless directions are given or sought as in a writ action in particular for discovery, the likelihood is (as has happened in the present case) that not all material documents will be in evidence and that is highly undesirable.

2. The consolidated proceedings relate or arise out of the property known as Flat D, 5th Floor and Roof of Block 1, San Ning Building, Nos.2-44 Shung Wah Street, Kowloon ("the Property"). The Property is currently registered in the joint names of Lee Kei Kwan ("the Plaintiff") and his step-brother Lee Kui Kwan ("the Defendant"). They are the only parties to the originating summons which is an application by the Plaintiff for relief under the Partition Ordinance, Cap.352. The dispute is as to the extent of the Plaintiff's beneficial interest (if any) in the Property rather than substantive relief under that Ordinance if the Plaintiff is beneficially interested.

3. The writ action (No.A5564) is a claim by Leung Hai and her natural son, the Plaintiff in No.1960, against the Defendant who is Madam Leung's stepson. It is a claim for a half share of the rent that has been collected by the Defendant since late 1978.

The facts

4. On 18 June 1970, the Defendant entered into a Provisional Agreement to purchase the Property for $40,200. A deposit of $500 was payable forthwith. Further payments of $5,700 and $6,000 were due on 22 June 1970 and 5 July 1970 respectively. The balance of $28,000 was payable by instalments over a period of seven years from 5 July 1970. The monthly repayment inclusive of interest was $531.

5. At or about this time, the Defendant did not really have sufficient funds to meet the initial outlay required. There is no dispute that his step-mother Madam Leung provided money to the Defendant. According to Madam Leung, she gave the Defendant $8,000 towards the purchase price. The Defendant's case is that the amount was only $7,000 and that it was a loan made to him without any conditions attached although his counsel appeared to be willing to concede that the amount was $8,000.

6. It is common ground that Madam Leung who is now 86 years old worked as a live-in amah all her life and lived at her employers' home. The Defendant maintained that prior to the purchase of the Property, Madam Leung in fact lived with him in Ha Heung Road. This is challenged by Madam Leung whose case is that apart from a short period when she was ill and could not work, she did not live with the Defendant but with her employers in Yau Yat Chuen.

7. The Defendant's evidence is that he has been a taxi-driver since about 1968. By the time of the purchase of the Property, he had managed to save approximately 20% of the purchase price. He believed that only 20% of the price was required by way of down-payment for the Property : he said that the advertisement for the Property referred to a 20% down-payment. On this basis he entered into the Provisional Agreement on 18 June 1970. When he realised (after he had already entered into the Provisional Agreement) that it was not only a question of paying 20% as down-payment, but that there were other expenses and charges involved the effect of which was that he could only manage to pay about half the initial outlay, he approached Madam Leung for an advance. She initially refused the Defendant's request but he kept on persisting and told Madam Leung that in order to assure her that the money was being used to acquire the Property, he would cause the Property to be put into joint names as proof of the loan. The Defendant's case is that the amount advanced by Madam Leung (be it $7,000 or $8,000) was nothing more than a loan. No mention was made as to when it was to be repaid or whether any interest was chargeable.

8. Although the Provisional Agreement provided that a Formal Agreement be signed within three days, that did not occur until 7 July 1970. The Formal Agreement was not initially in evidence and was produced during the course of the hearing. It transpired that it was executed by the Defendant and Madam Leung jointly as purchasers and not only by the Defendant.

9. The receipts in evidence show that the following payments were made :

The second to ninth instalments (inclusive) were effected by four payments, each relating to two instalments. These payments were made to Messrs Woo & Kwan, the solicitors for the Vendor in October and November 1970 and January and March 1971. As from 26 May 1971, payments were made to Hang Seng Bank Limited directly. It would appear that the Bank loan only became available after the building had been erected. The account, Property Instalment Loan No.17663, is in the joint names of Madam Leung and the Defendant. None of the loan documentation is in evidence. Including the first instalment of $531 paid on 9 July 1970, 82 monthly instalments of $531 each were made. In addition, the final monthly instalment paid on 27 June 1977 was in the amount of $668.35.

10. The Property was conveyed into the joint names of Madam Leung and the Defendant as joint tenants. Although the assignment to them is not in evidence, the Land Registry records show that it was dated 12 May 1971 and registered on 24 June 1971 as Memorial No.813682. The occupation permit in respect of the Property was issued on 15 March 1971. Shortly thereafter, Madam Leung and the Plaintiff moved into the Property.

11. The Property consisted of two bedrooms and a living area as well as a kitchen and bathroom. The evidence is that when Madam Leung and the Plaintiff moved in in 1971, a third room was created by partitioning the living area. This was apparently the Defendant's idea. Madam Leung and the Plaintiff did not live in any of the rooms within the Property but instead made a make-shift shelter on the verandah or balcony consisting only of some 54 sq.ft. in which they have been living since 1971. The Plaintiff put up notices or bills at the entrance to the Property indicating that there were three cubicles available for rental. According to the Plaintiff, the cubicles were rented out as from about mid April 1971. It is common ground that the rental was collected by the Plaintiff and Madam Leung from this time until the Defendant moved back to live on a permanent basis.

12. On 11 January 1980, Madam Leung assigned her share in the Property to the Plaintiff by way of gift.

13. As to the amount of rental collected by the Plaintiff before the Defendant moved back, there is no written record but the Plaintiff's evidence is that in the initial five years, the rental collected per month was over $400 a month but not quite enough to meet the monthly mortgage repayment of $531. He had to make up the shortfall and handed the monies to the Defendant who paid the Bank apart from 14 mortgage instalment payments (including the last 12 instalment payments) which the Plaintiff paid directly to the Bank. The Plaintiff said he was given a booklet containing payment-in slips or credit vouchers by the Defendant. The booklet contained 12 sets of slips in duplicate. In addition to these 12 payments, there were two other payments. All the receipts were given by him to the Defendant for the purpose of redeeming the title deeds after the loan had been discharged.

14. The Defendant does not accept that the Plaintiff (1)handed him any monies at all to meet the monthly repayments during the subsistence of the loan from the Bank; (2)made 14 monthly payments directly to the Bank, including the last 12 instalments; and (3)handed over the 14 receipts to him at the time the mortgage was redeemed.

15. When the Defendant moved back to the Property he did not live in any of the cubicles. Instead, he caused structures to be erected on the roof. It is also common ground that after moving back to the Property, the Defendant began collecting the rents. One of the rooms became vacant in about 1992 and the other two fell vacant in 1994. Currently there are no tenants but these rooms are locked up by the Defendant.

16. As to the amount of rental which, according to Madam Leung and the Plaintiff, the Defendant has been collecting since about 1978 or 1979, there is a detailed schedule prepared by the Plaintiff setting out the rent in respect of the south room as from 1 July 1979, the west room as from 11 June 1979 and the north room as from 8 October 1978. The Plaintiff's evidence is that the information upon which these schedules are based was recorded by him as and when each tenant moved in. He was not challenged as to the accuracy of the Schedule.

The issues

17. At the heart of the case is the question whether Madam Leung has any beneficial interest in the Property, and if so, the extent of that interest.

The extent (if any) of Madam Leung's interest

18. As the Property was assigned to the Defendant and Madam Leung as joint tenants, the initial presumption is that there was also a beneficial joint tenancy in equity also ensued. See Pettitt v. Pettitt [1970] AC 777 at 813-814. A half share is consistent with the fact that she was one of the purchasers under the Formal Agreement and a joint account holder of the property instalment loan granted by the Bank and secured by the Property. The Defendant sought to rebut the presumption on two fronts : first that the advance was nothing more than a loan; second if a beneficial interest was acquired, that advance represented no more than 18.9% of the cost of the Property.

Was the advance a loan?

19. When asked in cross-examination whether the $8,000 was a gift or a loan, Madam Leung answered that it was a loan. But her answer has to be seen in the context of her evidence as a whole, taking into account her age, and the fact that she is illiterate and totally unsophisticated. The question was framed in such a way that it could readily be understood as a choice between a gift and a loan. Seen in that light, it does not have the significance the Defendant seeks to attach to it.

20. I reject the Defendant's evidence that the advance by Madam Leung was nothing more than an interest-free loan for the following reasons. Madam Leung's evidence is that the advance represented her entire life savings. This the Defendant did not seek to challenge. At the time, Madam Leung was already about 60 years of age. She had no assets, no home of her own, and according to her, she had to realise her gold ornaments and cash in her chit subscription fund in order to raise this money. The Defendant was merely her stepson and the relationship was far from close. In those circumstances it is inherently improbable that Madam Leung would have made an interest-free loan of this amount to the Defendant. Indeed her evidence was that she expected that it would provide her with a home.

21. Second, the Defendant does not strike me as a reliable or honest witness. He was always on the defensive and over-eager to justify himself and his actions. His evidence concerning the Provisional Agreement and the Formal Agreement is in point. The Provisional Agreement is a one page document written in Chinese. I do not accept that the Defendant did not appreciate at the time he signed the Provisional Agreement that (net of costs and expenses) he had to come up with over $12,000 within the space of a month which was considerable more than what he had at his disposal. As to the Formal Agreement Madam Leung was party to it as one of the purchasers : she is illiterate and her thumb print as well as a cross appears in the space for her signature. Clearly, the Formal Agreement would only have been in joint names if the Defendant had so instructed his solicitors. The Defendant could not apparently recall that Madam Leung was one of the purchasers in the Formal Agreement. This I find extraordinary since plainly it was the Defendant who made the necessary arrangements. The Defendant appeared to say that he could not read English and therefore did not understand the nature of the document. He tried to shift the blame onto his solicitors by saying that he merely appended a signature where he was told to and had no understanding of what he was signing. This explanation is too disingenuous. The Defendant was the client and his solicitors would only have acted in accordance with his instructions. The Defendant gave no evidence as to the nature of the instructions he gave his solicitors.

22. Third, the Defendant's explanation as to why he caused the Property to be transferred into joint names, i.e. that it would be a guarantee that he was borrowing from Madam Leung only for the purpose of acquiring the Property makes little sense. What is telling is that neither the Formal Agreement nor the Assignment referred to any loan made by Madam Leung. Rather, she took the Assignment as one of two joint tenants. Fourth, his evidence that Madam Leung and the Plaintiff lived with him in Ha Heung Road in a room of 40 sq.ft. for about 2 years at a time when he had just married is difficult to accept when he had earlier disclaimed any knowledge of the Plaintiff's whereabouts prior to Madam Leung moving to live at the Property. Indeed his evidence as to this developed from simply housing Madam Leung for a time to housing the Plaintiff as well for a period of 2 years.

23. What then was the common intention of the parties at the time the Property was acquired? I do not accept that at most what was intended was that Madam Leung would be entitled to a contractual licence to live at the Property for the rest of her life. Had that been the case, she would not have considered it necessary to live in makeshift accommodation on the balcony rather than in the Property itself. Moreover by being party to the Formal Agreement and the Bank loan, Madam Leung assumed and became liable for the obligations thereunder. I have little doubt that it was intended that Madam Leung should have a proprietary interest in the Property though that was not defined and there was no express agreement between the parties at the time as to how Madam Leung's share was to be quantified.

24. In order to ascertain the extent of Madam Leung's interest, the manner in which the purchase was financed becomes relevant.

How was the purchase financed?

25. The capital outlay for the Property including the first instalment that was paid in July 1970 and the costs and disbursements associated with the purchase came to $14,896.80. Madam Leung's contribution was approximately 50% of the initial outlay whichever version of the amount of the advance (i.e. $7,000 or $8,000) is accepted. So far as the monthly instalments are concerned, the next eight months of instalments were paid by the Defendant. This is for the period prior to obtaining the instalment loan from the Bank. As regards the remaining 74 instalments, if the Plaintiff's evidence were accepted, they were effectively defrayed out of rental income. If the Defendant's version were accepted, the entire burden of instalment payments was discharged by him rather than out of the rental from the Property and without any contribution from the Plaintiff or Madam Leung.

26. As will appear below, there are difficulties with both accounts. The Plaintiff's evidence is he paid the last 14 mortgage instalment payments directly to the Bank. Initially he had said that he had paid 24 of these instalments. He corrected his evidence after checking overnight a notebook in which he said he had recorded the payments. (These records are again a casualty of the lack of directions for discovery in consolidating in the proceedings.) The Defendant produced a bank payment card which the Plaintiff had never seen before. The Defendant explained that every time he made a payment, the Bank would chop the card with the date of payment. The last payment shown on the card is that of August 1976. No payment chops appear on the card for the last 10 payments. In addition, the chops for the month of April and June 1976 are also missing. In view of the chops appearing on the payment card, it could not have been the case that the Plaintiff made the last 12 payments directly to the Bank. One possibility is that the Plaintiff misremembered : that whilst he may have made the number of instalments he said he did make directly, they were not made in consecutive months. Another possibility is that he was making this up.

27. There is also the fact that the Plaintiff no longer possesses the payment-in slips. All of them were produced by the Defendant and is wholly consistent with his having made the payments. The Plaintiff's explanation is that he was asked by the Defendant for these slips in order to redeem the mortgage. But discharge of the mortgage did not require the production of these payment-in slips. Counsel for the Defendant therefore submitted that these matters constitute strong evidence that the Plaintiff was not a truthful witness. Whilst the credit vouchers did not have to be produced for obtaining the release of the title deeds after the loan had been repaid, it does not follow that the Plaintiff could not have believed that they were. It is plain that his knowledge of financial matters and documentation is extremely limited. He has had various menial jobs in garment factories and is now a caretaker. I attach little importance to the reason he gave - the question is whether he did give those vouchers to the Defendant. The Plaintiff is plainly stubborn and at times it was difficult to follow his evidence. Despite this and his unconcealed antagonism to the Defendant, he came through as an essentially honest witness.

28. As to the Defendant's evidence, he was unable to proffer any credible explanation as to why the repayment card was not stamped after August 1976. The explanation he proffered was that the Bank had so much trust in him by that time because of the regularity of his repayments that it decided it was no longer necessary to stamp the card upon receiving a monthly statement. This explanation is in a sense symptomatic of the Defendant's evidence throughout : being always on the defensive and ready to proffer an explanation whether good, bad or indifferent. Another example was his explanation as to why the cover of a payment-in booklet came to be in the Plaintiff's possession. The Defendant denied ever having given it to the Plaintiff. He said he must have inadvertently left it at the Property when he went to visit and rhetorically remarked that it was not so surprising that he should pay such visits. No mention had previously been made of such visits. He was not on friendly terms with Madam Leung and the Plaintiff and the idea that he would go and visit somehow does not ring true. The Defendant's remark was gratuitous, betraying an anxiety that he might not be believed.

29. Since neither account is entirely satisfactory, it comes down to a question of credibility of the two witnesses. On balance, I prefer the evidence of the Plaintiff. As noted above, the Defendant has not shown himself to be either an honest or reliable witness. He was a little too keen to impress. A striking example of this was his evidence regarding how not only Madam Leung but also the Plaintiff lived with him at Ha Heung Road for about 2 years. It would have coincided with the time that he got married. The accommodation in question was a room of 40 sq.ft. Because he was a filial son and dutiful, he not only took in Madam Leung, his step-mother and the Plaintiff with whom he did not get on, but also sent his wife back to her parents to live in the New Territories. Thus he portrayed himself as being unstintingly filial and generous. This generosity is singularly absent now.

30. The greatest difficult with accepting the Defendant's account is the inherently improbability that the Defendant would have allowed Madam Leung and the Plaintiff not only to live at the Property rent-free but also to let the cubicles and to pocket rent from the tenants without contributing in any way to the repayments of the instalment loan. The Defendant acknowledged that 1976 and 1977 were the most difficult years for him financially. His second child was born in 1976 and his third child in 1977. Ha Heung Road was being repossessed for redevelopment and he had nowhere to live. In these circumstances, the more probable scenario (as was the Plaintiff's evidence) is that the instalment loan was largely financed by the rent collected.

31. I accept Madam Leung's evidence that her contribution towards the purchase was $8,000 rather than $7,000. That represented over half the initial outlay. So far as the mortgage repayments are concerned, I find that these were largely financed out of the rental income. Although the Defendant paid several of the instalments prior to the Property being ready for occupation and therefore before any rental could be generated, broadly speaking, that is offset by Madam Leung's larger initial contribution and the shortfall that arose during the first five years which the Plaintiff and Madam Leung made up out of their own monies. Taking a global view of the respective contributions, I find that Madam Leung had in fact contributed and is entitled to one half of the Property. The Plaintiff is accordingly entitled to a half share in the Property by virtue of the assignment to him in 1980.

Entitlement to rental

32. The Plaintiffs are also prima facie entitled to half the rental collected by the Defendant since 1978. However the Plaintiffs concede that s.4(2) of the Limitation Ordinance applies to bar any claim to rental accruing more than 6 years prior to the issue of the writ.

Order

33. In these circumstances, in MP No.1960 of 1995, I make an order in terms of paras.1 to 9 (inclusive) of the originating summons. In HCA No.A5564 of 1996, I make a declaration that the 2nd Plaintiff is entitled to receive one-half of the net rental income collected by the Defendant during the period of 6 years prior to the commencement of this action on 18 May 1996 and order that an account of such net rental income be taken and paid by the Defendant to the 2nd Plaintiff with interest at 10% per annum until payment. I make an order nisi that Defendant do pay to the 2nd Plaintiff his costs of the action, the 2nd Plaintiff's own costs to be taxed in accordance with the Legal Aid Regulations and that there be no order as to costs between the 1st Plaintiff and the Defendant. There is to be liberty to apply.