PO KWONG (CHINA) STONE LTD v. CHEUNG WAI WAH t/a AXIS ZONE INTERIOR DESIGN

CACV 157/2004

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 157 OF 2004

(ON APPEAL FROM DCCJ 1409 OF 2002)

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Reasons for Judgment
and
Decision on Costs

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Hon Cheung JA :

Reasons for Judgment

1.  These are the reasons of our judgment given on 5 November 2004. 

Facts

2.  The defendant is one of the owners of the property known as Flat F, 3/F, Manley House, No. 86-98, Canton Road, Kowloon, Hong Kong.  The other owners are the defendant’s mother (‘the mother’) and the defendant’s sister (‘the sister’).  The respective shares of these owners are as follows :

the defendant	1/4 share
the mother	1/4 share
the sister	1/2 share

3..  The plaintiff obtained judgment against the defendant for the sum of $68,108.00 together with interest and costs.  The judgment was not satisfied and the plaintiff in order to enforce the judgment applied for two charging orders in respect of the defendant’s one quarter interest in the property.  The first charging order was in respect of the judgment obtained by the plaintiff and the second charging order was in respect of the costs of the action which had been certified as $153,285.33 as well as post judgment statutory interest on this sum.  Two charging orders nisi were obtained.

4.  The defendant showed cause and upon hearing the parties, H H Judge C B Chan discharged the two charging orders nisi.  The plaintiff now appeals against the decision.

The defendant’s case

5.  The defendant’s case is simply that although she was the registered owner as to one quarter interest in the property, the actual beneficial owner of that interest is the mother.  The property was purchased by the defendant and the sister in August 1990 for the sum of $800,000.00.  They held the property as tenants in common in equal shares.  The initial deposits were paid by the mother.  The balance of the purchase price in the sum of $670,000.00 was paid by a bank loan secured on the mortgage of the property.  Her mother paid for the mortgage instalments.  The defendant’s earning was not sufficient for her to pay for the purchase of the property.

6..  On 11 October 2002 the mortgage was discharged and on 19 October 2002 the defendant and the sister assigned their interest in the property to themselves and the mother in the proportion set out in paragraph 1 above.  As a result of the assignment the defendant, the mother and the sister became the registered owners of the property in accordance with the respective shares.  The defendant’s case is that she and the sister held their shares in the property on trust for her mother.

7.  The mother confirmed the defendant’s evidence.  She also produced the bank statements from June 1996 onwards to show that money from her bank account was used for the discharge of the mortgage repayment.  In respect of the pre-1996 accounts the mother had lost the passbook and the bank was unable to supply duplicate statement because it would only keep records for seven years.

8.  The defendant also produced a letter from the firm of solicitors which confirmed that it was the mother who gave it instruction for the purchase of the property in the name of her daughters and also in respect of the subsequent assignment to the mother.  The mother also gave instructions to redeem the property from the bank after the mortgage had been fully paid up.  The mother was also authorized by the defendant and the sister to collect the title deeds after the assignment has been executed. 

The law and procedure

9.  The District Court can impose a charging order against the beneficial interest of a judgment debtor in, among other things, land.  The provisions are contained in sections 52A, 52AA and 52AB of the District Court Ordinance (Cap. 336).  Order 50 of the Rules of the District Court set out the relevant procedure in relation to an application for charging order.  For all intents and purposes the provisions in the District Court Ordinance and its rules are identical to the provisions in the High Court Ordinance and the Rules of the High Court governing charging orders. 

Two stage approach

10.  The making of a charging order involves a two stage approach.  First on the ex parte application of the judgment creditor the court will make a charging order to show cause, specifying the time and place for further consideration of the matter and imposing the charge in any event until that time.  That order is commonly known as the charging order nisii : see Order 50 Rule 1.  The second stage is for the judgment debtor to show cause.  Order 50 Rule 3 provides that on the further consideration of the matter the court shall either make the order absolute with or without modifications or discharge it. 

Issue to be tried

11.  Although Rule 3 seems to suggest that the only choice that is available to the court on the further consideration of the case is to impose the charging order absolute or to discharge the charging order nisi, the English courts have interpreted the provisions in such a way as to allow the court to direct an issue to be tried on whether the judgment debtor in fact holds any beneficial interest in the property sought to be charged.  In Rosseel N. V. v. Oriental Commercial and Shipping (UK) Ltd. and others (Hearing date 8 October 1991 Lexis Nexis Transcript) Parker LJ of the English Court of Appeal stated that

‘Where there is a real dispute, it is, as it seems to me, necessary in order to do justice that an issue should be tried and the court can in the exercise of his power to regulate its own procedure direct such issue. ’’

In that case a dispute arose on the beneficial ownership of the charged property.

12.  We will respectfully adopt the same approach as well.  In an usual case, unless the matter is clearly unarguable, the question as to whether a registered owner of a piece of land is holding the beneficial interest on trust for someone who provided the purchase price can only be resolved by a trial.  We do not see why there should be any difference in approach when the judgment creditor is applying for a charging order.  In our view the defendant has provided sufficient evidence for the issue to be tried.  She has produced sufficient evidence to show the mother paid for the deposits and for a substantial period, the mother paid for the mortgage repayment.  This is not a case that can be determined on affidavit evidence alone.  What the defendant and her mother said on affidavit must be tested in cross examination.

Estoppel by deed

13.  Mr. Yau, counsel for the plaintiff, relied on the principle of estoppel by deed and submitted that by reasons of the matters contained in the assignment dated 19 October 2002 it was not open to the defendant to say that in respect of her one quarter interest in the property, she is only holding it as a trustee for the mother.  The recital of the assignment stated that the defendant and the sister were the tenants in common in equal shares and are the beneficial owners of the property and that they wish to assign the property to her mother and to themselves by way of gift.  By this recital, Mr. Yau submitted that the defendant is now precluded from alleging she is not a beneficial owner of the property. 

14.  The issue to be determined is whether estoppel by deed applies at all.  For the purpose of this case it is sufficient to refer to the following principles :

(1)    Estoppel arising from a statement of fact in a deed is based on the principle that when a person has made a statement of fact in a deed he will not be permitted to deny any matter which he has so asserted.  It is a rule of evidence according to which certain evidence is taken to be of so high and conclusive a nature as to admit of no contradictory proof.  (Halsbury’s Laws of England 4^th Edn. Re-issue Volume 16(2) para. 1014)

(2)    There can be no estoppel arising out of a deed where the claim is not founded on the deed, but is wholly collateral to it.  (Halsbury’s para. 1028)

(3)    The estoppel may be raised by anyone who can sue on the deed against anyone who can be sued on it.  It may, therefore, be raised by a party to the deed, or a party entitled to the benefit of the deed, either under a trust created by the deed of its covenants, or under s. 56(1) Law of Property Act 1925, or as a successor in title.  (Spencer Bower : The Law Relating to Estoppel by Representation 4^th Edn. para. 14 VIII.14.1)

15.  Mr. Yau faced two hurdles.  First, the plaintiff’s claim was not founded on the assignment.  Second, it was not a party to the assignment. 

16.  In respect of the first hurdle the plaintiff was applying for a charging order against the interest of the defendant in the property.  He obviously has to refer to the assignment in order to identify the beneficial interest of the judgment debtor in the property.  However, beyond that the claim was not founded on the deed itself but is wholly collateral to it.  (See Carpenter v. Buller [1841] 8 M & W 209)  The plaintiff is not relying on any other provisions of the deed other than the fact that the assignment provided the defendant with one quarter beneficial interest in the property.  We found it extremely difficult to accept that the proceedings for charging order was based on the deed itself. 

17.  In respect of the second hurdle, Mr. Yau argued that the plaintiff is a successor in title to the assignment.  Mr. Yau relied on section 52AB(3) of the District Court Ordinance which provides that “A charge imposed by a charging order has the same effect and is enforceable in the same courts and in the same manner as an equitable charge created by the judgment debtor by writing under his hand”.  Further Mr. Yau argued that by reason of Order 50 Rule 1, when the court makes a charging order to show cause, the charge is already in place, hence the plaintiff becomes the successor in title to the defendant in the assignment.  This is a bold proposition and Mr. Yau is unable to provide us with any authorities to support his argument.  

18.  In our view section 52AB(3) does not assist Mr. Yau at all.  Although a charge is imposed when the court makes a charging order nisi, clearly it could not be envisaged by the legislature that this charge is already enforceable “in the same courts and in the same manner as an equitable charge created by the judgment debtor by writing under his hand” when this order is subject to be discharged when sufficient cause is shown.  If the charging order nisi is already enforceable in the same way as a validly executed equitable charge then it will defeat the whole purpose of the procedure for showing cause.

19.  In our view a charge that is enforceable as a validly executed equitable trust is a charging order absolute with or without conditions. 

20.  In our view, the principle of estoppel by deed is not available to the plaintiff.  We recognize that we did not have the benefit of full argument on this issue as the defendant was not legally represented but even based on the material provided by Mr. Yau, we are unable to see how the estoppel principle could arise in this case.

Evidence

21.  Mr. Yau is, of course, right when he said that the defendant and her mother had not explained why if the mother is the beneficial owner of the whole of the property the defendant should continue to hold one quarter interest in the property. 

22.  The defendant explained in her written submission that she was married in December 2000 and moved out of the property.  As the sister had to work overseas occasionally it was more comfortable for the mother to withhold part of the shares of the property after she was married.  She also referred to the authoritative position of parents in a Chinese family. 

23.  We are of the view that the matter raised by Mr. Yau is precisely the issue that has to be tried.  If, despite the fact that the defendant and the sister formerly held the property in equal shares, her mother could still direct them to assign one quarter or such interest to her, then it is some indication that she is the real beneficial owner of the property.  While the retention of one quarter interest by the defendant could be interpreted as a gift by the mother to her, we are not convinced in the context of a Chinese family this must necessarily be the only conclusion.  It is not uncommon for properties to be registered in the name of the children (although of age) and at the same time they acted no more than as trustees for their parents.  As to the mechanism in preparing the assignment it was clearly not a matter within the expertise of the mother.  In the absence of the operation of an estoppel, the recital in the assignment that one quarter share in the property was assigned to the mother by way of gift is not conclusive evidence against the defendant at all. 

Appeal allowed

24.  Accordingly, we allowed the appeal and set aside the order of the judge.  We ordered that the issue concerning the true ownership of the beneficial interest of the one quarter interest of the defendant be remitted back to the District Court to be tried and we gave direction on the filing of evidence.  We will further direct that the plaintiff is to set down the issue to be tried within 21 days of the filing of the last affidavit.  We will further give liberty to both parties to apply for further directions from the District Court.

Decisions on Costs

25.  The judge made no order as to costs in respect of the two charging orders nisi applications and the hearings of the notice to show cause inclusive of all costs reserved in respect of the hearings. 

26.  We will order both the costs of the appeal and the costs relating to the application for charging order to be in the cause of the trial of the issue.  However, in the event that the plaintiff is successful in the trial, it is only entitled to one third of the costs of the appeal as the majority of the time taken on appeal is concerned with the question of whether estoppel by deed is available to the plaintiff.  As to that issue we have found against it.