THELMA WATSON v. ROWENA MARY SMITH

1994, No.A2054

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

----------------

---------------

-----------------------

J U D G M E N T

-----------------------

The background

1. I shall call her "Rowena". Rowena is the elder daughter of Mrs Thelma Watson. Christopher Watson is her younger brother.

2. Mrs Watson used to live at No.20 Happy View Terrace of Happy Valley. In 1985 when Rowena and her cohabitant Malcolm Sage purchased Flat 2E, Nos.2-8A Happy View Terrace ("the Property"), Mrs Watson had given Rowena $30,000 as part of the payment for the Property which included the roof top above and carparking space No.13 on the basement.

3. In 1988 Malcolm, being an architect and authorised person, had renovated the roof into a self-contained flat and numbered it as 3E.

4. In early 1989 there were discussions amongst Malcolm, Rowena and Mrs Watson as to the sale of Malcolm's half share in the Property. It was agreed that Mrs Watson would pay $500,000 to Malcolm for his half share and Mrs Watson would continue on with the repayment of the mortgage which was then outstanding for about $800,000. Mrs Watson was to move to reside in Flat 2E.

5. Rowena and Mrs Watson differed in their understanding of the sale of Malcolm's half share in the Property. Rowena said it was intended as a gift for her. She said it was because in early 1989 after the sale of her mother's flat at No.20, her mother had given Christopher $1 million from the proceeds of sale. She intended to give her a gift in order to avoid estate duties. She had earlier given her company T. Watson Distributors Ltd. to Christopher. He was the major shareholder and the one in control of the company.

6. Mrs Watson was adamant that there was no intention of any gift. She said it was intended and agreed that she should have an interest in the Property in that Malcolm's half share would be conveyed to her and she would continue on with the repayment of the mortgage. The monthly repayment amounted to about $7,000 odd. She would also pay the rates for the Property. The payment of $500,000 actually came from the $1 million given to Christopher earlier. Since 1980, he was given a power of attorney by his mother. Mrs Watson said he was in charge of her money.

7. Mrs Watson in fact moved into Flat 2E in or about April/May 1989. The Conveyance Assignment was dated 15 June 1989. Malcolm's half share was conveyed to Rowena whereby she became the sole registered owner. On the same date Mrs Watson only signed on a Mortgage Deed as a borrower jointly with Rowena signing also as the mortgagor of the Property. Mrs Watson said she did not read through the document she signed. She relied on the solicitor who was introduced by Rowena. Mrs Watson also paid the solicitors' costs of $22,775.00. Thereafter she started to pay the mortgage instalments and outgoings through her company T. Watson Distributors Ltd.

8. In late 1989, Rowena moved to England and rent out her flat 3E. It was because Malcolm was looking for a job in England and would like to move back to England. Rowena also wanted to be closer to her son Darran who was studying in England.

9. In early 1990, Mrs Watson moved to Mount Butler Road to look after her brother-in-law who had a stroke. She invited Christopher to move into Flat 2E without informing Rowena. Christopher moved into Flat 2E in March 1990 and continued on to pay the mortgage and other outgoings thereof through his company T. Watson Distributors which provided him with housing as a director.

10. In 1990, Mrs Watson was also thinking of moving to England and living with Rowena. At that time Malcolm found a job in Jakarta. Rowena and Malcolm suggested to Mrs Watson to purchase a house in London together. Eventually in October 1990 she paid $350,000 to Malcolm for the purchase of a house at 125 Worple Road, Wimbledon, London for165,000. It was agreed that the money paid was 2 shares for Mrs Watson and Rowena whereas Malcolm would pay the other share, i.e. each of the three of them would have 1/3 share in the house. The balance would be financed by a mortgage with a bank. (The aforesaid sum of $350,000 also came from the $1 million given to Christopher. Thus altogether he had paid out $850,000.)

11. In December 1990, Mrs Watson went to England with Malcolm on his way from Jakarta. In 1991 she moved altogether to England and lived at 125 Worple Road with Rowena. Mrs Watson was previously asked in September to contribute $10,000 towards the mortgage payment. When she was in England she asked Rowena why 1/3 of the mortgage payment was so high. She was then told that she need not pay the mortgage as the house was only registered in the name of Malcolm and Rowena as Malcolm found it too complicated to register the house in three names. According to Mrs Watson, Rowena said Malcolm was willing to make a separate agreement giving her 1/3 of the property. Mrs Watson found the arrangement unsatisfactory. However when she lived in Worple Road, she paid between300 to"500 a month into a joint account with Rowena as her share of the outgoings.

12. Thereafter, Christopher was informed by her mother that the house in Wimbledon was only registered in the names of Malcolm and Rowena. According to him, he was very concerned and decided to make a land search on the Property in Hong Kong. He discovered the Property was registered solely in his sister's name.

13. He then informed his mother but she said she would sort things out with Rowena. She told Christopher not to worry as she trusted Rowena. He did not however share his mother's trust. Thus in order to protect his interest he drew up a sort of "tenancy agreement" dated 13 November 1991 and sent it to his mother for Rowena's signature. It stated that Rowena would allow her brother "sole and uninterrupted tenancy of the Property ... for the duration of his lifetime ... In return Christopher agreed to pay the monthly mortgage and to properly maintain the condition of the premises." Mrs Watson and Rowena differed in the circumstances upon which Rowena signed this document. This will be considered later on hereinbelow.

14. In November 1992 Malcolm returned to Hong Kong and he parted with Rowena. In 1993 Rowena told her mother that she had difficulty in paying Darran's school fees. According to Mrs Watson, Rowena mentioned $3,000. She asked Rowena to increase the mortgage borrowing on the Property. In Mid 1993 Rowena returned to Hong Kong. She borrowed another $100,000 from the Bank under the same mortgage. She did not tell her mother or brother. Instead Rowena met Christopher and asked him to vacate from Flat 2E.

15. On 17 August 1993, there was a further stamp duty of $13,199.07 assessed by the IRD on the Property. Mrs Watson caused her company to pay this sum.

16. In February 1994 Rowena wrote a long letter to her mother complaining a number of things which included Christopher occupying Flat 2E. Her mother discussed with Christopher and this action was commenced on 4 March 1994 claiming that Rowena was holding half share of the Property on trust for her mother.

17. In October 1994, Christopher discovered the further loan of $100,000 to Rowena and the Bank had diverted part of his payment to repay this further loan. He then ceased payment of the mortgage to the Bank.

18. In 1996 the house at 125 Worple Road was sold. Malcolm gave $20,000 to Mrs Watson.

19. In May 1996, Christopher left Hong Kong for a long holiday. When he came back in early July he discovered his sister had gained access to Flat 2E and removed all his possessions therein and changed the locks thereto. In the same month he obtained an injunction against her and reinstated the status quo position.

Credibility of each witness

20. After hearing the evidence of Mrs Watson, Christopher, Malcolm and Rowena, I must say that I find the evidence of Rowena and Malcolm quite confused, vague and at times, evasive, and therefore unreliable. Rowena could not remember the order of events in 1989, or even introducing, instructing and attending at the solicitors' office. She mistakenly asserted that she alone paid for his son Darran's school fees. She then recalled that Mrs Watson had assisted her in respect of Darran's school fees.

21. She originally said in her statements that she learned of Christopher's occupation of Flat 2E when her mother told her in London in 1991 and she was extremely angry and she said her mother had no right to put her brother in her apartment. She admitted, however, that she had actually passed through Hong Kong from Jakarta to London in 1991 before that, and her mother was then living at Jardine Lookout with her brother-in-law. She admitted that she must have learned that Christopher was in Flat 2E.

22. In the summer of 1990, by a letter dated 3 June 1990, Rowena wrote to her mother and said that she was looking at a property at Wimbledon. In this letter she said :

"If we cannot finance the purchase and renovation of this house, can we sell our flat in Hong Kong because we can really make money on this one."

This is indicative of Rowena's understanding that the flat belonged to her and her mother.

23. On 7 June 1990, she wrote again to her mother and said that she found another house among other houses at Worple Road, Wimbledon. She said "Malcolm wants his money from the sale of our flat in Hong Kong to you." Eventually they bought the Worple Road property.

24. Mrs Watson was asked to contribute HK$10,000 each month to repay the mortgage which she refused as she found it on the high side. She was later on told that the house was registered only in the name of Malcolm and Rowena. Rowena and Malcolm's explanation was that since Mrs Watson would not contribute to the mortgage repayment and $350,000 would not be enough for 2/3 of the initial payment, and thus the Property was only registered in Malcolm's and Rowena's names. I note here that both Malcolm and Rowena agreed that the decision to register the Worple Road property into two names instead of three as originally agreed, was made after Mrs Watson had paid $350,000 and she was only told afterwards. We are of course not concerned with the proprietary interest of the house in Worple Road. However, it is tell-tale of the attitude of Rowena and Malcolm in treating Mrs Watson's payment.

25. I also find Malcolm's version and recollection imprecise and at times also confused. His evidence is tainted by his dispute with Mrs Watson concerning Worple Road property. But even he seems to accept that Mrs Watson was to buy his share and have the lower flat. He said in chief that there was discussion of Mrs Watson buying the lower flat and not the upper flat but that it could not legally be done as 3E was built without the approval of the Building Authority.

26. Rowena made accusations against her brother of theft in respect of an incident in 1993. In early 1993, the tenant of Rowena, one Mr Hitosugi, was advised by his bank that the autopay from his bank account to Rowena's bank account for the monthly rent had been terminated because of the closure of her bank account. He could not contact Rowena and therefore he contacted Christopher living one floor below. Eventually, Christopher agreed to take the rent into his account. According to Christopher, when his sister phoned him up he told her that the money was in his account and he remitted the same into her account either in England or in Hong Kong. Rowena made use of this incident and accused her brother of theft in that he only paid her much later. In her original statement, she did not state that the incident happened because of her mistake in closing her account in Hong Kong.

27. In the end, I find Rowena and Malcolm's evidence unreliable. On the balance of probabilities, I would accept Mrs Watson's evidence and that of Christopher.

28. Counsel for Rowena also agreed that Mrs Watson was an impressive witness. She more than lives up to Malcolm's description of her as an "astute business woman". She was strong willed, assertive, intelligent, able and mentally alert. Her only impairment was some difficulty in hearing. It is highly unlikely, as Christopher submitted that she would not be expected to have an interest in the Property when both Rowena and Malcolm agreed that she was a person who would like to control. Darran's letter of January 1990 to his grandmother is also an indication of Rowena's understanding of the situation. I find it more probable that the information in the letter came from Rowena with whom he had just spent the holidays and the contents suggested that Rowena regarded the flat as her mother's. Hence Darran was concerned that the Property would go to Christopher instead or him or his mother.

29. I do not give any weight to the statements of Mrs Watson's sister and brother-in-law - the so-called "de Mottas' statements" which suggested that Mrs Watson was giving a gift to Rowena in paying Malcolm's half share. They were not made contemporaneous with the events. They also declined to expose themselves for cross-examination when they are in Macau. They could also have misunderstood the situation that the gift Mrs Watson intended to give to Rowena might well be Flat 3E as Mrs Watson said, in buying Malcolm's half share, she could give Flat 3E to Rowena. The IRD assessed the market value of Flat 2E at $1.6 million. Mrs Watson had in effect paid $1.3 million.

30. In respect of the so-called Tenancy Agreement, according to Mrs Watson, sometimes in November 1991, she received a note from Christopher asking Rowena to sign the said Tenancy Agreement thereon. It was stated that Rowena was the sole beneficial owner of Flat 2E and she agreed to let Christopher to reside therein for his life as long as he continue on to repay the outgoings including the mortgage. According to Mrs Watson, Rowena was reluctant to sign it and retreated to her room on the 1st floor. Mrs Watson, having heart disease and therefore difficult for her to climb the stairs, would have to go to her room and insisted she should sign. After some reluctance, Rowena eventually signed on it. According to Rowena, it was obtained by duress and threat. Rowena contended that her mother said she would throw herself underneath a bus if she did not sign and she then walked out to the pavement. Rowena had to grab her back into the house and was in tears. Mrs Watson said she would not do anything like that. Apart from being a Catholic and thus she would not have committed suicide, it was quite cold at that time of the year and it was about 20 minutes for the bus to come.

31. On general credibility, I would accept Mrs Watson as to the circumstances of signing the tenancy agreement instead of the version put forward by Rowena.

32. However in light of my findings, I find the so-called 1991 Tenancy Agreement to be irrelevant. Rowena was holding the Property on trust in respect of the other half share for her mother as that was the agreement with and intention of Mrs Watson. I find that it was part of the agreement of Rowena that her mother should be given possession of Flat 2E. Accordingly, Mrs Watson has all the right to let anyone to reside at her flat and it included her son Christopher. The original agreement with Christopher was that he would continue on to pay all the outgoings of Flat 2E including the mortgage repayment in respect of the 1st loan. The 2nd loan was created by Rowena alone. I would not venture to say more concerning the 2nd loan since the bank is not a party to this action and there are separate proceedings in respect thereof. I just want to note that it is quite surprising that Mrs Watson was named as a borrowing party to the 2nd loan but her signature was not secured. Admittedly, Rowena did not inform her mother concerning the 2nd loan and she just said that it was at the suggestion of her mother and she should inform Christopher to repay the 2nd loan as well. She said Christopher's obligation under the "Tenancy Agreement" should extend to the 2nd loan when at the same time she said this document should have no legal effect. That was however 1993, sometimes after the so-called Tenancy Agreement in 1991. Christopher therefore has no obligation to repay the 2nd loan. The parties must sort out their various liabilities vis-a-vis the bank.

Conclusion

33. In the end, I find the case for the Plaintiff Mrs Watson and she is entitled to the declaration that Rowena was holding the Property in respect of half share on trust for her and Rowena should be ordered to complete all the assignments incidental and necessary for such purposes.

34. Mrs Watson and Christopher are entitled to reside at Flat 2E on their own right and thus the counterclaim to vacate them out failed. Accordingly, there shall be judgment for the Plaintiff as aforesaid and the counterclaim is dismissed with costs against Rowena on both the action and the counterclaim.

(D. Yam)

Judge of the Court of First Instance,
High Court