WU WAI SUM STELLA v. MAN TING CHU

CACV 31/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 31 OF 2010

(ON APPEAL FROM DCCJ NO. 1742 OF 2008)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This was an appeal from a judgment of Her Honour Judge H C Wong given on 22 October 2009. The matter before the judge was a claim by the plaintiff for a declaration that the property known as first floor and portion of Lot for Garden Purpose, Lot No. 381 in D.D. 236, Sai Kung, New Territories (“the premises”) was at all material times held by the defendant upon an express and/or resulting trust and/or constructive trust on behalf and/or for the benefit of the plaintiff absolutely, and was still so held. The plaintiff also sought an order that the defendant should do everything necessary to re-assign the said first floor and the interest therein to the plaintiff free of encumbrances. The judge granted those orders.

2.  It was against those orders that the defendant appealed to this court.  At the conclusion of the hearing of this appeal, the appeal was dismissed.  We now give our reasons in writing.

The background

3.  The brief facts are that the plaintiff met the defendant in 1983 and they began living together in 1986.  They lived together until 1995.  During the time they were together they had two children. Initially they lived in a flat which the plaintiff owned.  The plaintiff had had some history of dealing in properties.  She sold the premises they had been living in and they moved to live with her sister.  In about early 1987 the plaintiff came to know of the availability of a three-storey village house known as Lot 381 in D.D. 236 in Sai Kung.  On 1 February 1987 the plaintiff signed a sale and purchase agreement to buy the house for $980,000; significantly clause (2) of the recital clauses read:

“The purchase price is the sum of $980,000.00. For the purpose of sub-sale of part of the Property by the Purchaser and subject to all legal costs occasioned by the preparation and approval of such Assignments be borne by the Purchaser or her sub-purchasers and nominees in any event, the parties hereto agree that the price of $980,000.00, $400,000.00 is attributed to the Ground Floor, $250,000.00 is attributed to the First Floor and $330,000.00 is attributed to the Second Floor and Roof of the Property.”

4.  From that it legitimately may be inferred that the intention of sub-selling part of the property was clearly in the plaintiff’s mind at the time when the sale and purchase agreement was executed.  The completion date was to be 31 March 1987 but it is clear that, although, apparently, the purchase price was paid in full on 30 March 1987, completion did not take place until July that year.  The evidence was that completion took place on 3 July, although the assignment was dated 30 July 1987.

5.  The plaintiff nominated the defendant to take the assignment of the First Floor and Portion of Lot for Garden purpose.   The nomination contained the following:

“I hereby DECLARE that part of the monies paid on deposit to you in respect of the said premises were in fact provided by the said Man Ting Chu for the purchase of the said premises. I DIRECT and REQUEST your goodself to execute the Assignment of the said premises to the said Man Ting Chu and to regard the said Man Ting Chu as having all the benefits and burdens of the Purchaser under the said Agreement in so far as the premises is related.”

6.  The plaintiff also nominated her sister, Wu Wai Ping, to take the assignment in respect of the Ground Floor including the Garden adjacent thereto.  Part of the evidence given at trial was that the ground floor flat, albeit in the name of the plaintiff’s sister, was sold on the plaintiff’s instructions for $600,000 as early as 18 November 1987.  The plaintiff received the proceeds of sale.

7.  The judge accepted that it was the plaintiff’s intention that by dividing the property up in this way stamp duty would be reduced.  In the course of giving evidence the plaintiff was asked about that and she said:

“At that time, it was... When the property was purchased, he (her solicitor)said that it can be done in this way so that the stamp duty can be saved. Stamp duty is very expensive, and I prepared to sell the property because it was for investing purpose.”

8.  The judge considered all the evidence very fully and came to the firm conclusion in paragraph 58 of the judgment that the plaintiff had paid the full purchase price for the house, including the first floor flat claimed from the defendant, with her own money.

9.  It is unnecessary to go into the full history of the use of the property.  Whilst the plaintiff and defendant cohabited, the first floor was combined with the floor above, which was in the plaintiff’s name, to form a duplex.  In August 1987, at the defendant’s request, a total of $350,000 was raised on a joint mortgage loan account backed by the security of the first and second floor flats.  The loan was used by the defendant and was paid off at the plaintiff’s request, in the summer of 1989.  The defendant then mortgaged the first floor flat.  Although the judge did not link the two events and there was no direct evidence linking the two events, in November 1989 the nomination was re-filed with the inclusion of the following:

“And I declare that I have no further beneficial interest or estate whatsoever in the said premises and I have no further claim whatsoever arising out of or in connection with the said Agreement so far as it relates to the said premises.”

10.  The plaintiff and defendant ceased to cohabit in about 1995.

11.  At the trial the defendant not only challenged the plaintiff’s case that she had paid the full purchase money for the house, but also sought to rely on the case of Yim Bo-ying v Chung Yu-warm [1985] HKLR 354 for the proposition that the plaintiff had acted illegally in arranging for the assignments of the various flats to be to different persons.  The judge dismissed that argument, relying on the House of Lords decision in Tinsley v Milligan [1994] 1 AC 348, on the basis that it was not necessary for the plaintiff to rely on any illegality in order to establish her case.

This appeal

12.  On this appeal Ms Remedios, who appeared on behalf of the defendant, did not challenge the judge’s finding that the purchase money for the property had been provided in full by the plaintiff.  Nor was there any challenge to the finding in paragraph 59 of the judgment that the defendant had an understanding that he would hold the property on behalf of the plaintiff because she had provided the purchase money.

13.  The argument on this appeal on behalf of the defendant was that the plaintiff’s case should fail because of illegality.  It was said that the plaintiff’s action was not maintainable because she had to rely on an illegal act in order to establish her equitable title to the property.  There was an alternative argument that the court would not enforce the trust that had been created in the circumstances because there was an illegal intention.

14.  Although the argument in this court was prepared on the basis of distinguishing the decision of the House of Lords in Tinsley v Milligan, the first matter which was canvassed with counsel in the course of argument was as to the nature of the illegality on which the defendant sought to rely.  The defendant’s defence was markedly obscure as to what was alleged to be the illegality.  It might even be said that the pleading was defective.  The plea as to illegality was emphasised in an unparticularised amendment to the defence.  In paragraph 23 it was alleged:

“The Defendant further avers that even if, which is denied, there was a express/resulting/constructive trust as alleged, the trust was carried out for the illegal purpose of reducing stamp duty payable to the Hong Kong Government and therefore is unenforceable by reason of illegality and/or unconscionability on the part of the plaintiff.”

15.  Although in paragraph 62 of the judgment, the judge recorded that Mr Cheng, who appeared both in this court and in the court below on behalf of the plaintiff, had challenged the suggestion that the plaintiff’s conduct had been illegal, the judge did not deal with that aspect but simply decided the matter on the basis that the plaintiff did not have to rely upon any illegality in order to establish her equitable title.

16.  On the hearing of this appeal, a short adjournment was afforded to the defendant’s counsel in order to enable her to frame a proposition which would be relied upon as constituting illegality.  After the adjournment counsel referred the court to section 11(2)(a) of the Stamp Duty Ordinance Cap. 117 which provides that:

“11(2) Any person who with intent to defraud the Government-

………..

(a) executes any instrument in which all the said facts and circumstances are not fully and truly set forth

..

commits an offence.”

17.  The first point to note is that, given the plaintiff’s unchallenged evidence that she had been advised by her solicitor that it was in order to have various parts of the house conveyed to separate parties, it is difficult to see that it could be said that the plaintiff had an intent to defraud the Government.

18.  Quite apart from that, there is nothing in the assignment to the defendant, which was the document which had to be stamped, that was inaccurate.  For this purpose the nomination was not a document that was, or had to be, stamped.  Quite possibly it had to be in the form that it was in order to satisfy the vendors that it was in order to convey the first floor flat to the defendant and, later in 1989, to satisfy the mortgagees that it was safe to take a mortgage, given that the first floor flat previously had been charged together with the second floor flat that had been owned by the plaintiff.  No doubt also the legal ownership of the flat had to be in the defendant’s name if he were to raise money on it.

19.  The argument seemingly had been originally framed on the basis that the decision in Yim Bo-ying v Chung Yu-warm was sufficient authority to establish illegality.  That case had had a chequered history.  As is made clear in the judgment of Fuad JA, although the case had been heard in December 1981, judgment did not become available until December 1984.  It would appear that the Court of Appeal might have been minded to send the matter back for retrial save for the fact that the argument of illegality was then raised on the appeal on the basis that the defendant had saved stamp duty by having the property in question conveyed to his mother-in-law.

20.  The court in that case appears to have approached the matter on the basis that what had been done was illegal by analogy with other cases such as Pataniappa Chettiar v Arunsalam Chettiar [1962] AC 294 and Tinker v Tinker [1970] P136.  However, in the first case the matter arose between a father and son.  The father had been faced with an obvious defence based on the presumption of advancement.  It was, thus, necessary for the father to rely upon the illegality when rebutting the presumption of advancement.  In the case of Tinker v Tinker the husband had conveyed property into his wife’s name so that it could be protected from his creditors if his business failed.  Lord Denning MR explained that the husband could not have it “both ways”; in other words it could not be contended that the property belonged to his wife as far as his creditors were concerned and belonged to him as far as his wife was concerned.  He said “It must be one or other”.

21.  The court in the Yim Bo-ying case appears to have assumed illegality without any analysis, and also it did not have any regard to the issue as to whether the son-in-law had to rely on the illegality in order to establish his case.

22.  In my view the defendant has not made out a case that what the plaintiff did was illegal.  As she had said, the property was purchased for investment and it was likely to be sold.  That is exactly what happened, almost immediately.  The ground floor flat was sold within months of the assignments, leaving the remainder of the house, i.e. approximately two-thirds, with the plaintiff having paid a net outlay of only $380,000.  The second floor flat was also sold after the defendant had ceased to cohabit with the plaintiff in 1995.  Thereafter, the plaintiff lived in the first floor flat.

23.  Hence, what was done was simply legitimately to reduce the incidence of stamp duty.  There was no deceit or fraudulent statement made with regard to the assignments which were the documents which had to be stamped.  What was done was to put two of the three flats into the names of trustees.  I see no reason why that was not perfectly legitimate, particularly in view of the potential sale of those flats.

24.  Even if it could be said that the nominations in favour of the defendant were inaccurate and untruthful, those nominations were not documents prepared for submission in respect of stamping.

25.  Moreover, the judge approached the matter on the basis that the plaintiff’s claim was simply a claim against a trustee on the basis that money had been provided for the purchase of property in the trustee’s name with no suggestion of any presumption of advancement.  In those circumstances, the plaintiff had no need to rely on any suggested illegality.  In view of the decision in the case of Tinsley v Milligan, the plaintiff was not debarred from bringing her claim.

Hon Le Pichon JA:

26.  I agree with the Reasons for Judgment of Rogers VP.

Hon Stone J:

27.  I agree with the Reasons for Judgment of the Vice President.