CHAN KAM CHUEN v. CHAN KAM SHUN AND ANOTHER

DCCJ1477 & 4572/2005
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1477 OF 2005

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J U D G M E N T

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Claim by Chuen of His Share of Rental Income From House 42B

1.  Shun (Chan Kam Shun) and Woo (Woo Sau Chun) are husband and wife.  They have been receiving rent payments from tenants of House 42B, a property jointly owned by Shun and his elder brother, Chuen (Chan Kam Chuen).  According to Chuen, the couple refuses to properly account to him the balance of rentals over the necessary outgoings of the property.   By these proceedings Chuen is seeking to recover half share of the balance.

Defence : All Rental Income Spent Pursuant to Oral Agreement

2.  The defence is that all rental incomes have been spent pursuant to an oral agreement between the brothers.   Under this agreement, it was agreed firstly, “the rental income should be used, primarily, to support and maintain their parents and, secondarily, to fund their family-related expenditures”, and secondly, “Shun and /or Woo should be responsible for collecting ands overseeing the use of the rental income.” (See paragraph 11 of the Defence and Counterclaim) . The couple contends that there has been no surplus.  “Throughout the years, the rental income was wholly and exclusively spent or applied in the support and maintenance of the parents and other family related expenditures.” (See paragraph 16 of the Defence and Counterclaim)

Counterclaim by Shun and Woo Withdrawn

3.  It is the defence case that Shun and Woo have maintained a family account (Family Account) for the purpose of collecting and overseeing the use of the rental income. In the pleadings they alleged that the Family Account has been running at a regular deficit ever since 1991 and that they have used their own means (meaning money according to their evidence) to finance the deficit in the Family Account (see paragraph 16). Their counterclaim for the deficit of $476,134 as at end of April 2005 was withdrawn at the trial without giving any reasons.

4.  Although the counterclaim was withdrawn, the existence of the Family Account remains to be a live issue, at least in so far as the credibility of witnesses in respect of other matters is concerned.   It is not surprising the Mr. Chan, counsel for the Plaintiffs argues that the withdrawal of the counterclaim put in doubt the credibility relating to the existence of the Family Account. In this respect, Mr. Yao, counsel for the defendants, urged me not to speculate on the reasons for the withdrawal. As I understand it, Mr. Yao in effect submits that the withdrawal should not be taken into consideration in assessing credibility of the witnesses.  If there were innocent reasons for the withdrawal, the withdrawal would then be irrelevant.  Two candidates for innocent reason have caught my attention, the state of pleadings and the probability of the withdrawal being a gesture of reconciliation.

5.  It can be seen that the counterclaim as pleaded discloses no causes of action. Nowhere in the pleadings have they alleged that Chuen have agreed to be responsible for the expenditures should they exceed the rental income, not to mention by such large amount and over such long period. What has been pleaded is no more than that Chuen agreed to spend the rental income for various purposes. It is not pleaded that he would be responsible for the non-property related items irrespective of the rental income, say family dinners, religious donations. The state of the pleadings would certainly have caused difficulty and technicality in establishing the counterclaim. At the time of trial, they must have been fully advised by their legal team.  If this defect of pleadings has anything to do with the withdrawal, I cannot see why they have chosen not to disclose this good reason.  Especially Woo has shown to be keen on putting the record straight in another matter of lesser importance.

6.  In a trivial incident at the trial she has demonstrated she is keen to put her record straight and is not prone to reconciliation.  When I passed the remark that “ That Woo was being accused of false accounting (in some unrelated matter) might be due to misunderstanding”.   Her counsel had a furious outburst of rebuke “ It is no misunderstanding!!!” correcting me.  The outburst was made right after she approached his counsel. The outburst appeared to have been prompted by her. I cannot see, how else, if not prompted by her, that Mr. Yao who has shown characteristic patience and courtesy at all other times during this long and heavily overrun trial would have behaved in such manner, bearing in mind that I had earlier explained to counsels that they should refrain from wandering off to the false accounting accusation.  The fact that such accusation was made is not in dispute. That there was or was not justification for making it is irrelevant. It cannot be determined without spending time exploring on the truth or otherwise in the accusation. This is not the time and venue to litigate the accounting matter concerned. Furthermore the documentary evidence submitted by the parties, suggest that the parties did not have in mind to litigate the merit of the false accounting itself. It is only fair and desirable to regard the accusation as a misunderstanding without blaming any party.  Indeed, quite rightly Mr. Yao has not gone any further to demonstrate in any way that there is no misunderstanding. In fact there is ample evidence of hostility between the parties and which hostility must have led to some misunderstanding.

7.  There are no other matters which I can think of rendering the withdrawal of counterclaim irrelevant in considering credibility of the witnesses.  As the matter now stands, the counterclaim has been withdrawn without any reasons given. I understand that the defence has the right not to disclose the reason.  Its right does not change the fact that I am not aware of any good reason. The subject-matter of the counterclaim, namely the Family Account remains an issue. Although it cannot be over-emphasised that the withdrawal by itself cannot be used to discredit Shun and Woo, it should be taken into consideration as a “pointer”, to use the jargon of Mr. Yao, in assessing the credibility of the witnesses.

Dispute over House 22

8.  House 22 is registered in the name of Shun. It was built on the land purchased by him with the premium provided by himself (defence version) or by Lai Fong/Chun Ho, his younger sisters (plaintiffs' version).  Shun purchased the land exercising his right as indigenous villager pursuant to the small house policy of the Government.

9.  Chun Ho oversaw the building of House 22 and paid the development costs of about $900,000 (Plaintiffs’ version) or about $300,000 (defence version). It is the case of the Plaintiffs (elder brother and sisters of Shun) that it was in fact Lai Fong’s money that was used in the development.

10.  House 22 is a three-storey house. Accordingly to the defence it was the result of a joint venture of Shun and Chun Ho. Upon completion his interest was varied by agreement from entitlement to two storeys to one and Chun Ho from one to two. The rationale behind is that each of the children of Chun Ho would have one storey and the only child of Shun would have one. 

11.  Lai Fong alleged that the cost of development all came from her money and all her siblings have the right to enjoy and use of House 22 during their life time and the thee children are entitled only to the remainder interest of the house.

Duty to Account for the Rental Income of House 42B

12.  House 42B was initially registered the name of Chuen. On his application by Chuen as indigenous villager, the land was granted to him on payment of a premium of a few thousand dollars.  It is not in dispute that Chuen did not contribute any money towards the land premium or the building costs.  It was a gift from the father, Kai, with the financial help of Chun Ho.  Shun and Woo disputed that Chun Ho had made any contributions or significant contributions towards the building costs.  The evidence in this respect is necessarily all hearsay. I accept the analysis of Mr. Chan.  The house took a number years to complete because the lack of fund. No one else in the family would have been able to offer financial help apart from Chun Ho.  No member of the family would doubt her willingness to offer financial help to her father. Shun and Woo do not believe she had the money to help. In this regard I find the evidence given by the builder is more reliable than that of the others. He has no interest in the matter. I accept his evidence that when he asked Kai for payment on one occasion, Kai said he was waiting for money from Chun Ho. There was no reason for Kai to lie to the builder but every reason to tell the truth when he was asking him for indulgence. Although no one could exactly tell what Chun Ho contributed to the building costs. I find that the understanding among family members is that the contribution is substantial.

13.  Later on the request of Kai, the half share of House 42B was transferred to Shun. Soon after that Shun let out the house and he and  Woo kept the rental income. Shun and Woo alleged that there was an agreement with Chuen. The agreement was to spend the rental income on supporting the parents and on family related matters. Chuen denied there was at any time such agreement. 

14.  Chuen is entitled to half share of the rental income. As Shun and Woo kept the income, they have the duty to account to Chuen for his share. Their defence is its simple terms is that they have spent it all as agreed.  The pleadings and argument seemed to have confused the issue by alluding to an explicit verbal agreement.  If this was the contention of the defence, I have no doubt that there had never been such verbal agreement. The obvious reason is that the relationship among family members and especially between the brothers was so cordial and close.  It would be quite out of place to discuss the matter solemnly and explicitly in details.  On closer analysis of their evidence Shun and Woo rely more on an implied agreement than an express verbal one. They allege or argue that such agreement could be inferred from the conduct of the parties to the agreement and the state of affairs all these years.  In the alternative Mr. Yao prays in aid the doctrine of estoppel by convention.

15.  Shun and Woo only refer in general terms to those expenditures, i.e. “to support the parents” and “for the family”. Their evidence did not give any details of what Chuen had allegedly agreed to or consented to at the time of the alleged verbal agreement.  If Shun and Woo were to succeed in establishing the alleged agreement, they have to rely on the conduct of the parties and the state of family affairs all these years.

16.  All his brother and sisters do not speak well of Shun, nor he does them. The mutual feeling between them and their sister-in-law verges on hatred. Under these circumstances, any adverse and emotional remarks one had about the other, should be scrutinized  and analysed with care. 

17.  Much time was unnecessarily spent on exploring what he or she has contributed to the maintenance and support of the parents. I accept what Chuen and his sisters said about the support they gave the parents.  They held strong views doubting the claim by Shun and Woo that they too have provided support and maintenance to the parents.  In this regard, on matters they had direct knowledge, I prefer their version to that of Shun and Woo. That being the case, the basic need of the old couple did not cost too much. They have a rent free lodging, and the children who came to visit them at week-ends would bring food and other provisions. There is not much living expenses left for Shun to meet.  Furthermore, Mr. Chan, counsel for the Plaintiffs, quite rightly submits that being a retired civil servant, the monthly pension could be sufficient to support the couple in view of the special circumstances of the case.  Mr. Chan also rightly points out that if Kai had to depend on the rental income for his living, he would have applied for the land grant in his own name.  It is quite unnecessary for him to transfer all his assets to his son.  The money Shun and Woo paid the old couple from time to time is not necessarily pursuant to any agreement with Chuen.

18.  Shun and Wood presented their evidence in a way to show Chuen was not a good son having its own gambling habit to tackle with. They even claimed that at one meeting they gave him some money to tide him over. Chuen denied this. I accept Chuen’s evidence in this regard. The Defendant invented something to booster their case without realising it might work the other way. By this piece evidence, I have my suspicion confirmed that the Defendants understood their case as if the agreement is irrevocable. Certainly it is not, if the agreement existed at all.  If they had been so kind to Chuen as to help him out on occasions, why didn’t they stop using his share of rental income, or at least suggested it to him. In any event if Chuen was the kind of irresponsible person they wanted me to believe, Chuen would have ended the alleged agreement when he was in financial difficulty.  The agreement alleged to have existed for a long time, they would have known too well that Chuen might go back on his agreement to support the parents out of the rental income. That they did not appear to know this suggested that the agreement was something that came to their mind only recently.

19.  Mr. Yao criticised Chuen for the delay in claiming his share of rental income. Chuen has given his explanation which I accept. His reasons are all supported by evidence. He is a timid person  trusting Shun, his only brother, until they fell out with one another over the rental income. He wanted Chun Ho to sort out the matter for him. Chun Ho would have been the right person to sort out the matter. Unfortunately Chun Ho died before she could help him. It was reasonable for Chuen to have scruples to take firm action against his own brother while the parents were still alive. If the Defendants did not see the logic behind the restraint of Chuen in the life time of their parents, there is nothing more one can say to make them understand better.  The delay they complain is no match in unreasonableness for the delay mentioning the fact that deficits have been running in the Family Account. I have to stress again, Woo is a person keen to keep his record straight.  If there is such deficit running, I cannot see any reason why the details or rough figures have never been mentioned.  .

20.  For the above reasons, I find there has been no such agreement. Chuen is entitled to half share of net rental income.  In my judgment the partial defence of limitation also fails. The cause of action for account did not arise, until the Defendants made it clear they were not so bound to account for the rental. If they delay the performance of their obligation with a reason which was accepted by Chuen. No cause of action had yet arisen, even though as a matter of hindsight Chuen should have pressed his brother harder by giving him a formal demand. The cause of action is not time-barred to any extent.

21.  The outgoing should have been deducted. The substantial sum is repair costs. However the evidence suggests that it came from rental income of House 22. As such it should not deducted. The claim for interest has no basis. Chuen is entitled to recover earnings from his share. But this amount cannot be determined without taking account. Taking this course is undesirable now.  If the parties does not wish to pursue this course, the best way is to offset this unascertained amount of earnings against the outgoings in respect of the property.

Lai Fong’s Money and the Costs of Development

22.  The builder gave evidence about the cost of building. The construction process was not perfectly smooth. Certain parts of the work had to be redone to meet relevant government requirements. He might be a bit confused about the receipts he gave. His explanation about the confusion might be difficult to understand. Despite that I find he is honest and reliable. He has no reason to lie about he building costs, in particular lying to exaggerate the costs. The building he undertook in question was a long time ago.  I would not be surprised that he was confused about the receipts or even the manner of payments. However Lamma Island is a small community and was even smaller at the time. That he would remember correctly the total cost of construction is not surprising. I accept his evidence about the costs of construction.  In any event I fail to understand how the actual cost of construction could advance the respective case of the parties.

23.  Since its completion House 22 has been used by the brothers and sisters. Shun could not have denied that but he says it was with his permission. The builder also gave evidence that a large number of metal beds were fixed there about the time of its completion. I accept that the Plaintiff’s evidence that Chun Ho and Lai Fong intended the house to be enjoyed by all the siblings in their life time. Thereafter, the house should be left to the three children as aforesaid.

24.  The Plaintiffs’ claim is a life interest in House 22. This  beneficial  life interests came into being as a result of declaration of trust. Mr. Yao rightly brushed them aside citing section 6 of the Conveyance and Property Ordinance.

25.  The alternative claim by Lai Fong is quite different. She is claiming a share of the house by way of resulting trust. The basis is that the money for the development came from her.

26.  Shun and Woo contends that Lai Fong could not have earned that much money.  Curiously Shun and Woo says it was about three hundred thousand, a much lower figure than that alleged by Lai Fong. Mr. Yao cross-examined her at length but to no avail.  She might not be a best known actress in the Cantonese Opera scene.  But after a number of years she did rise to the leading lady of a theatrical company of her name.  She also had her fans and following. She might not earn much from performing. She had other sources of income. She could earn about five thousand a session by accompanying wealthy lady fans to sing. Nobody disputes that Chun Ho invested her money in stock.  I do not know think the Defendants have successfully challenged her ability to accumulate that amount of money.

27.  Whether the money belongs to her is another matter. Mr. Chan is right in submitting that the person who knows better is Lai Fong. Her claim is not a bare assertion. The surrounding circumstances support it. Friends and persons close to the family understood it to be the case. Chun Ho and Lai Fong were very close. They live together in the same flat. People said they were like Siamese Twins. Chun Ho manages her career and kept her earnings for her.  Furthermore the way Chun Ho disposed of her bank deposits and insurance money in her last days showed she wanted to give Lai Fong back her money. That she was fond of Lai Fong was not enough reason. The Defendant argued that Chun Ho feared that Lai Fong could not earn a living by herself.  After Chun Ho died, Lai Fong did very well. Chun Ho who had been very close to her would have known her ability  better than anyone else. The funds Chun Ho transferred to Lai Fong was meant to pay her what belongs to her.

28.  Another effort to discredit to Lai Fong was calling Chun Ho’s husband (SK).  They in fact lived separately although they manage to hide the fact from their son who was sent to boarding school in Australia at young age.  A- matter- of -course manner in which he explained why he was not the one who should take care of his dying wife shows the cold relationship he had with Chun Ho. I do not accept his account of two undated cheques allegedly given to him by Chun Ho.  He said Chun Ho gave him the cheques in order to assist Lai Fong. It does not make any sense. Either he was not telling the truth or he was not telling the whole truth.  He was at pain to explain that he lent $170000 to Chun Ho and not to Lai Fong for building House 22. As counsel for Lai Fong, points out, given the cold relationship with his wife, why would he bother to lent money to build a house mainly for the benefit of the in-laws. On the other hand if he knew his two sons would benefit ultimately why would he not just give the money to his wife. That the money was to lent to Chun Ho was not true and it was put forward to discredit the claim of Lai Fong. While giving evidence, he was caught out that he was told of evidence given by witnesses before him. He knew the reason why he had to wait in the witness room before giving evidence. He also knew it was not proper for a party to come to inform him of certain aspects of the evidence. Yet he made no effort to discourage one of the defendants who did just that. It is a minor matter but irregular. It tends to show certain partiality on his part to say the very least. Mr. Yao thought nothing of it and assured me that in High Court the practice for civil case now is for the witnesses to wait inside court before their turn to give evidence. This practice according to him is not limited to experts with permission of the court to stay behind to assist counsel. Be that as it may, his impartiality is compromised unwittingly.

29.  I accept the evidence of Lai Fong that Chun Ho asked her if she wished to go ahead to build House 22. Chun Ho said after all it was her money. Lai Fong did not lie and there is no reason for Chun Ho to lie about it. She knew too well, and no one else did, that the money was Lai Fong. She made no secret of it and other witnesses came to know about the same thing.  The defendants and other family members all knew about the matter.

30.  For these reasons, Lai Fong is entitled to a  share of interest. Parties had tried but were unable to reach consensus on the price of Shun’s right to apply for land, his only contribution to House 22. The builder estimated that the then market value was $60,000. On the other the intent of the parties is not just share the interest in proportional to size of monetary contribution. The common intent is to share the benefit of the house without reference to monetary contribution. The proper  course is in accordance with Shun’s stance, namely 50%

Orders

31.   (1) judgment be entered for Chan Kam Chuen against Chan Kam Shun and Woo Sau Chun for the sum of $863,000 with interest there on at judgment rate from date of service of writ until payment;

(2) A declaration that Chan Kam Shun holds House 22 in trust for himself and for Chan Lai Fong with 50% beneficiary interest to Chan Lai Fong;

(3) Order nisi for costs for the claim and counterclaim in favour of Chan Kam Chuen in action DCCJ1477/05

(4) Order nisi for costs in favour of all plaintiffs in DCCJ4572/05