SIU CHUN WAH, ALICE AND ANOTHER v. MALAHON CREDIT CO LTD

IN THE COURT OF APPEAL

1987, No. 63
(Civil)

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JUDGMENT

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Fuad, J.A. (delivering the judgment of the Court):

1. This is an appeal by Malahon Credit Company Ltd. (“Malahon”) against a decision by Mayo J. given on 26 May this year in favour of Madam Siu Chun Wah.

2. The history of the controversy which brought the parties before the Court is as follows. By an instrument (which has not been exhibited) dated 24 November 1984 Madam Siu and a Mr. Ng Leong Fah bought a flat in Tower B of San Francisco Towers, Ventris Road. The assignment was made to them jointly and the flat was registered in the Land Office, with Madam Siu and Mr. Ng shown as joint tenants, on 10 January 1985.

3. The flat was mortgaged by the joint tenants to the Malayan Banking Berhad (“the Bank”) by a legal charge dated 11 December 1984 to secure general banking facilities to the extent of $500,000. There was a second legal charge executed by the same parties on 31 July 1985, again to secure general banking facilities, this time to the extent of $170,000.

4. On 8 April 1986, Malahon, then known as Hongkew Credits Limited, instituted proceedings in the High Court against Mr. Ng to recover $783,836 on a loan agreement. On 14 July 1986, judgment for that sum was entered against him under R.S.C. O.14, with interest and costs, and the successful plaintiff obtained a charging order absolute in respect of the whole of the judgment debt against Mr. Ng’s interest in the flat on 9 September 1986.

5. By an instrument dated 1 December 1986, the Bank transferred the benefit of the two legal charges of 11 December 1984 and 31 July 1985 to Malahon.

6. On 20 December 1986 Mr. Ng executed a power of attorney in favour of Madam Siu in very wide terms to deal with the flat “…. on my behalf so far as it relates to my interest in the said property ….”.

7. In January 1987, Madam Siu found a purchaser for the flat who was willing to pay $1,580,000 for it. Her solicitors wrote to Malahon’s solicitors on 23 January informing them of the intended sale. They expressed the view on Madam Siu’s behalf that since she was a joint tenant of the flat she would be entitled to half of the net proceeds of the sale after deduction of the sum owing to Malahon by virtue of the legal charges whose benefit was transferred to them by the Bank on 1 December 1986, which amounted to $687,863 as at 10 December 1986. They asked for but received no confirmation that this would be the position.

8. In later correspondence, Madam Siu’s solicitors demanded the title deeds of the flat. These were not handed over and so on 27 February 1987 Madam Siu and Mr. Ng filed an originating summons with Malahon as the Defendant, seeking –

(a) an order that the title deeds be delivered so the sale could take place;

(b) a declaration that Madam Siu was entitled to half the balance of the proceeds of sale of the flat after discharging the two legal chares (of 11 December 1984 and 31 July 1985); and

(c) an inquiry into any damages the joint tenants of the flat may have suffered as a result of Malahon’s failure to deliver up the title deeds.

9. Malahon countered by issuing an originating summons on 17 March 1987, with the joint tenants as Defendants, asking for a declaration that Madam Siu held Mr. Ng’s interest in the flat as trustee for him.

10. On 18 March 1987 Madam Siu took out a summons seeking an order that Malahon’s originating summons be struck out as disclosing no cause of action.

11. During the hearing before Mayo J., Madam Siu was permitted to amend her originating summons of 27 February by adding, as an alternative to the declaration I have earlier summarized, a declaration that she was entitled to half the proceeds of the sale of the flat, simpliciter.

12. With the consent of the parties, Mayo J. heard the three sets of proceedings together. By the time the matter came before him, the parties had agreed that the flat should be sold and $1.58 million was the purchase price realized on 7 April 1987. At the date of the hearing the amount outstanding on the two legal charges transferred by the Bank to Malahon was, subject top minor adjustments, $726,803.

13. Mayo J. granted Madam Siu a declaration that she was entitled to $790,000 being half the proceeds of the sale of the flat and ordered Malahon to pay her that sum after deducting “all usual mortgage charges”, directing that those charges “only [to] be deducted from the aforesaid sum of $790,000 in the event the equity of Mr. Ng Leong Fah on the sale of the said property was insufficient to discharge the same”. The judge awarded Madam Siu interest on the sum due and dismissed Malahon’s originating summons.

14. We have the learned judge’s extempore judgment before us. After outlining the facts, he noted that the main argument advanced on behalf of Malahon was that Madam Siu had not properly established her interest in the premises. She had only contributed 10% of the purchase price and since she had not been married to Mr. Ng, merely cohabiting with him, there was no question that her looking after “the family” conferred a larger interest upon her. The alternative argument was that there was no written instrument evidencing Mr. Ng’s intention to make a gift of the equitable interest to Madam Siu.

15. He said that he was not persuaded by these submissions and held that Mr. Ng’s execution of the original deed of the assignment would have been sufficient evidence of the arrangement referred to in Madam Siu’s affidavit for the purposes of the Conveyancing and Property Ordinance, Cap. 219. He felt that it should also be borne in mind that Madam Siu’s counsel had also been acting for Mr. Ng who had not opposed Madam Siu’s assertion of her interest. “Accordingly”, he added, “there could not be any question of Mr. Ng making a future claim against Malahon on the basis that they had not obtained a valid receipt for any moneys paid to Madam Siu.”

16. The judge recited the submissions advanced by counsel for the joint tenants that it was essential to keep the transactions separate and that Malahon’s only transaction with Madam Siu was the mortgage and further charge. The evidence showed that all the money advanced by the Bank had been paid to Mr. Ng. Moreover it was not open to Malahon to attempt to look into the equities between Madam Siu and Mr. Ng. On the evidence “they were not in a position to argue that Madam Siu held any of the monies or interest on Mr. Ng’s behalf.”

17. The judge also held that Madam Siu was entitled to benefit from the equity of exoneration.

18. We express some surprise, that on the material before the judge, and in view of the issues raised, the parties allowed the matter to proceed as it did, and did not apply to the Court to order the attendance of the material witnesses for cross-examination under R.S.C. O.38, r.2(3) (or invoke the provisions of O.28, r.4(3)). As to O.38, r.2(3), what was said by Lord Templeman, giving the judgment of the Privy council in Tay Bok Choon v. Tahansan Bhd. [1987] 1 W.L.R. 413 (on an appeal from the Federal Court of Malaysia) is pertinent. At pp.418-419 he said:

“In civil proceedings the trial judge has no power to dictate to a litigant what evidence he should tender. In winding up proceedings the trial judge cannot refuse to read affidavits which have been properly sworn, filed and produced to him unless some opposing party has applied for the attendance for cross-examination of the deponent and that application has been granted and the deponent does not attend. The court cannot give a direction about evidence unless one of the litigants desires such direction to be made. Of course a judge may indicated to a petitioner that unless he calls oral evidence or applies to cross-examine the deponents of the opposition so as to prove a disputed fact, his petition is likely to fail. The judge may equally indicate to a respondent that unless he calls oral evidence or applies to cross-examine the petitioner’s deponents for the purposes of disproving an allegation made by the petitioner, then the petitioner is likely to succeed. At the end of the day the judge must decide the petition on the evidence before him. If allegations are made in affidavits by the petitioner and those allegations are credibly denied by the respondent’s affidavits, then in the absence of oral evidence or cross-examination, the judge must ignore the disputed allegations. The judge must then decide the fate of the petition by consideration of the undisputed facts. On behalf of the company in the present case it was submitted that the trial judge paid some attention to the petitioner’s disputed allegations of an express assurance but the Board is satisfied that the judge confined his consideration of the petition to the undisputed facts and rightly concluded that the petitioner had made out his case that it was just and equitable to wind up the company.”

19. Mr. Robert Tang, on behalf of Malahon (he did not appear in the Court below) has invited us to consider ordering a re-trial in view of the unsatisfactory way in which the case was presented before the judge.

20. In our view the position has changed considerably since the issues were ventilated before Mayo J.. Before him, Counsel then representing Malahon relied on an affidavit sworn on 5 March 1987 by their Manager, Mr. Henry Yap. In that affidavit Mr. Yap said that he had had numerous conversations with Mr. Ng in February and March 1986 over the matter of the repayment of the loan (their claim which later had to be enforced b action). When Mr. Ng had proposed to secure the loan by a mortgage over the flat, he had queried how this could be done since the flat was held by joint tenants. Mr. Ng had assured him several times that the proposal was “absolutely feasible” because he alone had an absolute right to deal with the property since he had paid for it, and Madam Siu was merely acting as his trustee.

21. There was thus, in effect, a direct conflict between the assertions of Madam Siu and Mr. Ng about the beneficial interests in the flat. However this conflict was removed when Mr. Tang conceded during the hearing of the appeal that Malahon could not rely on Mr. Yap’s allegations since “subsequent acts and declarations are only admissible as evidence against the party who made them, and not in his favour.” (Snell’s Principles of Equity, 28^th Ed., p.179). It follows that Madam Siu’s evidence on this point, upon which she was not cross-examined, was not “credibly denied”.

22. In our judgment, in these circumstance, the issues between the parties can, and should, be decided on the admissible evidence as it stands. We think it would be inappropriate to order a re-trial.

23. Before turning to examine the issues whose resolution govern the result of this appeal, we should perhaps mention that the judge accepted that the law relating to the charging order obtained against Mr. Ng was governed by s.20 of the Supreme Court Ordinance and was “conveniently set out” in Irani Finance Ltd. v. Singh and others [1971] 1 Ch. 59, a case decided before the enactment of the U.K. Charging Orders Act 1979, so that “Mr. Ng’s interest only extended to the proceeds of sale and not to the interest in the land.”

24. That case held that as the law stood when it was decided, a charging order could not effectively be made to impose a charge on land or interest in land of a judgment debtor which he owns jointly with another because a beneficial interest under a trust for sale was not “an interest in land” for the purposes of s.35 of the Administration of Justice Act 1956. The decision was based on the effect of certain provisions of the U.K. Law of Property Act, 1925 which imposed statutory trusts for sale in all cases of beneficial co-ownership of land. No equivalent provisions are in force in Hong Kong.

25. With great respect to the judge, in our view, he was wrong in accepting the proposition put forward by Mr. Benjamin Chain based on the law reviewed and applied in the Irani Finance case. If we have understood the position correctly, Mr. Chain’s submissions were made in support of the contention that Malahon had no locus standi to proceed with their originating summons of 17 March 1987. Mr. Chain no longer relies on the proposition which he persuaded the judge to accept for it does not affect the outcome of this appeal.

26. The first, and most important, issue which falls to be decided is what beneficial interest, if any, did Madam Siu have in the flat. This is what she said upon the matter in her affidavit of 2 March 1987 which grounded her originating summons -

“2. The above property was purchased by the 2^nd Plaintiff and me in about November 1984, it is now shown to me and produced marked ‘SCWA-2’ a copy land office record relating to the property.

3. At the time of the purchase, the 2nd Plaintiff had requested me to cohabit with him and he also told me that he would give half the interest in the property to me, hence the purchase was in our joint names and I and the 2nd Plaintiff own the property as joint tenants. After the purchase, I did cohabit with the 2nd Plaintiff at the property from November 1984 until about October 1986 when he left Hong Kong; during that period, we cohabited as man and wife and I looked after the ‘family’ by doing all household works. In the premises, half of the property belongs to me as gift from the 2nd Plaintiff.”

27. The only other evidence which is relevant is this. It is common ground that the deposit for the purchase of the flat was paid by a cheque for $115,000 drawn by Madam Siu on her bank account. A receipt for this sum was issued in her name. The balance of $1,087,000 was paid by Mr. Ng and the receipt was made out in the names of both Mr. Ng and Madam Siu.

28. We think that Bernard v. Josephs [1982] 1 Ch. 391, C.A., is particularly helpful for it makes it clear that the legal principles settled by two decisions of the House of Lords (Pettitt v. Pettitt [1970] A.C. 777 and Gissing v. Gissing [1971] A.C. 886) are normally applicable when ascertaining the respective shares in property of unmarried, as well as married couples: per Lord Denning M.R. at p.399G; per Griffiths L.J. (as he then was) at p.402F; per Kerr L.J. at p.408C. But Griffiths L.J., at p.403C emphasizes that: “Each case will depend on its own facts” adding, “and I only warn against a blithe assumption that all couples living together are to be regarded as no different from a married couple.” Kerr L.J. at p.408D expresses his agreement with Griffiths L.J.: “I also consider that cohabitation in marriage, in contrast to a less permanently intended relationship, may of course have an important hearing on the ascertainment of their common intention and on the determination of an appropriate apportionment of their respective rights to the property in which they live.”

29. It is well settled that the beneficial ownership of the property depends on the agreement of the parties ascertained at the time of acquisition: per Lord Upjohn in Pettitt v. Pettitt at p.813F and p.816E: per Griffiths L.J. in Bernard v. Josephs at p.404C.

30. In our case, as already mentioned, the instrument assigning the flat to the joint tenants is not before us and so we must take it that it is silent on the matter, and look elsewhere.

31. It is clear, too, that “a conveyance into joint names does necessarily mean legal shares”: per Lord Denning in Bernard v. Josephs, at p.398A.

32. Here, there are no special circumstances, and so, “the time at which the beneficial interest crystallizes is the time of acquisition”: per Griffiths L.J. in Bernard v. Josephs, at p.404F.

33. In the same case, Griffiths L.J. at p.402B-D, refers to a passage from the speech of Lord Upjohn in Pettitt v. Pettitt (pp.813-814) and says:

“The task of the judge is to look at all the evidence and decide whether it indicates an intention by the parties that the beneficial ownership of the house should be held in other than equal shares. It is only in the somewhat unlikely event that nothing in the evidence provides a pointer to the intention of the parties that the judge should decide the case upon the basis that the equitable title follows the legal title or to use another maxim that equality is equity.”

34. Here, since the flat was bought without a mortgage, if there were no other evidence about the intention of the parties, the Court would be required to look at the contributions made towards the purchase price and their respective contributions would determine their share in equity: per Griffiths L.J. in Bernard v. Josephs, at p.403G (and see Lord Denning at p.398B and Kerr L.J. at p.407G.)

35. Putting aside for the moment the evidence contained in Madam Siu’s first affidavit referred to earlier – that is to say if she had said nothing on the matter of the interests of herself and her joint tenant, or if her evidence is to be given no weight – approaching the matter in the way the cases require, on the assumption that the deposit paid for the flat came from her own resources, and since there are no other pointers, we have little doubt that the Court would declare the respective shares of the beneficial interest of Madam Siu and Mr. Ng in the property to be in proportion to their contributions to the purchase price.

36. We return to Madam Siu’s evidence. Lord Upjohn’s speech in Pettitt v. Pettitt, at p.813F, confirms that parol evidence is admissible on the issue of the beneficial ownership that was intended by the parties at the time of acquisition. And it is only if there is no available evidence (written or parol) that the presumptions are to be invoked: see Lord Upjohn’s speech at p.813 and Snell’s Principles of Equity, p.185.

37. In our case, the vendor of the flat must be taken to have transferred both his legal and equitable interests in the flat to the joint tenants and Madam Siu’s evidence must be viewed against the background, which is to her advantage, that she was a joint tenant at law.

38. It may well be said that Madam Siu’s evidence on this issue is not entirely satisfactory, but the Court must evaluate it as best it can, bearing in mind that it remains unchallenged and uncontradicted. As we read her evidence she was using language a lay person would use in similar circumstances. The arrangement was that she would live with Mr. Ng and would receive half the interest in the flat. We do not think it can fairly be understood that what she really was saying was that Mr. Ng promised to give her a half share in the flat provided she later cohabited with him.

39. We entertain no doubt that her evidence was sufficient to establish that it was intended, right from the beginning, that she would share the beneficial interest in the flat jointly with Mr. Ng, and that the effect of that evidence is that while they were joint tenants at law (with benefit of survivorship) in equity, which leans against joint tenancies, they are to be regarded as having equal shares as tenants in common. If this is not the true position and they were joint tenants in equity, then when the charging order absolute was made there was a severance and they became tenants in common.

40. We now address the issue relating to the equity of exoneration. The judge decided that the equity of exoneration given effect to In re Pittortou [1985] 1 W.L.R. 58 was applicable to a common law husband and wife, and concluded his judgment as follows –

“It seems clear to me that Madam Siu’s interest has on the facts available to me been exonerated and accordingly Madam Siu’s interest in the property is such that she is entitled to receive half of the proceeds of sale after the mortgage and further charge has been discharged.”

41. Since, Madam Siu had a beneficial interest in half of the property subject to the two legal charges, she would, prima facie, be entitled to no more than half the proceeds of the sale of the flat remaining after the deduction of the amounts due on those charges: $426,598 ($1,580,000 less $726,803 divided by 2).

42. If, however, Madam Siu can take the benefit of the equity of exoneration then she would be entitled to $790,000 because the amount secured by the legal charges would not be deductible from her share of the proceeds of the sale of the property. The sum due on the legal charges ($726,803) would come out of Mr. Ng’s half share of $790,000, and leave $63,197 to be subject to Malahon’s charging order.

43. The equity of exoneration is examined and applied by Scott J. in In re Pittortou. At p.61, Scott J. refers to paras. 1071 to 1076 of Halsbury’s Laws of England, 4t Ed. Vol. 22, and explains the principle thus: “As a general proposition, if there is found to be a charge on property jointly owned, to secure the debts of one only of the joint owners, the other joint owner, being in the position of a surety, is entitled, as between the two joint owners, to have the secured indebtedness discharged so far as possible out of the equitable interest of debtor.”

44. In that case the matrimonial home was in the joint names of the husband and wife, and they executed a second charge in favour of a bank in order to secure borrowings on the husband’s bank account which was used both in regard to the conduct of the husband’s restaurant business and for the payment of expenses in connection with the matrimonial home. Part of the money was also used in supporting a separate home which the husband set up with another woman after he had left his wife.

45. Scott J. pointed out at p.62 that the equity of exoneration was a principle of equity which depended on the presumed intention of the parties. If the circumstances of a particular case did not justify the inference (or if the circumstances negated the inference) that it was the joint intention of the joint mortgagors that the burden of the secured indebtedness should fall primarily on the share of the one who was the debtor, then the consequence would not follow.

46. Scott J. referred to Paget v. Paget [1898] 1 Ch. 470 where no inference was drawn in the wife’s favour when the money was raised to pay the debts of the husband to maintain an extravagant life style on the part of both husband and wife.

47. Scott J. held that the payments made by the husband purely for business purposes and, a fortiori, any payments made by the husband for the purposes of his second establishment should, as between the bankrupt husband and his former wife, be treated as charged primarily on the bankrupt’s half share in the mortgaged property.

48. However, he held that payments made for the joint benefit of the household were of a character which made it impossible to impute to the parties the intention that as between the husband and the wife those payments should be regarded as falling only on the husband’s share in the mortgaged property. He directed an inquiry as to which payments fell within the categories he had identified.

49. Although in many of the cases the equity of exoneration is described as presumptive right, it is necessary to bear in mind what Lindley M.R. said in Paget v. Paget at p.475 of the report:

“To say that in all such cases there is a presumption in favour of the wife, and that it is for the husband to rebut it, is, in our opinion, to go too far and to use language calculated to mislead. The circumstances of each case must all be weighed in order to see what inference ought to be drawn; and until an inference in favour of the wife arises there is no presumption for the husband to rebut. If this is forgotten, error may creep in.”

50. The circumstances of each case are necessarily to be determined by reference to the evidence of the parties. In the present case the actual legal charges do not by their terms give rise to any presumption of exoneration as between Madam Siu and Mr. Ng. The relevant instruments recite that “the Mortgagors have applied to the Bank to grant to the Mortgagors General Banking Facilities in connection with the Mrotgagors’ business” and the bank is expressed to grant such facilities to them both.

51. It is clear from In re a Debtor (No. 24 of 1971) Ex parte Marley v. Trustee of the Property of a Debtor [1976] 1 W.L.R. 952 that the court will look to the realities of the relationship between the mortgagors and will not be governed by the terms of the mortgage instrument if they do not accord with the actual facts.

52. The only evidence before the Court on the matter of the equity of exoneration is to be found in Madam Siu’s second affidavit dated 17 March 1987. This is what she swore:

“The said legal charges were all arranged by [Mr. Ng] and the banking facilities granted thereunder were to the best of my knowledge and belief used by [Mr. Ng]; in any event, I can say for definite that I had not the use of any money granted under the said facilities. I was merely asked by [Mr. Ng] to sign on the two legal charges as a favour to him.”

53. We have reached the conclusion that this evidence is insufficient to give rise to an inference that Madam Siu and Mr. Ng intended that, as between themselves, her share of the property was to be exonerated. Mr. Ng, it is true, had no interest in the claim, but the fact is that he did not file any evidence on the question.

54. There was no evidence before the Court to rebut the recitals in the two legal charges. Madam Siu does not say what was the nature of Mr. Ng’s business or whether they were in business together at any material time. Nor does she say into whose banking account the money advanced was paid. She does not explain where the payments for their household expenses came from. She says nothing about her own resources. Madam Siu might not have had the “use” of any of the money advanced under the facilities as she put it, but this is not to say that she did not receive any benefit from any of the money so advanced as a member of Mr. Ng’s household for almost two years.

55. Unlike the position in the Marley case and in the Pittortou case, the evidence thus contains material gaps which result in the Court being unable to determine what the relevant circumstances were. All the relevant circumstances must have been known to both Madam Siu and Mr. Ng. Mr. Chain conceded that Madam Siu was bound to put forward evidence which gave rise to the inference upon which she relied.

56. In the present case the judge rightly relied on the Marley case as an example of a case where the equity of exoneration was upheld as between parties (father and son) who were not husband and wife. But we would point out that in that case, not only was there sufficient evidence before the court to enable it to determine all the relevant facts but it was conceded by the trustee in bankruptcy of the son that the father had mortgaged his share of the property as a surety only.

57. The learned judge was prepared to make an inference in Madam Siu’s favour “on the facts available to me”. With due respect to him, in doing so he was wrongly accepting that Madam Siu had established her entitlement to exoneration on evidence which did not lay all the material facts before the Court.

58. In our view it would not be right, on the unsatisfactory and equivocal evidence Madam Siu led, to direct an inquiry to be held of the kind ordered by Scott J. in In re Pittorton. An inquiry would no doubt remedy the deficiency in evidence but she has not vouchsafed sufficient evidence to justify such an inquiry.

59. We would therefore allow the appeal, and grant Madam Siu the declaration she sought in paragraph 3 of her amended originating summons, but deny her the benefit of the equity of exoneration she put forward.

60. The order drawn up to reflect the learned judge’s decision is, we have to say, a strange one indeed and we doubt whether, without an appropriate amendment to the originating summons, it would be right to give a money judgment in Madam Siu’s favour. However, it will not be difficult for the parties to work out what sum of money she should receive from Malahon, and we express the hope that the parties will not need to return to Court to determine that sum.