NG PO LAN AND ANOTHER v. TSUI CHUNG POR AND ANOTHER

HCA 238/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 238 OF 2007

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J U D G M E N T

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1.  This is a claim by the plaintiffs against the defendants for the ownership of Flat 1 on the 2nd floor and the flat roof thereof of Nam Cheong Building, Nos. 153 to 155, Nam Cheong Street, Kowloon (“the Property”).  The flat is now registered in the name of the 2nd defendant who had purportedly purchased it from the 1st defendant by a provisional agreement of 3 August 2006 and by an assignment of 1 September 2006.

2.  The 1st plaintiff is the registered owner of an estate agency called Hong Kong Dragon Property Company (“the Estate Agency”).  The 1st plaintiff and the 1st defendant used to be husband and wife.  They married in 1993 but were divorced sometime in 2007. 

3.  The 1st plaintiff came to Hong Kong in 1979, she joined the estate agency business in 1994/95, she occasionally also bought and sold property on her own account.  The 2nd plaintiff is her elder sister.  She is and was a resident of the Mainland.

THE PLAINTIFFS’ CASE

The 1st plaintiff

4.  The 1st plaintiff adopted her witness statement.  She said the 2^nd plaintiff was interested in investing in property in Hong Kong.  At the beginning of 2002, the 1st plaintiff agreed to purchase the Property for her and to hold it as her long term investment. 

5.  Since the 2nd plaintiff was a resident of the Mainland, she had difficulty in obtaining mortgage for purchasing real property in Hong Kong.  Furthermore, she would also have difficulty in managing the Property in Hong Kong.  The 1st plaintiff therefore agreed to assist the 2nd plaintiff by buying the Property in the 1st plaintiff’s name and to hold it on trust for the 2nd plaintiff’s benefit.  The 1st plaintiff would also provide all the necessary funds for the purchase and decoration, and the 2nd plaintiff would reimburse her later. 

6.  The Property was introduced by one Madam Chiang Kam, who was the previous employer of the 1st plaintiff.  The 1st plaintiff found the offer of the Property attractive.  She then entered into a provisional sale and purchase agreement with the vendor on 24 January 2002 to purchase it at HK$535,000.  She drew a cheque for HK$30,000 in favour of the solicitors as the initial deposit for the purchase.  She also entered into a formal sale and purchase agreement with the vendor on 29 January 2002.

7.  After payment of further deposits, the balance of the purchase price payable at completion was HK$461,500.  The 1st plaintiff obtained a verbal valuation from a bank which valued the Property at HK$690,000 to HK$700,000.  However, she was having the then matrimonial home under her name for which she had to pay mortgage instalment at HK$4,700 a month to the Hong Kong Bank.  Her then income was HK$13,000 per month.  She was therefore unable to obtain another mortgage loan for the purchase of the Property.  She therefore asked her then husband, the 1st defendant, to hold the Property for the 2nd plaintiff so as to obtain mortgage finance.  Both the 2nd plaintiff and the 1st defendant agreed to this.  Although the Property would be held by the 1st defendant, the 2nd plaintiff would be responsible for the mortgage repayments. 

8.  Despite the 1st defendant had no employment, the 1st plaintiff had previously transferred a property to him so that he had assets under his name and could obtain mortgage finance.  

9.  The 1st plaintiff then purportedly sold the Property to the 1st defendant for HK$695,000 by a provisional sale and purchase agreement dated 30 January 2002.  The 1st defendant knew very well that he was holding the Property on trust for the benefit of the 2nd plaintiff.  Under the provisional agreement, the 1st defendant had to pay the 1st plaintiff initial deposit of HK$30,000 and a further deposit of HK$39,500, leaving a balance of HK$625,500 payable at completion on 28 March 2002, but the 1st defendant had not paid any of the deposits either to the 1st plaintiff or to the 2nd plaintiff. 

10.  The 1st plaintiff had also signed a receipt for HK$145,500 cash as further deposit and part payment from the 1st defendant, but there was in fact no such payment.  There was also no formal agreement. 

11.  The Wing Lung Bank later agreed to offer a mortgage loan of HK$480,000.  Out of this sum, HK$461,500 was used to pay the balance of the purchase price to the vendor at completion.  A sum of HK$4,672 was used to pay the 1st defendant’s legal costs and insurance premium.  The balance of HK$13,628 was paid to the 1st plaintiff. 

12.  The sale of the Property by the vendor to the 1st plaintiff and by the 1st plaintiff to the 1st defendant were both completed on 8 March 2002.  On this evidence of the 1st plaintiff, the 1st defendant had paid nothing for the purchase of the Property.  Even his legal costs came from the mortgage loan.  The 1st defendant produced no banking document to support any payment allegedly made by him to the 1st plaintiff in this transaction.

13.  After completion of the sale of the Property to the 1st defendant, the 1st plaintiff paid the first few mortgage instalments to the Wing Lung Bank from her own funds.

14.  On 9 July 2002, the 1st defendant also signed an authorisation for the 1st plaintiff to pay the mortgage instalments directly from the 1st plaintiff’s bank account.  After the completion of the purchase, the 1st plaintiff also proceeded to decorate and partition the Property on behalf of the 2nd plaintiff for the purpose of letting.  She said she had incurred HK$138,000 for this purpose.  She clarified in oral evidence that this was the sum she charged the 2nd plaintiff and she made a profit of over HK$30,000 out of this. 

15.  The Property was partitioned into three sets of bedroom cum living room and one en-suite bedroom.  She incurred more than HK$200,000 for purchasing and decorating the Property and legal costs in addition to the mortgage loan of HK$480,000 borrowed in the name of the 1st defendant.

16.  The 2nd plaintiff on or about 13 May 2002 paid her HK$300,000 through an intermediary, Madam Yuen, as referred to below.  After defraying the costs of purchase and decoration, she kept the surplus from the HK$300,000 for future maintenance and other uses relating to the Property. 

17.  She then let out the rooms to four tenants.  The average income from the rooms was at about HK$9,000 to HK$10,000 per month.  After deducting the mortgage payment of about HK$4,700 per month and the management fees, rates and government rent, the net rental income was about HK$3,000 HK$4,000 per month.  The 1st plaintiff kept the surplus in a maintenance fund. 

18.  Sometime in early 2003, the Commissioner of Inland Revenue inquired the 1st plaintiff on the sale of the Property and the profit from the sale generated to her.  She replied in a standard questionnaire on 14 April 2003 as follows: -

「因我本人不能申請銀行按揭貸款，所以轉售給我的丈夫，而他能申請銀行按揭貸款。」

The free translation reads,

“Since I could not apply for bank mortgage loan, therefore I resold it to my husband, and he could apply for bank mortgage loan.”

19.  The 2nd plaintiff on 29 October 2003 gave the 1st plaintiff a written authorisation.  The authorisation stated that the 2nd plaintiff was the owner of the Property and she authorised the 1st plaintiff as her agent in Hong Kong to manage the Property in respect of its mortgage, management, use, paying tax and all necessary fees, entering into tenancies, collecting rent, issuing rent receipts, resale and issuing receipt thereof and to represent the 2nd plaintiff in litigation and settlement relating thereto.   

20.  The authorisation was sent by the 2nd plaintiff to the 1st plaintiff on 29 October 2003 by the fax machine of the Judiciary Bureau of Xinhui City of Guangdong Province.  The 2nd plaintiff was then working in this bureau.  The ownership of the fax number was confirmed by the China Telecom Company Limited Jiangmen Branch, Xinhui sub-branch.  

21.  Sometime in 2004 the 2nd plaintiff knew that the relationship between the 1st plaintiff and the 1st defendant was not good.  In order to protect her interest in the Property, the 2nd plaintiff came to Hong Kong and made a provisional sale and purchase agreement with the 1st defendant on 4 May 2004, purportedly agreeing to purchase the Property from him at the price of HK$0.5 million with completion to take place on 18 May 2012.  The completion date was so fixed because the then mortgage was scheduled to be paid off and discharged in 2012 and the Property could then be transferred to the 2nd plaintiff without mortgage encumbrance. 

22.  This agreement stated that an initial deposit of HK$30,000 had been paid to the 1st defendant with further deposit at HK$200,000 payable on 5 August 2004.  However, these deposits were merely stated there and had not been and were not supposed to be paid. 

23.  The 1st defendant entered into this agreement at the Estate Agency voluntarily for returning the Property to the 2nd plaintiff.  The agreement was made on an agreement form of the Estate Agency.  It was not registered at the Land Registry within one month of its making.  The date of the agreement was later amended to 4 August 2004 with the approval of the 2nd plaintiff and the 1st defendant, and was then registered at the Land Registry on 26 August 2004.

24.  In about March 2006, the relationship between the 1st plaintiff and the 1st defendant had become very poor.  The 1st plaintiff reported the 1st defendant to the police for assault on 28 May 2006 and obtained from the Family Court a non-molestation injunction on 12 July 2006, thereby preventing the 1st defendant from molesting her or entering the Estate Agency. 

25.  The 1st plaintiff also said in oral evidence that she then moved out of the matrimonial home and lived in the premises of the Estate Agency.  The 1st defendant then petitioned for divorce in October 2006 on the ground of the 1st plaintiff’s unreasonable behaviour.  In March 2007, the ground of divorce was changed to separation for one year and by consent and a decree nisi was duly obtained.

26.  On 26 and 30 August 2006, the solicitors for the 1st defendant wrote to two firms of solicitors which the 1st defendant thought were representing the 2nd plaintiff.  The 1st defendant’s solicitors in these letters referred to the provisional sale and purchase agreement dated 4 August 2004  (originally dated 4 May 2004) and registered at the Land Registry.  They alleged that the 2nd plaintiff had breached the same in failing to pay the 1st defendant the further deposit of HK$200,000 on 5 August 2004.  These solicitors further purported to determine the agreement and forfeit the initial deposit of HK$30,000.

27.  The 1st plaintiff was told about these letters on 30 August 2006.  She then instructed solicitors to demand the 1st defendant to transfer the Property to the 2nd plaintiff.  But the solicitors delayed the matter and the writ of summons in this action was only issued on 2 February 2007.

28.  Furthermore on 31 August 2006, the 1st defendant’s solicitors registered at the Land Registry a memorandum of determination purportedly determining the provisional sale and purchase agreement between the 1st defendant and the 2nd plaintiff on the ground that the 2nd plaintiff had failed to pay the further deposit of HK$200,000 on 5 August 2004.

29.  The 1st defendant also purportedly sold the Property to the 2nd defendant on 1 September 2006 at the price of HK$710,000.  The 1st plaintiff did not know about this sale until sometime in October or November 2006 when she was served with the 1st defendant’s petition for divorce.

30.  Regarding the relationship between the 1st and 2nd defendants, they were from the same village and were good friends.  They knew each other for over 10 years.  They also greeted each other as brothers.  The 2nd defendant was also familiar with investing in the Hong Kong property market. 

31.  When the marriage between the 1st plaintiff and the 1st defendant had become problematic, the 2nd defendant had on behalf of the 1st defendant demanded for HK$3 million from the 1st plaintiff as financial relief in the divorce proceedings, but the 1st plaintiff refused the demand. 

32.  The 1st plaintiff believed that the 2nd defendant was aware that the 1st defendant was holding the Property as trustee for the 2nd plaintiff, and hence, had no power to sell the same to the 2nd defendant. 

33.  The 1st plaintiff also asserted that the 2nd defendant knew that the purchase price of HK$710,000 was below the market price.  When the 2nd defendant completed the purchase of the Property, he knew that the 1st plaintiff and the 1st defendant would have a divorce and would litigate over properties (the 1st defendant filed the petition for divorce on 22 October 2006).

34.  The plaintiff further asserted that the purpose of the sale of the Property by the 1st defendant to the 2nd defendant was to deprive the beneficial interest of the 2nd plaintiff in the Property and it was not a genuine sale.  The provisional sale and purchase agreement between the two defendants was not registered.  The fact that the sale was subject to tenancies was also not mentioned in the agreement.  No formal agreement was made either.

35.  The 1st plaintiff has obtained a valuation report saying that the market price of the Property with vacant possession on about 28 December 2006 was about HK$1.35 million.  Hence, she said the market price on about 1 September 2006 was higher than HK$710,000.  But the plaintiffs did not call any expert evidence on market price and I would not rely on this evidence of market price.

36.  Regarding the 1st defendant’s claim of proprietary interest of the Estate Agency, she denied that absolutely.  She maintained that she was the sole owner and had set up and managed the business all by herself.  She further said that the 1st defendant did not have a licence to engage in estate agency work.  She also denied that he had paid her cash for her to purchase properties for his investment. 

37.  She also said that he often took money from the Estate Agency without her prior approval but the staff did not dare to go against his will because he was her husband.  He had also not paid her any household expenses or money for the support and the education of the son.

38.  The 1st defendant has alleged in his further and better particulars of his defence that he had paid the 1st plaintiff on 29 April 2005 cash in the sum of HK$220,000 for his purchase in her name of a property at 250 Tung Chau Street.  The 1st plaintiff again denied this absolutely.  The formal agreement for this transaction was dated 7 February 2005 and registered on 23 February 2005.  The two receipt clauses at the end of the agreement showed that the 10% deposit at HK$75,500 was paid no later then 7 February 2005 and the balance of the purchase price at HK$679,500 was payable at completion on 30 May 2005.  There was therefore nothing due and payable on about 29 April 2005, the day on which the 1st defendant withdrew HK$220,000 cash from his bank account.

39.  The 1st defendant in his further and better particulars of his defence also alleged that he had withdrawn HK$200,000 cash on 5 August 2005 from his bank account and lent the same to the 1st plaintiff by repaying it on her behalf to one Mr Hon.

40.  The 1st plaintiff admitted the withdrawal of this sum by the 1st defendant from his account for repaying her debt due to Mr Hon, but she said the money in fact was part of the proceeds of sale of a property in Fuk Wah Street, Kowloon.  The property was registered in the 1st defendant’s name but owned by her.  The 1st defendant at the time of transfer of the property to him did not have any steady income and the 1st plaintiff already had under her own name a mortgage to repay.  Both of them were therefore ineligible for mortgage finance.  The 1st plaintiff therefore transferred this property to the 1st defendant to make him appear to be a person of some means so that he could apply for mortgage finance to assist her in the purchase of the Property.  The HK$200,000 repaid to Mr Hon came from the proceeds of sale of this property which was then registered in the name of the 1st defendant. 

41.  The 1st plaintiff supplemented in oral evidence that she had entrusted the work of decorating and partitioning of the Property to the 1st defendant.  They both wanted to do a good job for the 2nd plaintiff, but had different views on how to partition the Property.  They argued over it and eventually she accepted his view.

42.  Regarding the costs of decoration, the price of the market at that time was HK$35,000 for partitioning one accommodation unit.  The Property was partitioned into four accommodation units.  She thus charged the 2nd plaintiff HK$138,000 (below the market price of HK$140,000) and made a profit of some HK$30,000-odd. 

43.  Regarding the funding for the purchase and decoration of the Property, there was a surplus of about HK$90,000 from the HK$300,000 given to her by the 2nd plaintiff.  She kept the surplus with a view to settle the account with the 2nd plaintiff in 2012 when the Property would be transferred to the 2nd plaintiff without the mortgage.  She had a file for this Property in which she kept all the documentation and recorded all the income and expenditure.  However, the file had been taken away by the 1st defendant.

44.  She also explained why the 2nd plaintiff only paid her HK$300,000 in the middle of May 2002 when the purchase was completed on 8 March 2002.  She said she was then working in an estate agency and had no time to go to the Mainland to get the money from the 2nd plaintiff.  She only got the money when the 2nd plaintiff exchanged her RMB300,000 with Madam Yuen, PW1, who was the 1st plaintiff’s then manager or supervisor.

45.  Regarding the amendment of the date of the sale and purchase agreement made between the 2nd plaintiff and the 1st defendant, she said the agreement was originally dated 4 May 2004.  However, she forgot to register it within one month from its making.  She realised this when the 2nd plaintiff asked her about the registration of this document in August 2004.  She then obtained the approval of the 2nd plaintiff and the 1st defendant to amend the date to 4 August 2004 and then have it stamped on 19 August 2004 and registered on 27 August 2004. 

46.  She denied that she had obtained the 1st defendant’s signature on a blank agreement form and then filled in the details on the form without the 1st defendant’s knowledge or consent.

47.  Regarding her relationship with the 1st defendant, she said they had some small problems in 2003 which they could cope with.  It was only from the middle to the end of 2005 that they had serious problems.

48.  From July 2006, the 1st defendant also collected the rental of the Property from the tenants to her exclusion. 

The 2nd Plaintiff

49.  The 2nd plaintiff has also adopted her witness statement.  She was a cadre of the Judiciary Bureau in Xinhui City.  She said she had some savings and was interested in investing in Hong Kong property. 

50.  At the beginning of 2002, the 1st plaintiff recommended the Property to her and told her that the price was very attractive.  The 1st plaintiff suggested that she could purchase it to generate rental income. 

51.  Since she was a Mainland resident, she had difficulty in getting a mortgage in Hong Kong.  Furthermore, the purchase of the Property was for long term letting, it was therefore more convenient for the 1st plaintiff to manage the mortgage.  She also trusted the 1st plaintiff.  She thus agreed that the Property could be purchased in the 1st plaintiff’s name and to be transferred back to her after paying off the mortgage. 

52.  The 1st plaintiff would also pay on her behalf the deposits and expenses for the purchase including all legal fees, decoration costs and building maintenance costs.  She would reimburse the 1st plaintiff later. 

53.  She was later advised by the 1st plaintiff that because of the mortgage issue, the Property had to be transferred to the 1st defendant.  Since the 1st defendant and the 1st plaintiff were husband and wife, she thought she could trust the 1st defendant and agreed to the arrangement. 

54.  At about the end of March 2002, she was told that the purchase of the Property had been completed.  Since more money had to be incurred for decoration, she and the 1st plaintiff agreed that she would reimburse the 1st plaintiff at a later stage when all the expenditures were known. 

55.  In early May 2002, the 1st plaintiff told her to pay the rounded up sum of HK$300,000 to cover all the costs and expenses.  For the surplus, the 1st plaintiff would keep it for other purposes and expenditure of the Property.  She then remitted RMB300,000 to a Mainland bank account of one Mr Yuen on 13 May 2002.  Mr Yuen then told her daughter, Madam Yuen, PW1, who was the 1st plaintiff’s supervisor/manager, to pay HK$300,000 to the 1st plaintiff in Hong Kong.

56.  The 2nd plaintiff knew that there had to be monthly mortgage payments which could be met by the rental income.  The surplus rental was also kept by the 1st plaintiff.  She had not collected any rental since there was no documentary proof of her ownership.  She signed an authorisation for the 1st plaintiff to manage the Property for her and then used this as proof of her ownership of the Property.  I have already referred to the contents of this document above. 

57.  She also explained in oral evidence that she had faxed the document on 29 October 2003 on the fax machine at her place of work, but she dated the document forward to 8 November 2003 for auspicious reason. 

58.  She continued in her witness statement that she later learned that the relationship between the 1st plaintiff and the 1st defendant had deteriorated.  She therefore asked for the transfer of the Property back to her.  The 1st plaintiff then arranged her to enter into the provisional sale and purchase agreement with the 1st defendant on 4 May 2004.  This agreement stated that she had agreed to purchase the Property from the 1st defendant for HK$0.5 million.   However, she was the actual owner and had no need to pay any money to the 1st defendant.  All payments stated in the agreement were mere formalities.  The 1st defendant also agreed to make this agreement.  The completion date was stated to be 18 May 2012 because the mortgage would be discharged by then.  She thought that with this provisional sale and purchase agreement, the 1st defendant could not dispose of the Property to others.

59.  Later on, the date of the agreement was amended to 4 August 2004 with the approval of her and the 1st defendant.  The agreement was then registered at the Land Registry.

60.  However, at the end of 2006, the 1st plaintiff suddenly told her that the 1st defendant had secretly transferred the Property to another person.  She now wants to get back the Property and the rental collected by the 1st defendant since July 2006. 

61.  She maintained in oral evidence that she and the 1st defendant had signed the 4 May 2004 provisional agreement together.  She also clarified in oral evidence that the date of the agreement was amended to 4 August 2002 for registration because the 1st plaintiff had forgotten about it until her inquiry at a later date. 

62.  She also said that she gave the 1st plaintiff the authorisation in late October 2003 because she then sensed discord between the 1st plaintiff and the 1st defendant, but she was not satisfied with the protection by the authorisation, hence she procured the making of the agreement of 4 May 2004.

63.  She was asked about her income in cross-examination.  She explained that both she and her husband were civil servants in the Mainland and they were able to save up RMB50,000 every year from their salaries.  Regarding the purchase of the Property, she further explained that it was introduced by one Miss Chiang through the 1st plaintiff.  That was at the beginning of 2002. 

64.  Up to the time of her giving evidence, she had not received any return from this investment.  However, she was only keen in getting the flat under her name in 2012.  She did not bother much about the surplus of purchase money and the surplus rental as the 1st plaintiff would also support her expenditure upon her visits to Hong Kong. 

65.  Regarding the reason for transferring the Property to the 1st defendant, she corroborated the 1st plaintiff that it was because the 1st plaintiff already had a mortgage in her name and could not get another mortgage.  The Property therefore had to be transferred to the 1st defendant in order to obtain mortgage finance. 

66.  At that time, the 1st defendant respected her and she trusted him too.  She remitted RMB300,000 to Mr Yuen in the Mainland in exchange for HK$300,000 to be paid by his daughter Madam Yuen to the 1st plaintiff in Hong Kong.  That was more convenient than remitting RMB300,000 from the Mainland to Hong Kong.

Madam Yuen

67.  Madam Yuen also gave evidence that she had assisted the 2nd plaintiff to exchange RMB300,000 into HK$300,000 and remit it from the Mainland to Hong Kong.  It was for the 2nd plaintiff to remit the RMB300,000 to her father’s bank account in the Mainland and she then paid HK$300,000 to the 1st plaintiff in Hong Kong. 

68.  She also benefited from this arrangement because her husband needed RMB to pay wages to his garment workers in the Mainland.  This exchange saved her husband the trouble of arranging money to be channelled into the Mainland.

69.  She and the 1st plaintiff were then working in the same estate agency and the 1st plaintiff had told her that the RMB300,000 was the 2nd plaintiff’s reimbursement to the 1st plaintiff for the payments made by the 1st plaintiff for the purchase of the Property for the 2nd plaintiff. 

70.  She thought the then exchange rate was about RMB1 to HK$1 and she paid the 1st plaintiff HK$300,000 after her father’s confirmation of receipt of RMB300,000.  She did not know that the official exchange rate at that time was at RMB1 to HK$0.9435.  She also produced the bank documents to prove the 2nd plaintiff’s remittance of RMB300,000 to her father dated 13 May 2002 and the receipt signed by the 1st plaintiff to her for HK$300,000 and dated 15 May 2002.

Madam Chiang Kam

71.  Madam Chiang Kam said in her witness statement that she knew both the 1st plaintiff and the 1st defendant since about 1997. 

72.  In about January 2002, the 1st plaintiff told her that the 2nd plaintiff was desirous of purchasing a property in Hong Kong for investment and asked her for recommendation.  She later recommended the Property to the 1st plaintiff.  The 1st plaintiff, after due consideration, entered into a provisional sale and purchase agreement with the vendor to purchase the Property at HK$535,000. 

73.  The 1st plaintiff, upon signing this agreement, told her that she was purchasing the Property on behalf of the 2nd plaintiff.  The 1st plaintiff then gave a cheque for HK$30,000 drawing on her account.  A copy of this cheque bearing the acknowledgement chop mark of the solicitors was produced in evidence.  The purchase was later completed.  All procedure of inspection of Property and taking delivery of vacant possession was done by the 1st plaintiff, the 1st defendant had not taken part at all.

74.  Madam Chiang had also been to the Property and knew that the 1st plaintiff had decided how to decorate and partition it. 

75.  She added in oral evidence that she had personally delivered the 1st plaintiff’s deposit cheque of HK$30,000 to the solicitors and she had not received any payment for the purchase of the Property from the 1st defendant.  After making the provisional sale and purchase agreement, the 1st plaintiff told her that the 1st plaintiff could not obtain mortgage finance.

76.  She also clarified that the 2nd plaintiff herself had also asked her to recommend property to the 2nd plaintiff for investment purpose. 

77.  She also knew that the 1st plaintiff and the 1st defendant had some arguments on how to partition the Property for letting.  She was asked by the 1st plaintiff to take a look and give her opinion, which she did.  Apparently she was in favour of the 1st defendant’s idea on the partitioning. 

THE DEFENDANTS’ CASE

78.  The 1st defendant said in his witness statement that he married the 1st plaintiff in December 1994 and they have a son who is now aged 13.   The 1st plaintiff joined the estate agency business in about 1995.  She had worked in four different agencies before she and the 1st defendant together set up the Estate Agency in March 2003.  Whilst the 1st plaintiff was still employed in other agencies, she had from time to time introduced properties to him for investment purpose. 

79.  Regarding the Estate Agency, he had paid all the costs for its setting up, and the total costs were at HK$48,000.  The Estate Agency turned in a profit of over HK$100,000 per month.  The Estate Agency also dealt with the business of cutting of keys. 

80.  In about January 2008, the 1st plaintiff introduced the Property to him.  After discussion, they agreed to purchase it at $535,000.  He was responsible for the payment of the initial deposit of HK$30,000 payable to the vendor.  He also agreed that the 1st plaintiff would be named as the sole purchaser despite his paying all the purchase money.  The intention at that time was to look for a purchaser and for a sub-sale for profit.  However, they later found that the value of the Property far exceeded the purchase price payable to the vendor.  After further consideration, they decided to keep the Property. 

81.  He later learned from a bank that the valuation could be up to HK$700,000.  He then suggested to the 1st plaintiff to sell the Property to him at HK$695,000.  He could then apply for bank mortgage at 70% of this purchase price.  The mortgage loan was enough to pay off the vendor the balance of purchase price at HK$481,500.   In so doing, he could become the owner of the Property by just paying the 10% deposit without further payment.  He therefore entered into a provisional sale and purchase agreement with the 1st plaintiff to purchase the Property from her at HK$695,000.  He paid her HK$30,000 deposit by a cheque numbered 498437. 

82.  He expressly denied the 1st plaintiff’s evidence that she only transferred the Property to him because she could not obtain mortgage finance.  He said that they were on good terms then.  If she had any problem in getting a mortgage, he could always be her guarantor.  However, I do not know if the bank would be prepared to lend money on mortgage when only the guarantor was acceptable but not the primary borrower. 

83.  The 1st defendant continued in his witness statement that he applied for and obtained from the Wing Lung Bank a mortgage loan of HK$480,000 and repayment was at HK$4,774.70 per month commencing from 8 March 2002 for 120 monthly payments. 

84.  The purchase was completed in March 2002 and he paid the 1st plaintiff the balance of purchase price of HK$625,000 (less 10% deposit at HK$69,500).  He said he paid the 1st plaintiff the HK$480,000 borrowed from the Wing Lung Bank and a further sum of HK$145,000 in cash, for which the 1st plaintiff gave him a receipt.  In order to reward the 1st plaintiff’s assistance in this transaction, he also paid for a trip to Europe for the two of them. 

85.  There is however a contradiction here.  He said in the witness statement earlier that by entering into the agreement with the 1st plaintiff to purchase the Property from her at HK$695,000, he could then obtain a mortgage loan of HK$480,000 so that he could become the owner of the Property by only paying the 10% deposit at HK$53,500 to the vendor.  If that was true, then there was no need for him to pay the HK$145,000 cash to the 1st plaintiff.  He never said that he had to pay this sum to the 1st plaintiff because of the 1st plaintiff’s unreasonable demand.   In any case, he had also rewarded the 1st plaintiff a trip to Europe despite this payment of HK$145,000 to her.

86.  Apart from this contradiction, the 1st defendant also failed to produce any banking document to prove the source of the HK$145,000, or the source or payment of the deposit totalling HK$69,500, or the HK$30,000 deposit to the vendor for which he said he was responsible.

87.  He later said in oral evidence that the cheque for HK$30,000 was dishonoured upon presentation by the 1st plaintiff and he paid her cash in lieu, but he still produced no bank statement to prove the dishonour of the cheque.  He continued to say that after completion he paid all the charges for the utilities as well as HK$120,000 for decoration and partition.  He again produced no banking document on the source of this money.  He however produced a few invoices/receipts issued by construction material companies to him to prove the purchase of materials for the works.

88.  On the contrary, the 1st plaintiff produced some bank statements and pointed out some withdrawals totalling HK$79,000 as some of her payments for the works.  The 1st plaintiff also explained that the invoices/receipts were issued to the 1st defendant’s name as the 1st defendant was responsible for the purchase of materials and the works.

89.  The 1st defendant continued to say that he had authorised the 1st plaintiff to collect rent for him and part of the rent was used to pay the mortgage instalments, but the 1st plaintiff pocketed all the surplus and refused to tell him how much was the surplus.  He suspected that the 1st plaintiff had cheated him a lot of rental.  He therefore stopped the authority of the 1st plaintiff to collect rent at the end of 2005 or the beginning of 2006. 

90.  This accusation against the 1st plaintiff is again problematic.  He was the registered owner and hence the landlord of the Property.  He knew of the amount of mortgage instalment.  If the 1st plaintiff should have refused to tell him the amounts of rental under the various tenancies, he could have inquired from the tenants for the same.  He did not appear to have tried this. 

91.  Furthermore, he could also have asked the staff of the Estate Agency of the amounts of rental.  There is in the evidence written acknowledgement by him of having taken from the Estate Agency on 31 August 2005 a sum of HK$7,250, being the rental deposit of one of the rooms of the Property.  This is evidence of his knowledge of the amount of rental of at least one of the rooms. 

92.  His allegation that he had authorised the 1st plaintiff to collect rental but had stopped her authority at the end of 2005 or the beginning of 2006 is also problematic.  There is again his written acknowledgement of having taken from the Estate Agency on 3 March 2006 a sum of HK$2,594, being part of the rental of a room in the Property.  This is the same room the rental deposit of which was taken by him on 31 August 2005.

93.  He further contradicted his allegation that the 1st plaintiff had refused to tell him how much was the surplus rental and his suspicion that the 1st plaintiff had cheated him a lot of his rental.  This is because he was able to set out in his witness statement the full details of rental paid by all the tenants from April 2002 to December 2005, and he concluded that the 1st plaintiff had misappropriated from him about HK$233,250.  If he was telling the truth, then the 1st plaintiff had been misappropriating his money for 3½ years at the average rate of about HK$5,500 per month.  If he was telling the truth, how could he be so ignorant and why did he take no action for so long?

94.  Regarding the provisional sale and purchase agreement dated 4 May 2004 which was amended to 4 August 2004, he said he had never made the same.  He had only been asked by the 1st plaintiff to sign on a blank agreement form at the 1st plaintiff’s request which he thought would be used by the 1st plaintiff for his investment purpose.  He just signed it thinking that it was for the 1st plaintiff’s convenience in carrying out property investment for him. 

95.  There is again difficulty with this explanation.  If the 1st plaintiff should have asked him to sign as a purchaser, then it might be for purchasing Property for his investment purpose, but he signed as the vendor in the agreement.  That could only be for disposing of a property already in his name or about to be purchased by him.  But he did not say that the 1st plaintiff had asked him to sign another blank form as purchaser, so it could not have been for a potential buying and sub-sale arrangement.  It could only be for the disposal of a property already in his name.  So he could not explain why he just signed and did not ask the 1st plaintiff what property she intended to dispose of which was then in his name. 

96.  He not only signed as the vendor, he also signed the receipt clause.  If he had only signed the agreement form in blank for the convenience of the 1st plaintiff, then he had no reason to sign the receipt clause as well when he was not being given any money.

97.  Regarding his so-called sale of the Property to the 2nd defendant, he said his father, who was then 85 years old, had high blood pressure in 2006 and had to go in and out of hospital frequently.  His father also suffered a stroke in August/September and was half paralysed.  Before his father was hospitalised for the stroke, he tried to raise money urgently. 

98.  He knew the 2nd defendant for over 10 years.  In mid July 2006, he met the 2nd defendant in a restaurant in Hong Kong and offered to sell the 2nd defendant the Property as he was in dire financial condition.  After further discussion, the 2nd defendant agreed to purchase the Property from him at HK$710,000.  They then entered into a provisional sale and purchase agreement on 3 August 2006.  

99.  There is again problem here.  The certificate of a Mainland hospital he produced showed that his father was admitted to hospital on 7 September 2006 for 77 days.  His father must have suffered the stroke on 7 September 2006 or very shortly before that.  His father’s stroke could not have caused him financial strain in mid July 2006 or 3 August 2006 when he purportedly sold the Property to the 2nd defendant. 

100.  He continued to say in his witness statement that when the solicitors handled the sale for him and the 2nd defendant, the solicitors discovered from the Land Registry the provisional sale and purchase agreement dated 4 August 2004.  Since this agreement referred to the payment of HK$200,000 further deposit on 5 August 2004 by the 2nd plaintiff to him and the 2nd plaintiff had not paid the same, his solicitors therefore terminated the agreement.  He then completed the sale of the Property to the 2nd defendant.

101.  In oral evidence, he gave a different story on how he purchased the Property.  He said the 1st plaintiff recommended to him the Property as cheap and it was an offer from a client of Miss Chiang.  He asked the 1st plaintiff to negotiate a lower price and the 1st plaintiff got HK$535,000 for him. 

102.  He then paid the 1st plaintiff the 10% deposit and all money required by the 1st plaintiff to handle the transaction.  The 1st plaintiff then said that she had some problem with the bank and could not get mortgage.  She told him to mortgage the Property in his own name, and he did. 

103.  This story is of course different from what he said in his witness statement.  He said in the statement that it was a joint purchase with the 1st plaintiff and he could pay off the 90% of purchase price to the vendor simply with a mortgage with Wing Lung Bank.  He got the large mortgage loan because of the high valuation from the bank. 

104.  He denied that the Property was transferred to him because the 1st plaintiff could not get mortgage finance.  He also said in the statement that he paid the 1st plaintiff cash of HK$145,000, which contradicted his case also in the statement that he only needed to pay 10% of the purchase price to the vendor. 

105.  In oral evidence, he said the 1st plaintiff did tell him that she could not get mortgage finance and that he should mortgage the Property in his own name.  This not only contradicted his witness statement but also corroborated the 1st plaintiff’s evidence. 

106.  Regarding the handling of the agreement dated 4 August 2004 by his solicitors, his oral evidence again contradicted his witness statement and the contemporaneous documents.  He said in his statement that he had not signed this agreement but only signed a blank agreement form at the 1st plaintiff’s request. 

107.  In oral evidence, he further said that he had made a report to the police against the 1st plaintiff for forging this agreement, but he could produce no statement of interview by the police to prove the making of this complaint.

108.  His solicitors’ contemporaneous correspondence with other firms of solicitors also dealt with this agreement on the basis that it was a genuine agreement and not a fake one.  He further said that he had told his solicitors that he had not received even the HK$30,000 deposit purportedly paid under this agreement.  However, the letters of his solicitors instead asserted that the HK30,000 deposit already paid would be forfeited by him.

ANALYSES AND FINDINGS

109.  From the analysis above, I am of the view that the 1st defendants’ evidence is full of flaws and contradictions.  I find his evidence unreliable.  On the contrary, the evidence of the defence witnesses is on the whole reliable.  There are no doubt minor imperfections and inconsistencies because of the long lapse of time.

110.  Madam Yuen and Madam Chiang are independent witnesses.  Both of them were also acquainted with the 1st defendant for over 10 years.  There is no obvious reason why they should lie against the 1st defendant.  Their evidence is straightforward.  I find them honest witnesses. 

111.  I also refer to the 1st plaintiff’s reply to the Commissioner of Inland Revenue on 14 April 2003 that she transferred the Property to the 1st defendant for the purpose of mortgage as she could not obtain mortgage finance.  This is strong corroboration of her case as this reply was made long before there was any problem in her marriage with the 1st defendant.  I see no reason for the 1st plaintiff to have told such lie to the Commissioner of Inland Revenue at that time.  The fact that she could not get mortgage finance is now also admitted by the 1st defendant. 

112.  I also accept the evidence of the 2nd plaintiff.  She sensed discord between the 1st plaintiff and the 1st defendant in October 2003 and then faxed the authorisation to the 1st plaintiff with a view to protect her interest in the Property. 

113.  If the 1st defendant was telling the truth, then this authorisation must have been devised by the 1st and 2nd plaintiffs in October 2003 with a view to deprive the 1st defendant’s interest in the Property.  But at that time the 1st defendant and the 1st plaintiff were at worst only having some discord.  The 1st plaintiff only reported against the 1st defendant to the police for assault on 28 May 2006 and obtained the non-molestation injunction in July 2006.

114.  Regarding the agreement dated 4 May 2004 and amended to 4 August 2004, I find that the 1st defendant made it with the 2nd plaintiff voluntarily.  I have already analysed the 1st defendant’s evidence that he had not signed this agreement but a blank form.  I reject this evidence.  I accept the evidence of the 1st and 2nd plaintiffs as it is in line with the 1st plaintiff’s reply to the Commissioner of Inland Revenue and the 2nd plaintiff’s authorisation to the 1st plaintiff sent by fax on 29 October 2003. 

115.  There is also the documentary evidence of the remittance of RMB300,000 into HK$300,000 to the 1st plaintiff.  This exchange was not in line with the official exchange rate but it is common knowledge that a lot of exchange between RMB and HKD took place not through official channels. 

116.  I have no reason to doubt the evidence of Madam Yuen and Madam Chiang.  I accept their evidence and the evidence of the plaintiffs on the payment by the 2nd plaintiff of HK$300,000 to the 1st plaintiff. 

117.  On the contrary, the 1st defendant produced no banking evidence whatsoever to support any of his alleged payments in relation to the Property other than the mortgage finance from Wing Lung Bank.

118.  I also reject the 1st defendant’s evidence that he had authorised the 1st plaintiff to collect rental and pay the mortgage instalment from the 1st plaintiff’s bank account for his convenience.  There was no need for the mortgage payment authorisation.   He could have paid the mortgage from his own account and the 1st plaintiff could have deposited the rental into his account direct.  It is unlikely for a beneficial owner of property to authorise payment from another person’s account for discharge of his own mortgage and the 1st defendant has provided no sufficient reason for his so doing. 

119.  On the whole, I accept the evidence of the plaintiff’s witnesses and reject the evidence.  I find that the Property was purchased in the name of the 1st defendant as a trustee for the benefit of the 2nd plaintiff and the 1st defendant did not provide any money for the purchase. 

120.  I also find that the 2nd plaintiff is entitled to the rental income from this Property, but I make no finding as to the beneficial ownership of the Estate Agency.

121.  On the purchase of the Property by the 2nd defendant, the 1st plaintiff said that the 1st and 2nd defendants were good friends.  She further said in her supplemental witness statement that she had told the 2nd defendant that the Property belonged to the 2nd plaintiff. 

122.  There is the valid criticism against her on this allegation as it was late.  She could have said this in her first witness statement.  But her case that the 1st and 2nd defendants were close friends is not disputed. 

123.  She also said that the 2nd defendant had on behalf of the 1st defendant negotiated with her for financial relief in the divorce proceedings and the 2nd defendant demanded HK$3 million from her.  This was admitted to by the 1st defendant, who said that it was his idea to demand HK$3 million through the 2nd defendant.  However, the 2nd defendant has denied all this.  The 2nd defendant further alleged that he only learned about the divorce proceedings in early 2008.  This is indeed dishonest on the part of the 2nd defendant.  He deliberately tried to distance himself from the 1st plaintiff and the 1st defendant. 

124.  The 1st defendant also said that after the Property was sold to the 2nd defendant, he collected half of the rental from two tenants and the 2nd defendant collected the rest.  But the 2nd defendant said all rentals were collected by the 1st defendant who deposited some of it into his bank account and paid the rest to him personally in the Mainland.  This is another inconsistency between the evidence of the two defendants. 

125.  I also considered the value of the Property although I do not take into consideration the so-called valuation evidence given by the 1st plaintiff.  When the Property was purportedly sold to the 2nd defendant, the rental generated from the lettings was between HK$9,000 to HK$10,000 per month.  At HK$9,000 per month, the percentage of return for a purchase price of HK$710,000 was more than 15%.  It was far too high to be genuine.

126.  For the above reasons and also for the close relationship of the 2nd defendant with the 1st plaintiff and the 1st defendant, I accept the 1st plaintiff’s evidence that she had told the 2nd defendant that the flat belonged to the 2nd plaintiff.  I accept that she told the 2nd defendant this information when she took him and the 1st defendant to view the Property with a view to explain to the 2nd defendant how their proposed joint investment could be partitioned and let out.  I also reject the evidence of the 1st and 2nd defendants in this regard and also in regard to the alleged sale of the Property to the 2nd defendant. 

127.  No doubt the 2nd defendant purportedly made payments to the 1st defendant but the second payment of HK$338,685.80 was late and it disappeared from the 1st defendant’s bank account very quickly thereafter.  The 1st defendant gave no proper explanation on where the money had gone.  His father’s illness only accounted for less than RMB100,000.  He also produced no document to prove the date of the payment to the hospital.  If the payment was made upon admission as he alleged, then it was paid on or about 7 September 2006 and not on or about 4 October 2006 when the money from the alleged sale was available in his bank account. 

128.  All in all, I also find the sale of the Property to the 2nd defendant questionable.  In any case, I have already found that when the 2nd defendant purportedly purchased the Property from the 1st defendant, he knew that it was held by the 1st defendant as trustee for the 2nd plaintiff.  His purchase was thus subject to the 2nd plaintiff’s interest, save the sum of HK$294,241.20 used for the discharge of the mortgage with Wing Lung Bank which was paid from funds purportedly provided by him. 

JUDGMENT

129.  I declare that the Property which was registered in the name of the 1st defendant until 1 September 2006 was held by the 1st defendant as trustee for the benefit of the 2nd plaintiff. 

130.  I order that the 1st defendant to account to the 2nd plaintiff all the rental he had collected from the tenants of this Property from time to time until now. 

131.  I further declare that the Property is now registered in the name of the 2nd defendant subject to the beneficial ownership of the 2nd plaintiff, save to the extent of HK$294,241.20, which shall stand as a charge on the Property in favour of the 2nd defendant with interest at the rate of 5% per annum to accrue from one month after today until payment of the said sum. 

132.  Upon payment by the 1st and/or 2nd plaintiff of the sum of HK$294,241.20 and the interest thereof, the 2nd defendant shall execute and deliver up to the 2nd plaintiff an assignment of the Property to the 2nd plaintiff and all title deeds thereof. 

133.  I also order the 2nd defendant to account to the 2nd plaintiff all the rental he has collected from the tenants of the Property from time to time until now. 

134.  I also grant liberty to apply for the parties to seek further directions for implementing this judgment. 

135.  Finally, I make an order nisi that the 1st and 2nd defendants do pay the costs of this action to the 1st and 2nd plaintiffs. 

(Discussions re costs)

136.  I also order that the costs for the transfer of the Property be borne by the 1st and 2nd defendants. 

(Discussion re stay of execution of the judgment)

137.  I would not grant the stay because I do not think that there is a real prospect of success on the appeal as this judgment is made on the basis of credibility.  However, I order that in the event that an appeal is lodged within time, the 2nd plaintiff shall not dispose of the Property until the conclusion of the appeal or further order of the Court of Appeal.