CUVELIER JACQUES R also known as CUVELIER JACQUES ROBERT FRANCOIS v. CHEN QIZHI

HCA 1894/2017

[2019] HKCFI 2386

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1894 OF 2017

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REASONS FOR DECISION

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1.  This is an application by Jacques Cuvelier (“the plaintiff”) for summary judgment against Chen Qizhi (“the defendant”) in proceedings commenced by the plaintiff for a declaration that the plaintiff is entitled to a 26% interest as tenant in common with the defendant in a property known as Flat D, 46^th floor, Tower 5, The Belcher’s, Hong Kong (“the property”) and other ancillary relief, including an order for sale. At the conclusion of the hearing, the court granted the relief sought in the summons with written reasons to be handed down later which I now do.

2.  At the heart of the proceedings is the validity of a trust deed dated 4 June 2004. It was made between the defendant as trustee and the plaintiff as beneficiary (“the trust deed”) under which, in consideration of the plaintiff having shared the purchase price and acquisition costs, the defendant declared that she would henceforth hold the property for herself and the plaintiff as tenants in common as to 74% for herself and 26% for the plaintiff.

BACKGROUND FACTS

3.  The plaintiff, a Belgian national, was seconded by his employer to work in Hong Kong in the mid-1980s.  The defendant a PRC national, came to Hong Kong in 1998 to work at the University of Hong Kong (“the University”) as a Research Fellow.

4.  The plaintiff met the defendant (who was 17 years younger) in 1998, at a time when the plaintiff was in the process of a divorce with his wife with whom he had three grown children.  Although the plaintiff and the defendant started a relationship, they did not live together.

5.  In December 2000, the defendant discovered she was pregnant with the plaintiff’s child.  In September 2001, the child was born and lived with the defendant in her flat with the plaintiff being a regular visitor.

6.  On 7 June 2002 the developer assigned the property to the defendant.  The purchase price of $6.98 million was financed by a loan from HSBC to the defendant of $4.3 million (“the 1^st mortgage”) and an advance of $1.745 million (being 25% of the purchase price) from a subsidiary of the developer (“the 2^nd mortgage”).  The balance of the acquisition costs was borne by the plaintiff and the defendant.

7.  The defendant moved to the property with her son in July 2002.  In July 2003, they moved to live with the plaintiff in South Bay.

8.  The property has been rented out to tenants since July 2003.  The defendant alone has been responsible for payments due under the 1^st mortgage and is and has been the sole recipient of the rental income.

9.  No interest was payable under the 2^nd mortgage for the initial 24 months.  Upon maturity on its 2^nd anniversary, unless the 2^nd mortgage was discharged, interest would start running from that date.

LEGAL PRINCIPLES

10.  As the principles to be applied in an application for summary judgment are well-established and non-controversial, I do not propose to rehearse them here.  A convenient summary can be found in Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259 at §61.

THE ISSUES ARISING

11.  Mr Ho, counsel for the defendant, opposing the summons, challenged the validity of the trust deed on various grounds.  Before turning to consider those grounds, it would be convenient first to give an outline of the contents of the trust deed.

12.  After giving a description of the property acquired by the defendant, its purchase price, the 1^st and 2^nd mortgages, the recitals recorded that the property was purchased by the defendant for herself and the plaintiff; that the balance of the purchase price (less the advances under the mortgages) and costs were paid by the plaintiff and the defendant jointly; that the total expenditure was $7.29 million (comprising the purchase price of $6.98 million and $310,000 for stamp duty and legal and other expenses) of which $638,000 had been paid by the plaintiff; that at the date of the trust deed, the parties agreed that the sum of $1.745 million required for the discharge of the 2^nd mortgage would be paid as to $463,000 by the defendant and the balance of $1.282 million by the plaintiff.

13.  The operative part of the trust deed then stated that in consideration of the plaintiff having shared the purchase price and costs and agreeing to share the amount payable to discharge the 2^nd mortgage, the defendant agreed to hold the property in trust for herself and the plaintiff as to 74% for herself and the remaining 26% for the plaintiff.  

14.  It will be seen that the apportionment corresponded to and reflected the parties’ respective contributions towards the acquisition of the property.

( A)  Duress

15.  The defendant’s case was that in late May 2004, shortly before the maturity of the 2^nd mortgage, the plaintiff suddenly told her that he had decided not to discharge the 2^nd mortgage loan, reneging on his alleged promise made prior to the purchase that the plaintiff would repay the 2^nd mortgage as a gift to the defendant in recognition of his obligations as a father.  Then three days prior to the signing of the trust deed dated 4 June 2004, she was given a copy of it for the first time by the plaintiff and told that it was a record of the plaintiff’s contribution to the property and if she signed it, he would discharge the 2^nd mortgage and release her savings held in his savings account for that purpose.

16.  According to the defendant, at that time she was facing dire financial straits as she was soon to be unemployed: her employment at the University was due to end in June.  She and her son were supported entirely by the plaintiff.  Her savings amounting to $463,000 were held by the plaintiff in the plaintiff’s savings account and, in any event, would not be sufficient to discharge the 2^nd mortgage nor could she, having no job, afford to make monthly repayments under the 2^nd mortgage [1] after its maturity on 7 June 2004.

17.  The defendant’s allegations have to be evaluated in light of the evidence adduced by the plaintiff comprising numerous emails, a supporting affidavit from his solicitor Cleresa Wong (“Ms Wong”) who prepared the trust deed as well as against the backdrop of important impending events.

18.  The plaintiff began consulting his solicitors concerning the trust deed in January 2004.  In March when he gave instructions for a draft to be prepared he made it clear that he wanted the trust deed and its consequences explained to the defendant at a further meeting.  Ms Wong’s affidavit corroborated the making of such a request.

19.  The discharge of the 2^nd mortgage was central to and formed an integral part of the trust deed in that the respective interests of the plaintiff and the defendant would reflect their respective contributions to the aggregate costs of acquiring the property.  In his email of 4 March 2004 to Ms Wong, the plaintiff stated that based on a buying price of $7 million, his contribution (helping with the down payment and saving money for the 2^nd mortgage) would be about 26 – 27%.

20.  The documentary evidence adduced showed that after receiving the draft in late April, the plaintiff forwarded a copy to the defendant on 28 April and advised her of the latest date the redemption monies had to be paid.  In her reply the following day, apart from wanting her address changed to The Belcher’s, the defendant found the rest of the draft to be “ok”.

21.  The plaintiff’s continuing intention to repay the 2^nd mortgage is apparent from his email to Ms Wong of 6 May 2004 when he sought clarification as to whether repayment of the 2^nd mortgage and execution of the deed were simultaneous events.

22.  On 14 May 2004, the plaintiff and the defendant met with Ms Wong at the latter’s office.  At that time, Ms Wong was an experienced solicitor of over 20 years’ standing and a partner in a well-known local law firm. 

23.  Ms Wong stated in her affidavit that given the lapse of time, she had no recollection as to whether the need for the defendant to obtain independent legal advice was explored but Ms Wong believed she must have explained the trust deed to the defendant before its execution because she was well aware of the plaintiff’s request that the consequences of the trust deed be explained to the defendant to ensure that she understood the trust deed and it has always been Ms Wong’s practice as a solicitor not to attest the execution of any legal document by any person, including non-‌clients, in her presence without ascertaining that the party understood the document’s legal effect: see §§7 – 8 of Ms Wong’s affidavit.

24.  The trust deed was then executed by the parties in escrow on 14 May 2004 pending the receipt of redemption monies from the plaintiff.

25.  It will be seen that the defendant’s timeframe of the events giving rise to the defence of duress is contradicted by the matters (including contemporaneous documents) referred to above.

26.  It is common ground that between 2003 and until they left Hong Kong in 2005 (with the defendant departing for her PhD programme in London and the plaintiff moving back to Brussels in anticipation of his retirement in 2006), the parties’ relationship was a happy one and they were on good terms.  They did not break up until 2005 when they went their separate ways although it seems she had to depart for the Mainland in 2004 when her employment visa expired.

27.  In the first few months of 2004, several significant events were looming on the horizon for the plaintiff and the defendant: the impending maturity of the 2^nd mortgage; the defendant’s employment situation [2] ; and the plaintiff’s impending retirement.  It would have been natural given the parties’ then relationship for such matters to have been discussed.  

28.  It should be noted that there is no evidence from the defendant in the ensuing 15 years until the present proceedings of any steps taken to challenge the validity of the trust deed and to have it set aside.

29.  In late 2007, the parties had discussions regarding the property. The plaintiff, having retired, wanted to be repaid his share. The available options were either a sale of the property or a buyout by the defendant of the plaintiff’s share. 

30.  A few months later, the defendant learned from the estate agent she had contacted that the trust deed have been registered in the land registry. She was upset and in May 2008 the defendant requested that the trust deed be invalidated and its registration removed from the land registry. The request was made in the context of the defendant repaying the plaintiff his share in the property and was the quid pro quo for the sale of the property.  That did not happen and no action was ever taken to set aside the trust deed.

31.  To the contrary, on several occasions as recently as 2016 [3], the defendant affirmed the effectiveness of the trust deed: see, for example, the defendant’s email dated 13 September 2016 assuring the plaintiff that the defendant would “give [the plaintiff] 26% share as the [deed] declared”; the defendant’s email of 25 September 2016 to the effect that the plaintiff would get his “26% share in the end as stated clearly on the [deed] … The [deed] is written for you and me to legally abide.”

32.  For those reasons, in my view, the defendant’s defence based on duress cannot possibly succeed.

( B)  Undue influence

33.  For a defence based on undue influence, it is incumbent on the defendant to adduce sufficient evidence from which undue influence could be inferred.  The matters the defendant relied on were the following:

  (i)  the plaintiff and the defendant were in a relationship wherein the defendant reposed trust and confidence in the plaintiff;

  (ii)  the defendant executed the trust deed without independent advice or there having been any reminder from Ms Wong;

  (iii)  the defendant executed the trust deed without any explanation by Ms Wong of its effect and nature:

  (iv)  prior to its execution and on 1 June, the plaintiff informed the defendant that it was just ‘a record for the plaintiff’s contribution’ to the property;

  (v)  as a result, the defendant did not know or understand the contents of the trust deed when she executed the same; and

  (vi)  the defendant “was taken a manifest disadvantage” by the plaintiff under the trust deed by making use of the defendant’s trust and confidence reposed in the plaintiff.

34.  As to (i) of the particulars, presumed undue influence does not rise since the relationship of husband and wife does not give rise to a presumption of undue influence: Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515, §60.  The same principle must be applicable in the present case, the parties being an unmarried couple.

35.  On the issue of lack of legal advice, it is contradicted by the evidence of Ms Wong: see §23 above.  Ms Wong’s belief (in §8 of her affidavit) that she did explain the effect of the trust deed to the defendant was based on her recollection after reviewing the contemporaneous emails exchanged with the plaintiff in 2004 requesting that such advice be given to the defendant as well as her invariable practice as a solicitor.  At that time, Ms Wong was already a very experienced practitioner. 

36.  Whilst unable to specifically recall after a lapse of 15 years whether she explored the necessity of obtaining independent legal advice with the defendant, she was aware that the defendant had reviewed the draft deed given the instructions concerning the defendant’s intention to use the address of the property as her address.  As the document was not a difficult document to understand and given the fact that she was dealing with a professor at the University, Ms Wong felt comfortable to witness the execution without insisting on the defendant obtaining independent legal advice.

37.  In light of that evidence, the defendant’s assertion that Ms Wong never explained the trust deed to her is not believable.

38.  As to the defendant’s lack of understanding of the legal effect of the trust deed which she signed, it is not a relevant consideration.  It is no defence to say that she did not understand its contents: see Bank of China (Hong Kong) Ltd v Fung Chin Kan (supra).

39.  In any event, it is incumbent on a party claiming to have been unduly influenced to object within a reasonable time and if he does not, he is deemed to have affirmed the transaction.  In the present case, not only has the defendant made no protest, she has affirmed the legality of the trust deed on various occasions: see §31 above.

( C)  Estoppel by convention

40.  The defendant did not rely on there being a concluded settlement agreement between the parties that was enforceable at law. Rather, it was the defendant’s case that an estoppel by convention arose through the parties acting on an assumed state of facts; that the defendant acted upon it to her detriment in taking out a mortgage on the property in March 2017. The detriment relied on is her being saddled with a  20-year repayment obligation and the part payment of $3 million of the agreed amount to the plaintiff who has wrongfully refused to return the same.

41.  The shared assumption was said to be a settlement agreement reached on 30 December 2016 that in consideration of the plaintiff not pursuing any claim or action against the defendant in respect of the trust deed and relinquishing his right and/or interest in the property, the defendant would pay the plaintiff $4.75 million by way of instalments to be financed by a mortgage loan from a bank in respect of the property.

42.  Whilst the defendant relied on the email exchanges between 27 and 31 December 2016 [4], it is evident that the agreed sum was part of a broader arrangement: email exchanges between 1 and 10 January 2017 [5] show that three legal documents had to be produced, agreed and vetted by their respective lawyers.  That never happened.

43.  Significantly, the defendant stated in no uncertain terms that she would make the loan application (the basis of the alleged detriment suffered) only upon receiving “agreed-by-both drafts” of three documents described in the email from the defendant to the plaintiff dated 18 February 2017 [6]. That did not happen. In those circumstances it is inconceivable for there to have been any shared assumption.

44.  Even if a settlement agreement had been reached, this defence would have been no more than an ill-disguised attempt at enforcing an agreement that is invalid and legally unenforceable (for contravening of sections 3 and 5 ofthe Conveyancing and Property Ordinance, Cap 219) through the back door. . .

45.  It is clear all that estoppel cannot be used in effect to validate an agreement which by statute would otherwise be invalid or unenforceable: see First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd(2012) 15 HKCFAR 569 at §85 where Lord Collins cited the following passage from Lord Walker’s speech in Actionstrength Ltd v International Glass Engineering IN.GL.EN SpA [2003] 2 AC 541 (a case concerning an alleged estoppel by representation in relation to guarantee which was unenforceable because of non-compliance with section 4 of the Statute of Frauds 1677):

“ To treat the very same facts as creating as an unenforceable oral contract and as amounting to a representation (enforceable as soon as relied on) that the contract would be enforceable, despite section 4 … would be to subvert the whole force of the section”.

46.  The Hong Kong courts have adopted a similar approach: see Hyundai Engineering & Construction Co Ltd v Vigour Ltd [2004] 3 HKLRD 1 at §114.

47.  In my view, the defence based on estoppel by convention is devoid of merit.

( D)  Other defences

48.  The other defences raised by the defendant were equally hopeless and can be dealt with very briefly.

  (1)  Equitable relief and laches

49.  This defence was premised the basis that the relief the plaintiff is seeking is equitable relief.  It was said that such relief should not be granted where there has been inordinate delay on the plaintiff’s part in allowing 13 years [7]to elapse before taking action and, in any case, summary judgment is entirely inappropriate since the question whether the court should grant equitable relief might depend on fact-sensitive issues.

50.  Turning to the summons in the present case, paragraph 1 seeks a declaration.  Relief by way of declaration is not equitable relief: see Chapman v Michaelson[1909] 1 Ch 238 at 242; applied in Chu Tsan Leung v Leung Mee Ling Amy[2018] 5 HKLRD L1 at §§53 – 54.

51.  Paragraphs 2 – 5 concern relief under the Partition Ordinance which is not equitable relief.

52.  While paragraphs 6 – 8 relate to equitable relief by way of an account, prejudice is an essential element for a defence based on the doctrine of laches.  The defendant must show that the lapse of time has given rise to circumstances that now mean it would be inequitable to deny relief to the defendant: see Snell’s Equity (33^rd edition) §5-011. She has not done so.

53.  It will have become apparent that equitable relief and laches offer no assistance to the defendant.

  (2)  Limitation

54.  This defence was raised in relation to the plaintiff’s claim of his share of the rents received.  However, no limitation period applies to the recovery by a beneficiary of trust property in the possession of the trustee: see §20(1)(b) of the Limitation Ordinance, Cap 347. It is simply not a viable defence.

ORDER

55.  For the reasons stated above, summary judgment was granted in the plaintiff’s favour.  Accordingly, the order is to be in terms of §§1 to 9 (inclusive) of the summons.

56.  There is to be an order nisi of costs of this application and of the action in favour of the plaintiff, such costs to be summarily assessed and paid forthwith with certificate for counsel.  Directions for summary assessment will be given to the parties in due course.