CHOW SIU YING v. CHOW FU KEUNG

HCMP 1568/2015
& HCA 2355 of 2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1568 OF 2015

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J U D G M E N T

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1.  This is a consolidated action relating to the ownership of a property known as Flat C, 28/F, Block 1, Fu Ning Garden, 25 Po Ning Road, Tseung Kwan O, Sai Kung in the New Territories.

2.  The defendant in the principal action is the registered owner of the flat.  He is being sued by his sister who claims that he holds the property on a constructive trust of which she is the beneficiary.

3.  As an Intervener in this dispute is a finance house, Yvonne Credit Service Co Ltd, who in its own right, has a judgment against the defendant for a sum in excess of HK$1.5 million, by virtue of a loan made by it to the defendant in May 2015, which was subject to an interest rate of 30% per annum, potentially a somewhat crippling burden in itself.

4.  This particular transaction calls for close examination even though it has no bearing on the issues and merits of this litigation involving itself, and the sister and brother as plaintiff and defendant in the principal action.

5.  When the Intervener advanced the loan of HK$1.5 million (with an annual interest rate of 30%) it well knew that the defendant had already borrowed HK$900,000 from another money lender (Yau Sheng Finance) also at a punitive rate of interest (31.2% per annum) in September 2014. That earlier loan was also charged on the property which is the subject of this action.  The loan was repayable over 12 months and the repayment schedule provided that the last repayment instatement would be made on 1 October 2015.  The defendant brother, the borrower under both loans, had, according to the Intervener, produced the earlier loan agreement, on which he had, to the knowledge of the Intervener (Yvonne Credit) defaulted.

6.  Nonetheless despite this unpromising background, Yvonne Credit Service, went ahead and a loan agreement was signed on 27 May 2015, advancing the equivalent of just less than twice the amount of the existing loan with Yau Sheng Finance, upon which he had already defaulted to a significant extent.  This second loan was to be repaid within six months.  There was no security for the loan.  The repayment instalments were fixed at $37,500 per month.

7.  The borrower had no income and had a number of previous convictions which had themselves resulted in periods of imprisonment.

8.  I was informed by counsel for this money-lender, the Intervener, that one of the referees or possibly the only referee named by the borrower, (it is not clear which), was the younger of his two sisters who is not a party to this action.  The lender made no contact with the named sister, and she testified that she had no knowledge of being named at a referee for some time.

9.  The plaintiff, the elder sister, became aware of the original loan by the Yau Sheng Finance, and fearing that there might have been other loans taken out by her brother, astutely decided to take out proceedings against her brother for a declaration that the property which he had used as a security for the original loan, in fact belonged to her by virtue of a trust arising out of the fact that she had effectively purchased it.

10.  On 26 June 2015 an Originating Summons was issued on her behalf, and it was registered in the Lands Registry against the property to preserve it from any money-lender who sought judgment against the property owner (her brother) and endeavored to enforce any such judgment against the property.

11.  The Intervener commenced its action against the borrower (the defendant) by Writ on 13 October 2015. It obtained a default judgment on 21 December 2015 for the loan advanced, plus interest, and then a Charging Order nisi against the property to secure the amount of the judgment debt.  This was registered against the property in the Land Registry on 4 February 2016.

12.  The two actions were consolidated thereafter by me (15 June 2016).

13.  Before I turn to how this case developed from this background, it is worth commenting on the high risk approach of the Intervener (the money-lender) to its loan transaction with the defendant.  I suspect that no reputable, respectable and sensible finance house, were it a publicly listed company specialising in this sort of trade, would have advanced such a loan in the circumstances of this defendant as they were clearly known to be. It was so obviously fraught with risk.

14.  The Intervener produced no evidence to show that the defendant was in receipt of any income, nor that he even had a job.  No bank account record was obtained to show any financial picture.  These omissions, clear indications of neglect in the pursuit of such money lending trade, have some significance in the context of the Intervener’s belated application in the course of this trial, for discovery of certain bank accounts.

15.  If the Intervener had sought any equitable relief it would soon have learned that equity does not did the dilatory, the negligent, or the inefficient risk-taker.

16.  The issues are clear cut.  Is the sister the true owner of this property, the beneficial owner to adhere to legal phraseology, by virtue of having made all the payments necessary to acquire the property, or did she make those payments as a gift or gifts to the brother and/or father, and/or are she and her brother now colluding by an exercise in litigation, to defeat the brother’s creditor by contending that he holds the title to the property on trust for her?

The acquisition of the property

17.  In 1989 the father of the family, now deceased who was a public housing tenant applied by way of a Green Form under the Home Ownership Scheme, to purchase the property in question on behalf of the family.

18.  They were successful and the property was conveyed into the names of the father, who was then in his 70s, and the brother (defendant) who was in his early twenties.  It was then to become the family home.

19.  The plaintiff was subjected to what I regret to say was some pointless cross-examination about her use of a term in her statement about “traditional thinking preferring sons to daughters” which was slightly varied in another statement to “traditional thinking that daughters would get married and leave the family and therefore preferring sons to daughters, the defendant (brother) was added as a purchaser jointly with my father”.  It was quite clear what sort of conventional thinking, then, she was referring to.

20.  The father had been the tenant of the public housing unit in Lam Tin where they all lived as a family, since 1966.  It was entirely logical that the application should be made by him; probably the application had to be made by him.

21.  The question then arose, should there be a joint tenant with him?  He was not young and it may even have been suggested by someone at the Home Ownership Centre that there should be a joint tenant with him.  That was sensible thinking.  The upshot was that it was decided to add the brother as the joint owner with the father but the obvious implication was that there was to be the home for all of them.

The financing of the purchase

22.  The initial deposit, approximately HK$21,500, was to be obtained by a loan to the father, brother and both sisters ie all four were to be liable as borrowers. That was obtained.  The defendant was to make the repayments.

23.  The balance of the purchase price was obtained by a mortgage in the sum of $408,690 from the Standard Chartered Bank, with the father and brother as the mortgagors being the joint legal owners of the property.  They then would be liable for the necessary repayments.

24.  As far as the loan was concerned the repayment system was set up for the brother to make the repayments.  According to the plaintiff he defaulted and she rescued the position by making the payments out of her own bank account into the defendant’s account and continued to do so until the loan was paid off in February 1991.

25.  The mortgage was similarly to be paid off by the defendant but that did not happen and it is unarguable that the plaintiff, the sister, made the repayments through the brother’s bank account and later, through the father’s bank account, until that too was discharged in June 2010.

26.  From the picture that emerged only the elder sister had the wherewithal to meet these liabilities viz the loan repayments and the mortgage repayments.  The father was clearly beyond the age when he could command a salary; the brother was feckless, committing a series of criminal offences, gradually becoming addicted to drugs, and serving longer prison sentences.

27.  His most recent appearance in court was on30 June 2016, before Zervos, J, and I have been able to read the transcript of the sentencing. He was sent to prison for a total of 14 years and 8 months for an offence of trafficking in dangerous drugs — 950 grams of “ice” [Methamphetamine hydrochloride].  His record showed that he had been unemployed since about 1987.

The opening of this trial

28.  At the outset I asked counsel to try and agree the dates and amounts of payments made by the plaintiff to accounts of the father and brother in respect of loan and mortgage liabilities. There were many sheets of bank accounts and this was a necessary and reasonable method of crystallising the payments made by the plaintiff and their destinations, and the issues.

29.  I set out following the four relevant agreed facts:

(1)   Between 12 June 1992 and 6 March 1999 the plaintiff paid sums totaling a minimum of HK$200,000 and a maximum of HK$250,000 to the defendant brother’s account no. 0030120221281 and the father’s account no. 366-2-012805-0, both at the Standard Chartered Bank.

(2)   Between 10 April 1999 and 14 June 2010 the plaintiff paid a total of HK$540,000 into the said father’s account.

(3)   Repayment of the mortgage was made through the defendant brother’s said account between July 1990 and 23 November 1998 and then through the father’s said account from 23 November 1998 until the mortgage was fully discharged on 14 June 2010.

(4)   Between July 1992 and March 2010 a total of $673,430.25 was paid as mortgage repayments to Standard Chartered Bank.

30.  An additional agreed fact was the assessed current value of the property at between HK$3 million and HK$4 million, as a minimum, before any land premium element was added.  I do not need to consider this further.

31.  When Mr Herman Poon, counsel for the plaintiff opened his case he spent some time justifiably and helpfully, identifying and tracing the various payments made by the plaintiff to the father and the brother’s accounts to discharge the loan and mortgage.  It was a very effective exercise and made the picture clear even though, through the lapse of time, some documents dealing with initial loan payments could not be obtained.

32.  Before Mr Poon had finished, and no doubt because of the picture emerging, Mr Matthew Ho for the Intervener, made an application to adjourn the trial.  He gave two reasons.  He said that he had been unable to obtain any instructions from the Executive Officer of the Intervener, and that he wanted further discovery of the bank accounts of the father and the defendant.

33.  I had some sympathy with him in relation to the first situation so I allowed him some periods of time which amounted to a few hours.

34.  As for the further discovery matter I considered that there was no justification for it. He indicated that he required two weeks or so to carry out the exercise.  I disallowed this application.  It had come far too late.  It would make a nonsense of any case management process, and the course had been open to the Intervener if so advised, a month or so earlier?  But it was a pointless exercise in any event because the Intervener, through its counsel, had agreed specifically the nature, amount and timing of payments made by the plaintiff into the father’s and brother’s accounts, and the application of those payments to the mortgage in particular.

35.  Mr Ho then asked me for leave to appeal to the Court of Appeal against my decision. I refused that also.  In due course he was able to tell me that he did not intend to pursue any appeal, a wise and practical course.

The plaintiff’s evidence

36.  I say at the outset that I accept her evidence entirely. It was presented sensibly and credibly.  The story as it unfolded was logical.  She explained how her brother became the joint owner with her father, a matter upon which I have touched already, and given the context of the time, it was entirely understandable but it was on the basis that he would be responsible for the loan and mortgage repayments.  In the event he failed completely to meet that expectation and the plaintiff from the start, took over that financial burden which endured for 20 years.  She was the only real earner in the family, and the payments were for many years a substantial part of her available income.

37.  It was of course the family home and therefore she, not the son of the family, assumed the burden of keeping a roof over their heads.  Over that period of time the brother fell foul of the law and began the downward slippery journey to his present helpless, virtually hopeless position.

38.  There was clear evidence that on some occasions he withdrew money from the account into which she had paid money for the instalments, leaving a shortfall in the account and the mortgage subject to default.  As a consequence she had to rescue the position and pay additional sums to restore the mortgage account.  I accept her evidence on this as well as the inferences properly to be drawn.

39.  In 1990 before the loan was paid off and after the brother had defaulted in the payments he had undertaken to make, both the plaintiff and her brother attended a solicitor’s office with a view to the brother assigning his joint interest to her.  Unfortunately that was not effected.  This was at the time that the mortgage was obtained in the names of the joint owners (fathers and son/brother).  The defendant was not then living at home.  The extra expenses involved in effecting an assignment of the brother’s legal interest, and in the elder sister obtaining the mortgage in her name, appear to have been the factor which deterred this change.  Only the sister had any finances to bring this about and she had already had the burden of the initial loan and the ancillary expenses of the main transaction, together with her younger sister.

40.  In 1998 she arranged with the Standard Chartered Bank that the account from which mortgage repayments were to be made was changed from her brother’s account to that of her father.  Throughout these loan and mortgage years as I call them, the defendant did not reside in the property save for about 12 months in 1993/1994.

41.  It was in 1998 also that a second attempt was made to transfer the legal ownership from the brother (and the father).  The document, an application form to the Housing Authority to transfer the ownership of the property to the plaintiff and her sister, is dated 25 November 1998. The timing, coincided with the change to the father’s account dealing with the mortgage repayments.  The contents of that document are revealing.  It was signed by both the father and the brother as well as the sisters.

42.  The reasons for the application by the father are as follows:

“I, Chow Tat Kwong, due to old age (80 years this year) am willing to transfer the ownership to my two daughters (plaintiff and her sister) who were responsible for mortgage repayment.”

43.  That given in respect of the brother was:

“The other owner, Chow Fu Keung, after signing the sale and purchase agreement in June 1990, did not perform his duties to make any mortgage repayment or to support the family. The relevant first instalment and mortgage repayments were made entirely by his two elder sisters (named). Therefore I am willing to transfer the ownership to the two of them.”

44.  For some reason, relating to the alleged failure to attach certain supporting documents, the application lapsed.  Even though the application lapsed, the inference to be drawn was unequivocally that both the joint owners for different reasons, but with a common acknowledgement that the sisters/daughters had at all times been responsible for the payments in respect of the acquisition of the property, were prepared to assign their legal joint interests in recognition of the daughters’/sisters’ exclusive contribution.

45.  In 2007 another application for a transfer of the legal interest of the father and brother was made.  This time the contents of the form submitted to the Housing Authority on 8 March 2007, are slightly different from the one of some eight years earlier.

46.  The application form referred to the father as applying for change of ownership due to old age — he was now about 88/89 years old.  There was no reference to the brother or any other reason for the application.

47.  It was signed by the father but may not have been signed by the brother initially as I will indicate shortly. The proposed sole assignee was the plaintiff.

48.  The Housing Authority raised two queries.  One was that “the owner’s signature is inconsistent with that on our records” without identifying which of the owners was referred to, and the other was that “Mr Chow Fu Keung please sign on the place marked “X” on the returned application form according to the sample attached”.  There is a signature for Chow Fu Keung on the form in the correct place with an “X” above it to its right.  It is unclear whether the two comments were linked.  In the event the defendant signed again, and as assignee, and the form was accepted.  It did not proceed this time either, because of the plaintiff’s concern as to the expenses.

49.  The mortgage was paid off in 2010 the title deeds were obtained by the younger sister and handed to the elder sister in 2010.  She had obtained the brother’s authorisation so that they were obtained from the bank.

50.  In 2014 both parents died.  They had been living in sheltered accommodation by reason of their age since 2006.  It appears that after the mortgage was paid off the plaintiff continued to pay $4,000 monthly (the amount of the old mortgage repayment instalment) into her father’s account.

51.  An attempt was made on behalf of the Intervener to suggest (or so it appeared) that the plaintiff had all along been making these payments as gifts first to the brother and later to the father.  There is no logic in this and the plaintiff’s explanation for the continuation of the payments to the father until he died, is entirely reasonable.  The challenge to her on this score is irrelevant.

52.  The plaintiff’s sister gave limited evidence but it confirmed that of her elder sister and she made no claim to have made any of the loan or mortgage repayments herself, though she had, as her sister had testified, made some contributions in the form of paying legal costs and ancillary expenses.  Most relevantly, she confirmed that neither father nor brother was regarded as a beneficiary of the property despite their being registered as the joint owners.

The defendant’s stance

53.  The brother has been in custody for some time now and it was arranged that there should be a production order to ensure his attendance for the trial.

54.  Although he had filed no defence, it was important in view of the Intervener’s allegation that the plaintiff sister and her brother had simply connived in order to defeat the Intervener’s claim of entitlement to register a charge against the property so as to recover the judgment sum from the value of the property and so it was essential, to find out from him directly what was his intention.

55.  He confirmed that he did not want to defend his sister’s claim against him, that he admitted that she was entitled to an absolute beneficial interest by virtue of her payments and that he did not want to give evidence in this trial.  It followed that he admitted that all the payments made were made by her using his and their father’s accounts.

The Intervener’s case

56.  There was no challenge to the judgment obtained by it against the defendant and the fact of the charging order nisi.

57.  Although of itself of no significant weight in the dispute, the finance house at the time of the loan agreement with the defendant, well knew that he was already significantly in debt to another money-lender, as I have identified earlier.  It did not take up contact with any referee.  It appears to have made no effort to ascertain any remunerative employment of the defendant.  There is no evidence to suggest any such inquiry — and no inquiry as to any bank account or the state thereof.  It seems simply to have relied upon the defendant’s registered ownership of the property.  It did nothing to satisfy itself that the defendant was in any position to pay the monthly instalments.  At best, its approach was one of indifference; at worst, it was clear negligence.

58.  Mr Ho, for the intervener, has done his best in cross-examination of the plaintiff, in particular, to try and elicit some basis for his argument that all her payments over the 20-year period were gifts to father and brother.  The plaintiff denied all such suggestions.  There is no principle or presumption which aided Mr Ho in his endeavour.

Were the payments gifts to father and/or brother?

59.  The answer is categorically, no!  I am satisfied on all the evidence that the joint owners regarded the payments, exclusively by the daughter/sister, as essentially being the basis of her beneficial interest.  The three occasions on which there were efforts to transfer the legal interest of one and/or both joint owners to her (and her sister on one occasion) are conclusive evidence of this, quite apart from the proper inference to be drawn from the two decades’ long history of the loan and mortgage repayments.  There was, at the least, a tacit understanding that whoever made those payments would acquire a beneficial interest commensurate with the extent of those payments.

60.  Expressed in layman’s language, a common sense, fair and equitable approach has to be applied.

61.  Where a property is bought by means of a loan and/or legal mortgage, and the legal, registered owners make no contribution to that purchase, even failing to make initial payments and on occasions diminishing the mortgage payments made by the person who actually makes all the requisite payments, to the extent that that the payer has to make up the shortfall, it is both inequitable and irrational to presume that the payments made were made by way of gift.  This is emphasised, if needs be, when there is clear and undisputed evidence that the non-paying registered owner(s) were on three occasions prepared to assign the title to the exclusive payer thereby acknowledging expressly the fact that he/they had made no contribution whatsoever to the purchase of the property — even though for technical or economic reasons those attempted assignments did not proceed.

Was a trust established?

62.  Section 17B of the Housing Ordinance (Cap 283) formerly restricted alienation of rights and interests in House Ownership flats so that resulting and constructive trusts could not arise in respect of the property.  No doubt there were some good reasons for such restriction but a blanket application of this would or could cause inequitable situations.

63.  Happily the Court of Final Appeal’s decision in Cheuk Shu Yin v Yip So Wan FACV 9/2011 consigned the application of Section 17B to the dust of history in certain respects, in holding that it did not prevent the operation of the principles of resulting and constructive trusts.

64.  Lord Hoffmann (at §21) said:

“… the ancient rule of equity is that normally, in the absence of evidence to the contrary, the law will presume a resulting trust, that is to say, the acquisition of a beneficial interest in the property by the person providing all or part of the purchase price, in proportion to his contribution. Or the parties may have had a common intention that the person providing the funds was to have a beneficial interest and may even have executed a deed of trust saying what that interest should be.”

And at §36:

“… The reason why the creation of a beneficial interest does not come within s 17B is not because the trust arises by operation of law rather than by an intentional act but because the creation of an equitable interest is not in my opinion an alienation of the land assigned to the purchaser. It is the creation of a new interest in that land.”

I have no doubt that the three efforts to assign the property to the plaintiff, which foundered for extrinsic reasons, are powerful evidence, particularly that in 1990 and 1998, of the acknowledgment of the plaintiff’s beneficial interest and that the property was being held on trust for her though the word “trust” was not used.  The common sense of the language in the 1998 application is sufficient for the purpose of acknowledging the beneficial interest and therefore the trust which protected it.  Anything less would be inequitable.  The intention of the parties is clear from all three steps taken to implement an assignment — in 1990, 1998 and 2007.

65.  In Stack v Dowden [2007] 2 AC 432 at §138, Lord Neuberger said:

The fact that ownership of the beneficial interest in a home is determined at the date of acquisition does not mean that it cannot alter thereafter …… It seems to me that ‘compelling evidence ……. is required before one can infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership is held.  Such evidence would normally involve discussions, statements or actions, subsequent to the acquisition, from which an agreement or common understanding as to such a change can properly be inferred’.”

66.  The resulting trust, as I find it to be, is not displaced by any evidence.  Nor in my judgment does any presumption of gift or advancement apply.  There is not the necessary appropriate relationship between the parties and the same efforts to achieve an assignment to which I have just referred contradict such a presumption — if it were to arise.

67.  The sentence of Lady Hale in Stack v Dowden (at §60) embraces the evidence in this case and my conclusions:

“The search is to ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it.” [my emphasis]

It is not necessary for me to reiterate the evidence to which I have referred earlier or my findings on it.  I find it to be “compelling evidence”.

68.  I am satisfied that there was a resulting or constructive trust and that the plaintiff is entitled to the property for which she has paid in its entirety.  The evidence also supports, without detraction, a common intention trust, whatever term it is sought to use.

Conclusion

69.  I make a declaration that the plaintiff, having made all the payments necessary for the purchase, is the beneficial owner of Flat C, 28/F, Block 1, Fu Ning Garden, 25 Po Ning Road, Tseung Kwan O, Sai Kung, in the New Territories and, at present, the registered owner, the defendant, Chow Fu Keung, holds the said property on trust for her sole benefit.

70.  I make an order that the defendant do execute and deliver an assignment and conveyance of the property to the plaintiff within 28 days failing which the Registrar of the High Court of Hong Kong SAR, be empowered to execute and deliver the said assignment and conveyance in his stead, and register the same in the Land Registry.

71.  The Charging Order nisi dated 18 January 2016 obtained by the Intervener in the High Court be discharged forthwith.

72.  The Registration of the Charging Order entered in the Land Registry under memorial no. 16020400450018 be vacated immediately upon the registration of the aforesaid assignment.

73.  The defendant do pay the plaintiff’s costs of her action up to the date of the application of Yvonne Credit Service Co Ltd to Intervene, being 3 June 2016.

74.  The Intervener do pay the costs of the plaintiff’s action of this trial from and including the 3 June 2016 being the date on which the Intervener made its application to include all the costs thrown away by virtue of the adjournments sought by the counsel for the Intervener, the application for further discovery and the application for leave to appeal against my decision.

75.  The Intervener has resisted the form of those costs provisions but I find the arguments and alternative proposal to be without merit.  There will be no order for the defendant to pay any costs of the Intervener because the latter, had it applied common sense, a minimal degree of prudence, and proper inquiry would not have made the loan in the first place.  In any event in view of the defendant’s circumstances, any order for costs, and I make none, would be an empty one, as it is for the plaintiff.

76.  Without the intervention by Yvonne Credit Service Co Ltd the plaintiff would quite simply have obtained judgment against her brother in default with minimal costs. However the role played by the Intervener has resulted in all the costs incurred since it made its application.