KAN KAI MING v. KAN KAI CHIU

HCA 576/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 576 OF 2014

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J U D G M E N T

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1.  This is one of those unhappy disputes between members of the same family concerning money and/or assets. Not a rarity these days as greed surfaces readily in an acquisitive society.

2.  In this case one brother is pitted against another and mother and father and one sister have been drawn in, willy-nilly, on one side or the other.

3.  The plaintiff’s claim is that a property in Hong Kong to which the defendant, his younger brother, has the legal registered title, is held on trust for him having been purchased out of funds supplied by the plaintiff to the mother before he left Hong Kong in 1996 for Canada, where he resided until approximately 2011.

4.  The basis of this claim is that he had accumulated somewhere between HK$3 – 4 million by the time he decided that he would go to Canada, with his wife and young daughter, before the handover of sovereignty in 1997, and wanted some of his money to be available for investment in property in Hong Kong.  Some of his capital he was to take with him to Canada for his new life.

5.  In view of the lapse of time between this significant career decision and the commencement of these proceedings in 2014 — a gap of almost twenty years — it is not surprising that few documents are available to show a detailed picture of his financial status in the mid‑1990’s.

6.  It is also important to remember that in a family so much is said and done and taken on trust that the members involved do not generally prepare formal documents to evidence financial arrangements with a view to needing them in future conflicts.  Tradition has it that a person’s word is his or her bond, and that the mere suggestion of a formal document to record an agreement or understanding or promise would itself be indicative of a lack of trust.  However modern experience of a more selfish world suggests nowadays that in everyone’s interests there should be a formal record of an agreement between members of a family, particularly where money and assets are concerned.  Sadly tradition honour and mutual trust have been shown to be ephemeral principles and need to give way to written reasons of assurance.

7.  As a consequence of his career decision the plaintiff says that he transferred approximately HK$2.4 million to his mother, Madam Leung Yau Ling, upon the clear understanding that it was his money, and that she held it on trust for him — and to his discretion, particularly with regard to investment in property in Hong Kong.

8.  This is then the crucial and prime issue.  Did he transfer such a sum of money to her on that basis?

9.  A starting point for the resolution of this question would in the normal course of events be an examination of his financial net worth in 1995/96.  But that is two decades ago.  The only documentary evidence of his earning capacity are a few Inland Revenue statements and what are really only two references from his employers touching upon his value as an employee with a single mention of his salary in 1990. None of these documents speak directly to his net worth financially.  The bank or banks with whom he had accounts apparently do not keep records beyond 7 years and so there is no picture of his financial status prior to 1996.

10.  The very limited documents to which I had referred were disclosed by the plaintiff’s solicitors in or about March of this year — two months or so ago.

11.  Mr Hui, for the defendant, complained about this late disclosure.  It is true that they came late but a material issue — Was the plaintiff in a position financially to transfer HK$2.4 million to his mother? — has been known to the defendant since the commencement of this action.  In view of that — and the fact that the plaintiff’s statement gave no detail of income, assets and expenditure — the defence could have used the neglected tactic of Interrogatories and/or Notice to Produce certain documents eg bank statements, tax returns, long ago.  The failure to do so does not now entitle them to complain about belated further discovery, or oral evidence not covered by a formal statement of income.  They should have conducted this litigation with some understanding of the issues involved.

12.  However the defence itself sought leave to adduce two documents, one of which is material.  It purports to be a “List of Instructions” drawn up by the defendant and signed by the mother relating to the distribution of the proceeds of sale of the Lung Poon property.  The Lung Poon property, as I will deal with later, was purchased in 2005, in the name of the defendant, and has not been sold, hence this action.  The purported “List of Instructions” bears the date 6 November 2012, four and a half years ago.  There is no satisfactory explanation for its late disclosure.  The second document is said to be a letter from the father to the Legal Aid Department complaining about the plaintiff and making a catalogue of allegations against his eldest son.  Leave was also sought to adduce further statements by the defendant and the father.

13.  The correspondence between the father and the Legal Aid Department turned out to be immaterial in my judgment.

14.  On the back of these documents and supplemental statements the defence sought to vacate the trial.  I refused to do so but allowed an adjournment until the following morning for certified translations to be made ordering the defendant to pay the plaintiff’s costs thrown away.  By the following day the certified translations and clarifying correspondence were available.  The trial therefore proceeded.

15.  The plaintiff was unable to provide any documentary evidence which directly supported his claim that in 1995/96 he had accumulated approximately HK$4 million over a period of about 8 or 9 years. He had over two companies he described as profitable.  An Inland Revenue return of 1993/94 showed that to be so.  Additionally he had occupations where his ability was highly regarded.  In 1995 he sold his home in Hong Kong for a net profit of about HK$1.45 million.

16.  It is quite reasonable even on this limited information for him to have accumulated over an 8 years’ period a sum in excess of HK$2 million at an average saving of HK$250,000 per year.  To that should be added the net proceeds from the sale of his home in Hong Kong.  So the question is: did he?  I now turn to consider the events covering the purchase and sale of properties following his departure for Canada in the spring of 1996.  Those events are largely agreed between the parties so they make an interesting backdrop to the period of his absence from Hong Kong.

The Tseung Kwan O property

17.  In August 1996 he decided to purchase this property as an investment.  The price was HK$3,876,000.  Unfortunately it did not turn out to be a profitable one but that matters not in this context.

18.  It was purchased in the name of his sister, then a university student.  Payments were made into and out of her account but in view of her career stage the monies must have come into her account from another source.  The plaintiff’s and the mother’s evidence is that it came from the money which the plaintiff had entrusted to the mother.

19.  A mortgage was taken out at some stage by the sister in respect of HK$1,600,000 with the Bank of East Asia.  There were at least three changes of mortgagee.  She was the mortgagor and made the payments under the agreement throughout.  That means the balance of the purchase price was of the order of HK$2.3 million and the stage payments for the purchase were made out of her accounts.  The conveyance was completed in or about May 1997. She held the registered title in her own name.  The plaintiff’s case is that she agreed to hold it on trust for him although no formal trust was declared.

20.  At some stage she began to let it to what appears to be a succession of tenants.  The rental received was paid into her account.  I have seen a bank passbook, agreed to be hers, in which sums are regularly deposited, said to be rental, and regularly paid out as mortgage repayments (the figures clearly tally) and as management fees.  The rental figure covers those outgoings.  Unfortunately there were problems with one particular tenant leading to proceedings in the Lands Tribunal but this aspect is not material to this case.

21.  In early 2005, about 8 years later, it was decided to sell this property and purchase a replacement.  The sale price was HK$2,880,000, representing a loss.

22.  The deposit of HK$100,000 and other interim payments were paid into the sister’s bank account at the Asia Commercial Bank Ltd, as vendor of the property.  The mortgage was discharged out of the proceeds of sale, and the balance of just over HK$1,240,000 was paid into the sister’s account at the same bank.  Completion was on 18 February 2005.

The Lung Poon property

23.  It was decided to buy another property (known as Lung Poon Court) at a much lower price — HK$1,338,000.  The initial deposit for this purchase — HK$50,000 — was paid out of the sister’s bank account.  She signed the Provisional Sale & Purchase Agreement.  However the defendant signed the formal Sale & Purchase Agreement as purchaser.  All the monies for the completion of this purchase were paid out of the sister’s Asia Commercial Bank account.

24.  The sister and her friend then occupied this new property although it was registered formally in the ownership of the defendant.

25.  The plaintiff’s evidence is that the sister was not willing to take on the responsibility of the ownership, and care of this flat as she had found the previous experience both tiring and stressful.  He therefore asked his brother to take on the title and responsibility and hold it on trust for him, and he agreed.  It is worth noting at this stage that the brother had not paid a single dollar towards the purchase price and incidental cost of this property.

The plaintiff’s return from Canada

26.  In April 2011 the plaintiff returned from Canada to live in Hong Kong.  He took possession of the title deeds to the property from the mother, not the defendant and the sister continued to live in the property.  He went to live with his parents.  His private life had unhappily taken a downturn.

27.  The defendant claims that he is the de facto, de jure owner of the property, by reason of, and this is how it is pleaded in his defence, paragraph 13:

“ The parties’ mother told the defendant that she proposed to purchase a property for him as a gift and the defendant agreed to each proposal.”

and paragraph 22:

“…. The assignment of the … property to the defendant … was the completion of the gift, of property … proposed by the parties’ mother …”

28.  In his initial statement he said:

“ I verily believe that the Lung Poon Court property was a gift from my mother to me.” (§17)

29.  Regarding the title deeds he said:

“ I do not care much about this because I know the title deeds are in my mother’s possession and there is no reason why I have to ask for the return of the same from my mother.” (§19)

30.  In fact at that time, March 2016, the title deeds were in the possession of the plaintiff and had been for some time.

31.  In his supplemental statement his version varied again (§4):

“ I believe my mother purchased the property for me intending it to be both a gift, and that I would look after the same for her ….”

“ … if I were to hold the Lung Poon Court property, she could still have some say, and she could tell me to sell and realise the property in the future if necessary.”

“ I believe she did not have in her mind nor did she intend that the property … would be held on trust, but the idea is similar to one of a trust.”

The mother’s evidence

32.  Madam Leung Yau Ling is now 81 years of age.  At the time of the material alleged transactions she was 60 years of age.  Thus she was asked to cast back in her memory for two decades.  In view of the amount involved — the alleged transfer of approximately HK$2.4 million by way of bank transfers and transfers of tranches of cash — one would expect even a failing memory to recall something of that nature.  She says she does indeed recall such a transfer and its purposes — investment in property.  Cash transfers of the order of HK$800,000 / 900,000 were kept by her under her bed — an old fashioned practice from the days when trust in institutions was not high — and would of course enable swift investment action in a society which was accustomed to high-level cash transactions. I accept her evidence.  She herself had been successful in subsequent Stock Exchange speculations enabling her to make substantial loans and gifts to her daughters.

33.  When the matter of the Tseung Kwan O property arose she was not keen to become the titular owner of the property herself, in view of her age, and so her young daughter became the legal owner of the property, took the mortgage in her name, and was responsible for letting the property and getting in the rent and paying the outgoings.  I am satisfied that this is amply proved on credible oral evidence and documentary support.  In fact the provider of the mortgage was changed at least three times with the daughter (sister of the plaintiff) remaining liable under the agreements.

34.  Madam Leung was cross-examined up hill and down dale but would not be moved from her contentions.  She was entrusted with the monies by her elder son.  The Tseung Kwan O property was purchased with those monies in the name of the daughter, but on trust for her son, the daughter being younger than herself and more able, at that stage, of her life to deal with the money account of it.  She was more likely to obtain a mortgage.  I have made due allowance for the cultural tenancy to accede to and favour the interests and influence of the eldest son but I am reinforced in my favourable judgment of her credibility by a comparison with the evidence and impression of her younger son who displayed to my mind a devious tendency.  I will explain this in due course.

35.  When the Tseung Kwan O property was sold at a loss and the Lung Poon Court property bought the defendant replaced the daughter as the owner of the legal title.  But the daughter dealt with the mechanics of sale and purchase and all was dealt with through her bank accounts.  This is essentially agreed, so I do not need to deal with the minutiae of the transaction.  The mother was clear that the defendant agreed to hold as trustee (for his elder brother).  In the event he never lived in the flat, visited it only once and that was before its purchase, and had no involvement in its management.

36.  When confronted with the “List of Instructions” bearing date 6 November 2012 prepared by the defendant, obviously after the plaintiff’s return, she said she was persuaded by him to sign it — her vision was poor, she was barely literate, and he kept on nagging so she signed it.  There was no question in her mind of selling Lung Poon Court which was the plaintiff’s in any event.  There was no question of Lung Poon Court being bought for the defendant on account of his forthcoming marriage.  I am satisfied that the odd aspects of the circumstances surrounding the appearance of this document illustrate a devious mind behind it.  I shall come to the defendant’s evidence shortly.  I believe Madam Leung’s evidence and that it is an honest and true account of her involvement.

The defence case

37.  Prior to the calling of any defence evidence I indicated to Mr Tam, second counsel for the defence, that he was at liberty to adduce the evidence contained in the supplemental statements of the defendant and his father, submitted at the start of the trial, but that the evidence of the father’s written communications with the Legal Aid Department was not relevant and therefore inadmissible.  He was also at liberty to adduce the so‑called “List of Instructions” on which he had cross-examined Madam Leung.  The affirmation of the defendant’s solicitor was mere hearsay and opinion and was not admissible.  It was also inappropriate for such affirmation to be sworn and submitted to the court.

The evidence of the defendant

38.  He is the younger son of the family and is a researcher at the City University.  His involvement in matters does not commence until the sale of Tseung Kwan O property and its replacement in 2005 by the purchase of Lung Poon Court flat.

39.  I have already dealt with his allegations in respect of the purpose of the purchase of this property as pleaded by him in his Amended Defence and statements and the variations and inconsistencies apparent.

40.  He knew that the Lung Poon flat had been bought with the monies from the sale of Tseung Kwan O property.  He agreed that he had never held the title deeds but that his mother had them, that he never occupied the flat and that his sister handled all the mechanics of the sale and purchase, and then occupied the flat and has done so to date.

41.  His oral evidence appeared on the face of it to confirm his understanding that his mother gave him the Lung Poon Court property.  He went so far as to say that she “expressly said it was for him”, something which had not appeared in any document from him hitherto.  He denied that he ever held it on trust for his brother.

42.  He was then asked about the “List of Instructions”, written in Chinese, and signed by his mother which he disclosed but a few days ago.  Before he dealt with the circumstances of the creation of this document he alleged that his mother had asked him to sell the Lung Poon property and distribute the sale proceeds amongst the family.  His story then changed to a suggestion that his mother wanted him to enjoy the property, or an interest in the property, “but not all of it”.  He said that her instructions were always changing so he needed to have them written down.  She had told him how much each family member should have with the residue being divided between the parents.

43.  The contents of the document (Exhibit D1) speak for themselves.  I have already dealt with her evidence about it.  His explanation of the circumstances of its preparation and signing are bizarre to say the least and affect his credibility.

44.  He was alone with her in a café.  He had not invited any other member of the family to be present.  His mother was then about 77 and with poor eyesight and barely literate.  He has never shown the document to any other member of the family — not even the plaintiff who was back in Hong Kong at that time.  He says he forgot about it in the meantime, but recollected its existence a week or so ago.  All this is highly suspect at least; it indicates a devious mind and reeks of dishonesty, the more so since although he says that he needed to have her instructions in writing he went on to say that he had no intention of carrying them out:

“ I considered the flat was mine. I was under no obligation to carry them out. She had expressly said it was for me.”

In my judgment he was shifting his ground.  If the mother intended to buy a property for him as a gift, why would she agree to or insist upon how the proceeds of sale of the property were to be distributed in November 2012?  I am satisfied that he well knew that he held the flat on trust for his brother when it was bought in 2005.  Sad though it is to have to say so, in respect of a member of a family who is obviously talented, he has not been telling the truth: perhaps part of the background and motivation is what he describes as his bad relationship with his brother.  He was certainly determined to retain in his ownership a property that had been in his name for over ten years and try and deny the trusteeship which he had undertaken all those years ago.

The evidence of Mr Kan Hong

45.  He is now 83 years of age.  For years he worked hard and successfully to give his children a good start in life.  To do that he must have had a good income.  He may well have had substantial savings in or about 1996 but like his eldest son, and his own wife, he has no conclusive records of his savings at that time.  In fact none at all was disclosed or produced.

46.  It is not surprising that he did not know what his wife’s financial position was, or that she played the stock Exchange successfully to build up capital.  They did not have a joint account, only their own individual accounts.  He did not know of his wife’s financial activities at all but he volunteered that he handed over most of his earnings to his wife.  She managed the family finances and the cost of university education for the children.

47.  As far as the purchase of the Tseung Kwan O property was concerned, it was handled by his daughter, Kan Hang Ching, but he contended that he paid for it and handed the money over to his daughter.  On the sale of the property he contended that the proceeds were “handed back to us” — “The net proceeds were mine.”

48.  When Lung Poon Court was bought it was transferred to the defendant because “he was going to get married and needed somewhere to live.”  Of course he did not get married and never lived in the flat.  On the question of the ownership of the flat he said:

“… we allowed it to be transferred to him [the defendant]. It was not a matter of giving or not giving. Not the whole flat belonged to him. He was to hold it on trust for all the family. It was up to them to see about the distribution after sale.”

49.  I am sure that Mr Kan Hong as the patriarch of the family considers that all the financial assets enjoyed by the family emanated from his successful work but I think he is mistaken about the source of the monies for the purchase of the Tseung Kwan O flat.  He may well have regarded the purchase monies as having come from his resources but I am satisfied that the original source was the plaintiff’s savings which then went into the mother’s accounts or hands, for that specific purpose.  He would not be the first head of the family who, though ignorant of his wife’s financial activity, assumed that he was the source of monies used to purchase property.  In this case he was not, although, twenty years down the line, it was not unreasonable for him to make that assumption, in view of his position.

50.  To the extent that it is reliable his evidence also scotched the notion that the defendant received the Lung Poon Court flat as a gift from his mother.  It is reasonable to draw the inference that the defendant, never having shown to his father the “List of Instructions” signed by the mother, for his own reasons, intended to hold onto the flat at all costs.

51.  I have dealt with the effect, in my judgment, of the father’s evidence.  I prefer the evidence of the mother for the reasons given.  I am satisfied that she was at the heart of these transactions and facilitated them using the money entrusted to her by her eldest son, for his benefit.

Conclusion

52.  I am satisfied that the plaintiff entrusted to his mother a sum of money in the region of HK$2.4 million to be used for investment on his behalf.

53.  Mr Hui, for the defence, argued that there was no reliable adequate documentary support for the plaintiff’s contention that he had accumulated savings of about HK$4 million between 1987 and 1995. It is true that there is a paucity of contemporaneous documentary evidence in relation to his financial status but this is also the situation with regard to the witnesses for both parties.  It is 20 years or more since the initial financial transaction, memories are bound to be less precise than hitherto, and documents disappear or are disposed of long before 2011/2012 when this dispute first surfaced.  It is entirely feasible on the limited documents available that the plaintiff’s earning power could have produced such savings and as stated I accept his evidence.

54.  His mother in turn accepted that sum on that basis and used it for the purchase of the Tseung Kwan O flat for his benefit with his sister acquiring the title and holding it on trust for him and managing it for his benefit, and acquiring a mortgage.

55.  When it was sold, at a loss in 2005, the net proceeds of sale were invested in the Lung Poon property with the younger brother agreeing to act as trustee in holding the legal title for the benefit of his elder brother.  He had no legal or equitable interest in that property at any time.

56.  Comment was made by the defence to the effect that the plaintiff had failed to call the sister to support his case and therefore his claim should fail.  But the defence could have called the sister to give evidence if it considered that she would support its case.  There is no property in a witness and it was open to either party to subpoena her.  Neither did so and although it may have been interesting to hear what she could say I have had to decide this case on the evidence before me.  She may have found this conflict within the family stressful and potentially damaging, and was averse to being involved.

57.  Much has been made of the various gifts and/or loans by either parent to their other children.  They have no significance or relevance in the context of this case.

58.  There was therefore a simple trust based on oral agreement and understanding between the plaintiff and his mother and sister and brother.  The final resting-place to date of the trust monies provided by the plaintiff is the Lung Poon property.

59.  There will therefore be judgment for the plaintiff in the terms as set out in the Amended Statement of Claim:

(1)   A declaration that the plaintiff is the sole beneficial owner of the property known as Flat No 15, 4^th Floor, Block A, Lung Poon Court, No 8 Lung Poon Street, Kowloon, Hong Kong (all those 27 equal undivided 77,264^th parts or shared of and in all that piece or parcel of ground registered in the Land Registry as the remaining portion of New Kowloon Inland Lot No 6002) (“The Lung Poon Court Property”).

(2)   A declaration that from on or about 30 March 2005 the defendant held the Lung Poon Court Property on trust in favour of the plaintiff. The correct date may be different.  It should be the date on which he signed the actual Sale & Purchase Agreement being the date upon which he acquired an equitable interest in the property.

(3)   A declaration that the defendant has no beneficial interest in the Lung Poon Court Property.

(4)   An order that the defendant do assign the Lung Poon Court Property to the plaintiff and that the plaintiff be recorded in the Lands Registry as the legal owner of the property.

60.  The defendant will also pay the plaintiff’s costs, to be taxed if not agreed.  The plaintiff’s Legal Aid costs are to be taxed in accordance with the Legal Aid Regulations.