LILY CHEUNG v. COMMISSONER OF ESTATE DUTY

HEADNOTE

Where a husband and wife each make contributions towards the purchase of the matrimonial home, it will be presumed that they own the beneficial interest in the same shares and proportions which their respective contributions bore towards the purchase price (including costs). Only if there is no other evidence will it be presumed that the husband intended to make a gift of his contribution to the wife --

Pettit v. Pettit [1970] AC 777 and Gissing v. Gissing [1971] AC 886 applied.

(Observations on the procedure for challenging a claim for estate duty before assessment.)

Wife's appeal against assessment allowed.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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BETWEEN

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JUDGMENT

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1. This is an appeal against an assessment of estate duty. The facts which give rise to the appeal are not in dispute. They are as follows.

2. On 24th January 1979, there took place in Taiwan a marriage between Jimmy Chao Ming Pan ("the (husband") and Lily Cheung ("the wife"). The husband was a Malaysian citizen and had business interests in both Malaysia and Hong Kong. For this reason, he was in the habit of commuting between these two places. After the marriage, the husband and the wife moved to live in Hong Kong.

3. In 1982, in expectation of a birth of a child to the husband and the wife, the husband suggested moving into a bigger apartment. He found one. Its address was flat 27D, Primrose Mansion, Tai Koo Shing. the husband and the wife looked at the apartment together, following which they decided to purchase it as their new matrimonial home ("the matrimonial home'').

4. On 17th April 1982, the husband paid a provisional deposit of $5,000. On 24th April 1982, the wife paid the balance of the deposit, $105,900. The contract was taken in the wife's name. On 17th June 1982, the purchase was completed. On completion, the husband paid $725,470 towards the purchase including costs, etc., and the wife contributed $200,000. (A balance of $366.10 was paid by one or the other or both of them in cash.)

5. As the husband frequently had to go to Malaysia on business, and was in Hong Kong only for about 1 or 2 weeks each month, he suggested that the matrimonial home should be registered in the name of the wife so that she could manage it more conveniently. He never suggested that the matrimonial home was to be a gift to the wife. It was conveyed to her in her sole name. Whenever the husband was in Hong Kong, he always lived with the wife in the matrimonial home. After the purchase, the husband paid the rates and management fees.

6. On 22nd February 1983, a son was born to the husband and the wife. On 26th February 1984, the husband died in Malaysia. Between the date of the completion of the purchase, 17th June 1982, and the date of the husband's death, 26th February 1984, the matrimonial home had always served as such, and it is still the home of the wife and her son.

7. On 12th October 1984, a will of the husband dated 28th August 1977 (before the date of the marriage) was proved in this Court by Chartered Bank Hong Kong Trustee Ltd. ("the executor"). This led to the institution of probate proceedings by the wife against the executor and others, which proceedings were eventually disposed of by a consent order made on 22nd June 1987 (amended on 23rd August 1987). The order confirmed the executor in its position as personal representative of the husband, but made no mention of the matrimonial home.

8. In or about June 1985, the facts, or some of them, concerning the purchase of the matrimonial home came to the notice of the Commissioner. He concluded that the husband had made a cash gift of $730,470 to the wife (within 3 years of his death) for financing the wife's purchase of the matrimonial home.

9. The executor did not bring the alleged gift into account for estate duty purposes. The Commissioner accordingly concluded that the wife, as the donee, was obliged to file an account in relation to the alleged gift under Section 14(7) of the Estate Duty ordinance (which provides that where property passes on the death of a deceased person and his executor is not accountable for the estate duty in respect of such property, every person to whom any property so passes for any beneficial interest in possession shall be accountable for the estate duty on the property : under Section 6(1)(c) of the Ordinance, property taken under a disposition made by a deceased person purporting to operate as an immediate gift inter vivos made within 3 years of the death of the deceased person is deemed to be included in the property passing on his death).

10. The wife did not accept the contention of the Commissioner that the sum of $730,470 had been paid to her by way of cash gift from the husband. It followed that she did not accept his contention that she was bound to file an account under Section 14(7).

11. The result was an impasse. In my judgment, a person upon whom a claim has been made by the Commissioner, or who expects a claim to be made in connection with a death which has already occurred, may apply to the Court by originating summons, under order 5 rule 4 of the Rules of the Supreme Court, to decide whether he is accountable or chargeable, and, if so, the extent of his liability. Before he issues the summons, he should endeavour to agree its terms (and, if the facts are not in dispute, the terms of the affidavit in support also) with the Commissioner, who will no doubt seek the assistance of the Attorney -General at this stage, if required.

12. If this procedure had been followed, the impasse could have been resolved. As it was, for some time, nobody did anything. The Commissioner continued to demand an account from the wife; and the wife did not comply with his demands. In the end, on 27th May 1987, the Commissioner issued a Certificate of Assessment on the wife under Section 14(15) of the Ordinance. This gives him power, where a person has not delivered an account within 6 months after the death of a deceased person, and he is of the opinion that such person is accountable for estate duty, to assess the amount of the estate duty which is in his opinion payable; to notify the person who is, in his opinion, accountable; and to call upon that person to pay such estate duty. In the Certificate of Assessment, the Commissioner claimed the additional sum of $65,000. This additional sum was claimed, incorrectly, under Section 16(1), which was irrelevant. The intention of the Commissioner was to charge it under Section 14(17). Section 14(17) provides that any person who, without lawful authority or reasonable cause, fails to comply with any of the provisions of Section 14, shall be liable to pay to the Commissioner, in addition to the estate duty (if any), a penalty of $1,000, or a penalty equal to the amount of the estate duty (if any) remaining unpaid for which he is accountable, according as the Commissioner elects. This error was corrected by the issue of a substituted Certificate of Assessment dated 26th June 1987.

13. On 24th September 1987, the wife issued the Notice of Originating Motion by which these present proceedings were commenced. Section 22 of the Ordinance provides that any person who is aggrieved by an assessment of the Commissioner under Section 14(15) may, on payment of or giving security for the duty claimed by the Commissioner (my emphasis), appeal to the High Court within 3 months from the date of notification of the assessment, and his accountability shall be determined by the High Court. Section 22 contains provisions enabling the payment of duty to be postponed and others enabling the payment of duty before appeal to be dispensed with. The legal advisers of the wife appear wholly to have ignored these provisions until their attention was drawn to them by a letter dated 18th November 1987 from the Attorney- General. This stated:

"I act for the Commissioner of Estate Duty in the matter which is due to be heard before Mr. Justice Godfrey on Thursday 26th November. As you have not yet complied with Section 22(1) of the Estate Duty Ordinance, I intend to apply to strike out your Notice of Motion. If, however, you are in the position to either pay the duty or provide proper security, please let me know by return and I will withhold my application to strike out".

14. The response of the wife's solicitors was startling. Notwithstanding that they had advised the wife to institute this appeal (and must presumably have accordingly read the provisions of Section 22 under which it was lodged; not withstanding that the case had been fixed in September for hearing on 26th and 27th November 1987 (two days having been set aside by the Court for the purpose); and notwithstanding their own failure to do anything whatever about the payment of the estate duty, the wife's solicitors wrote to the Court as follows:

"On 18th November 1987, the Attorney-General advised us that our client has to comply with Section 22(1) of the Ordinance ..... We have taken instructions from our client and our client is trying to obtain finance so as to comply with the above Section and it is expected that the finance shall be obtainable on or about 5th December 1987. We then communicate with the Attorney-General and the Attorney-General consented to our proposal to vacate the hearing dates so as to enable our client to comply with the said Section".

15. So, on 23rd November 1987, with three days to go, the wife's solicitors applied for the hearing date to be vacated. It does not appear to have occurred to them that it is not good enough for litigants simply to agree, a few days before the hearing, that a case fixed for hearing weeks before should stand out of the list. There are other litigants whose cases are pending and whose interests must be considered. I should make it clear that I will not be disposed to grant an adjournment of any case in my list unless the application for an adjournment is made well in advance of the fixed hearing date or unless the circumstances in which the adjournment is sought are circumstances beyond anyone's control. A case in which the solicitors for the plaintiff have ignored the provisions under which their client's proceedings have been brought does not qualify. In this particular case, I granted the application for an adjournment but insisted that the case come on within a few days after the hearing date originally fixed : to have allowed it to stand in the list on that date would have caused injustice to the wife. In the end I am satisfied that no injustice has in fact been caused to the wife, whose interests have been most ably represented by Counsel before me.

16. When the case was called on for hearing on 1st December 1987, it became apparent that a number of points of some general importance were involved (including those mentioned above) and I decided to take time to put my judgment into writing.

17. I now return to the issues in the case.

18. The argument for the wife was that the correct conclusion on the facts must be that after completion of the purchase the beneficial interest in the matrimonial home was held by the husband and the wife in the same shares and proportions as their respective contributions bore to the total purchase price (including costs, etc). The argument for the Commissioner was that after completion of the purchase the beneficial interest in the property belonged entirely to the wife, the contributions made by the husband falling to be regarded as gifts made to her, or for her benefit, by way of advancement.

19. The task of the Court is to ascertain the intention of the parties in making the payments which they made. There is no evidence of any express agreement between the husband and the wife to the effect that the beneficial interest was to be held by them in the shares which their respective contributions bore to the total purchase price. There are few cases, indeed, in which husband and wife can be found to have come to any express agreement about their respective beneficial interests in the matrimonial home. Accordingly, the Court, finding it impossible to ascertain the actual intention, has to search for the presumed intention of the parties, the matter thus resolving itself into a battle of competing presumptions. These are the presumption of resulting trust, and the presumption of advancement.

20. Where two persons advance purchase money jointly, and the purchase is taken in the name of one only, there is to be presumed a resulting trust in favour of the other as to so much of the money as he advanced. This often occurs when two people contribute to the purchase of a house for their joint use; and a common example is the purchase of a matrimonial home by both spouses. But as the doctrine of resulting trust is based on the unexpressed but presumed intention of the two purchasers, it may not arise where the relation existing between them is such as to raise a different presumption, that is, a presumption that a gift was intended. This presumption, the presumption of advancement, applies when the person providing the purchase money is under an equitable obligation to support or make provision for the person to whom the property is conveyed, for example a wife. Accordingly, if a husband buys property and has it conveyed to his wife, on the face of it and in the absence of any other evidence, this is a gift to her (either of the property, or of his cash contributions towards its purchase price; I shall return to this point later). However, under modern conditions, with the reduction of the wife's economic dependence on her husband, the force of the presumption of advancement is much weakened, especially in relation to purchases of the matrimonial home, and to purchases in which some evidence of the circumstances of the transaction is still available.

21. These matters were considered in the leading cases of Pettit v. Pettit [1970] AC 777 and Gissing v. Gissing [1971] AC 886. (These cases, and several others were cited to me, but I do not need to refer to the other cases. I should perhaps however mention In re Densham [1975] 1 WLR 1519, from which it appears that the costs of the purchase, as well as the purchase price, are taken into account in determining the amount of each party's respective beneficial interest.)

22. Mr. Hamlin, for the Commissioner, bravely attempted to argue that the facts set out above were not sufficient to rebut the presumption of advancement. He pointed out that social conditions in the United Kingdom are not the same as those in Hong Kong. He declined, with delicacy, to go so far as to suggest that, as between husband and wife, what are nowadays commonly known as "Victorian values" still held sway in Hong Kong. He appeared more inclined to accept that conditions in Hong Kong were similar perhaps to those which prevailed in the United Kingdom some 30 years ago. But Mr. Mok, for the wife, rebutted that by referring to a decision of that age, Silver v. Silver [1958] 1 WLR 259, in which the Court of Appeal, although upholding the findings of the County Court Judge (on the facts) that there was nothing in the evidence before him to rebut the presumption of advancement, did so with obvious reluctance. It is clear from the judgments in the Court of Appeal that each member of that Court would, if he had been trying the case at first instance, have come to a different conclusion from that of the County Court Judge. I am of the opinion that, whatever may be thought of social conditions in Hong Kong, the authority of the two leading cases to which I have referred, decided now nearly twenty years ago, must be respected as much here as in the United Kingdom.

23. I have not the least doubt that the evidence in this case is sufficient to rebut the presumption of advancement, and I reject the Commissioner's argument that the husband's contributions were made to extinguish the liability of the wife as purchaser of the property, which seems to me entirely unreal. In the result, the presumption for which the Commissioner contends having fallen, the presumption for which the wife contends holds the ground; and I conclude accordingly that the beneficial interest in the matrimonial home was held by the husband and the wife on completion of the purchase in the shares which their respective contributions bore towards the total purchase price (including costs).

24. I pointed out to Mr. Mok that, if I came to this conclusion, it might be though to militate against the wife's best interests. For having succeeded in this appeal, she would hardly be able to claim, as against the executor, the entire beneficial interest in the matrimonial home. Since (as I have found) no gift was made to her, the husband's beneficial interest in the property has vested in the executor. On the face of it, the executor will therefore be liable to pay estate duty in respect of the value of that beneficial interest. If the matrimonial home has gone up in value, the Commissioner will be in a better position as against the executor than he would have been had he succeeded on this appeal; for I agree with him that it would have been right to seek to charge the wife with estate duty (if it was right to charge her at all) with the amount of the cash contribution made by the husband towards the purchase of the property and it would have been wrong to charge her with estate duty based on the value of the share of the property so provided : see Potter v. IRC [1958] 37 ATC 58.

25. It is not for me to consider what will happen if the Commissioner raises an assessment on the executor in respect of the husband's beneficial interest in the matrimonial home as a result of this judgment.  it may be that, in those circumstances, the executor will be able successfully to argue that estate duty should not be payable because of the provisions of Section 10A of the Ordinance, which exempts matrimonial homes from estate duty. However, the matter is not before me.

26. The wife's appeal accordingly succeeds. It is not necessary for me to consider her alternative claim, that the payment by the husband of his contribution towards the purchase price of the matrimonial home was a disposition made on his part for full consideration, or partial consideration, in money or money's worth paid to him for his own use or benefit, facts which would take the disposition wholly or partially out of charge: see Section 7(1). I will, however, record my view that this analysis of the position is completely misconceived.

27. The wife further argued that, if she were held to be accountable for estate duty, she should not have to pay the penalty which the Commissioner seeks to charge. In the light of this judgment, I do not have to consider this question. But I am alarmed by the contention advanced on behalf of the Commissioner that the Court cannot interfere with the decision of the Commissioner to exacta penalty, even if the Court is satisfied that a person subjected to the penalty has "lawful authority or reasonable cause" for non-compliance with the demands of the Commissioner. I think the argument for the wife, that if the Commissioner lumps in the penalty with the estate duty, the right of appeal conferred on an aggrieved parson by Section 22 would apply to the penalty as well as to the duty, may well be right. But this is by no means clear; and it seems to me that consideration should be given to the question whether a person aggrieved by a decision of the Commissioner to exact a penalty ought or ought not to have aright of appeal against that decision. If the view is taken that such a person should have a right of appeal, it seems to me desirable that the Ordinance should be amended so as expressly to confer such a right upon such a person.

28. For the reasons I have endeavoured to state, I allow this appeal.

29. The Commissioner must pay the wife's costs of the appeal, other than those thrown away by reason of the adjournment from 26th November to 1st December.