郭(前稱郭) v. 孫(又名孫) AND ANOTHER

FCMP 3/2019

[2022] HKFC 87

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 3 OF 2019

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JUDGMENT

( Sale of Property)

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INTRODUCTION

1.  This is the trial of the claim by the Plaintiff (“Mother”) for sale of a property registered under the name of the 1^st Defendant (“Father”) to enforce a charging order under a judgment against him. Father and the 2^nd Defendant (“Deceased”) counterclaim for a declaration that Deceased is the beneficial owner of the property in question and discharge of the charging order in the judgment.

2.  The present dispute arose from the claim by Mother for maintenance of her child (“the Child”) against Father as father of the Child under Guardianship of Minors Ordinance (Cap.13) (“GMO”).

3.  Father has 4 properties (but only 3 of which Mother was able to find in the GMO proceedings) solely or jointly registered under his name in Hong Kong. The 2 properties that are solely registered under his name are flat 2812 (“the Property”) and flat 2862 (“Flat 2862”) in the same building. The present proceedings concern the sale of only the Property.

4.  By the judgment made by HHJ C.K. Chan on 31 October 2016 (“the Judgment”), Father was ordered to pay Mother HK$400,000 as maintenance between 9 April 2014 and 8 November 2016 and monthly maintenance of HK$35,000 per month from 9 November 2016 for the Child. The Judgment was secured by a charge against the Property registered in the sole name of Father.

5.  Father’s applications for leave to appeal against the Judgment were dismissed by HHJ C.K. Chan and the Court of Appeal.

6.  As Father had failed to pay Mother any sum under the Judgment, Mother commenced enforcement proceedings for sale of the Property at District Court.

7.  Deceased was the father-in-law of Father, he intervened and joined these proceedings.

8.  Father and Deceased seek a declaration that Father has held the Property on trust for the benefit of Deceased and that the charging order in the Judgment be discharged.

9.  The claim and counterclaim at District Court were transferred back to Family Court for determination.

10.  Deceased passed away in the course of these proceedings, Deceased’s counterclaim is continued by Deceased’s wife as his personal representative.

UNDISPUTED FACTS

11.  Father purchased the Property at the price of HK$620,000 and became the legal owner of the Property since 7 October 2002. Father’s purchase of the Property was financed with bank mortgage under Mortgage Deed dated 7 October 2002.

12.  There is no dispute that Father has failed to pay any of the outstanding maintenance under the Judgment.

CASES OF FATHER AND DECEASED

13.  It is the case of Father and Deceased that Deceased has always been the beneficial owner of the Property, Father at all material times holds the Property on trust for Deceased. Accordingly, the Property could not be charged in the Judgment and be sold as a means to enforce the Judgment.

14.  Father and Deceased agreed that Father would purchase the Property for the benefit of him. Deceased subsequently provided Father with the full purchase price of the Property in cash and they signed an agreement as proof in 2002 (“the 2002 Agreement”).

15.  Later, Father and Deceased entered into another agreement in 2009 (“the 2009 Agreement”) to replace the 2002 agreement.

CASE OF MOTHER

16.  Mother has no proprietary claim for the Property, she merely seeks to enforce the Judgment against Father by sale of the Property.

17.  Mother accepts that the Property was purchased prior to her meeting Father, she has no personal knowledge concerning purchase and holding of the Property by Father. Father has been holding out on information on his financial information in previous GMO and present proceedings.

18.  It is denied that Father and Deceased had any agreement that the Property would be held by Father on trust for Deceased.

19.  Mother challenges the authenticity of the contents of the 2002 and 2009 Agreements.

20.  Mother puts Father and Deceased to strict proof.

21.  Mother did not personally attend the trial, she is a PRC citizen and had financial and practical difficulties coming to Hong Kong to attend the trial during COVID-19. Mother elected not to give evidence at trial.

ISSUES

22.  There is no dispute that Father is liable to pay the outstanding maintenance under the Judgment and has failed to do so.

23.  It is the case of Father and Deceased that there was an express trust declared in favour of Deceased manifested and proven by the 2002 and 2009 Agreements. Alternatively, there was common intention between Father and Deceased that Property would be held on implied trust by Father and Deceased as evidenced by the 2002 and 2009 Agreements.

24.  Parties have no dispute over the law on express trust and common intention constructive trust.

25.  Father and Deceased accept that they have the onus of proving that the beneficial interest in the Property differs from its legal interest. Father and Deceased accept that in seeking to rely on the 2002 and 2009 Agreements, the burden is on them to establish the veracity of these documents against all the surrounding circumstances, including the conduct of the parties.

26.  According, the issues of this case are whether at all material times:

(i) Father and Deceased had an agreement that the Property would be purchased by Father for the benefit of Deceased in 2002;

(ii) Father gave Deceased RMB 650,000 in cash for the purchase of the Property in 2002;

(iii) Father and Deceased signed the 2002 and 2009 Agreements as proof of the alleged trust in 2002 and 2009 respectively.

EVIDENCE OF FATHER AND DECEASED

27.  Contents of the witness statement of Father and affirmation of Deceased are essentially the same.

28.  Father was the only witness who gave oral testimony at trial. Contents of the affirmation of Deceased were read out in court as evidence of Deceased.

29.  Father and daughter of Deceased in 2002 planned to get married and decided to move to Hong Kong. Deceased decided to purchase a property in Hong Kong for his own investment purposes as well as to provide an accommodation to his daughter.

30.  In or around mid-2002, Father and Deceased agreed that Deceased would purchase a property to be held in Father’s name for the sole benefit of Deceased.

31.  It was inconvenient for Deceased to purchase the Property himself as he had yet to acquire a Hong Kong citizenship.

32.  On 3 July 2002, Deceased gave Father RMB 650,000 in cash in Shenzhen for the express purpose of purchasing the Property. Father and Deceased signed the 2002 Agreement on the same day.

33.  Father completed the purchase of the Property on 7 October 2002 with bank mortgage under the Mortgage Deed dated 7 October 2002.

34.  As Deceased noted in 2009 that there was a significant jump in the market value of the Property to a few million dollars, he wanted to have more protection for himself and asked Father to enter into the 2009 Agreement stating that Father and Deceased voluntarily agreed that Deceased acquired the Property in Father’s name. The 2009 Agreement was witnessed and supported by a certificate attested by a PRC lawyer.

35.  The material terms of the 2002 Agreement are essentially that Deceased entrusts Father to purchase the Property. Father has received from Deceased a sum of RMB650,000 as the entire purchase price of the Property. The agreement is made in writing as proof.

36.  The material terms of the 2009 Agreement are essentially that the entire purchase price of the Property was paid by Deceased. Deceased owns 100% of the beneficial interest in the Property. Father owns the Property in name only and does not enjoy any right in respect of the Property in law. The 2002 Agreement is rescinded and parties’ rights and obligations under the 2009 Agreement shall prevail.

ANALYSIS

37.  A helpful summary on assessment of a witness’s credibility can be found in Hui Cheung Fai v Daiwa Development Ltd, unrep. (HCA 1734 of 2009) by Dep. Judge Eugene Fung SC at paras. 76-82:

“76. In making my findings of fact in this case, I am guided by a number of general principles which judges apply as to fact finding and the assessment of credibility.

77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce). It is right to point out, however, that some of the documents in this case are alleged by the Son to be shams and those documents obviously cannot be used to assess the credibility of the parties.

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

“Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.”

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination. They are particularly apposite in a case like the present where very serious allegations (akin to allegations of fraud) have been made by the Son against the defendants.”

38.  It is the evidence of Father and Deceased that the Property was purchased by the RMB 650,000 cash that Deceased gave Father as the entire purchase price of the Property. Nevertheless, the purchase of the Property was financed by bank mortgage that was fully repaid only by 7 December 2006.

39.  It begs the question as to why there would be a need for the mortgage to be obtained for the purchase of the Property as the Property was supposed to be fully paid for by Deceased.

40.  Although based on the currency exchange rate in 2002, RMB 650,000 should be converted to roughly only HK$ 613,208, Father testified that he managed to exchange RMB 650,000 to more than HK$620,000 to cover the purchase price and fees and expenses taking advantage of the fluctuating daily exchange rates. There should be no need for a bank mortgage.

41.  Father testified he did not even tell Deceased that he obtained bank mortgage. The bank mortgage created a major encumbrance over the Property which significantly affected the beneficial interest of Deceased. It is difficult to understand why Father as a trustee as he claimed to be would decide to obtain bank mortgage without Deceased’s express consent or even informing Deceased in advance.

42.  If it was the arrangement that Deceased fully paid the purchase price of the Property, it would defy common sense that he would consider it acceptable that Father obtained a mortgage over the Property that significantly affected his interest in the Property especially when it was without his prior knowledge and consent.

43.  Even if Deceased subsequently had no issue with the bank mortgage, the bank mortgage should be still mentioned in the 2009 Agreement but it was not.

44.  The evidence of Father and Deceased in their respective witness statement and affirmation was that Deceased totally trusted Father in the purchase including mortgage of the Property.

45.  If Deceased really totally trusted Father, there should not be the need for the signing of the 2002 and 2009 Agreements in the first place. Deceased said in his affirmation, the reason for making the 2002 Agreement was because a large sum of money was involved. Deceased further explained that the 2009 Agreement was prepared because of the soaring property value over the years in Hong Kong, he wanted better protection of his beneficial rights in the Property. Deceased even saw the need to have the 2009 Agreement witnessed and attested by a PRC lawyer.

46.  It is difficult to see why Deceased would find it acceptable that the Property would be mortgaged to a bank that significantly affected his beneficial interest in the Property.

47.  I find it hard to believe that Deceased gave Father the RMB 650,000 for the purchase of the Property, there was no need and it is simply inherently improbable.

48.  Indeed, the obtaining of the bank mortgage further contradicted the existence of trust in that Father had made express representations and warranties in the Mortgage Deed dated 7 October 2002 that he was the sole beneficial owner of the Property and would not divert himself from his sole beneficial ownership. This directly contradicted his position as a mere trustee purchasing the Property for the benefit of Deceased.

49.  Father explained that he did not read the entire Mortgage Deed, but the beneficial ownership of the Property was a matter so fundamental to the bank mortgage, it would be hard to believe that Father would have omitted or his attention would not have been drawn to the representations and warranties.

50.  There is also a major question as to why the purchase of the Property was made in the name of Father. Deceased said it was not convenient for him to hold and manage the Property when he was not yet a Hong Kong resident.

51.  However, there was no restriction for a non-resident to personally purchase and hold a property in Hong Kong. The Property was not even intended to be rented out, Deceased could let Father take care of and manage the Property for him without the need to have Father hold the Property for him. Father did not have to be a registered owner to manage the Property or to pay the necessary fees and expenses.

52.  During cross-examination, Father gave another explanation as to why the Property was registered under his name. He said only Hong Kong residents could be exempted from paying 30% of buyer stamp duty.

53.  This explanation had never been stated in either the pleadings or witness statement/affirmation of Father and Deceased. In any event, it was incorrect.

54.  The buyer stamp duty for foreigners’ purchase of property was imposed only in 2012. So, this could not have been a reason for the purchase of the Property under Father’s name in 2012.

55.  In my view, it was one example of how Father attempted to make up excuses to justify why he had to be the Property’s holder when he was challenged in cross-examination.

56.  The first time the 2002 and 2009 Agreements were mentioned or produced was in Deceased’s affirmation filed on 30 November 2018 in Mother’s enforcement proceedings to sell the Property.

57.  Whether the 2002 and 2009 Agreements were authentic includes the question of whether the documents were contemporaneously made by Father and Deceased in 2002 and 2009 as stated in the document itself.

58.  The veracity of the 2002 and 2009 Agreements depend on credibility of the evidence of Father and Deceased. The evidence that the 2002 Agreement was authentic came only from Father and Deceased. For the 2009 Agreement, while it was purportedly witnessed and attested by a PRC lawyer in Mainland China, the PRC lawyer had not been called as a witness. In these circumstances, the evidence that the 2009 Agreement was authentic came also only from Father and Deceased.

59.  In the GMO proceedings, Father had failed to file any Form Es or disclose in his affirmations filed on 5 February 2016, 18 February 2016, 26 February 2016 and 6 July 2016 that he only held the Property on trust for Deceased. HHJ C.K. Chan was perfectly entitled to accept the legal and beneficial ownership of the Property as Father’s and charge it in the Judgment.

60.  I have not ignored the fact that Father had indicated that he did not own the benefit of the properties under his name in the call-over hearing on 19 February 2016 and at trial on 26 August 2016 and in the affirmations filed on 16 August 2016 (expunged) and 30 August 2016 (after trial) as well as in the Grounds of Appeal filed on 27 February 2017. However, the fact remains that the 2002 and 2009 Agreements were not produced or even mentioned.

61.  Father explained in his testimony that he was reticent about giving his financial information in GMO proceedings because he did not want Mother whom he believed was a hostile outsider to have such information.

62.  I do not accept this explanation. It is trite that Father was under a duty to make full and frank disclosure on his financial matters in the GMO proceedings failing which adverse inference can be drawn against him. If he really had no money and did not hold beneficial interest in any property as claimed, he should have nothing to fear in his disclosure.

63.  In any event, Father’s explanation still could not justify why he failed to disclose the 2002 and 2009 Agreements. The 2002 and 2009 Agreements were specific about the Property that was already known to Mother in the GMO proceedings, disclosing the same would not give Mother any addition financial information at all.

64.  There is another example of how Father tried to make up new evidence in support of his case that he was not the beneficial owner of the Property.

65.  Father claimed that he became the legal owner of Flat 2862 on 19 March 2002 only for the benefit of his wife. When Father was cross-examined about whether he was the registered owner of Flat 2862 by the name of 孫X, he denied by saying that 孫X was just a symbol he used in relation to a property when he was holding it on trust for another. He denied 孫X was his name and insisted that his real and only name should all along be 孫XX. This assertion was never pleaded nor mentioned in his witness statement.

66.  Putting aside how absurd this assertion might have sounded, the 2002 and 2009 Agreements simply do not support this new evidence, while Father’s name in 2002 Agreement was 孫X, his name appearing in 2009 Agreement was 孫XX.

67.  It turned out after further exploration that the true reason why Father had 2 names is that he used to be named 孫X , he changed his name to 孫XX in 2009. Father was again just blatantly making up false explanations in trying to support his case.

68.  Father testified he brought the RMB 650,000 cash from Shenzhen to Hong Kong before the completion of purchase of the Property. He said the foreign exchange control was then limited to carrying of RMB 10,000 per day, he had to carry, sometimes with the help of family members and friends, in total of RMB 650,000 numerous times from Shenzhen to Hong Kong for the purchase of the property. However, as he continued, he changed his answer to sometimes carrying RMB 20,000 to 30,000 each time from Shenzhen to Hong Kong. Father again kept changing his answers as he was confronted.

69.  During cross-examination, Father said he would deposit the RMB 650,000 cash after converted into Hong Kong dollars into the mortgage bank account. When confronted that there would be no mortgage bank account before the completion date of the purchase on 7 October 2002, he then changed his answer to depositing the money to his own bank account. When Father was further questioned whether Deceased’s money would be mixed with his own money in his bank account, he then said it was the bank account he opened for Deceased.

70.  These are just some examples of how Father made up answers to suit his needs when he faced challenges in cross-examination.

71.  It is understood that the events took place almost 20 years ago and it would be harsh to demand Father to perfectly recall every minor detail. However, the above examples concern matters that were core to the purchase of the Property, there was no reason why Father would be unable to properly recall.

72.  It has always been the pleaded case of Mother that Father had failed to produce documentary proof in support of the RMB 650,000 coming from Deceased. Father said he did not keep the records.

73.  It is understandable that it had been almost 20 years since the purchase of the Property. Nevertheless, it is likely that the bank would still have kept the records of the accounts that Father allegedly opened for Deceased, such records could show regular deposits by Father of the HKD after exchanged from RMB.

74.  Father simply said he tried with the bank but no records were available, he did not even provide the written reply from the bank. He should have known that such evidence would assist him in answering Mother’s allegation of lack of documentary support.

75.  I have fully considered the case and evidence of Father, I find the assertions of Father that Deceased entrusted him with RMB 650,000 for the purchase of the Property for Deceased to be inherently probable and unreasonable and contradictory to contemporaneous records. I further find Father’s evidence to be evasive and inconsistent. Father is in my view not a credible witness.

76.  As for the case of Deceased, Mother did not have the opportunity to cross-examine him and his evidence is just bare assertion. Evidence of Deceased is essentially the same as Father’s. Deceased’s evidence suffers from the same weaknesses as Father’s evidence in terms of inherent probability and reasonableness and contradiction to contemporaneous records as discussed above. As I found Father’s evidence to be incredible, his evidence cannot be of any use to corroborate the evidence of Deceased.

77.  Based on the above analysis of case and evidence of Father and Deceased including the surrounding circumstances, I come to the conclusion that there is a compelling inference that Deceased did not entrust Father with RMB 650,000 to purchase the Property and they did not enter into the 2002 and 2009 Agreements in 2002 and 2009 respectively as the documents purport to evidence the alleged trust.

78.  By reason of the foregoing, I reject the case and evidence of Father and Deceased and in particular that:

(i)  Father and Deceased had an agreement in 2002 that Father would and did purchase the Property for the benefit of Deceased.

(ii)  Deceased gave Father RMB 650,000 for the purchase of the Property.

(iii)  Father and Deceased signed the 2002 and 2009 Agreements in 2002 and 2009 as stated in the documents to evidence the alleged trust.

CONCLUSION

79.  I grant an order for sale of the Property unless Father satisfies the Judgment sum and dismiss the Counterclaim of Father and Deceased.

80.  Costs should follow the event. I make a costs order nisi that Father and Deceased do pay Mother costs of this Action to be taxed if not agreed with certificate for counsel.

81.  Mother is directed to lodge with the Court a draft order detailing the terms of the order for sale within 14 days for this Court’s approval.