NG TAK KAU v. CHEUNG MAN KWAI AND ANOTHER

HCA 1867/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1867 OF 2012

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J U D G M E N T

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Background

1.  The 1^st defendant Cheung Man Kwai (“the Debtor”) is the son of the 2^nd defendant Cheung Kok Leung (“the Father”).  In an action for debt under High Court Action No 1323 of 2102 the plaintiff, Ng Tak Kau (“Ng”), was awarded judgment on 11 September 2012 against the Debtor for a debt he failed to repay.  The judgment sum amounted to HK$3,900,000 with interest and costs.

2.  This action relates to a property situated at Flat D, 4^th Floor, 2‑6 Nam Kok Road, Kowloon, Hong Kong (“the Property”) and has since its acquisition been occupied by the Father with various other members of his family including his wife and three sons at different periods of time.  Ng seeks to enforce his judgment debt on the Property which was once held in the name of the Debtor and the Father as joint tenants.  The Debtor had lived in the Property with the Father between 1996 to 2000 but not since.

3.  On 28 November 2011, shortly after the debt fell due for repayment by the Debtor to Ng but was not repaid, the Debtor assigned his share of the interest in the Property to the Father at a consideration of HK$400,000, making the Father the sole owner of the Property.  Ng argues that the assignment should be set aside as a transaction entered into with intent to defraud him as a creditor.

4.  Both Ng and the Father were represented by counsel and gave evidence at the trial of this action.  The Debtor was unrepresented from the commencement of the action, and was absent from the trial.

Issues to be decided

5.  The first issue that arises is the beneficial ownership of the share of interest in the Property that was disposed of to the Father in November 2011. The inquiry focused on whether that interest was beneficially owned by the Debtor at the time of the disposal, either by reason of any monetary contribution he had made towards the purchase of the Property, or as a gift from his Father.

6.  The parties are in agreement that the following questions are to be decided first:

(1) Whether the Debtor provided any funding to purchase the Property so as to make him the beneficial owner of his share.

(2) If not, and if the Father alone was funding the purchase of the Property, whether the Father had intended to make a gift of the interest to the Debtor by having the Debtor’s name registered as a joint tenant with him.

7.  Counsel for the plaintiff, Mr Hon, agrees that if the answers to both questions are in the negative, the claim would fail without the need to inquire into the intent and effect of the transfer.  If either of the two questions above is answered in the positive, the following questions will arise:

(1) Was the disposition of the share of interest in the Property by the Debtor to the Father with intent to defraud creditors?  These call for the examination of the following questions:

(a) Was the transfer supported by consideration?

(b) Did the Debtor become insolvent around the time of the transfer?

(2) Was Ng as the creditor subjected at least to a significant risk of being unable to recover his debt by reason of the transfer?

8.  If both questions (3) and (4) above are answered in the positive, the transaction is to be set aside under section 60 of the Conveyancing and Property Ordinance, Cap 219.

Legal Principles

9.  The Legal principles involved are relatively straight forward.  On the issue of the Debtor’s title to the Property, if the Debtor had provided no funding and the share of interest was not intended as a gift to him, he would be in the position of a trustee holding the share of interest in favour of the Father.  There would be an express trust if the Father’s intention to create a trust was made known to the Debtor at the time of the purchase of the Property.  Even where the intention was not made known, or the Property was registered in the name of the Debtor without his knowledge, a resulting trust arises (Lewin on Trusts, 19^th Edn, §9‑010; Au Yuk Lin v Wong Wang Hin Eddy [2013] HKCFA 495).

10.  Where the evidence shows that no contribution to the purchase money and the instalment payments was made by a joint owner to a property, a rebuttable presumption arises that the property is held in trust for the party who provides the purchase money (§9‑087 and§9‑088 Lewin on Trusts, 19^th Edn).

11.  Where a parent purchases real or personal property in the name of a legitimate child, a rebuttable presumption of advancement is sometimes relied on.  Like the presumption of resulting trust, such a presumption, is rebuttable by evidence of the parties’ real intentions: Snell’s Equity, 33^rd Edn, §25‑007.

12.  It follows that the court should primarily strive to ascertain the party’s real intentions from direct evidence and any objective inference that may be drawn from the evidence.  It is only where direct evidence of those intentions is unavailable that it should resort to relying on the presumption.  Even where one has to resort to the default rule, where the presumption does not provide any firm rational basis for presuming an intention to make a gift between the two parties, such as a practice that accords with common social experience, the probative value is further diminished: Snell’s Equity, 33^rd Edn, §25‑011; Gissing v Gissing [1971] AC 886 at 906.

13.  On the question of when a disposal of interest in property may be set aside as one made with the intent to defraud creditors, section 60 of the Coveyancing and Property Ordinance (Cap 219) provides as follow:

“(1) Subject to subsections (2) and (3), every disposition of property made, whether before or after the commencement of this section, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced.

(2) This section does not affect the law of bankruptcy for the time being in force.

(3) This section does not extend to any estate or interest in property disposed of for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the disposition, notice of the intent to defraud creditors.”

14.  The intent to defraud under section 60 was to be treated as a matter of fact to be inferred from the evidence as a whole.  The rule in Freeman v Pope (1869‑70) LR 5 Ch App 538 applicable to the operation of section 60 of the Conveyancing and Property Ordinance (Cap 219) is that if it was objectively shown that a disposition of property unsupported by consideration was made by a disponor when or so as to become insolvent, resulting in current or future creditors being subjected at least to a significant risk of being unable to recover their debts in full, there would, subject to wholly exceptional circumstances, inevitably be grounds to infer an intent to defraud creditors (Tradepower (Holdings) Ltd v Tradepower (HK) Ltd [2010] 1 HKLRD 674).

15.  Where the insolvency became clear in a relatively short time — a matter of months — after the disponor disposed of the property, the onus falls upon the debtor to show the absence of insolvency at the time of the disposition.  It is not necessary to consider whether the disponor actually had his creditors in mind at the time of disposition, and neither does it matter if the disponor had motives other than the intention to defraud creditors (Tradepower, ibid).

16.  Where the Rule does not operate by reason of the absence of pre-conditions, an actual intent to defraud creditors had to be shown as an inference properly to be drawn on the available evidence.

The plaintiff’s case

17.  The plaintiff’s case is founded on the basis of the Debtor’s prior joint ownership of the property, the presumption of advancement, and the timing of the disposition of his interest to the Father.  Not being privy to the arrangement between father and son, Ng can only rely on circumstantial evidence from objective facts, and evidence of what he was told by the Debtor which might suggest contribution having been made by him to some property loan.

The defendants’ case

18.  The Father’s contention was that the purchase of the Property was funded by him alone.  He had put up the deposit, took out the loans, and paid for all the expenses and the instalment payments out of his own income earned as a driving instructor, whereas the Debtor had never contributed towards any of the above payments.

19.  The Father denied there was any intention to make a gift of the interest in the Property to the Debtor.  His case was that it was purely for easy administration of family assets in the case of his demise.  It was therefore contended that there was no question of the transaction being voidable, as he was fully entitled to call upon the assignment of the interest back to him.

The evidence

20.  Both Ng and the Father gave oral evidence and were cross-examined.  I find them both to be truthful witnesses.

21.  Ng gave evidence on matters that were largely uncontentious at least as between Ng and the Father, and indeed was not particularly helpful to his own case against the Father.

22.  He gave evidence on the making of the loan in the sum of US$500,000 in June 2011 to Casson City Money Exchange Company Limited, at the request of the Debtor.  The loan was paid to “Million Star Company” at the instructions of the Debtor.  The Debtor was to his knowledge at the time a director and shareholder of Casson City, with which he had had business dealings in currency exchange.  After a few months of making monthly payments under the loan, Casson City defaulted on its payments from November 2011.

23.  In December 2011, the Debtor asked for a one-month extension to repay the outstanding loan, and tendered a personal cheque in his own name for a sum of HK$3,900,000 dated a month later, thereby agreeing to assume personal liability for repayment of the loan. In consideration for the Debtor’s promise to repay the loan, Ng accepted his personal cheque and agreed to wait for repayment under the cheque until the expiry of the extended period of one month.  The cheque was presented in January 2012 and was dishonoured.  The Father knew nothing of these dealings and provided no evidence to contradict them.

24.  Under cross‑examination, Ng admitted to the fact that he did not know the Debtor except as a business acquaintance through his dealings with Casson City, and he had never met the Father before.  He had no knowledge about the relationship between the Debtor and his family.

25.  On the issue of the Debtor’s ownership of any interest in the Property, Ng’s evidence was that he did not know where the Debtor resided although he testified that he had heard him say he was “going home”, and it was “to Kowloon City”.  It was only after November 2011 when the Debtor defaulted in interest payments on the loan that he learned of the address of the Property for the first time through a land search, and of his joint ownership of it.

26.  Further, Ng testified that he had heard the Debtor mention that he had to pay mortgage instalments on property at a time when he was still making payments of interest on the loan from Ng, but he did not mention which property was the mortgage instalments for.  Ng told the court that the Debtor had once mentioned owning property in Beijing, but that was only towards the end of 2011, and he could not be sure if that was really so.

27.  Ng testified that upon the cheque tendered by the Debtor having been dishonoured, his sister‑in‑law had visited the shop premises of Casson City to make inquiries, but was told that the Debtor’s shareholding in Casson City had already been transferred, and that he was no longer a director of Casson City.  According to company registry records the resignation was with effect from 14 October 2011, ie before the Debtor asked for the one month extension and promised to repay the loan by his personal cheque.  Ng was therefore of the view that the Debtor had intended to avoid payment and was only leading him on when he asked for time, but had on the other hand kept him in the dark about his severance of relationship with Casson City.

28.  The Father gave evidence on the issue of ownership of the interest in the Property.  According to his witness statement which stands as evidence‑in‑chief, he has a family with a wife and three sons, the youngest of whom was born in 1976.  The Debtor is his eldest son, born in 1971.  He moved to Hong Kong alone from Guangzhou in 1973 and started working as a driving instructor to provide for his family still residing in Guangzhou.  In 1996, the Debtor graduated from university in the mainland, whereupon he immigrated to Hong Kong. In anticipation of the rest of his family joining him in Hong Kong in due course, the Father decided to purchase a property.

29.  The Father’s evidence was that when he decided to purchase the Property, he came up with and all the necessary funds to make the purchase and applied for the mortgage loan on the strength of his own income alone.  The Debtor was young and new to Hong Kong at the time.  He was not consulted and was not involved in the flat‑hunting or the decision making.

30.  At the time of signing of the provisional sale and purchase agreement for the purchase of the Property as a sole signatory, the Father was advised by the estate agent that it would be a good idea to have the Property held in joint names with a family member for seamless succession of the property right in it.  Since the Debtor was the only son living in Hong Kong at the time, arrangements were subsequently made for the Debtor to execute the conveyancing documents as a joint owner with the Father.

31.  The purpose of joint ownership was at the time explained to other members of the family during visits made by the Father to Guangzhou.  All members of the family agreed and understood that the Debtor was merely holding the legal title as a joint tenant for convenience of future estate administration.  It was not meant to be a gift to him of the interest in the Property.  It was also understood that he did not and was not expected to make any contribution towards the purchase and the maintenance of the Property.

32.  The Father’s evidence was that he was the sole beneficial owner of the property, and he alone paid for the deposit and mortgage payments as well as the outgoings in relation to the Property, all from his income as a driving instructor employed by a driving school.  The Debtor made no contribution whether to household expenses or to any of the above items.  The Debtor lived with him in the Property between 1996 and 2000.  The Debtor’s mother arrived in 1998 and joined her husband and eldest son.  Thereafter, their second son came to reside in Hong Kong in 2007, moved in and built a family with two children.  In 2012 their third son obtained a one‑way permit to settle in Hong Kong.  He moved into the Property, and the second son and his family moved out and rented another flat as their home.

33.  The Father gave evidence and was taken through the documents disclosed to prove he had funded the purchase of the Property, the legal expenses, estate agent’s commission, paid the mortgages application fee and the instalments for the mortgages, and the outgoings of the Property with his own money.  The financial records show that the mortgage was fully repaid in August 2005.  He was cross‑examined at length by counsel for Ng, Mr Hon, on copies of bank passbook, the re-mortgage arrangement, mortgage payment records and records relating to outgoings paid in relation to the Property.  I find his evidence clear, credible and unshaken in cross-examination.

34.  The Father was unable to recall details of specific entries relating to three deposits into his account between 1996 and 1997.  I am not prepared to draw any adverse inference against it.  It would have been more extraordinary if he could remember the details about a few random deposits picked from passbook entries going back nearly twenty years when put on a spot in cross‑examination.  I do not find any sufficient reason to doubt his assertion that he was the sole source of the funds poured into acquiring the property and paying the mortgage instalments as he said he was.  Against vague suggestions from Mr Hon that evidence by way of bank account passbook to show receipt of monthly income was not disclosed, I note that there was no application for specific discovery or interrogatories pertaining to the source account from which the monthly deposit for the mortgage payment were shown to have been transferred into the designated accounts.

35.  Having considered the evidence given by the Father, I have a strong impression that he was a responsible husband and father who worked hard to provide for his family of five throughout his working life.  He enjoyed a steady source of income earned as an employed driving instructor throughout his time in Hong Kong until his retirement in 2010.  He purchased the Property in 1996 at a time when he was expecting to receive members of his family in Hong Kong as permanent residents one after another, starting with the Debtor as the eldest son.  As matters transpired, his wife was to settle in Hong Kong two years later, followed by the other two sons.  In the circumstances, there was no particular reason why he would want to favour one of the three sons in what was the first purchase of property he had ever made in Hong Kong.  I have no hesitation in accepting his direct evidence that he had no intention to make a gift to the Debtor of any beneficial interest in the Property.  I also find that the direct evidence from the Father readily rebutted any presumption of advancement that might have arisen, weak as it was, on the facts of this case.

36.  At the time of the acquisition of the Property, given the Debtor was a new immigrant in Hong Kong and a young man who has just finished his education, it was hardly surprising that he did not have any money to contribute to the purchase of the flat, nor was he consulted on the purchase.  It was perfectly reasonable that the Father did not expect him to make contributions: the Father would have been pleased to see his son taking care of his own expenses and not having to continue to be dependent on his father.  The Debtor could not reasonably have been expected to have money to spare as a new immigrant, particularly when no real financial demand arose.  The Father came across as completely financially independent, and was still enjoying a good and steady income at the time until well after the mortgage was paid off in 2005.  He appeared from the evidence to be a steady and conservative manager of his own money.  I see no reason to disbelieve his evidence that he did not ask the Debtor about his income or for any monetary contribution to any expenses relating to the Property or to the household.

37.  The Father described his relationship with the Debtor as somewhat distant.  Even during the time when the Debtor lived with him between 1996 and 2000, he did not know what he did for a living, or how much he earned.  They made no financial demands on nor gave money to each other.  The relationship became even more distant after the Debtor moved out of the Property.  There was only occasion contact, and it was not easy to track him down to speak to him on the phone.  While that kind of a father‑and‑son relationship was lamentable, I do not find it unlikely or inexplicable.  After all, the Father, who moved to Hong Kong in 1973, had not been living with his son since he was about two years old.  To renew a normal father‑and‑son relationship after such a long period of separation by distance could not have been easy, particularly with the absence of the mother for at least the first two years in Hong Kong.  The circumstances were not inconsistent with the lack of any intention to transfer any beneficial interest in Property to one of the three sons at that point of time.

38.  I find that the Debtor provided no funding nor made any contribution towards the purchase of the property.  I also find that the Father single-handedly funded the acquisition of the Property and all its outgoings, and maintained the mortgage payments until full repayment of the loans in 2005.  On the evidence, I find that he did not intend to make a gift of any interest in the Property to the Debtor at the time of acquisition, and had made it clear to all his family members including that the Debtor’s title as a joint tenant of the Property was but for convenience in the future administration of family assets.

39.  Accordingly, issues (1) and (2) identified in paragraph 6 above are both answered in the negative.  It follows that the action of the plaintiff fails.

40.  In the light of my findings on issues (1) and (2), the interest in the Property held by the Debtor was held on express trust for the Father.  The Father was entitled to call for an assignment of that part of the title held in the name of the Debtor back to him at any time.  The fact that the move was prompted by the disturbances he experienced at his home that he suspected might have emanated from his son’s personal affairs made no difference to that position.  There was no consideration called for to support the transfer.  Indeed the evidence of the Father was that there was no resistance from the Debtor to the suggestion of an assignment of the interest to him, and no monetary consideration passed under the assignment to the Debtor.  The figure of HK$400,000 was but one suggested by the lawyer handling the assignment.

41.  It follows that questions (3) and (4) identified under paragraph 7 above have no relevance.

Conclusion

42.  The plaintiff’s action is dismissed.

Costs

43.  I make an Order nisi for the costs of this action to be paid by the plaintiff to the 2^nd defendant, to be taxed if not agreed.  I make no order as to the costs of the 1^st defendant.

44.  The above costs orders are to become absolute unless any party files submissions stating the grounds of his objections in writing within 14 days of the date of this Judgment, such submissions not to exceed two pages for each party.  Any submissions in reply shall be filed within 7 days of receipt of the opposite party’s submissions, such submissions not to exceed one page.

45.  I thank counsel for their assistance.