PATRICK COWLEY AND WONG WING SZE TIFFANY (JOINT AND SEVERAL TRUSTEES IN BANKRUPTCY OF THE PROPERTY OF LAU YU ALSO KNOWN AS JAFFE LAU) v. LAU SZE AND ANOTHER

HCMP 363/2021

[2024] HKCFI 1662

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 363 OF 2021

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J U D G M E N T

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A.  INTRODUCTION

1.  In these proceedings commenced by Originating Summons filed on 18 March 2021 (as amended and re-filed on 27 April 2021), the Plaintiffs (“Trustees”), being the joint and several trustees in bankruptcy of the estate of Lau Yu (also known as Jaffe Lau)  (“Bankrupt”)  claims for recovery of possession of the property situated at Unit A on 15^th Floor, Tower 3, The Pavilia Hill, No.18A Tin Hau Temple Road, Hong Kong (“Property”)  registered in the sole name of the Bankrupt.

2.  By an Order of Master Hui dated 27 April 2021, these proceedings were ordered to be continued as if it had been begun by writ.  By a Statement of Claim dated 25 May 2021, the Trustees seek, inter alia, an order that the Plaintiff do recover possession of the Property against the Defendants, and for the 1^st Defendant (“D1”)  to pay mesne profits to be assessed. The Trustees confirmed they no longer maintain their pleaded claim for damages.

B.  RELEVANT BACKGROUND

3.  The following background facts are not in dispute.

B1.  The parties

4.  By an order dated 5 September 2017 (“Bankruptcy Order”), the Bankrupt was adjudged bankrupt and the Official Receiver became the provisional trustee of the property of the Bankrupt.  On 4 October 2017, the Trustees were appointed as the joint and several trustees of the property of the Bankrupt.

5.  D1 is the brother of the Bankrupt.  D1 is a merchant who carries on business of trading in red wines in the PRC.  He is married to a Madam Wong Lai Har (“Madam Wong”)  and they have a son born on 5 February 2021.

6.  As to the 2^nd Defendant, i.e. the other occupants of the Property, despite D1 having pleaded in his Amended Defence and Counterclaim filed herein that he resides in the Property with Madam Wong and his child, no one has applied to join in these proceedings as the 2^nd Defendant.

B2.  Transactions in relation to the Property

7.  By an assignment dated 6 June 2016 (“Assignment”), the Bankrupt acquired the Property for a consideration of HK$22,593,000 and remained the sole registered owner since then.

8.  On the same day of the Assignment (i.e. 6 June 2016), the Bankrupt entered into a mortgage with Hong Kong Capital Finance Corporation MBS 1 Limited (“HKCFC”)  with HKCFC as lender and the Bankrupt as borrower (“HKCFC Mortgage”).

9.  The HKCFC Mortgage contained, inter alia, warranties and representations by the Bankrupt that the Bankrupt had good right and title to enter into the mortgage free from incumbrances, that he would not part with the occupation, use or possession of the Property, and that no other person other than him was entitled to the use, occupation or possession of the Property other than bare licensees (see Clauses 7(b)  and 21.01).

10.  By a second legal charge dated 23 June 2016, the Bankrupt (as borrower)  charged to his associate company, All Powerful Investment Limited (as lender)  (“APIL”), all legal interest in the Property (“APIL Charge”). 

11.  On 29 December 2017, HKCFC entered into a Transfer of Mortgage with Hexagon Credit Limited (“Hexagon”)  whereby HKCFC assigned and transferred, inter alia, the outstanding indebtedness under the HKCFC Mortgage and all rights, interests, powers and benefit to and in the HKCFC Mortgage to Hexagon.

12.  On 17 June 2020, Hexagon commenced proceedings in HCA 1004/2020 against the Bankrupt for, inter alia, an order for sale of the Property to enforce the HKCFC Mortgage (“Hexagon Proceedings”). 

13.  By Order dated 22 December 2020, DHCJ William Wong SC declared that the APIL Charge over the Property constituted a transaction at an undervalue pursuant to section 49 of Bankruptcy Ordinance (Cap. 6)  and was hence invalid and void (“APIL Order”).

B3.  The Defendants’ occupation of the Property

14.  From the date of the Bankruptcy Order (i.e. 5 September 2017)  to 22 February 2021, the Property remained unoccupied.  However, on 22 February 2021, when the Trustees instructed a locksmith to change the locks of the Property, it was discovered that there were occupants in the Property, who asked the Trustees’ staff and the locksmith to leave (“Locksmith Incident”).  According to D1, he and his family moved back into the Property on 24 January 2021.

15.  On 12 March 2021, the Trustees’ solicitors, ONC Lawyers (“ONC”), received a letter from Messrs C.F. Lee & Co Solicitors alleging, inter alia, that they acted for D1 and that D1 had an equitable interest in the Property.

16.  The Trustees commenced these proceedings on 18 March 2021 to recover possession of the Property.

C.  D1’S PLEADED CASE

17.  D1’s pleaded case is that pursuant to an agreement and/or common intention/understanding between himself and the Bankrupt, “at least 50%” of the interest of and in the Property has been held on common intention or construction trust for D1; and that since D1 is a beneficial owner of the Property, he and his family members (including Madam Wong and his son)  have been occupying and living in the Property by reason of common intention constructive trust, proprietary estoppel and/or promissory estoppel.

18.  D1 pleaded that the common intention between himself and the Bankrupt came about as follows:

(1)  On around 23 October 2014, the Bankrupt acquired the Property on a “pre-sale” basis at the consideration of HK$22,593,000.

(2)  At the material time D1 was interested in acquiring and/or investing in a property in Hong Kong; however, he had difficulty obtaining mortgage loans from banks in Hong Kong as he did not pay tax in Hong Kong.  The Bankrupt knew about D1’s situation.

(3)  On or around 21 February 2016, D1 and the Bankrupt gambled together in Macau.  D1 won as much as HK$3.2 million.  In the circumstances, D1 and the Bankrupt entered into an agreement and/or formed a common intention / understanding (“Alleged Common Intention”)  that:

(i)  The Bankrupt and D1 would jointly purchase and/or acquire the Property on a 50-50 basis;

(ii)  D1 would pay the Bankrupt an aggregate sum of HK$4 million which was to be utilized for down payment, and the Bankrupt would make arrangements to obtain a mortgage loan to finance the balance of the purchase price; and

(iii)  D1 and the Bankrupt would co-own the Property equally on a 50-50 basis.

19.  D1 further pleaded that acting in detrimental reliance upon the Alleged Common Intention and believing that he was to have a 50% interest in the Property:

(1)  On 21 February 2016, he paid HK$3,200,000 to the Bankrupt;

(2)  On 9 March 2016, he paid the balance of HK$800,000 to the Bankrupt;

(3)  After the completion of the sale and purchase of the Property he had:

(i)  in August 2016, expended money in renovating and purchasing furniture for the Property;

(ii)  resided in the Property from 1 October 2016 to mid-January 2017;

(iii)  made mortgage repayments for the Property through the Bankrupt’s wife, Madam Tsang Wai Yee Terri (“Madam Tsang”);

(iv)  paid Government rents, rates and management fees for the Property;

(v)  paid HK$500,000 owing to Hexagon through Madam Tsang in order to settle the Hexagon Proceedings; and

(vi)  moved back into the Property on 24 January 2021.

20.  D1 counterclaims for (i)  a declaration that he is a beneficial owner of 50% (or such proportion as found by the Court)  interest in the Property (ii)  a declaration that the Bankrupt and the Trustees are merely constructive trustees holding such 50% (or such proportion as found by the Court)  interest in the Property for D1; (iii)  an order that the Trustees do take necessary steps to convey, transfer and/or assign 50% (or such proportion as found by the Court)  interest in the Property to and/or in favour of D1.

21.  The Trustees deny D1’s version of events and contend, inter alia, that (i)  the Property has been registered under the name of the Bankrupt, and the law will presume that the beneficial interest in the Property follows the legal interest unless D1 proves otherwise; and (ii)  D1 has failed to discharge his burden of showing that the Alleged Common Intention existed that he would have 50% beneficial interest in the Property, especially when D1’s case is tested against contemporaneous documents and subsequent conduct of D1 and the Bankrupt.

D.  LEGAL PRINCIPLES

22.  The following legal principles set out in the Trustees’ Opening Submissions are not disputed by D1.

D1.  Common Intention Constructive Trust

23.  The relevant principles have been summarised by DHCJ A Stock SC in Leung Hang Lin and Li Kwai Fuk v Lam Mei Yung [2019] HKCFI 2819 at §8 as follows:

“ 8. In summary:

(1)  The starting point is that equity follows the law. There is a presumption that the beneficial interest follows the legal interest. Where the property is registered in a defendant's name, the plaintiff bears the burden of showing, on the balance of probabilities, that the defendant held the property on trust for him or her such that the beneficial ownership differs to the legal ownership. See: Liu Wai Keung §44; Mo Ying §5.16; Primecredit §17.

(2)  The burden may be discharged by showing that: (i)  there was a common intention held by the plaintiff and the property owner at the time of the purchase (or exceptionally, thereafter)  that the beneficial ownership was to be different to the legal ownership; (ii)  the plaintiff altered his or her position in detrimental reliance upon the common intention; and (iii)  it is unconscionable for the property owner to assert ownership in reliance on the legal title. The constructive trust is constituted by the plaintiff's detrimental reliance on the common intention and the unconscionability of the legal owner departing therefrom. See: Luo Xing Juan §38; Liu Wai Keung §46.

(3)  The approach to ascertaining common intention is objective. One looks to the intention of each party which was reasonably understood by the other party to be manifested by the first party's words and conduct. See: Liu Wai Keung §47; Mo Ying §5.16.

(4)  The doctrine is sometimes described as having two limbs. First, where at any time prior to the acquisition (or exceptionally, at a later date), there is an agreement, arrangement or understanding reached between the parties as to how the property is to be held beneficially, based on evidence of express discussions. Second, where there is no evidence to support such a finding but the court relies on the parties' conduct as a basis from which to infer a common intention. There is some authority that under the second limb, direct contributions to the purchase price by a party who is not a legal owner will readily justify the inference. See: Mo Ying §5.8; Primecredit §§2.3 and 2.4.

 (5)   However, the modern approach is to assess the parties' common intention by a holistic approach having regard to the context and the particular facts.  The court is not constrained to consider only pure direct monetary contributions to the purchase price.  In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family are not that common, the court has to pay more regard to circumstantial matters.  See: Mo Ying §§5.14 and 5.15; Primecredit §1.6.”

D2.   Proprietary estoppel / promissory estoppel

24.  The doctrine of proprietary estoppel can generally be described as having three main elements:

(1)  A representation or assurance made to the claimant;

(2)  Reliance thereon by the claimant; and

(3)  Detriment to the claimant in the consequence of that reliance.

See: Ng Sew Hoi v Chong Yin Sing ([2024] HKCFI 414, HCA 15070/1998, 8 February 2024)  per Deputy Judge Suen SC at §23, following Cheung Lai Mui v Cheung Wai Shing (2021)  24 HKCFAR 116 at §23.

25.  The three requirements are interrelated and underpinned by the notion of unconscionability.  However, even if the three requirements appear to have been satisfied, if it would not “shock the conscience of the court” to refuse the claim, then the proprietary estoppel claim may still fail: Hong Chi Yung v Chung Ngai Ki (unreported, HCA 54/2014, 19 October 2016)  at §41 per Recorder Coleman SC.

26.  There is no real difference between promissory and proprietary estoppel: see Hong Chi Yung at §39.

E.  WITNESS CREDIBILITY

27.  The principles on the court’s approach in assessing credibility of witness evidence are well-established and helpfully summarized in Hu Lan v David Golden [2023] HKCFI 873 (per DHCJ H. Au-Yeung):

“ 36. When I consider the credibility of various witnesses who had given evidence in court, I shall take the following matters into account:

(1)  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;

(2)  Importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3)  The court will also attach 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;

(4)  The court should consider a witness' motive for deliberately not giving truthful testimony. For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest;

(5)  It is essential to have regard to the entirety of a witness' evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness' evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie;

(6)  On the other hand, where it is shown that a witness has been discredited over one or more matters to which he has testified, this fact is relevant to the assessment of his overall credibility;

(7)    While the court is entitled to take demeanour into account when assessing testimony, it should be borne in mind that demeanour can be deceptive and is therefore to be approached with care.”

28.  In Zief Incorporated v Tekchandani Ajai Mohan (T/A D'Ziner Collections (Hong Kong)  & Ors [2021] 3 HKC 69, Recorder Eugene Fung SC similarly held as follows:

“ 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…”

29.  At trial, the Plaintiff’s only witness is Mr Patrick Cowley, being one of the Trustees. Needless to say, Mr Cowley has no direct knowledge as regards D1’s alleged beneficial ownership of the Property and the Alleged Common Intention, and the Trustees’ case is largely (if not entirely)  based on the documentary evidence disclosed in these proceedings.  Mr Cowley was only briefly cross-examined by D1’s counsel.  I find his answers to be straight forward and credible.

30.  D1 gave evidence at trial in support of his case.  For the reasons which will be discussed further below, I do not consider him to be an honest or credible witness.  His answers in cross-examination were not only inconsistent with the evidence he gave in his Affirmation and witness statements filed herein on material aspects, they were also internally inconsistent, giving the impression that he was making up his evidence as he went along in an attempt to bolster his case.

31.  This Court has taken into account the long lapse of time since the relevant events in question, and it is not expected that D1 should remember clearly every detail of such events.  However, for many of the pertinent events in question, it is not D1’s evidence that he did not remember the details due to the lapse of time, but rather, he professed to remember such events but gave evidence inconsistent with his Affirmation, witness statements and pleadings filed herein (as will be discussed in Sections F to I below).

32.  Importantly, D1’s allegation as regards the Alleged Common Intention and his alleged beneficial ownership in the Property does not sit well with the undisputed or indisputable contemporaneous documentary evidence before the Court, and indeed inconsistent with it (as will be discussed in Section G below).

33.  I find D1’s evidence to be wholly unreliable and self-serving.  

34.  D1 also did not call any other witnesses to support his case or to corroborate his evidence. The Plaintiff submitted that this Court should draw adverse inferences against D1 for not calling relevant witnesses who, on D1’s own case have direct knowledge of facts which would support his case on his alleged beneficial ownership of the Property and the Alleged Common Intention.  The question as to whether adverse inferences should be drawn against D1 for not calling relevant witnesses will be discussed below in Section J below.

F.  D1’S EVIDENCE ON THE ALLEGED COMMON INTENTION

F1.  D1’s alleged conversation with the Bankrupt on 21 February 2016 in Macau and alleged payment of HK$3.2 million to the Bankrupt

35.  D1 was cross-examined at trial as to how the Alleged Common Intention came about, and in particular, his alleged conversation with the Bankrupt on 21 February 2016 at the casino in Macau which had apparently led to the alleged agreement between them to jointly purchase the Property.

36.  During cross-examination, D1 provided different versions of events as regards his alleged conversation with the Bankrupt, which were somewhat inconsistent with what he had stated in his Affirmation filed on 21 April 2021 (“Affirmation”)  and in his witness statements.  I do not find his evidence to be credible.

37.  In D1’s Affirmation and in his Witness Statement dated 20 October 2022 (“Witness Statement”), he stated that on or about 21 February 2016, he met with the Bankrupt in Macau for gambling and he won HK$3.2 million.  He stated that he and the Bankrupt had a “mini-celebration drink in Macao”, during which the Bankrupt told him that he had entered into a pre-sale agreement to acquire the Property at around HK$22.6 million, and that the Bankrupt invited him to invest with him jointly in the Property on a 50-50 basis.  The Bankrupt told him that is if he was interested, he should pay him a sum of HK$4 million which was to be used for down payment, and the Bankrupt would arrange a mortgage loan to finance the balance of the purchase price.  In reliance on this, D1 stated he had “immediately handed the sum of HK$3.2M to [the Bankrupt]” and promised him that he would “pay him the balance of HKD800,000 as soon as possible.”.

38.  However, during cross-examination, D1 provided different accounts of the events on 21 February 2016 and his alleged conversations with the Bankrupt.  D1 stated for the first time during cross-examination that his HK$3.2 million winnings was handed to the Bankrupt in the form of gambling chips, and that the Alleged Common Intention was reached by D1 and the Bankrupt as they were smoking and enjoying red wine on a sofa in the corner of their VIP room in the casino, while the casino staff were replacing the cards in preparation for the next game. 

39.  During cross-examination, D1 gave two versions of his alleged conversation with the Bankrupt that evening:

(1)  1^st version of events provided by D1: D1 initially stated that in between the gambling games they were playing, the Bankrupt had asked him how much he had won, to which D1 had replied, “HK$3.2 million”.  The Bankrupt then invited D1 to jointly invest in a property he had purchased in Tin Hau (i.e. the Property).  The Bankrupt said to D1 that since it was difficult for him to obtain mortgage financing in Hong Kong, he should pay the Bankrupt HK$4 million in exchange for a 50% interest in the Property.  D1 agreed, and gave the Bankrupt HK$3.2M equivalent in gambling chips, before the next game began.

(2)  2^nd version of events provided by D1: When D1 was further questioned as to whether he knew at that time how much the Property was worth, he came up with a second version of events.  D1 stated he knew how much the Property was worth, and that the Bankrupt had said to him during their discussions on the sofa that he had bought a property in Tin Hau for HK$20 million odd.  The Bankrupt then said to him “Did you win around HK$3 million?  If you give me HK$4 million, I will give you 50% of the interest in the Property.”

(3)  However, when this Court asked if anything more was said, D1 supplemented his evidence to say that the Bankrupt told him that he had to contribute to mortgage repayments, around HK$50,000/month, and after that, they returned to the gambling tables to continue with the next card game. 

(4)  Thereafter, when D1 was cross-examined by Ms Prisca Cheung (counsel for the Trustees)  whether he had asked the Bankrupt whether he had obtained mortgage financing for the Property.  D1 replied that he did not.  

(5)  This Court then asked D1 whether it was his understanding that HK$50,000/month represented 50% of the mortgage repayments, to which D1 replied “Yes”.  Ms Cheung then followed-up and asked if this was discussed, and D1 replied, “Yes”. 

(6)  D1 was then given another chance to clarify by this Court as to whether he knew that the Bankrupt had obtained mortgage financing at that time.  D1 then told the Court that the Bankrupt did not explain this in detail, but he said that the monthly mortgage repayments were in the region of HK$100,000/month.  When asked by the Court if, in fact, he did not remember, D1 answered, “I don’t remember”.  

40.  It can be seen from the above that not only was D1’s oral evidence inconsistent with the evidence in his Affirmation and Witness Statement, his oral evidence was also internally inconsistent.  I do not consider D1’s evidence to be credible or reliable.  His evidence that he gave the Bankrupt HK$3.2 million in gambling chips on 21 February 2016, and on that evening, the Bankrupt requested him to contribute to mortgage repayments in the sum of around HK$50,000/month were never mentioned in his Affirmation or Witness Statement.  D1 provided no credible explanation why this was the case.  Also, given that the Bankrupt had not taken out any mortgage loan at the time (the HKCFC Mortgage was only taken out on 6 June 2016), it is not credible for D1 to allege that he and the Bankrupt had already agreed upon the amount of mortgage repayments D1 should be making.  

41.  Having heard D1’s evidence in the witness box, he was clearly making up his evidence as he went along.  I reject his evidence as regards the events on 21 February 2016, including his alleged conversations with the Bankrupt which apparently gave rise to the Alleged Common Intention.

42.  Further, according to D1’s evidence, the casino manager Ricky Wong was present throughout and witnessed his alleged conversations with the Bankrupt.  However, D1 failed to call Mr Wong as a witness. 

43.  For the reasons discussed in Section J below, adverse inferences should be drawn against D1 for not calling the Bankrupt or Mr Wong to give evidence of the alleged events on 21 February 2016 to support his case.

F2.  Events on 9 March 2016, the alleged payment of HK$800,000 to the Bankrupt at the racecourse and the alleged written acknowledgment

44.  According to D1’s evidence, he and the Bankrupt returned to Hong Kong from Macau on 22 February 2016, and D1 promised to give the balance of HK$800,000 to the Bankrupt the next time they meet.  D1 allegedly met the Bankrupt at the Happy Valley racecourse on 9 March 2016 (i.e. around 2 weeks after the occasion in Macau).  It was apparently another lucky night for D1 and he won HK$817,500, which he collected at the Hong Kong Jockey Club (“HKJC”)  cashier counter in an envelope.  He stated that he removed HK$17,500 from the envelope and apparently gave the envelope (containing HK$800,000)  to the Bankrupt immediately.

45.  D1 produced a receipt/ticket said to be issued by the HKJC titled “Paid and Cashed Record”, stating “Paid Amount $817,500” with a date of 9 March 2016 and time “22:59” (“Paid and Cashed Record”).  The Paid and Cashed Record does not state the identity of the winner of the amount.  The Trustees dispute whether the Paid and Cashed Record is the complete original document, as the terms and conditions at the back of the document appear to have been cut off from a larger document and thus incomplete.  D1 provided the original for inspection at trial, and insisted that it was the document he was given by the cashier at the HKJC counter when he went to collect his winnings, which was printed out from a machine.

46.  This Court is not in a position to determine whether the Paid and Cashed Record is a complete document as there is no evidence as to how such receipt records are printed out.  Nonetheless, it remains the case that the document is not in itself evidence that D1 was the winner of the HK$817,500.  In any event, it is not D1’s evidence that he paid the Bankrupt on 9 March 2016 only because he won HK$817,500 on that day.  According to D1’s evidence in cross-examination, he had apparently brought with him HK$900,000 odd in cash to the racecourse on 9 March 2016, that he left HK$800,000 in his car to give to the Bankrupt, and the rest he kept in his pocket for betting that evening.

47.  D1 accepted that aside from the Bankrupt himself, there were other friends and acquaintances present that evening who witnessed him winning HK$817,500 and the fact that he immediately handed the sum of HK$800,000 to the Bankrupt. However, D1 did not call the Bankrupt or any of the alleged friends and acquaintances to give evidence at the trial.  D1 apparently were not familiar with such friends and acquaintances, and only remember the name of one of them i.e. Albert Chan.  

48.  D1 further relies on a written acknowledgment allegedly signed by the Bankrupt that evening on  9 March 2016 (“Written Acknowledgment”)  acknowledging that the Bankrupt had received HK$4 million as “part of” the purchase price for the Property.  The Written Acknowledgment reads as follows:

“ 本人柳宇已收柳思四百萬港幣作爲天后廟道柏敖山三座15A物業樓價的部分。

2016年3月9日”

49.  D1’s evidence is that upon receipt of the HK$800,000 from him, the Bankrupt immediately wrote and gave him the Written Acknowledgment.

50.  It is curious to say the least as to why the Bankrupt would suddenly have thought it necessary to provide the Written Acknowledgment to D1, when he did not provide D1 with any form of receipt or written record when D1 apparent gave him a much larger sum of HK$3.2 million (in the form of gambling chips)  two weeks earlier on 21 February 2016 at the casino in Macau.

51.  Further, the Written Acknowledgment does not sit well with D1’s evidence that he shared a relationship of trust with the Bankrupt at the time, and the evidence in his Supplemental Witness Statement that “my Brother and I still shared a close relationship, and we reposed trust and confidence on each other.  If my Brother was to rent a flat or property to me, we would not sign any tenancy agreement at all.  This was simply unnecessary.” 

52.  When asked in cross-examination why the Bankrupt would suddenly, on his own accord, provide the Written Acknowledgement of having received HK$4 million from D1, when he would otherwise have been content to rent a flat to D1 without any formal tenancy agreement, D1’s initial answer (on the first day of trial)  was that it was because they were buying the Property together, and that other smaller transactions did not matter.  However, his answer on the second day of trial was different – D1 explained that all his monetary dealings with the Bankrupt were made on an arms-length basis (“公平公正”), and that was the reason why the Bankrupt had provided the Written Acknowledgment to him.  This second answer contradicts the evidence he gave in his Supplemental Witness Statement as referred to in paragraph 51 above.

53.  I find D1’s evidence on the events of 9 March 2016 not to be credible or reliable.  It is clear to this Court that D1 was prepared to change his evidence as it suits him in order to support his case. 

54.  Clearly, if D1’s version of events is true, the Bankrupt and Mr Chan should be able to give pertinent evidence to corroborate D1’s version of events.  For the reasons discussed in Section J below, adverse inferences should be drawn against D1 for not calling the Bankrupt and Mr Chan to give evidence of the alleged events on 9 March 2016 to support his case.

G.  DOCUMENTARY EVIDENCE INCONSISTENT WITH D1’S BENEFICIAL OWNERSHIP OF THE PROPERTY

55.  D1’s allegations as to the Alleged Common Intention and his alleged beneficial ownership in the Property do not sit well with, and are inconsistent with, the undisputed or indisputable contemporaneous documentary evidence before the Court.  D1 has not been able to provide any credible explanation as to the inconsistencies.

G1.    The HKCFC Mortgage (6 June 2016)  and APIL Charge (23 June 2016)

56.  Clauses 7(b)  and 21.01 of the HKCFC Mortgage contained warranties and representations by the Bankrupt that the Bankrupt had good right and title to enter into the mortgage free from incumbrances, that he would not part with the occupation, use or possession of the Property, and that no other person other than him was entitled to the use, occupation or possession of the Property other than bare licensees.  

57.  These warranties contradict the Alleged Common Intention that D1 held 50% interest in the Property, and instead shows that the Bankrupt had all along treated himself as the sole legal and beneficial owner of the Property. 

58.  The HKCFC Mortgage was executed in 6 June 2016, just around 3 months after the Alleged Common Intention was allegedly formed on 21 February 2016.  

59.  The APIL Charge (dated 23 June 2016), although it was subsequently set aside on 22 December 2020 for being a transaction at an undervalue, it is nonetheless relevant that it contained no mention of D1’s beneficial interest in the Property.  Rather, it contained, inter alia, a Preamble at stating that “the Borrower is the registered and beneficial owner and is otherwise in possession of [the Property]” and a Clause 7.01(b)  providing that “the Borrower has good right and title to charge the Property in manner aforesaid subject to the First Mortgage but otherwise free from all incumbrances save as may be specified herein”.  

60.  If D1 indeed had a beneficial interest in the Property, there is no reason why the Bankrupt made no mention of the same in either the HKCFC Mortgage or the APIL Charge.

61.  This is notwithstanding that the HKCFC Mortgage and the APIL Charge were entered into prior to the bankruptcy of the Bankrupt, and APIL was the Bankrupt’s associate company.  There was no reason for the Bankrupt to provide false information regarding the ownership of the Property at that time.  

62.  Ms Scottie Yan (counsel for D1)  submits that the Bankrupt had every reason to lie, because if he disclosed that he only had 50% interest in the Property, the value of the security would be reduced and the amount of mortgage loan he could obtain would be reduced as well.  Not only is this argument premised upon a pure speculation on the motives of the Bankrupt, it ignores the fact that if the Alleged Common Intention existed, there would have been no reason why the Property would not be assigned to the Bankrupt and D1 in their joint names, and with both of them signing the mortgage documents as co-owner.

G2.  The Sun Rising Tenancy Agreement (1 August 2016)  and the Cancellation Agreement (24 February 2017)

63.  The Alleged Common Intention is also contradicted by the tenancy agreement entered into on 1 August 2016 between the Bankrupt as the landlord and Sun Rising International Development Limited (“Sun Rising”)  as tenant (“Tenancy Agreement”)  for a term of 5 years commencing on 1 September 2016 and expiring on 31 August 2021 at the monthly rent of HK$54,000.  Sun Rising was at the material time D1’s company.

64.  The Tenancy Agreement states in the First Schedule that the Bankrupt is the landlord of the Property.  There is no mention of D1 as landlord.  Instead, D1, as the sole director and shareholder of Sun Rising at all material times since its incorporation, had signed the Tenancy Agreement in his capacity as Sun Rising’s director.  

65.  The Tenancy Agreement further stipulated that the monthly rent was HK$54,000. There is no evidence before the Court as to the level of market rental in 2016.  However, the Trustees have adduced evidence that the median monthly rent of other similar-sized properties within the same development of the Property during the period between 2021 to 2024 was between HK$50,000 and HK$52,000.  If D1 was indeed a 50% beneficial owner of the Property, the rental payable by him under the Tenancy Agreement should reflect his 50% beneficial interest and should therefore have been significantly lesser than the stipulated rent in the Tenancy Agreement. 

66.  On 24 February 2017, the parties entered into a Cancellation Agreement to cancel the Tenancy Agreement (“Cancellation Agreement”).  The timing of the Cancellation Agreement is consistent with D1 signing another tenancy agreement for a different flat on 20 December 2016 and moving out of the Property in around mid-January 2017.

67.  As will be discussed in Section H below, D1’s occupation of the Property prior to the Bankrupt’s bankruptcy as well as any expenses he had allegedly incurred is consistent with the 5-year lease arrangement under the Tenancy Agreement. 

68.  Although the Trustees had pleaded reliance the Tenancy Agreement and the Cancellation Agreement in their Reply and Defence to Counterclaim filed on 3 September 2021, D1 did not address these documents at all in his Witness Statement dated 20 October 2022.  It was only in his Supplemental Witness Statement dated 17 April 2023 that he alleged for the very first time that the Tenancy Agreement was a “sham arrangement”, apparently created for tax evasion purposes.   

69.  D1 stated in his Supplemental Witness Statement that the Tenancy Agreement was signed on the suggestion of the Bankrupt, who advised him to treat the monthly mortgage repayments which he had to pay each month for the Property as “rental expenses” incurred by Sun Rising, “to inflate the expenses of Sun Rising” so as to reduce its net income and the amount of tax to be paid. 

70.  However, during D1’s cross-examination when he was asked about Sun Rising’s business, he stated that in fact Sun Rising never commenced any business as it could not open any bank accounts in Hong Kong, and thus never had any tax obligations as it remained an empty shell company.  D1 also expressly confirmed that, at the time the Tenancy Agreement was signed (i.e. August 2016), he already knew that Sun Rising could not and would not carry on any business operations or projects. This is inconsistent with D1’s evidence in his Supplemental Witness Statement that he intended to use Sun Rising as a corporate vehicle for importing and exporting wines to and from Australia, Mainland China and Hong Kong. 

71.  Given D1’s aforesaid evidence during cross-examination, there was simply no reason to put in place the alleged “sham arrangement” in the form of the Tenancy Agreement in August 2016.  In any event, the “sham arrangement” would be an illegal attempt to defraud the Inland Revenue.  During cross-examination, D1 was adamant to maintain that he would not have signed the Tenancy Agreement had he known it was to defraud the Inland Revenue.

72.  Also, D1 was unable to explain why, if the Tenancy Agreement was a “sham arrangement”, it would have been registered with the Land Registry, save as to say that it was the Bankrupt who arranged it.

73.  As regards the Cancellation Agreement signed on 24 February 2017, D1’s evidence is also internally inconsistent.  In his Supplemental Witness Statement, D1 stated that the Cancellation Agreement was executed because the Bankrupt informed him in or around February 2017 that the Bankrupt was “sued by HSBC and might be in financial trouble”.  However, D1 did not explain how the Bankrupt’s financial troubles could impact upon the Tenancy Agreement (which was, on his case, a sham anyway).  

74.  However, D1’s evidence during cross-examination as to the reasons for executing the Cancellation Agreement was entirely different.  He stated that the Cancellation Agreement was signed because Sun Rising could not open a bank account in Hong Kong and thus had no prospect of commencing business here.  When asked when he realised Sun Rising could not open a bank account in Hong Kong, D1 gave different answers during cross-examination.

(1)  Initially, D1 stated that he already knew this in August 2016 (see paragraph 70 above).

(2)  D1 then change his evidence to say it was in October 2016; and when asked why the Cancellation Agreement was not executed in October 2016, D1 stated that he wanted to keep the “sham arrangement” in place in the hopes that Sun Rising could still open a bank account.

(3)  Later, D1 then said it was around end of November 2016 that he gave up all hopes that Sun Rising would be able to open a bank account in Hong Kong and he suggested to the Bankrupt to cancel the Tenancy Agreement, but D1 did not arrange the cancellation immediately due to his Wife’s alleged health issues at the time.

75.  When asked the reason why Sun Rising could not open a bank account in Hong Kong, D1 was not able to provide any credible explanation, save as to say that at the time, it was generally difficult to open bank accounts for every company, especially as he had no income in Hong Kong.

76.  Having considered D1’s evidence, including the obvious inconsistencies between his evidence in his Supplemental Witness Statement and his evidence during cross-examination, as well as the indisputable documentary evidence, I reject D1’s case that the Tenancy Agreement was a “sham arrangement” as he alleges.  D1’s evidence in this regard is wholly incredible and unreliable.

77.  Rather, as submitted by the Trustees, the Tenancy Agreement and the Cancellation Agreement are entirely consistent with D1’s occupation of the Property between September 2016 and January 2017 (when according to D1’s own evidence, he moved to another flat), and his payment of expenses of the Property during such period (which will be discussed in Section H below).

78.  As to D1’s argument that HK$54,000/month was above market rent at the time, and there would have been no reason for him to pay this sum to the Bankrupt.  Leaving aside the fact that there is no evidence as to what the market rent was in 2016 (see paragraph 65 above), it is D1’s evidence that he dealt with the Bankrupt on an arms-length basis (“公平公正”).  If so, the parties were free to come to whatever arrangement they wish, and there is no evidence to show that HK$54,000/month is so unreasonable such that the Tenancy Agreement must have been a sham.

G3.    Bankrupt’s Statement of Affairs (18 December 2018)

79.  In the Statement of Affairs filed by the Bankrupt on 18 December 2018 (being a sworn document), the Bankrupt disclosed that he owned the Property which is estimated to produce about HK$22,600,000 in value. 

80.  The Bankrupt did not state that he held 50% of the Property on trust for D1.  This is to be contrasted with the disclosure by the Bankrupt in the same Statement that he held another property on trust for a third party.  

81.  If D1 indeed had a beneficial interest in the Property, there is no reason why the Bankrupt made no mention of the same in the Statement of Affairs.

G4.    Bankrupt’s 6^th Affirmation filed in HCB 104/2017 on 21 October 2021

82.  In the Bankrupt’s 6^th Affirmation filed in HCB 104/2017, the Bankrupt stated that the Property “was managed by my brother, Lau Sze”, and that “over the years, I have had a lot of money transactions and joint investments with Lau Sze… However, in the absence of any documentary reference at the moment, I have no specific recollection of the exact amounts involved.  Any equitable claim that Lau Sze may assert in the Pavilia Hill Property is a matter that is unrelated to me personally.”  

83.  The fact that the Bankrupt had deposed under oath that D1’s equitable claims over the Property had nothing to do with him, and that the Property was only “managed” by D1 is significant, in that if D1 indeed had a beneficial interest in the Property, there is no reason why the Bankrupt would not have acknowledged this.

G5.    Correspondence between ONC and solicitors for the Bankrupt

84.  In a letter from ONC to the Bankrupt’s solicitors, Messrs. Humphrey & Associates (“HA”)  dated 10 March 2021, ONC requested for (inter alia)  the identity and details of the individuals present at the Property on 22 February 2021, the reason why they were present, and whether the Property was tenanted.

85.  By a reply letter from HA to ONC dated 4 April 2021, the Bankrupt alleged that he did not have knowledge as to who had been occupying the Property.

86.  This is again inconsistent with D1’s case that he was occupying the Property was one of its beneficial owners and with the knowledge of the Bankrupt.

H.  ALLEGED EXPENSES INCURRED BY D1 IN RELATION TO THE PROPERTY

87.  Aside from making the payment of HK$4 million to the Bankrupt for a half share in the Property, D1’s case is that he had, in detrimental reliance on the Alleged Common Intention, incurred various expenses in relation to the Property through the years.  These include (i)  renovation and furnishing expenses, (ii)  mortgage loan repayments; (iii)  HK$500,000 to settle the Hexagon Proceedings, (iv)  management fees; and (v)  Government rent/rates.

88.  Whilst the Trustees do not dispute that D1 had incurred some expenses in relation to the Property, they contend that any expenses D1 had allegedly incurred could not have been in detrimental reliance of the Alleged Common Intention, and that D1 had failed to discharge the burden to show that such was the case. 

89.  The Trustees submit that D1’s evidence on his alleged payment of expenses in relation to the Property does not sit well with the allegation that he has a 50% beneficial interest in the Property, but instead bears a clear correlation with his occupation of the Property. 

90.  As submitted by Ms Cheung:

(1)  If D1 was truly a 50% beneficial owner of the Property, then one would expect that he would have (i)  consistently shouldered 50% of all property-related expenses regardless of whether he was occupying the Property (and if he were occupying the Property as well, he should have incurred an additional occupation rent, albeit at 50% of the market rent); and (ii)  he should have contributed to the purchase price of the Property by paying 50% of the mortgage repayments. 

(2)  However, (i)  there is only documentary evidence of D1 having incurred renovation cost and paid the management fees and Government rent/rates for the Property during or immediately before his occupation of the Property; (ii)  on such instances, the documentary evidence shows that D1 incurred such expenses in full as opposed to bearing only 50%; and (iii)pertinently, there is no documentary evidence of D1 having contributed to the purchase price of the Property by making mortgage repayments at all.

(3)  D1’s documented property-related expenditure is consistent with him being a tenant and/or squatter of the Property, as opposed to a 50% beneficial owner.

91.  D1’s evidence on each of the heads of property-related expenses allegedly incurred by him is discussed below.

H1.  Renovation and furnishing expenses

92.  According to D1’s evidence, during the period from August to September 2016, he spent around HK$170,000 odd renovating the Property and HK$200,000 odd on furniture for the Property.

93.  Whilst D1 has produced receipts evidencing the payment of these expenses, such expenses are consistent with him moving into the Property in September 2016 as tenant under the Tenancy Agreement (the term of the lease starting on 1 September 2016).

94.  D1 submits that if he was only a tenant and had no beneficial interest in the Property, it would have been disproportionate for him to spend HK$400,000 odd on renovation and furnishings for a lease at a rent of HK$54,000/month.

95.  This Court does not consider it disproportionate for D1 to spend HK$400,000 odd renovating and furnishing the Property during the period from August to September 2016, bearing in mind (i)  the Property was owned by the Bankrupt with whom D1 had a good relationship at the time; and (ii)  the lease under the Tenancy Agreement was for a term of 5-years.

96.  In the premises, this Court is of the view that D1’s payments of renovation/furnishing expenses during the period August to September 2016 cannot, by themselves, be supportive of his case that he had a beneficial ownership in the Property or as to the existence of the Alleged Common Intention.

H2.  Alleged mortgage repayments

97.  D1’s allegation that he contributed to mortgage repayments in respect of the Property is not supported by any documentation at all, and is no more than his own assertion.  According to D1, all such alleged repayments were made in cash.  In his Affirmation, he alleged that all such repayments were made to the Bankrupt’s wife, Madam Tsang, and that Madam Tsang would from time to time collect monies from him for the purpose of such repayments. 

98.  In his oral evidence at trial, D1 divided his alleged mortgage repayments into two different periods, being repayments prior to the bankruptcy of the Bankrupt (i.e. pre-September 2017), and those made after the Bankrupt’s bankruptcy (i.e. post-September 2017). 

99.  According to D1’s oral evidence, prior to the Bankrupt’s bankruptcy, he paid HK$50,000 per month to the Bankrupt for his share of the mortgage repayments, and that such sums were all paid in cash directly to the Bankrupt when they met from time to time for horse-racing at the racecourse.  D1 stated that there was no written record of such payments.

100.  The above account is obviously inconsistent with D1’s evidence in his Affirmation and Witness Statement, where he stated that the mortgage repayments were paid in cash to Madam Tsang.

101.  After the Bankrupt’s bankruptcy, D1’s evidence is that he became solely responsible for all property-related expenses, including mortgage repayments.  In his oral evidence at trial, D1 stated that he would pay a lump sum of around HK$300,000 in cash to Madam Tsang from time to time and she would use such sum to defray all property-related expenses; and that Madam Tsang would inform him when the funds in her possession were insufficient, whereupon D1 would pay her another HK$300,000 in cash.  According to D1, no records have been kept as regards his payments to Madam Tsang nor how such sums were used by her.  Despite this, D1 was able to tell the Court that he must have paid Madam Tsang sums of HK$300,000 around twenty odd times in the past.

102.  The complete lack of any documentary record of the alleged mortgage repayments made by D1 (whether to the Bankrupt or to Madam Tsang)  over the years is surprising.  One would at least expect some kind of written record of such alleged payments which were by no means insubstantial sums.  This is particularly so when financial dealings between him and the Bankrupt in relation to the Property were recorded in writing (e.g. the Tenancy Agreement and Cancellation Agreement), and the Written Acknowledgment (on D1’s case).  It is equally surprising that there is no record of the substantial payments made by D1 to Madam Tsang and how she used such sums.  Absent any written record, it is unclear how D1 would be able to keep track of how much he had paid Madam Tsang and to ensure that she indeed used those monies to defray expenses in relation to the Property on his behalf.

103.  Further, during cross-examination, D1 was unable to provide any credible explanation as to why he had to pay property-related expenses, including mortgage repayments, through Madam Tsang, when he could have made those repayments directly to the lender (Hexagon).  This is particularly so when D1 claimed to understand that the effect of the Bankrupt’s bankruptcy was that the Bankrupt no longer had any interest in the Property. D1’s explanation was that he did not pay Hexagon directly as the mortgage account was not under his name, but was under Madam Tsang’s name for which there is no evidence, and which makes no sense as Madam Tsang has never been the mortgagor under the HKCFC Mortgage.  D1 then changed his explanation to say that it was because Madam Tsang had always been making mortgage repayments, which (even if true), is not a reason why D1 could not have made payments directly to Hexagon given that on his case, he became solely responsible for mortgage repayments after the Bankrupt’s bankruptcy in September 2017.

104.  Having considered all of D1’s evidence, this Court does not consider D1’s allegations as to his alleged contributions to the mortgage repayments for the Property (whether through alleged payments to the Bankrupt or to Madam Tsang)  to be credible at all and I reject his evidence.  It defies belief to suggest that such substantial payments throughout the years were all made in cash and not even recorded in writing. 

105.  D1 also failed to (without any credible explanation)  call either the Bankrupt or Madam Tsang to give evidence in this action to support his alleged contributions to mortgage repayments, for which adverse inferences should be drawn (see further Section J below).

H3.   Alleged payment of HK$500,000 to settle the Hexagon Proceedings

106.  According to D1’s Affirmation, in around October 2020, and to D1’s “absolute surprise”, Madam Tsang informed him that she had already ceased taking steps to repay the mortgage loan in respect of the Property, and that the mortgagee had commenced the Hexagon Proceedings to enforce the loan.  According to D1, he was concerned that the mortgagee may take possession of the Property, and had therefore contacted a representative of Hexagon (the name of whom he could not recall)  to set up a meeting, which was held in mid-October 2020.  During the meeting, the representative from Hexagon had apparently told D1 that there was a default on 5 installments of the mortgage loan, and that “so long as the outstanding mortgage loan would be repaid, Hexagon would not continue to prosecute the proceedings under HCA 1004/2020” .  D1 stated that in such circumstances, after the said meeting, he immediately paid a sum of HK$500,000 to Madam Tsang, requesting her to make arrangements to repay the outstanding mortgage installments owed to Hexagon.

107.  This Court does not consider D1’s evidence of this alleged meeting with Hexagon and the alleged payment of HK$500,000 to Madam Tsang to be credible at all and I reject his evidence.

108.  First, D1 was not even a party to the Hexagon Proceedings.  It is incredible to suggest that Hexagon would have carried out settlement negotiations (let alone come to an alleged agreed compromise)  with D1 who was not the mortgagor or registered owner of the Property, and not a party to Hexagon Proceedings.  When asked to provide an explanation, D1 alleged that the representative of Hexagon whom he had spoken to must have mistaken him as his brother, the Bankrupt, as they both had the same surname.  D1’s suggestion that representatives of Hexagon did not check his identity before engaging in discussions with him on settlement of legal proceedings simply defies belief.  This extraordinary allegation has also never been mentioned in D1’s Affirmation or witness statements. 

109.  Second, if any settlement agreement in respect of the Hexagon Proceedings was indeed reached between Hexagon and D1, it is reasonable to expect that such agreement would have been recorded in writing.  However, D1 is unable to produce any documentary evidence recording such alleged agreement.  

110.  Third, it makes no sense to suggest that D1 would have paid HK$500,000 to the Madam Tsang immediately after the meeting for her to settle the outstanding mortgage loan installments with Hexagon, when according to D1, she had effectively defrauded him and betrayed his trust by taking his money but failed to pay the mortgage installments.  There was no reason why D1 could not have made the repayment himself to Hexagon, given that on his case, he was the one who met with Hexagon’s representative and discussed the settlement terms.  It is also extraordinary that D1 did not even ask Madam Tsang for a written acknowledgment or a receipt of the alleged HK$500,000 payment to her, despite that she had already defrauded him and betrayed his trust. 

111.  Fourth, in the letter from solicitors of Hexagon Messrs Hoosenally & Neo (“HN”)  dated 6 January 2022 (mistakenly stated as 2021)[1] to ONC (“HN Letter”), HN denied there were any settlement talks between D1 and Hexagon and stated that Hexagon “did not receive the sum of HK$500,000 from Madam Tsang Wai Yee Terri, the sister-in-law of [D1], or D1 himself.  According to our client’s records, the only sums received around the alleged period were the sums of HK$344,799.00 and HK$229,866.00 from [HKCFC] by cheque deposit on 15^th December 2020 and 15^th January 2021 respectively”.  HN also denied that Hexagon had not proceeded with its claim against the Bankrupt, and expressly stated that Hexagon was “desirous to proceed with the enforcement of the mortgage against the Property”. 

112.  There was also a Consent Summons issued by Hexagon on 5 July 2022 (almost two years after D1’s alleged “settlement” with Hexagon in October 2020)  in the Hexagon Proceedings wherein Hexagon sought inter alia, “liberty to continue its claims” against the Bankrupt notwithstanding his bankruptcy. 

113.  D1’s allegation that he procured a settlement of the Hexagon Proceedings by payment of the outstanding mortgage installments of HK$500,000 contradicts the HN Letter and the aforesaid Consent Summons, which suggested that Hexagon had every intention to proceed with its claims.

114.  D1 submits that as Hexagon has not taken possession of the Property, the Court should draw the inference that he had continued to make the mortgage repayments, as no one else would have the incentive to do so.  However, there is no evidence before the Court that mortgage repayments have been and are being made up to date. According to the mortgage repayment schedule attached to the HN Letter (“Repayment Schedule”), the last mortgage repayment was made to Hexagon on 15 June 2021. ONC had made further inquiries with HN by letters dated 14 April 2023 and 22 May 2023 as to whether Hexagon had received any further mortgage repayments but had not received any reply.

115.  Ms Yan submits that according to the Repayment Schedule, there were repayments made even after the Bankrupt’s bankruptcy, on divers dates between 13 February 2018 to 15 June 2021, and D1 was the only person who could have had any incentive to make such repayments, on the basis that he was a co-owner of the Property, given that the Bankrupt would derive no benefit in doing so after having been declared bankrupt by the Court upon which his assets fell into the hands of the Trustees. 

116.  However, this Court notes that the APIL Charge (pursuant to which the Bankrupt charged to APIL all legal interest in the Property)  was only declared by the Court to be void and invalid on 22 December 2020 pursuant to the APIL Order.  Prior to the APIL Order, it cannot be said that there was no incentive on the part of the Bankrupt to make mortgage repayments when the Property was charged to his associate company.  Thereafter, and shortly after the APIL Order, in January 2021, D1 moved back into the Property.  According to the Trustees’ case, such occupation by D1 (together with his allegation on the Alleged Common Intention)  was an attempt to assist the Bankrupt to obstruct the Trustees’ realisation of assets in the bankruptcy estate.  Even without making any finding on such allegation, any mortgage repayments up to June 2021 as recorded in the Repayment Schedule cannot in themselves lead to an inference that D1 was the one making such repayments by reason that he was a co-owner of the Property.  

117.  Further, although there is no evidence that Hexagon had taken any further steps in the Hexagon Proceedings since the Consent Summons or made any attempts to enforce the mortgage loan, this in itself cannot be a reason to accept D1’s case that he has been making mortgage repayments.  There may be other reasons why Hexagon has not proceeded with its legal claim or other enforcement action against the Bankrupt, including (inter alia)  the fact that this action is on foot, and its outcome may well impact upon Hexagon’s position.

118.  For the aforesaid reasons, I reject D1’s evidence that he paid HK$500,000 to Madam Tsang in around October 2020 for the purpose of settling outstanding mortgage installments in respect of the Property, or otherwise contributed to the mortgage repayments for the Property at any time, whether by reason of his alleged beneficial ownership of the Property or otherwise.

H4.  Management fees / Government rent and rates

119.  D1 provided documentary evidence of payments of management fees between August 2016 and January 2017 which coincided with D1’s tenancy of the Property under the Tenancy Agreement, Clause 4(i)  of which provides that the tenant was responsible for paying the management fees.  D1 has not produced any further documentary evidence of payments of management fees for the Property since January 2017.  This is not surprising, as January 2017 was when D1 had moved out of the Property.

120.  Further, during D1’s occupation of the Property, he paid the full amount of management fees, rather than 50% of the same.  This supports the Trustee’s position that D1 was occupying the Property as tenant, rather than pursuant to his alleged 50% beneficial interest.

121.  Between January 2017 and 30 November 2020, there is no evidence of D1 having paid any management fees for the Property at all.  

122.  The documentary evidence shows that management fees for the Property for May 2020 to November 2020 were paid all in one go on 30 November 2020, which was less than two months before D1 moved back into the Property in January 2021.  This suggests that D1 had only paid the management fees at that time in anticipation of his moving back to the Property in January 2021.

123.  As to the Government rent and rates, there is no documentary evidence showing that D1 had paid such expenses until 2 December 2020, when the rates for April 2020 to December 2020 were settled all in one go.  Assuming that it was D1 who had settled these amounts, the proximity in time between D1’s payment of the Government rates (December 2020)  and his moving back into the Property (in January 2021)  again suggests that the payment was made in anticipation of his moving back.  D1 also produced evidence to show that since moving back into the Property in January 2021, he has been paying Government rent and rates (at least until October 2022).

124.  As submitted by the Trustees, if D1’s allegations in relation to the Alleged Common Intention were true, he should have settled at least half of the amount outstanding under every demand for Government rents and rates and every bill for management fees.  However, the actual pattern and timing of payment is suggestive of the fact that payments were made by D1 only by reason of his occupation (actual and intended)  of the Property, rather than any beneficial interest therein.

125.  During cross-examination at trial, D1 stated for the first time that he would settle the management fees in full first, and the Bankrupt would then reimburse him (in cash)  for his half share.  As for the Government rent and rates, D1 claimed that the Bankrupt would let him know after he had settled the same, and D1 would pay the Bankrupt 50% of his share.  This alleged reimbursement arrangement has never been mentioned in D1’s Affirmation or in his witness statements, and no documentary evidence has been provided in support of it.  I do not consider such evidence from D1 to be credible or reliable.  D1 also failed to (without any credible explanation)  call either the Bankrupt to give evidence to support such allegations, for which adverse inferences should be drawn (see further Section J below).

H5.   Conclusion

126.  Taking into account all of D1’s evidence, this Court finds that D1 has not shown that he expended monies on the Property by reason of his alleged beneficial ownership therein, or in reliance on the Alleged Common Intention, the existence of which he has also failed to demonstrate.

I.  D1’s OWN CONDUCT INCONSISTENT WITH BENEFICIAL OWNERSHIP

127.  There are also other aspects of D1’s conduct which does not sit well with his case that he has all along been a co-owner of the Property.

128.  First, D1 mentioned for the very first time in cross-examination that the Bankrupt apparently mentioned to him at the casino in Macau on 21 February 2016 that his name would be registered as joint co-owner of the Property.  However, completion of the Property occurred on 6 June 2016, on which date the Property was assigned to the Bankrupt’s sole name under the Assignment.  The HKCFC Mortgage was also signed on the same day without D1’s participation.  If the Alleged Common Intention existed, and that the Bankrupt had indeed promised that he and D1 would be registered co-owners of the Property, one would expect D1 to have made sure that the Property was assigned to them jointly. 

129.  For the first time in cross-examination, D1 gave evidence that he had chased the Bankrupt 8 to 10 times to “add his name” to the Property (only later admitting that in fact he did not remember how many times he chased).  This evidence is inconsistent with D1’s Witness Statement, where he stated that “I reposed trust and confidence in my brother and my Sister-in-law… in the circumstances, it did not come across my mind that I needed to take steps to deal with the formalities in such a way as to protect my interest.”  D1 attempted to explain away such inconsistency by blaming his wife Madam Wong, and said that upon realising that money was tight due to the mortgage repayments which D1 had to make, Madam Wong insisted that D1 should ask the Bankrupt to add his name to the Property.

130.  According to D1, it was in January 2021 that the Bankrupt told him that he had “added” his name to the Property, but D1 stated he did not even check whether that was true. 

131.  D1’s evidence is not credible and defies common sense.  D1 could not explain how it was possible for the Bankrupt to “add” his name to the Property.  It is also unbelievable to suggest that if D1 indeed had a beneficial interest in the Property, he would not take steps to verify whether his name was in fact “added” as a registered co-owner, especially when he had apparently been chasing the Bankrupt many times to do so and his requests had not been acceded to.  Also at the time in January 2021, Madam Tsang had already defrauded him and betrayed his trust in failing to make mortgage repayments to Hexagon despite receiving substantial sums from him (see paragraph 110 above).

132.  D1 gave oral evidence that it was only by reason of the Locksmith Incident in February 2021 that had discovered that he was not in fact made a registered owner of the Property.  This evidence is inconsistent with what he stated in his Witness Statement, that he only discovered this after the commencement of these proceedings (in March 2021)  and with the benefit of independent legal advice. 

133.  Second, another indication of D1’s lack of any beneficial interest in the Property is the fact that the Property was left vacant for nearly 3.5 years (from September 2017 to January 2021)  before D1 occupied the same again in January 2021.  If D1 is indeed a beneficial owner of the Property (and who apparently was making mortgage repayments), there is no reason why he (as a seasoned businessman)  would leave the Property vacant for 3.5 years without having made any efforts to generate income from it.

134.  When D1 was asked about this during his cross-examination, he initially stated that he did not want an outsider to “dirty” his beautifully renovated flat, but then later changed his evidence by claiming that he had made efforts to rent out the Property during those few years, but was unsuccessful due to his high asking rent and the difficulty for potential tenants to rent a carpark there.  From the internal inconsistencies in his evidence, D1 was clearly making up his evidence as he went along.  I do not find his evidence to be credible at all.

135.  It is also curious that D1 suddenly chose to move back into the Property in January 2021, being coincidentally one month after the APIL Charge was declared void by the Court as being a transaction at an undervalue. 

136.  Third, D1 also failed to provide any credible explanation as to why he had not contacted the Trustees at all as regards his alleged interest in the Property until the Locksmith Incident in February 2021 (which prompted a letter from D1’s then solicitors to the Trustees in March 2021).  This is despite D1’s admission that by that time, he knew that he was not made a registered owner of the Property, but yet he did nothing to protect his alleged interest despite the Bankrupt’s bankruptcy in September 2017 (which D1 was well aware of).

J.  ADVERSE INFERENCES FOR FAILURE TO CALL WITNESSES

137.  The legal principles applicable to drawing adverse inferences against a party for failing to call relevant witnesses are summarised in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at p.340:-

“ (1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action;

(2)  If a court is willing to draw such inferences they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)    If the reason for the witness’s absence or silence satisfies the court then no such adverse inference may be drawn.  If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

138.  Ms Cheung submits that adverse inferences should be drawn against D1 for his failure to call key witnesses, including (i)  the Bankrupt, (ii)  Madam Tsang, (iii)  Ricky Wong, and (iv)  Albert Chan.

139.  Ms Yan does not dispute that the aforesaid persons are relevant witnesses for D1’s case, but submits that D1 has provided satisfactory reasons or credible explanations for not calling them.  This Court does not consider D1’s evidence in this regard (which was only provided during his cross-examination)  to be credible or reasonable.

140.  First, as regards the Bankrupt, save for D1 bare allegation that his relationship with his brother had apparently turned sour since February 2021, D1 provided no explanation as to why the Bankrupt was not called as a witness to support his case.  There is no objective reason why the Bankrupt would be unwilling to give evidence in this Action if D1 was indeed a co-owner of the Property, which would mean that 50% interest in the Property would not fall into his bankruptcy estate for the purpose of repaying creditors.  This Court finds that the truth lies in what D1 himself accepted during cross-examination i.e. that he did not believe that the Bankrupt would support his case on the Alleged Common Intention.

141.  Second, as regards Madam Tsang, according to D1’s evidence in cross-examination, he asked Madam Tsang to give evidence in around March 2023 and she refused by reason that the Bankrupt would not allow her to give evidence, and apparently further stated to D1 “you want my family to further break down?”.  This Court does not find such evidence to be credible.  There is no objective reason why the Bankrupt would not allow Madam Tsang to give evidence in this Action if D1 was indeed a co-owner of the Property, especially if (on D1’s case)  she had all along been the person assisting D1 in making the property-related expenses and receiving monies from him for such purpose.  It also defies belief to suggest that Madam Tsang would think that giving truthful evidence to the Court would cause a breakdown in her family.

142.  Third, as regards Ricky Wong, according to D1’s evidence in cross-examination, he asked Mr Wong if he could give evidence in this action by way of Wechat messages in around March 2023, but Mr Wong refused on the basis that he signed a “non-disclosure agreement” with the casino.  For reasons unexplained, such alleged WeChat messages have not been disclosed by D1 in these proceedings.  Further, it is unclear how a “non-disclosure agreement” would be an impediment for Mr Wong to give truthful evidence to the Court on the issues in this Action, which have nothing to do with the business of the casino or any matters which may be commercially sensitive.

143.  Fourth, as regards Albert Chan,  according to D1’s evidence in cross-examination, he asked Mr Chan to give evidence in also around March 2023 but he refused by saying that he was a good friend with the Bankrupt.  Such explanation is not credible.  Being a good friend of the Bankrupt cannot be reason not to give evidence in support of D1’s case, including the alleged events at the racecourse on 9 March 2016 and D1’s alleged winnings on that evening, which were (on D1’s case)  witnessed by Mr Chan.

144.  By reason of the aforesaid, I am of the view that adverse inferences should be drawn against D1 for not calling (i)  the Bankrupt, (ii)  Madam Tsang, (iii)  Ricky Wong, and (iv)  Albert Chan, that even if they were called, they would not give evidence in support of D1’s case.

K.  CONCLUSION ON D1’S CASE ON THE ALLEGED COMMON INTENTION AND BENEFICIAL INTEREST IN THE PROPERTY

145.  Applying the undisputed legal principles set out in Section D above,  there is a presumption that beneficial interest follows the legal interest.  As the Property is registered in the Bankrupt’s name, D1 bears the burden of showing, on the balance of probabilities, that the Bankrupt (and the Trustees after the Bankrupt’s bankruptcy)  held the Property on trust for him such that the Property’s beneficial ownership differs from its legal ownership.

146.  For the reasons set out in Sections E to J above, this Court finds that D1 has not discharged his burden of proving, on the balance of probabilities, that the Alleged Common Intention existed, or that the Bankrupt had made representations/assurances to D1 as to his alleged co-ownership or beneficial interest in the Property, or that D1 had acted to his detriment in reliance upon the Alleged Common Intention or alleged representations/assurances.

147.  In the premises, D1’s case based on common intention constructive trust, proprietary estoppel and/or promissory estoppel cannot be made out on the evidence.  

L.  CLAIM FOR MESNE PROFITS

148.  As D1 did not have any beneficial interest in the Property, he was in unlawful occupation of the Property since 24 January 2021 (being the date on which D1 admitted he moved back into the Property).

149.  It is well-established that where a person wrongfully occupies land, the owner will be entitled to claim mesne profits, and the normal measure of damages is the market rental value of the land being trespassed upon for the period of wrongful occupation: see McGregor on Damages (21^st Ed)  at §§39-047 to 39-049.

150.  As submitted by Ms Cheung, although expert evidence on market rental value of a property is commonly adduced for the purpose of quantifying mesne profits, such value need not be proven by expert evidence.  For example, in Chiyu Banking Corporation Ltd v Champion Harvest Enterprises Ltd t/a Koon Wan Motors Co (unreported, HCA 1449/2004, 14 April 2005), Deputy High Court Judge Fung (as he then was)  upheld an award by the master to use HK$20,000/month, being the rent payable by the appellant to the landlord under the tenancy agreement as well as the appellant’s subsequent tender to the landlord for continuation of the tenancy agreement, as evidence of the market rent (§5). Given that there was “no other evidence as to what the mesne profit should be”,the landlord “has not claimed any high amount”, nor has the appellant adduced any evidence of any lesser amount, the Court stated that the tender of HK$20,000 was “the best evidence” of market rent “in the absence of any evidence to the contrary” (see §6). 

151.  The Trustees rely on printouts from Centaline Property’s website which summarises all actual rental transactions in the same development as the Property i.e. The Pavilia Hill (“Development”)  from 2021 to 2023. 

152.  The Property is located in 15A, Tower 3 of the Development and is 913 sq. ft. in size.  As different flat sizes and different views may impact the rental price of a property, the Trustees only rely upon the actual transacted rental prices of the Flat A within Tower 3 as relevant comparables.  The Trustees have also excluded as comparables (i)  the transacted rental prices of flats that are not of the same size of the Property (i.e. Flats B and C); and (ii)  the transacted rental prices of flats that are not within Tower 3 (due to a potential difference in views).

153.  The relevant rental transactions from relied on by the Trustees are as follows (“Comparable Transactions”):

Year	Monthly rental amount (transacted)
2021	Transaction date	Address	Transacted rent
	15.02.20	Lower Floor Flat A, Tower 3 (913 sq. ft.)	$51,000
	01.08.20	Middle Floor Flat A, Tower 3 (913 sq. ft.)	$52,000
	08.12.21	Lower Floor Flat A, Tower 3 (913 sq. ft.)	$47,000
Median Rent for 2021:			$50,000
2022	06.06.22	Middle Floor Flat A, Tower 3 (913 sq. ft.)	$50,000
Median Rent for 2022:			$50,000
2023	03.07.23	Lower Floor Flat A, Tower 3 (913 sq. ft.)	$52,000
Median Rent for 2023:			$52,000

154.  The Trustees submit that the market rent of the Property for 2021 to 2023 should be calculated as follows:

(1)  2021: 50,000 x 11 months + (50,000/31 days x 8 days)  = HK$562,903

(2)  2022:50,000 x 12 months = HK$600,000

(3)  2023: 52,000 x 12 months = HK$624,000

155.  The Trustees have checked Centaline Property’s website for updates on 5 March 2024, and at the time of checking, no evidence on the actual rental transactions were available for the year of 2024.  The Trustees therefore proposed to adopt the market rental of 2023 (i.e. HK$52,000)  for the year of 2024.

156.  Ms Yan does not dispute the approach and calculations above, save as to submit that in the event that the Court is minded to rule against D1 on the issue of beneficial interest, the management fees, government rent and rates paid by D1 from 24 January 2021 to the date of delivery of vacant possession shall be deducted from the mesne profits to be assessed.  Ms Yan contends that D1 is not relying a claim of set-off for such deductions (which has not been pleaded).  Rather, if the rental of comparable properties are inclusive of management fees, government rent and rates, then in using such comparables to calculate mesne profits payable by D1 in this case, Ms Yan submits that credit should be given for the management fees, government rent and rates paid by him.

157.  I am of the view that such claim for deductions is in the nature of a set-off claim, which must be specifically pleaded: see Rules of the High Court (Cap. 4A)  Order 18 rule 17.  Such request for deduction was only raised for the very first time in Ms Yan’s Opening Submissions.  As such, the Trustees did not have any opportunity to adduce evidence as to whether the rental under the Comparable Transactions were indeed inclusive of management fees, government rent and rates, or carry out any investigations as to whether D1 indeed paid management fees, government rent and rates for the Property to date. Indeed, D1 has not even been able to specify the amount he is claiming as deduction from mesne profits, nor provided sufficient supporting evidence to justify such deductions. D1 has only produced documentary evidence to show that (i)  management fees of the Property were paid up to 30 November 2020; and (ii)  government rent and rates for the Property were paid up to October 2022.

158.  For the above reasons, I reject D1’s unpleaded claim for deductions from mesne profits.

M.  DISPOSITION AND COSTS

159.  For the aforesaid reasons, D1’s counterclaim is dismissed, and judgment is entered in favour of the Plaintiff for the following:

(1)  As against the 1^st and 2^nd Defendants, an order that the Plaintiff do recover possession of the Property.

(2)  The 1^st Defendant do pay mesne profits to the Plaintiff in the sums of (i)  HK$562,903 (for the period from 24 January 2021 to 31 December 2021); (ii)  HK$600,000 (for the period from 1 January 2022 to 31 December 2022); (iii)  HK$624,000 (for the period from 1 January 2023 to 31 December 2023), and at the rate of HK$52,000 per month from 1 January 2024 up to the date of delivery of vacant possession.

(3)  The 1^st Defendant do pay interest to the Plaintiff on the sums under paragraph (2)  above at judgment rate from the date of this Judgment to the date of payment.

(4)  A costs order nisi that the 1^st Defendant do pay the Plaintiff’s costs of this action (including all costs reserved), to be taxed if not agreed.