WONG CHIM YING v. CHENG KAM WING

[If you buy, from one spouse only, residential premises occupied as the matrimonial home by both spouses, you will take the property subject to the rights (if any) which the other spouse may have in that property, unless you make inquiry that other spouse about such rights and he or she does not disclose them]

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. In this action the plaintiff claims to be entitled as against the defendant to possession of Flat 4A, 50 and 52 Kai Tak Road, Kowloon ("the flat"). The facts (as I find them) are as follows.

2. The defendant ("the husband") was born in 1937. He gave evidence before me. I thought him a truthful witness and generally I accept his evidence. Since 1968 he has been, for most of the time, a public light bus driver. He married Cheung Sim-chum ("the wife") in 1969. The wife was a wig maker, but did not continue to work after the marriage. The husband and the wife lived with the wife's mother. (They had, eventually, two children, both boys.) The husband had some savings with which he was minded to replace his old bus with a better one. But he was persuaded to buy a fishing boat instead and laid out some HK$50,000 on this venture. However, he found that a seafaring life was not for him and he soon sold his interest in the boat. He got only HK$30,000 for it, of which he banked HK$29,000.

3. By then it was 1972. Differences had arisen between the husband and the wife, and the mother-in-law wanted the husband to leave. The wife suggested they look for alternative accommodation. This faced the husband, who was back to driving a public light bus, with the difficulty of finding time for this exercise. He decided that he would leave it to the wife to find alternative accommodation, and he put her in funds for the purpose by transferring HK$25,500 to her bank account.A week or so later he saw, under construction, the building of which the flat forms part. He went to find out the price. It was HK$45,000. It seemed a suitable place at a price he thought he could arrange to pay. He asked his wife and his mother-in-law to go with him one day, a Friday, to see the flat. It was a small flat, with two bedrooms, a living room, two lavatories and a kitchen. The wife liked it. The husband said they should put down a deposit. They did so. It was $3,000. They were told to go to a firm of solicitors on the following Wednesday for the formalities to be completed. The wife asked her husband who was supposed to go. He said that he would not be free and suggested that she should go. The mother-in-law could look after the children. He left the conveyancing matters, and the applications for services from the public utilities, to the wife (as he left all household chores). He expected that after the formalities were completed he and his family would have a place to live and a stable family life there. The wife duly arranged for a number of loans from friends (paid off in due course) to provide what was needed over and above the $25,500 which the husband had transferred to the credit of her account, and she took the flat in her own sole name. The husband gave all his earnings to the wife, keeping back only pocket money for himself. Out of his earnings, the wife paid the household expenses and paid back the loans she had arranged to help with the purchase of the flat. The wife had no money of her own, except what (if anything) she had saved out of what the husband had given her. There was a suggestion that it might have amounted to $100,000; but I very much doubt it. She did effect some dealings in stock exchange securities and in foreign exchange; but it seems that she did this primarily on behalf of her younger, married, sister, who did not want her own husband to know about these transactions. The husband allowed the wife to retain the title deeds.

4. By 1988, the two sons had more or less grown up. The husband suggested to the wife that she should go out to work to provide for rainy days. The wife's reaction, as expressed to the husband, was that she intended to go to work as an amah and move out of the flat. But she seems in fact to have decided on a more drastic course. She seems to have decided to sell the flat behind the husband's back and decamp with the proceeds, possibly (though there was really no evidence about it) to the United States of America.

5. In April 1988, the wife placed the flat in the hands of agents, Kar Luen Realty Agent Company, Kowloon City. One Yuen Pui-ying, the plaintiff's daughter, was looking for a flat at the time. Her mother was going to buy it for her.  She was a single girl of 27. She worked as an accountant. The flat came to her notice. It was near her office and so was conveniently situated for her. Mr Lee, of the agents, gave her details of the flat, including the price, which was $310,000. He made an arrangement with the wife for the plaintiff's daughter to come and inspect the flat that very day, which was 28th April 1988. He went there with her. He introduced her to the wife. The wife showed her around. The wife told her that the main bedroom was used by herself and the husband, and the second bedroom by the two sons, and that they were looking for bigger accommodation. The plaintiff's daughter was satisfied with the flat. She asked the wife if she would reduce the price.  In response, the wife merely told her to think it over; but she gave her two telephone numbers. One, she said, was her own on which she could be contacted in the mornings; the other was her sister's number. The wife offered to sell the furniture to the plaintiff's daughter. The date on which possession could be given was discussed. The wife said that she would like to have two months, because she would need that time to find alternative accommodation. The plaintiff's daughter said she would think about these matters.

6. Next day, 29th April 1988, the plaintiff's daughter telephoned the wife.They agreed on a price of HK$300,000, and that the wife could stay on for two months at a rent of $2,500 per month. They made an appointment to go to see Mr Lee, on 30th April 1988, for the plaintiff's daughter to pay the deposit. The plaintiff's daughter asked the wife to bring along her latest rate demand and her title deeds (which the wife said were in her sole name but were at the bank).

7. On 30th April 1988, the plaintiff's daughter gave Mr Lee his instructions.  She told him that she agreed to buy the flat, but to rent it back to the wife for two months at a rent of $2,500 per month. Mr Lee expressed himself satisfied with the wife's title deeds, and on 30th April 1988 an agreement was entered into to give effect to the arrangements made. This was an agreement in writing whereby the wife agreed to sell the property to the plaintiff for HK$305,000. The plaintiff's daughter signed the agreement in her mother's name. The agreement provided that, upon completion, the wife should deliver vacant possession of the flat to the plaintiff. But that was not really what was intended, for the agreement also provided that after completion (to take place on 10th May 1988) the plaintiff would lend the flat to the wife as a temporary residence for a period of two months up to 10th July 1988 only. It provided that the wife would compensate the plaintiff in the sum of $2,500. per month.  It was agreed that the flat was to be delivered to the plaintiff with vacant possession on 10th July 1988.

8. The agreement further provided that the wife and the plaintiff would appoint Messrs John Ku, Tam and Ho as their solicitors. (A Mr Thomas Kuk of that firm had acted for the plaintiff's daughter in an earlier transaction and that firm was nominated by her.)

9. It was suggested that the parties should go to see the solicitors on 3rd May 1988. But on the day before, 2nd May 1988, the plaintiff's daughter went to the flat again. She wanted to tell the wife what furniture she did not want. On that occasion, the wife confirmed that she was living at the flat with her husband and two sons. The plaintiff's daughter reminded the wife that they were to go to the solicitors on 3rd May 1988.

10. On 3rd May 1988, the plaintiff's daughter went to the bank to get a draft for the purchase money. She was accompanied by the plaintiff. The two of them went, after that, to the solicitors. At the solicitors' office, the plaintiff herself signed a formal sale and purchase agreement, incorporating the lease-back arrangement. The solicitors had not themselves inspected the flat. Arrangements were made for the assignment needed to give effect to the agreement to be executed on 11th May 1988. The plaintiff's daughter asked the wife to bring along to the appointment made with the solicitors for that purpose the water and electricity bills.

11. On 11th May 1988, the plaintiff's daughter went with the plaintiff to the solicitors and the plaintiff duly executed the assignment. The wife attended, with her sister and a little girl. The solicitors explained the arrangements to the wife, who also executed the assignment. She waited for the solicitors to give her a cheque for the balance of the purchase price. The plaintiff's daughter waited with her.  They had a casual chat. The plaintiff's daughter told the wife that she would call her before 10th July 1988; she also told her to remove all the furniture.

12. Of all this, the husband was completely unaware. On 13th May 1988 the wife disappeared. Two days later the husband received a letter, which although not in the wife's handwriting, was written on her instructions. It was in Chinese script. The translation reads as follows :

The husband has never seen the notice to which the letter referred. The "lawyer" mentioned in the letter has never been identified.

13. The plaintiff's daughter, knowing nothing of all this, in due course did call the wife. She wanted to make an appointment, for a particular time on 10th July 1988, for the delivery of possession. But the plaintiff's daughter could not locate the wife, either at the flat or at her sister's.  She got an unidentified male voice when she rang the flat.  She asked to speak to the wife, but she was told that the wife was not in.   She tried several times more, and got a similar reply. She asked for the wife to ring her but she did not get a satisfactory reply. She rang again, but this time she did not speak. As a reward, she got an earful of bad language.  She then spoke to her solicitors for advice. It was now a week or so before 10th July 1988. The plaintiff's daughter was advised that she could phone the other side one day before 10th July 1988 or go to the flat direct on that day.

14. On 9th July 1988 she rang again but got no answer. After 6 p.m., she rang once more. She was answered by a voice who told her that the wife was not there.

15. On 10th July 1988 she rang again. She got the same voice and the same reply. She sensed that there was something unusual going on. She did not want to go to the flat alone.   She thought it might be dangerous. She made an appointment with 3 others to go with her to the flat at 2 p.m. on 10th July 1988 to take possession. (10th July 1988 was a Sunday. The plaintiff's daughter was therefore unable to ask her solicitors to send someone to accompany her.)

16. The plaintiff's daughter and her party went to the flat. After some initial delay, they got into the building and pressed the bell. A middle-aged man answered (it was, in fact, the husband). The husband opened the door and asked the plaintiff's daughter for whom she was looking. The plaintiff's daughter replied that she was looking for the wife. He said that the wife was not there. The plaintiff's daughter said that she was there to take possession. The husband refused to let the party in. Another person (it was, in fact, the elder son) came on to the scene and wanted to go into the flat. He was let in and the plaintiff's daughter and her party followed him. The husband asked the plaintiff's daughter who she was. She told him that she was the plaintiff's daughter and that the plaintiff had purchased the flat. She told him that she was to take over possession, and that he must leave, that day. He said that he had not sold the flat. He said that he was the owner, but he had no proof to offer her. He asked her what she had paid. She said that he ought to know. He asked her for her documents. She showed him these. He asked her how she had bought the flat and she told him that it was through an estate agency. Not surprisingly, something of a row developed. The husband refused to move out. According to the plaintiff's daughter, the elder son said during the course of the row "we don't occupy your place for nothing". The plaintiff's daughter found that odd; the father had said that he knew nothing of the matter, but the son seemed to know something of it. The husband said that the son was just a boy and did not know anything. (It was suggested that I should treat all these matters as an admission against interest by the husband; but I reject this suggestion.) The plaintiff's daughter said that she would give the family two weeks extra; but if they did not move then proceedings would be taken against them for possession.

17. During the course of the row, the husband produced the letter to which I have already referred. But the plaintiff's daughter and her party paid little or no regard to it.

18. The next day, the plaintiff's daughter rang the solicitors and gave them instructions to deal with the matter. She was herself going abroad and was not in a position to give them further instructions. Those they had to take from the plaintiff.

19. Subsequently, the plaintiff instituted proceedings by way of originating summons, under Order 113 of the Rules of the Supreme Court, for possession of the flat. Perhaps because she knew little of the detail, the plaintiff's affirmation in support of those proceedings contained a number of untrue statements. (This reflects no credit on the plaintiff or on her solicitors.  But I have not heard evidence from the plaintiff or from her solicitors and I am reluctant in these circumstances to criticize them.) These proceedings were discontinued and the present action was instituted instead. The plaintiff made an attempt by summons under Order 14 to obtain summary judgment for possession. This was initially successful. The Master made an order for possession in favour of the plaintiff. But his order was reversed on appeal and the husband was given unconditional leave to defend. I now have to give judgment in the action.

20. My conclusions are as follows.  On the facts as I have found them, it is clear beyond argument that the husband has a beneficial interest in the flat,   perhaps the entire beneficial interest. I accept his evidence about the original purchase and I reject the suggestion that he bought the property with the intention of advancing the wife. I hold that the property was placed in her name for convenience only. The central question in the case, then, is whether the plaintiff took the flat free from the husband's beneficial interest, as she claims, or subject to it. If the plaintiff, who has the legal interest, can claim to be a purchaser for value without notice of the husband's equitable interest, equity will not stand in her way. The question, therefore, narrows itself down to this : did the plaintiff have actual or constructive notice of the husband's interest?

21. There is no ground whatever for holding that the plaintiff had actual notice of the husband's interest. Indeed, I am quite satisfied that the assertion of that interest must have come as a considerable shock to her. So the question narrows itself down still further. It becomes : did the plaintiff have constructive notice of the husband's interest?

22. Certainly, the plaintiff's daughter (the agent of the plaintiff for this purpose) knew from the start that the husband was sharing occupation of the flat with the wife. Now in such a case a purchaser of land takes subject to the rights of every person in actual occupation of the land, save where enquiry is made of such person and the rights are not disclosed. That is certainly the position where the land is in England or Wales and is registered land : see Williams v. Glyn's Bank Limited v. Boland [1981] A.C. 487. In the report of the Law Commission about the implications of this case, Cmnd. 8636, the Law Commission stated (at p.3)  "It seems probable that Boland would have been decided in the same way had the land been unregistered". I agree. In my opinion Northern Bank Ltd. v. Henry [1981] I.R. 1 and Kingsnorth Finance Limited v. Tizard [1986]1 WLR 783 support this view. I can see no good reason for taking a different view in relation to land in Hong Kong. Social conditions are different here from those prevailing in the British Isles. But the law and practice of conveyancing is basically the same.

23. The principle is that notice of occupation is notice of the occupier's rights. It makes no difference that the occupier is the husband or the wife of the vendor. Before Boland, it had been suggested that this would make a difference : see Caunce v. Caunce [1969]1 WLR 286 and Bird v. Syme-Thomson [1979]1 WLR 440. (See also the decision at first instance in Boland itself.)  But the proposition that a wife's shared occupation of the matrimonial home is insufficient to put a purchaser on notice of her rights (and I see no reason to regard a husband's shared occupation as any different) was doubted by Russell L.J. in Hodgson v. Marks [1971] Ch. 892 (see at p.934) and was rejected altogether in Boland both by Lord Denning in the Court of Appeal ([1979] Ch. 312 at p.332) and by Lord Wilberforce in the House of Lords ([1981] A.C. 487 at p.505).

24. In my judgment, it must now be taken as the law that a purchaser who fails to make inquiry of a wife or a husband as to his or her rights in the matrimonial home which he or she shares with his or her spouse will be treated as having taken the property subject to those rights. It follows that the purchaser should, in his or her own interest, make such inquiry; and that his or her solicitors should either advise him or her to do so or should do so themselves. But I am grateful to counsel for the plaintiff for his helpful argument to the contrary in the course of which he cited to me Bailey v. Barnes [1894]1 Ch. 25; Hunt v. Luck [1901] 1Ch. 45 and National Provincial Bank Ltd. v. Ainsworth[1965] A.C. 1175. I will refer briefly to these cases in deference to the argument addressed to me. In both Bailey v. Barnes [1984]1 Ch. 25 and Hunt v. Luck, the court indicated that the doctrine of constructive notice was not to be readily extended to defeat honest and prudent purchasers. In the latter case, Farwell J. said this (at page 48):-

"This doctrine of constructive notice, imputing as it does knowledge which the person affected does not actually possess, is one which the Courts of late years have been unwilling to extend. I am not referring to cases where a man wilfully shuts his eyes so as to avoid notice, but to cases like the present, where honest man are to be affected by knowledge which everyone admits they did not in fact possess. So far as regards the merits of the case, even assuming both parties to the action to be equally innocent, the man who has been swindled by too great confidence in his own agent has surely less claim to the assistance of a court of equity than a purchaser for value who gets the legal estate, and pays his money without notice."

25. But Farwell J. expressly took the law (as it relates to persons in occupation of land) to be as stated in 1853 by Lord Kingsdown (then Mr Pemberton Leigh) in Barnhart v. Greenshields (1853) 9 Moo. P.C. 18 (at page 32) : -

"With respect to the effect of possession merely, we take the law to be, that if there be a tenant in possession of land, a purchaser is bound by all the equities which the tenant could enforce against the vendor, and that the equity of the tenant extends not only to interests connected with his tenancy, but also to interests under collateral agreements  ... the principle being the same in both classes of cases; namely, that the possession of the tenant is notice that he has some interest in the land, and that the purchaser having notice of that fact is bound, according to the ordinary rule, either to inquire what that interest is, or to give effect to it, whatever it may be."

Lord Kingsdown had noted in Barnhart v. Greenshields (above):-

"In all the cases to which we have referred, it will be observed, that the possession relied on was the actual occupation of the land; and that the equity sought to be enforced, was on behalf of the party so in possession."

                (It has been pointed out elsewhere that the genesis of the phrase "actual occupation" in section 70(1)(g) of the Land Registration Act 1925 with which the courts were concerned in Boland appears to be these words of Lord Kingsdown.)

26. In my judgment, these cases do not assist the plaintiff. So far as the husband in the present case is concerned, he was in actual occupation of the flat, albeit an occupation shared with the wife; and the plaintiff must be taken to have been aware of that ccupation since the plaintiff's daughter had been told of it by the wife.  If any extension of the doctrine of constructive notice is involved in this case, it is an extension which is justified and indeed dictated by the decision in the Boland case. It may be that there is room for two views as to whether the House of Lords in that case should have so extended the doctrine of constructive notice, if that is indeed what it did. But the Boland case has, in effect, pre-empted any decision of this court upon the point. The decision of the House of Lords in Boland is, strictly speaking, of persuasive authority only in Hong Kong; but it is now well established that unless there is a very special reason for a Hong Kong court to differ on a point of law from views expressed in the House of Lords, it is the duty of the court in Hong Kong to follow the English decision.

27. In National Provincial Bank Ltd. v. Ainsworth (above) the House of Lords was dealing with the vexed queston of the "deserted wife's equity". The present is not such a case, but there is a passage in the speech of Lord Upjohn on which counsel for the plaintiff relied as applicable here. Lord Upjohn said this (at page 1233): -

"In this case your Lordships are dealing with essetially conveyancing matters.  It has been the policy of the law for over a hundred years to simplify and facilitate transactions in real property. It is of great importance that persons should be able freely and easily to raise money on the security of their property. Of course an intending purchaser is affected with notice of all matters which would have come to his notice if such inquiries and inspections had been made by him as ought reasonably to have been made (section 199 of the Law of Property Act, 1925). But surely any inquiry, if it is to be made reasonably, must be capable of receiving a positive answer as to the rights of the occupier and lead to a reasonably clear conclusion as to what those rights are? The answer 'I am a deserted wife' (if given) only gives notice of a right so imprecise, so incapable of definition, so impossible of measurement in legal phraseology or terms of money that if he is to be safe the mortgagee will refuse to do business and much unnecessary harm will be done."

But the right of the owner of a beneficial interest is much more precise than the "right" of the deserted wife. Given that the husband made a contribution to the purchase of the flat, it is clear that he had a beneficial interest commensurate with the amount of money which he put in. If he paid, as I find that he did, the entire purchase price,  then the entire beneficial interest belongs to him. This right is not open to the strictures pronounced by Lord Upjohn on the right of the deserted wife.

28. In the present case, no inquiry of the husband was made at all; no doubt the plaintiff's daughter was satisfied, quite understandably, with the assertion of the wife that the family was looking for bigger accommodation. She should have made such inquiry and because she did not, the plaintiff took the property subject to the husband's rights. Since the husband has a beneficial interest in the flat, and perhaps the entire beneficial interest, it follows that he has a right to continue in occupation of the flat; and as between the plaintiff and the husband, the husband has the better right to possession. The plaintiff contended that the husband was estopped from asserting his rights as against her, since he had clothed the wife with all the indicia of title which enabled the wife to hold herself out to the plaintiff as the beneficial owner. But this is misconceived. If the plaintiff had no notice (actual or constructive) of the husband's rights, she would have taken free of those rights without need for recourse to the doctrine of estoppel. If she did have notice (actual or constructive) of those rights, she cannot claim to have been misled by the husband's conduct into believing that he had no such rights.

29. This case is a good example of the problem with which the court is faced when the litigants involved are two innocent people, one or the other of whom has to suffer the consequences of the fraud of a third party. In this case, the wife sold the flat behind the husband's back; and either the plaintiff or the husband must be disappointed. The husband's interest was the first in point of time; it is not altogether unfair that he should succeed in keeping his interest, even at the expense of the plaintiff, who did, after all, have an opportunity to protect her interests by making the appropriate inquiries of the husband. The decision which I have reached may, I appreciate, create practical difficulties for purchasers and lenders, and their solicitors (just as the decision in Boland did in England and Wales). There is no easy solution to the problm, as may be discerned from the fact that the suggestion for reform made by the Law Commission, based on the proposition that the interest of a spouse who has not protected his or her interest by registration should be postponed to the interest of an innocent purchaser, has not in fact been accepted. This seems a pity. No doubt, the need to protect an innocent spouse from having his or her home sold over his or her head is important; but why is there not an equal need to protect the interests of an innocent purchaser?

30. In my judgment, the position in Hong Kong, like that in England and Wales, needs legislative attention. The balancing of these competing interests, and their protection,are impossible without changes in the law. There is nothing the court can do to create a system which is fair both to the innocent spouse and the innocent purchaser. The English experience suggests that there may be nothing that anybody can do; but this seems a counsel of despair and one which I hope need not be followed here. I do not think there is anything further I can usefully add; and I must dismiss the plaintiff's action.