CHEERBOND DEVELOPMENT LTD v. TUNG KWOK YU

HCA320/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 320 OF 2008

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J U D G M E N T

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Introduction

1.  Between 10 August 1983 and 31 January 2008, Yan Pui Ming (“Yan”) was registered as owner of flat B5, 11/F, Block B, Yan On Building, 1 Kwong Wa Street, Kowloon (“the Property”).  This is a dispute over the Property between the plaintiff which purchased the Property from Yan and the defendant, the ex-husband of Yan who occupied at least a cubicle in the Property.

Factual background

2.  In September 1965, the defendant set up his own water and electrical works business (“Kwok Ming”) as the sole proprietor.

3.  In September 1967, Yan and the defendant were married in Hong Kong according to Chinese customary rites and ceremonies.  In July 1975, they were married in Hong Kong under the Marriage Ordinance, Cap. 181.  The defendant was described as a “merchant” under “rank or profession” in the marriage certificate.  For Yan, it was “none”.

4.  By letter dated 25 July 1983, Yan informed the Bank of Communications (“the Bank”) that she intended to purchase the Property and she (as owner) and Kwok Ming (as borrower) applied for overdraft facilities of $200,000 and a fixed mortgage loan of $100,000 repayable by 36 monthly instalments.

5.  The Bank granted the application and by letter dated 27 July 1983 it instructed its solicitors to prepare a mortgage by Yan of the Property as security for the banking facilities applied for and to be granted to Kwok Ming.

6.  By an assignment dated 10 August 1983, the Property was assigned by the then registered owner to Yan for the consideration of $420,000.

7.  By a mortgage dated 10 August 1983 made between the Bank, Yan as mortgagor and Kwok Ming as borrower, Yan mortgaged the Property to the Bank.  Yan and Kwok Ming jointly and severally covenanted with the Bank to pay all moneys owing to the Bank.  This mortgage was discharged on 10 August 1988.

8.  By a mortgage dated 23 June 2003 made between the Bank, Yan as mortgagor and :

(1) the son of the defendant;

(2) the son’s wife; and

(3) Yan;

as borrower, Yan mortgaged the Property to the Bank to secure the borrower’s indebtedness to the Bank.  This mortgage was discharged on 7 May 2004.

9.  Both the defendant and Yan emigrated to an overseas country.

10.  Yan filed for divorce in December 2004 in the overseas country.  She stated in her application that she and the defendant had separated in June 2003 and gave the Property as the defendant’s contact address.  In March 2005, Yan obtained a decree absolute dissolving her marriage with the defendant.

11.  By an agreement dated 28 December 2007 made between Yan as vendor and the plaintiff as purchaser (“the provisional agreement”), Yan agreed to sell and the plaintiff agreed to purchase the Property at the price of $2.8 million, $50,000 of which was paid on signing of the provisional agreement, $230,000 payable upon signing of the formal agreement by 4 January 2008 and the balance of $2,520,000 on completion by 31 January 2008.

12.  Clause 3 was a printed clause providing for delivery of vacant possession on completion.  However, a hand-written clause 14 provided that the purchaser was responsible for notifying Yan’s ex-husband, the defendant, who was said to occupy a cubicle, to vacate and that Yan had no responsibility if the defendant should fail to vacate the Property on completion.  Clause 14 read as follows :

「買賣雙方同意，在交吉之日如賣方的前夫董國宇未能如期搬出此物業，則由買方負責和承担通知董國宇搬離此物業，一切責任與原業主甄佩明無關。(買方已清楚此物業有一間房是董國宇居住)。」

13.  The original printed clauses 6 and 7 providing for alternative performance were deleted and replaced by a hand-written clause providing for completion as the only mode of performance.

14.  On the documentary evidence, I am satisfied and find as a fact that $50,000 was paid by the plaintiff to Yan upon the signing of the provisional agreement.

15.  The formal agreement between Yan and the plaintiff was dated 4 January 2008.  Clause 8 provided that it was an essential condition that vacant possession of the Property should be given to the plaintiff on completion.  However, clause 38 which was identical to clause 14 of the provisional agreement, absolved Yan from responsibility if the defendant should fail to vacate the Property.

16.  On the documentary evidence, I am satisfied and find as a fact that $230,000 was paid by the plaintiff to Yan through her solicitors, Messrs N.K. Tsang & Co., upon the signing of the formal agreement.

17.  By letter dated 8 January 2008, solicitors for the plaintiff wrote to solicitors for Yan stating that, upon the former’s perusal of the title deeds and documents sent by the latter to the former on about 2 January 2008, they required the production of two copy memorials to complete the chain of title.

18.  The assignment of the Property by Yan to the plaintiff was dated 31 January 2008.

19.  On the documentary evidence, I am satisfied and find as a fact that the balance of $2,520,000 was paid by the plaintiff to Yan’s solicitors who paid over the same to Yan, after deducting costs and disbursements and the sum of $80,000 held by them as stakeholders for payment of the costs of repairs to the common parts of the building.

20.  The defendant declined to move out from the Property and the plaintiff commenced this action. 

Factual issues

21.  I turn now to the factual issues. 

22.  In paragraphs 14, 16 and 19 above, I have already decided in favour of the plaintiff on the issue of whether the plaintiff had paid Yan the purchase price in full.

Payment of Yan’s acquisition cost

23.  The defendant’s case is that the acquisition cost of the Property in Yan’s name was funded by him and banking facilities granted by the Bank to Kwok Ming and that he alone paid off all indebtedness to the Bank.

24.  The plaintiff pointed out that the defendant had not produced any document evidencing any payment by the defendant of the acquisition cost or any part thereof. 

25.  That is true.  However, this is not by itself decisive against the defendant.  The Property was acquired in 1983, almost 26 years ago.  The absence of documentary evidence is understandable. 

26.  I turn to inherent probabilities and the objective facts. 

27.  The defendant and Yan were traditional Chinese who celebrated their Chinese customary marriage in 1967.  According to the marriage certificate, she was not gainfully employed in July 1975 at the time of the civil equivalent ceremony.  There is no allegation or evidence that Yan had any asset or income to acquire the Property. 

28.  On the other hand, the defendant had been operating his water and electrical works business for nearly 18 years by the time of the acquisition of the Property. 

29.  The inherent probabilities are in favour of the defendant.  I find that he had paid the whole of the purchase price for Yan’s acquisition of the Property.

Meeting on 24 January 2008

30.  At all material times, the plaintiff was represented by its sole director, Mr Ho Shu Shing (“Ho”).

31.  It is common ground that the plaintiff first gave notice to the defendant of the plaintiff’s alleged interest in the Property on 24 January 2008.  That was the first time Ho met the defendant. 

32.  The plaintiff’s case is that Ho told the defendant of the plaintiff’s acquisition of the Property and gave notice to the defendant to move out by completion date and that the defendant :

“confirmed to Ho that he had already divorced from Yan and he had no interest in the Property which was owned by Yan solely and absolutely and he also agreed to move out from the Property as soon as possible.”

33.  The defendant’s case is that he informed Ho that there was a dispute as to the ownership of the Property and asked Ho to get Yan to contact him.

34.  Ho’s manner of conducting the plaintiff’s business in the acquisition of the Property seemed a little odd, to say the least. 

35.  Under both the provisional agreement and the formal agreement, the plaintiff took the risk of the defendant’s failure to deliver up possession of the Property, and the plaintiff could not call off the transaction with Yan on the ground of the defendant’s failure to move out.

36.  He said that clause 14 of the provisional agreement could not be regarded as reasonable.  The explanation which Ho said was put forward by Yan was that she did not want to see or talk to the defendant.  I consider the explanation which Ho attributed to Yan wholly unconvincing.  Yan had allegedly told Ho that both Yan and the defendant resided at the Property.  How could Yan avoid seeing the defendant when both were said to be residing in the same flat?  If Yan did not wish to see the defendant, she should not have resided under the same roof with the defendant, there being no allegation that she could not afford paid or alternative lodging.  Against that background, Ho was content to rely solely on what Yan told him and made no independent enquiry as to the defendant’s possible interest in the Property before committing the plaintiff to the purchase by signing the provisional agreement, by paying over the further deposit and confirming the plaintiff’s commitment by signing the formal agreement.  He took no steps to inform the defendant about the plaintiff’s transaction with Yan until 7 calendar days before completion.

37.  In my judgment, I find the plaintiff’s case that the defendant “confirmed to Ho that … he had no interest in the Property which was owned by Yan solely and absolutely and he also agreed to move out from the Property as soon as possible” too good to be true.  On the following day, i.e. 25 January 2008, the defendant made a report to the police and at least as from that day, he resolutely refused to move, reporting to the police on each occasion Ho met him.  He also asked his friends to stay in the Property while he was away. 

38.  On the balance of probabilities, I decide this issue in favour of the defendant and find as a fact that on 24 January 2008, he informed Ho that there was a dispute as to the ownership of the Property and asked Ho to get Yan to contact him.

Meeting on 31 January 2008

39.  It is common ground that there was another meeting between Ho and the defendant on 31 January 2008.

40.  The plaintiff’s case is that after completion of the purchase, Ho went to the Property to obtain vacant possession but the defendant refused to move out.  There was a dispute between Ho and the defendant and a report was made to the police.  The plaintiff alleges that :

“After the investigation by the police officers and under the witness of them, the Defendant agreed to move out from the Property and deliver the vacant possession of the Property to the Plaintiff but he would need more time to do that.  Therefore, Ho agreed to let the Defendant stay in the Property until 1^st March 2008.  Ho asked if the Defendant could sign a written consent for confirming the agreed date of his moving out from the Property.  The Defendant agreed to give such written consent and asked Ho to come back on 2^nd February 2008.”

41.  The defendant’s case is that :

“(iii)   During the visit, Ho demanded vacant possession of the Property from the Defendant.  The Defendant refused.

(iv) The Defendant then called the police.  A number of police officers arrived to investigate the incident.

(v) Ho also asked the Defendant to sign a written consent agreeing to move out of the Property by the end of February 2008.  The Defendant did not accede to the request.”

42.  If the defendant had agreed to move out by the end of February 2008, and importantly, in the presence of police officers, the probabilities are that he would have agreed to Ho’s request to confirm it in writing there and then.  It would have been difficult for him, in the presence of police officers, to agree orally to move out but decline to confirm it in writing there and then.  After all, he was said to be the party asking for a favour, i.e. for time to move out.  The letter dated 22 April 2008 on behalf of the Commissioner of Police to the defendant made no mention of any agreement by the defendant to vacate, whether by the end of February 2008 or at all.  

43.  I find as a fact that the defendant did not agree to move out of the Property, as alleged by the plaintiff or at all.

Breaking open door and metal grille

44.  The plaintiff skirted around the strong-arm tactics Ho adopted on 2 February 2008.  Both the Statement of Claim and Ho’s witness statement merely alleged a telephone conversation between Ho and the defendant in the morning during which the defendant told Ho that he had instructed solicitors to handle the matter and would not discuss it any further with Ho.

45.  The defendant’s case was that Ho reacted in an abusive manner during the telephone conversation in the morning and threatened forcible entry to the Property and that Ho carried out his threat in the afternoon and used force to break open the metal grille and door of the Property.

46.  Under cross-examination, Ho claimed that he could not recall the words he used during the telephone conversation and testified that he was “very angry” and threatened the defendant with the use of force.  He claimed that he was “very very angry” and went to the Property, armed with some tools which he used to break open the metal grille and the door.

47.  I am satisfied that Ho threatened the defendant over the telephone and subsequently went to the Property, armed with an axe, and broke open the metal grille and the door.

48.  The adoption of strong-arms tactics by Ho in his attempt to bully the defendant into vacating the Property is deplorable.

Ho’s credibility

49.  I should add that Ho did not impress me as a credible witness.  Where his evidence conflicted with that of the defendant, I prefer the defendant’s evidence, but I do not put this in the forefront of my reasoning.

Reason for acquiring the Property in Yan’s name

50.  In paragraph 4 of his witness statement which he adopted as his evidence in chief, the defendant recounted his agreement with Yan and his reason for the acquisition of the Property in Yan’s name.  He said that it was agreed between Yan and him that Yan was only the owner in name and that he owned all the rights in the Property.  The reason he gave was that making a profit was not a certainty and in the event of his business incurring a loss, the creditors would go after the Property and that this could be avoided if the Property was in Yan’s name:

「於1983年，我擬購買該物業，並與甄佩明商討，雙方同意，以甄佩明的名義購入，但實際上由我支付樓價首期及所有費用以及所有按揭供款。雙方都明白及同意甄佩明只是『掛名』的業主，而我則擁有該物業的全部業權。這樣的做法是由於當時我獨自經營水電工程生意，由於做生意未必一定賺錢，一旦虧損，若該物業是我本人名下，必會被債主追債及要求變賣，若用甄佩明的名義買下，便能避免這事發生。」

51.  The defendant was not cross-examined on his account of the acquisition of the Property in his name.  There is no reason not to accept it.  I find that both Yan and the defendant agreed to put Yan forward as the registered owner to provide for the contingency of the defendant’s business incurring a loss.  I also accept the defendant’s oral evidence that everything in business had been quite smooth since 1983.  There is no suggestion and I find that the contingency never materialised and no creditor of the defendant or of his business has in fact been defrauded.

Legal and beneficial interests in the Property

52.  Mr Frederick H.F. Chan, counsel for the plaintiff, submitted that the agreement between Yan and the defendant was for the purpose of defeating or evading the creditors of the defendant’s business; that the defendant had since 1983 had creditors in the shapes and forms of the landlord of the defendant’s business address, the Bank and the Inland Revenue Department; and that the “nominee agreement” had been fully implemented and carried through.  Mr Chan relied on the Gascoigne v Gascoigne [1918] 1 KB 223, Tinker v Tinker [1970] P136 and other cases.

53.  Ms Winnie W.M. Tsui, counsel for the defendant, submitted that the Gascoigne and Tinker cases did not apply because a distinction ought to be drawn between cases in which the illegal purpose had been effected on the one hand and cases in which the illegal purpose was only intended but was never carried out on the other and that in the latter case, the Court should not refrain from giving effect to the resulting trust claimed, citing Symes v Hughes (1870) LR 9 Eq 475, Chettiar v Chettiar [1962] AC 294 and Tinsley v Milligan [1994] 1 AC 340.

54.  Where A pays wholly for the purchase of property which is vested in B alone, there is a presumption that A did not intend to make a gift to B: the property is held on trust for A.  The presumption of a resulting trust can be rebutted by reliance on the presumption of advancement.  Where A is the husband of B, there is a counter-presumption, the presumption of advancement, which provides prima facie evidence about A’s intentions as to where the beneficial interest in the property should lie.  See Snell’s Equity, 31^st edition, paragraph 23-02.

55.  Both the presumption of a resulting trust and the presumption of advancement can be rebutted by evidence of the actual intention of the purchaser, Snell’s, paragraph 23-09. 

56.  A person may not rely on his own illegal act in order to rebut these presumptions.  Thus where a husband puts property into his wife’s name, he cannot be heard to say that he did so to defeat his creditors, Snell’s, paragraph 23-11 and Gascoigne.

57.  However, and importantly, an illegal purpose will not bar a person from seeking to rebut the presumption if he withdraws from the purpose before it has been wholly or partly carried out.  In that event, evidence can be led to rebut the presumption, Snell’s, paragraph 23-11.  Tribe v Tribe [1996] Ch. 107 was one of the cases cited in support of the proposition.

58.  Neither counsel cited Tribe. That was a case where the English Court of Appeal analysed and very considerably clarified the exception to the illegal or fraudulent purpose rule.  The headnote reads as follows :

“The plaintiff held 489 of the 500 issued shares in a company that sold ladies’ clothing from a number of shops.  Two of the shops were in poor repair and were held under full repairing leases, the plaintiff being the tenant.  In 1986 the plaintiff, then aged 65, wished to retire and hand over the running of the company to the defendant, one of his four children.  He transferred 30 shares in the company to the defendant for a stated consideration of £6,000 which remained unpaid.  During 1987, under the terms of the leases, the landlords served on the plaintiff schedules of dilapidations.  To meet the cost of the necessary repairs the plaintiff would have had to sell the company. To safeguard his interests, in September 1988 he transferred his remaining shareholding, then amounting to 459 shares, to the defendant for £78,000, a consideration which was not, and was not intended to be, paid by the defendant.  In the event no repairs were carried out.  The lease of one of the shops was surrendered to the landlord and the defendant purchased the reversion of the other shop from the landlord.  Thereafter the plaintiff requested the defendant to retransfer the 459 shares in the company.  The defendant refused to do so and the plaintiff sought a declaration that he was entitled to the entire beneficial interest in the 459 shares and an order that the defendant transfer them into his name.  The judge found that the transfer had been made for an illegal purpose, namely the intention of deceiving the plaintiff's creditors, but held that since the illegal purpose had never been carried into effect the plaintiff was entitled to lead evidence to rebut the presumption of advancement that would require the transfer to be treated as a gift.  The judge then found that there had been an agreement that the defendant would hold the shares on trust for the plaintiff pending the settlement of the dilapidation claims, and he granted the plaintiff the relief sought.

On appeal by the defendant: -

Held, dismissing the appeal, that since the transfer of the shares was a voluntary transfer between father and son for no consideration the presumption of advancement applied unless the transferor could rebut it; that an action for restitution could be brought by the transferor either at common law or in equity but as a general rule would fail if it would be illegal for the transferor to retain any interest in the property; that in a case where no presumption of advancement arose a transferor could recover property transferred without consideration if he could do so without reliance on an illegality and could show an intention to retain a beneficial interest in the property; that that exception to the general rule applied where the presumption of advancement arose but the illegal purpose which the transferor had to rely on in order to rebut the presumption had not been carried into effect in any way; and that, accordingly, the plaintiff had been entitled to lead evidence of the agreement with the defendant in order to rebut the presumption of advancement (post, pp. 116A-B, E-G, 118C-F, 121E-122B, E, 132G-133B, 134C-135A, F-G).

Tinsley v. Milligan [1994] 1 A.C. 340, H.L.(E.) considered.

Per Millett L.J. The doctrine of the locus poenitentiae is not an exclusively contractual doctrine with no place in the law of restitution.  It cannot be excluded by the mere fact that the legal ownership of the property has become lawfully vested in the transferee.  It would be unfortunate if the rule in equity were different.  It would constitute a further obstacle to the development of a coherent and unified law of restitution (post, p. 126E-F).

Decision of Judge Weeks Q.C. sitting as a judge of the Chancery Division affirmed.”

59.  Nourse LJ :

(1) stated that the question is whether, where the presumption of advancement applies, the transferor can still recover the property, on the ground that, although he is forced to rely on the illegality in order to rebut the presumption, the illegal purpose has not been carried into effect in any way (p. 111);

(2) distinguished Gascoigne and Tinker on the following grounds (p. 120) :

“Neither Gascoigne v. Gascoigne [1918] 1 K.B. 223 nor Tinker v. Tinker [1970] P. 136 casts any real light on the question whether the exception can apply to such a case.  It could be said of Gascoigne v. Gascoigne that the plaintiff’s admission that he had refused to pay taxes in respect of the house on the ground that it was his wife’s property would in any event have prevented it from applying.  Moreover, Tinker v. Tinker was a case where the husband’s evidence, so far from rebutting the presumption of advancement, confirmed it.  There having been no illegal purpose in the first place, the question whether such a purpose was carried into effect could hardly have arisen”; and

(3) held that one must not confuse the purpose with the transaction and that it is the purpose which has to be carried into effect and that would only have happened if and when a creditor had been deceived by the transaction (pp. 121–122) :

“I return to the facts of this case.  The judge found that the illegal purpose was to deceive the plaintiff's creditors by creating an appearance that he no longer owned any shares in the company.  He also found that it was not carried into effect in any way.  Mr. Tunkel, for the defendant, attacked the latter finding on grounds which appeared to me to confuse the purpose with the transaction.  Certainly the transaction was carried into effect by the execution and registration of the transfer.  But Wright’s case, 23 C.L.R. 185 shows that that is immaterial.  It is the purpose which has to be carried into effect and that would only have happened if and when a creditor or creditors of the plaintiff had been deceived by the transaction.  The judge said there was no evidence of that and clearly he did not think it appropriate to infer it.  Nor is it any objection to the plaintiff’s right to recover the shares that he did not demand their return until after the danger had passed and it was no longer necessary to conceal the transfer from his creditors.  All that matters is that no deception was practised on them.  For these reasons the judge was right to hold that the exception applied.”

60.  Millett LJ :

(1) opined that two questions of some importance fell for decision—the first is whether, once property has been transferred to a transferee for an illegal purpose in circumstances which give rise to the presumption of advancement, it is still open to the transferor to withdraw from the transaction before the purpose has been carried out and having done so, give evidence of the illegal purpose in order to rebut the presumption of advancement and the second is whether, if so, it is sufficient for him to withdraw from the transaction because it is no longer necessary and without repenting of his illegal purpose (pp. 123–124);

(2) analysed the authorities, considered the legal policy and stated the law in 7 propositions (pp. 133–135) :

“At heart the question for decision in the present case is one of legal policy.  The primary rule which precludes the court from lending its assistance to a man who founds his cause of action on an illegal or immoral act often leads to a denial of justice.  The justification for this is that the rule is not a principle of justice but a principle of policy: see the much quoted statement of Lord Mansfield C.J. in Holman v. Johnson (1775) 1 Cowp. 341, 343.  The doctrine of the locus poenitentiae is an exception which operates to mitigate the harshness of the primary rule. It enables the court to do justice between the parties even though, in order to do so, it must allow a plaintiff to give evidence of his own dishonest intent.  But he must have withdrawn from the transaction while his dishonesty still lay in intention only.  The law draws the line once the intention has been wholly or partly carried into effect.

Seen in this light the doctrine of the locus poenitentiae, although an exception to the primary rule, is not inconsistent with the policy which underlies it.  It is, of course, artificial to think that anyone would be dissuaded by the primary rule from entering into a proposed fraud, if only because such a person would be unlikely to be a studious reader of the law reports or to seek advice from a lawyer whom he has taken fully into his confidence.  But, if the policy which underlies the primary rule is to discourage fraud, the policy which underlies the exception must be taken to be to encourage withdrawal from a proposed fraud before it is implemented, an end which is no less desirable.  And, if the former objective is of such overriding importance that the primary rule must be given effect even where it leads to a denial of justice, then in my opinion the latter objective justifies the adoption of the exception where this enables justice to be done.

To my mind these considerations are even more compelling since the decision in Tinsley v. Milligan [1994] 1 A.C. 340.  One might hesitate before allowing a novel exception to a rule of legal policy, particularly a rule based on moral principles.  But the primary rule, as it has emerged from that decision, does not conform to any discernible moral principle.  It is procedural in nature and depends on the adventitious location of the burden of proof in any given case.  Had the plaintiff transferred the shares to a stranger or distant relative whom he trusted, albeit for the same dishonest purpose, it cannot be doubted that he would have succeeded in his claim.  He would also have succeeded if he had given them to the defendant and procured him to sign a declaration of trust in his favour.  But he chose to transfer them to a son whom he trusted to the extent of dispensing with the precaution of obtaining a declaration of trust.  If that is fatal to his claim, then the greater the betrayal, the less the power of equity to give a remedy.

In my opinion the following propositions represent the present state of the law.  (1) Title to property passes both at law and in equity even if the transfer is made for an illegal purpose.  The fact that title has passed to the transferee does not preclude the transferor from bringing an action for restitution.  (2) The transferor’s action will fail if it would be illegal for him to retain any interest in the property.  (3) Subject to (2) the transferor can recover the property if he can do so without relying on the illegal purpose.  This will normally be the case where the property was transferred without consideration in circumstances where the transferor can rely on an express declaration of trust or a resulting trust in his favour.  (4) It will almost invariably be so where the illegal purpose has not been carried out.  It may be otherwise where the illegal purpose has been carried out and the transferee can rely on the transferor’s conduct as inconsistent with his retention of a beneficial interest.  (5) The transferor can lead evidence of the illegal purpose whenever it is necessary for him to do so provided that he has withdrawn from the transaction before the illegal purpose has been wholly or partly carried into effect.  It will be necessary for him to do so (i) if he brings an action at law or (ii) if he brings proceedings in equity and needs to rebut the presumption of advancement.  (6) The only way in which a man can protect his property from his creditors is by divesting himself of all beneficial interest in it.  Evidence that he transferred the property in order to protect it from his creditors, therefore, does nothing by itself to rebut the presumption of advancement; it reinforces it.  To rebut the presumption it is necessary to show that he intended to retain a beneficial interest and conceal it from his creditors.  (7) The court should not conclude that this was his intention without compelling circumstantial evidence to this effect.  The identity of the transferee and the circumstances in which the transfer was made would be highly relevant.  It is unlikely that the court would reach such a conclusion where the transfer was made in the absence of an imminent and perceived threat from known creditors”; and

(3) held that genuine repentance is not required.  Justice is not a reward for merit; restitution should not be confined to the penitent. I would also hold that voluntary withdrawal from an illegal transaction when it has ceased to be needed is sufficient.  It is true that this is not necessary to encourage withdrawal, but a rule to the opposite effect could lead to bizarre results (p. 136).

61.  Tribe was cited and applied in a number of local cases, e.g. by Yuen J (as she then was) in Best Sheen Development Ltd v Official Receiver [2001] 1 HKLRD 866 at p. 875.

62.  I have already found as a fact that Yan purchased the Property using money provided wholly by the defendant.  I have also found that no creditor of the defendant or of his business has in fact been defrauded.  The purpose of the agreement between Yan and the defendant and the acquisition of the Property in Yan’s name has not been carried out.  It is open to the defendant to rely on the agreement with Yan to rebut the presumption of advancement in favour of Yan.  In my judgment, the defendant succeeds in rebutting the presumption of advancement.  The presumption of resulting trust operates in favour of the defendant and I conclude that the defendant is and has throughout been the beneficial owner of the Property.

63.  The provisional agreement which the plaintiff made with Yan was a binding agreement which excluded alternative performance.  That agreement was made before the defendant came into the picture.  There could be no question of any representation on the part of the defendant.  Indeed, there was no contact between the plaintiff and the defendant until after the plaintiff had made the formal agreement with Yan.  In my judgment, the hand-written clause 14 in the provisional agreement and clause 38 in the formal agreement, made it clear to the plaintiff that the plaintiff bore the risk of any title dispute between the plaintiff and the defendant and that the plaintiff could not call off the transaction with Yan on the ground of the defendant’s interest or possible interest in the Property.  The plaintiff chose to make no independent enquiries of his own, whether before or after the making of the provisional agreement or the formal agreement.  Ho might or might not have thought that he could bully the defendant into moving out but the point remains that the plaintiff had knowledge of the occupation of the Property (or a part thereof) by the registered owner’s former spouse but chose to turn a blind eye to it.  The plaintiff was fixed with notice of the defendant’s rights in the Property, see Wong Chim-ying v Cheng Kam-wing [1991] 2 HKLR 253. 

Conclusion & Order

64.  The plaintiff fails in its claim and the defendant succeeds in his counterclaim.

65.  I order that :

(1) the plaintiff’s claim against the defendant be dismissed;

(2) it be declared that the defendant is the sole and beneficial owner of the Property and that the plaintiffs holds the Property on trust for the defendant solely and absolutely;

(3) the plaintiff do forthwith transfer the Property to the defendant solely and absolutely; and

(4) there be liberty for the parties to apply to a judge of the Court of First Instance for directions to give effect to my judgment and order.

66.  I also make an order nisi under Order 42 rule 5B(6) of The Rules of the High Court, Cap. 4, that the costs of the defendant in the claim and the counterclaim, be taxed (unless agreed by the plaintiff and the defendant) and paid by the plaintiff to the defendant.

67.  It remains for me to thank both Mr Chan and Ms Tsui for their assistance.