HO HON PIU v. LI MIU KWAI representing the estate of HO HON KA (deceased)

CACV 15/2017

[2018] HKCA 784

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 15 OF 2017

(ON APPEAL FROM HIGH COURT ACTION

NO 1966 OF 2013 & NO 660 OF 2014)

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REASONS FOR JUDGMENT
AND
DECISION ON RESERVED COSTS

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Hon Cheung JA:

1.  I agree with Yuen JA’s Reasons for Judgment and Decision on reserved costs.

Hon Yuen JA:

2.  This is an appeal from a judgment of Chow J given on 10 January 2017 (“the Judgment”) in a consolidated action¹ brought by the plaintiff against his younger brother the defendant.  Save for making a declaration that the Will of their mother Madam Chan Kam Wo (“the Mother”) was validly executed², the learned judge dismissed the plaintiff’s claim against the defendant, and ordered the plaintiff to pay 90% of the costs of the consolidated action. 

3.  The plaintiff filed a Notice of Appeal on 23 January 2017.  The defendant died on 8 February 2017.  An order was obtained in the consolidated action that his widow and executor Madam Li Miu Kwai represent his estate.  However no such order was obtained in this appeal which is a separate legal proceeding from the consolidated action.  At the commencement of the hearing of the appeal, the court drew this to the attention of counsel for Madam Li.  As counsel for the plaintiff had no objection to an order that Madam Li represent the defendant’s estate in the appeal as well, the appeal proceeded on an undertaking given on behalf of Madam Li to file a summons to that effect.  Subsequently a consent order was made that Madam Li represent the defendant’s estate in the appeal as well.  

4.  At the conclusion of the hearing, we dismissed the appeal with costs.  My reasons for judgment appear below.

Background

5.1.   The plaintiff, who was born in 1947, and the defendant, who was born in 1950, were the sons of Mr Ho Wan Cho (“the Father”) and the Mother.  The family was a humble one to start with.  The Father was chronically ill and was unable to work.  He eventually died in 1974.  The Mother worked to support the family, but due to lack of funds, the two sons had to join the work-force after completing primary school only.

5.2.   At that time, the Mother, the plaintiff and the defendant worked at low-income jobs: the Mother as a dish-washer, the plaintiff as a messenger, and the defendant as an electrical apprentice.  The family had to share accommodation with others until in 1965, the family was allocated a public housing unit.

5.3.   In April 1967, the plaintiff joined the police force.  The salary from this job led to an anticipated increase in income for the family.

The plaintiff’s allegation of 3 Oral Agreements

6.1.   In summary, the plaintiff’s case was that it was at that time (April 1967) that he, the Mother and the defendant entered into an oral agreement whereby they agreed to set up a fund to be managed by the Mother, with each of them being entitled to 1/3 of the fund, irrespective of their individual contributions. The plaintiff’s case (confirmed by his counsel on appeal) was that an express trust³was thereby created.

6.2.   The plaintiff alleged that this agreement was the foundation for 2 further agreements entered into when:

(1) the defendant became the registered owner of a flat in North Point (“the North Point flat”) in 1987, and

(2) the defendant and the Mother became the registered owners (as joint tenants) of an HOS⁴ flat in Chai Wan (“the Chai Wan flat”) in 1992 after giving up the public housing unit where they had been living.

Similarly, the plaintiff alleges that he, the Mother and the defendant were each entitled to 1/3 of these flats (or their proceeds or value), irrespective of their individual contributions.

7.  I shall discuss these allegations later in these Reasons for Judgment⁵.

8.  Apart from the North Point and Chai Wan flats, the Mother had also bought two properties on the mainland in her sole name, which she later assigned to the plaintiff by way of gift in 1989 and 1996 respectively.  However they do not form part of the Judgment or the appeal, and I shall say no more about them.

Sale of the North Point flat

9.1.   In 1994, the North Point flat was sold at a substantial profit.  The proceeds of sale were used to pay off the mortgages of both the North Point flat and the Chai Wan flat. 

9.2.   It is common ground that from the balance, the defendant gave the plaintiff a sum of $200,000 (which as seen below⁶, was only half of1/3 of the balance).  The Mother did not receive any money from the balance.

Mother’s divesting of interest in Chai Wan flat and her Will

10.1.   The Mother had retired in 1989 at the age of 75.  After the plaintiff moved into police quarters following his marriage in 1977, she lived in the Chai Wan flat with the defendant (together with his family who came to Hong Kong in 1997) until 2007, when she was admitted into an elderly persons’ home. 

10.2.   On 11 October 2007, she assigned her interest in the Chai Wan flat (of which she was joint tenant) to the defendant at nil consideration.  Shortly thereafter, she signed a Will making the plaintiff her executor and sole beneficiary. However the Will was executed with the plaintiff’s wife as attesting witness.

The Mother’s death and subsequent litigation

11.1.   In January 2010, the Mother died. 

11.2.   In March 2010 the plaintiff requested the defendant to “return ... his interests in and/or entitlement in relation to the [North Point flat] and the [Chai Wan flat] but was rejected by the defendant ...”⁷.

11.3.   The plaintiff issued proceedings which culminated in the consolidated action.  The defendant denied the plaintiff’s claim, and counterclaimed for a declaration that the Will was invalid, alternatively that the disposition thereunder was void. 

The judge’s Judgment

12.1.   The consolidated action was tried⁸ by the judge over a period of 4 days, with the plaintiff, his wife and the defendant giving viva voce evidence.

12.2.   For reasons set out extensively in the Judgment, the judge dismissed the plaintiff’s claim of trust in relation to the North Point flat and the Chai Wan flat.  The judge found that the Mother’s Will had been validly executed, but held that the disposition of the estate in favour of the plaintiff was void by reason of s.10(1) of the Wills Ordinance, Cap. 30, as the Will had been attested by his wife.

Appeal

13.1.   The plaintiff appealed the judge’s dismissal of his claim regarding the alleged trust, but not the holding in respect of the disposition under the Mother’s Will.

13.2.   As counsel for the plaintiff accepts⁹, this appeal is against the judge’s finding of facts.

Legal principles

14.  The limited scope of an appeal against a trial judge’s findings of fact has been discussed in a number of cases in the Court of Final Appeal¹⁰ and in the Court of Appeal.  In China Gold Finance Ltd v CIL Holdings and others¹¹, the Court of Appeal has reiterated the relevant principles in §§11-24, in particular (§15):

“In an appeal, the court of appeal should focus on the question whether the primary judge has fallen into palpable errors which could give rise to grounds for intervention by the appellate court. As explained in the cases, it is not germane that judges in this court may reach a different conclusion from that of the judge. There are many areas, particularly those in relation to findings of fact, where judges can reasonably reach different conclusions from each other. That would not be a ground for intervention”.

The Court of Appeal also adopted¹² a passage in Lord Neuberger’s judgment in In Re B (A Child)¹³:

“... where a trial judge has reached a conclusion on the primary facts, it is only in a rare case, such as where that conclusion was one (i) which there was no evidence to support, (ii) which was based on a misunderstanding of the evidence, or (iii) which no reasonable judge could have reached, that an appellate tribunal will interfere with it”.

Discussion

15.  Applying those well-established legal principles, there was no scope in the present case for this appellate court to interfere with the trial judge’s findings of fact. I shall discuss the submissions of counsel for the plaintiff below.

16.  In his submissions, counsel for the plaintiff had correctly focused on the 1^st Oral Agreement, as this was the foundation of the plaintiff’s case regarding the 2^nd and 3^rd Oral Agreements in respect of the North Point flat and the Chai Wan flat respectively, and thus as the judge put it, an “integral part”¹⁴ of his claims to the flats.

“1^st Oral Agreement”

17.1.   It was the plaintiff’s case that in April 1967, in light of the anticipated increase in income from his entry into the police force, he, the Mother and the defendant entered into an oral agreement (“the 1^st Oral Agreement”) that:

(1) a fund (“the Family Fund”) would be set up with money contributed or to be contributed by the 3 of them which would be kept in a savings account held in the Mother’s sole name;

(2) the Family Fund was intended to be used for 3 purposes: (a) investment; (b) emergencies and special events; and (c) the Mother’s maintenance; and

(3) on a “broad-brush”¹⁵ basis, the 3 of them would each be entitled to 1/3, even though the respective amounts contributed by each might be different. 

17.2.   Counsel for the plaintiff submitted that an express trust was thereby created over the Fund and all assets which flowed from it.  The defendant denied there was such an agreement, or trust over any fund.

18.  The judge discussed this issue at §§30-33 of the Judgment.  At §32 he said:

“In view of the common ground that the Ho family’s financial position in the 1960's was, to say the least, tight, and their earnings could barely cover their living expenses, I consider it to be inherently improbable that Madam Chan, Hon Piu and Hon Ka would, in around April 1967, agree to set up a family fund for the purpose of, inter alia investment. In the context of a small, traditional, Chinese family, it is, in my view, also inherently improbable that the mother and her two sons would agree to set up a family fund on an express basis that each would be entitled to a one-third beneficial interest in the fund. ...” (Emphasis added).

19.  Counsel for the plaintiff submitted that the judge erred in these findings because, in view of the plaintiff’s entry into the police force and increase in income, it was “natural for the Ho Family to expect that their income and savings would materially increase, and to make financial arrangement accordingly”¹⁶.  This submission was based on the premise that after the plaintiff joined the police force, the expected future income of the family comprised mostly of “stable and steady income from the government”¹⁷. He submitted that the family was “highly-investment minded” and had “proactively invested” in various assets¹⁸.

Observations on plaintiff’s allegation of “1^st Oral Agreement”

20.  I pause here to make some observations.  First, it is well-established law that the “3 certainties” must be present before an express trust can be established.  What is often referred to as “certainty of words” is the requirement of an intention on the part of the settlors and the trustee, expressed in clear words, that a trust (in which the trustee is under strict legal obligations towards the beneficiaries) should be created.

21.  The burden was thus on the plaintiff to prove that these 3 members of a close-knit family had expressed, in clear words, their intention to create legal relations between themselves, such that the sons thereby acquired the right to sue the Mother as trustee (eg should she not comply with the 1/3 division requirement by taking more for herself, or giving more to one son or the other).  However the circumstances at the time were these:

-   the Mother was the head of the family as the Father was ill and she worked to sustain the family,

-   the plaintiff was only 20 years old and the defendant only 17,

-   the family finances were tight and there was no disposable income, and

-   the plaintiff’s career in the police force had barely started, and importantly, contrary to counsel’s submissions, the plaintiff’s own evidence was that at the time he did not consider it a steady job, and not a “gold rice-bowl” or even an “iron rice-bowl”¹⁹.

Against these undisputed facts, the burden of proving the intention, expressed by clear words, to create a trust relationship in law, obligating the Mother as trustee to act strictly in accordance with the 1/3 beneficial interest rule in respect of all the funds her sons gave her, is a heavy one.  This is the thrust of §32 of the Judgment.  As for counsel’s reference above to events which happened many years later, the plaintiff’s case was that this express trust was created in 1967, and those subsequent events do not assist and were in any event equivocal.

22.  Second, the plaintiff’s case (as confirmed by his counsel on appeal), was that under the 1^st Oral Agreement, there was no obligation on any of them to contribute any particular amount or proportion of his/her income to the Family Fund, and yet each of them would be entitled to a 1/3 interest in it.  The unlikelihood of any person entering into an express agreement to be legally bound permanently to divide his money with others who are not obliged to provide any funds, or only negligible funds, is plain.

23.1.   Third, as the judge noted, there is no contemporaneous documentary evidence of the alleged 1^st Oral Agreement.  However the fact that the Mother recorded separately what the plaintiff and the defendant gave her²⁰ contradicts the plaintiff’s case.  On his case, it would have been irrelevant who contributed how much to the Family Fund, because irrespective of who supplied a sum, it would be merged with the existing Fund, and each of the 3 persons would immediately be entitled to 1/3 of it.  On the contrary, this showed that the Mother treated the moneys paid to her by the two sons differently, which she would deal with differently.   

23.2.   Counsel for the plaintiff referred²¹ to passages in the defendant’s evidence where the defendant referred to the Mother’s financial management on his (the defendant’s) behalf of moneys he (the defendant) had given to her.  However this does not assist the plaintiff’s case.  The defendant’s evidence of what money he gave the Mother, and the purpose for which he gave it to her, differed with time, his financial situation and his personal circumstances.  In any event, the passages from the defendant’s viva voce evidence quoted by counsel was to the effect that the Mother managed funds for him (in other words, not for the alleged Family Fund).  

24.  In light of these observations, and the judge’s acceptance of the defendant’s evidence after receiving both parties’ viva voce evidence²², the judge’s finding that the plaintiff had failed to discharge the burden of proving the alleged 1^st Oral Agreement is unimpeachable.

25.  As the alleged 1^st Oral Agreement formed an integral part of the plaintiff’s case regarding the 2^nd and 3^rd Oral Agreements, his failure to prove it has an obvious adverse impact on the rest of his case.

Purchase of North Point flat

26.  In 1987, the defendant became the sole registered owner of a flat in North Point which was bought for $519,000.  It is the plaintiff’s case that by 1987, the Family Fund had $320,000 and the 3 of them had agreed to invest part of it in a residential property.  He said a 2^nd Oral Agreement was made that the defendant would become the registered owner of the property which would be held on trust for the 3 of them, even though their respective contributions to the purchase price might be different.  Further particulars of the alleged agreement have been set out in §34 of the Judgment which I will not repeat here.  

27.  The Consolidated Statement of Claim contains²³ a table of the cost involved in the purchase, and the plaintiff’s allegations regarding payment:

Purchase Price of the North Point property: $519,000

Item	HKD($)	Contributed by
Initial Deposit	$10,000	The plaintiff
Down payment (10% of Purchase Price) Less Initial Deposit	$51,900 - $10,000 = $41,900	The Fund
Legal fees	$40,000	The Fund
Miscellaneous Fees	$20,000 approx.	The Fund
Estate Agent’s Commission	$2,600	The plaintiff
Monthly Mortgage Repayments for the Loan Amount of $467,100	$4,397 (1987-1992) $6,000 (1993-1995)	The defendant

28.  The defendant denied there was such an agreement.  His case was that the Mother had made a gift to him of $100,000 which he used in part payment of the down payment and other expenses including repayments to the plaintiff and his wife for payments made on his behalf.  As for the rest of the purchase price, he had taken out a mortgage and paid instalments partly from rents received and partly from his income.

29.  The judge’s discussion of this issue is set out in §§36-42 of the Judgment. Counsel for the plaintiff submitted on appeal that the judge erred in finding that there was a disproportionately large contribution by the defendant which would render it unlikely that he would only be entitled to 1/3 of the flat.  He submitted that the plaintiff had contributed more to the alleged Family Fund in the years prior to the purchase.   

Observations on plaintiff’s case on the North Point flat

30.  First, as a matter of law, there is a presumption that beneficial title follows legal title.  The defendant is the sole registered owner of the North Point flat. The burden was clearly on the plaintiff to rebut that presumption.  No satisfactory explanation was given for why the Mother and the plaintiff were not included in the registration of title if they were beneficial owners, especially when, on the plaintiff’s own case, the defendant had less income than the plaintiff and less savings than the Mother, and thus of the 3 of them, he would encounter the most difficulties in applying for bank finance.  The fact that these difficulties were surmounted is beside the point.  It is common sense that one would normally choose the easiest option, not the most difficult.   

31.1.   Second, it was not the plaintiff’s case that he was entitled to a proportion of the North Point flat represented by specific contributions to its purchase made by him ($12,600), or even by the alleged Family Fund ($101,900).  His case was that he was entitled to 1/3 of it by reason of an express oral agreement (the 2^nd Oral Agreement) which followed the alleged 1^st Oral Agreement. 

31.2.   The judge’s rejection of the plaintiff’s case of a 2^nd Oral Agreement (in which the defendant agreed to take only 1/3 of the beneficial interest in the property despite his obligation to pay all the mortgage instalments) was clearly justified on the evidence.  It would immediately be seen from the table of cost above that even on the plaintiff’s own case, the large bulk of the purchase price was to be borne by the defendant. Even if one assumes that the plaintiff had paid $12,600 towards the purchase and that the alleged Family Fund had paid $101,900 (of which on his case he would have been entitled to 1/3, ie $33,966), that would still represent less than 9% of the total purchase price ([$12,600 + $33,966]/$519,000).  

31.3.   It is significant that even on the plaintiff’s own case, the “mortgage burden”²⁴ (90% of the purchase price) was on the defendant.  The evidence as to whether the plaintiff and/or the Mother had provided a guarantee was inconclusive²⁵ and the judge noted that no guarantee had been produced in evidence²⁶. Be that as it may, even if it is assumed that either or both the Mother and the plaintiff had provided a guarantee, that would only be an equivocal fact.  In law, a guarantor has no interest in a property unless she/he repays the bank and steps into its shoes by way of subrogation.  That did not happen in this case. 

31.4.   The plaintiff’s own case was that after payment of the monthly mortgage instalment (even after deducting the rental received), the defendant had very little disposable income left.  That actually shows there would have been no reason for the defendant, with such tight finances, to agree by way of the alleged 2^nd Oral Agreement to take on a 90% burden for a 33% interest only.

32.  Third, it is important to note how the proceeds of sale of the North Point flat were dealt with.  The flat was sold for $2.4m and after paying off the mortgages for that flat and the Chai Wan flat, there was a net balance of abut $1.2m.  If each was entitled to 1/3, the plaintiff would have been entitled to payment of $400,000.  However it is common ground that the plaintiff only received $200,000. The judge accepted the defendant’s evidence that he had offered to give that sum to the Mother, and that the Mother had asked him to give it to the plaintiff instead.  The more important point is that if there had indeed been the 2^nd Oral Agreement as the plaintiff alleged, one would have expected him to demand the balance of $200,000 from the defendant, because the money was being kept by him, not by the Mother.  No such demand was made in the following 15 years until 2010 when the Mother died, and this was so even after the plaintiff had retired in 2003.

33.  In light of the above, and the judge’s acceptance of the defendant’s evidence, there is no basis for interfering with the judge’s finding that the plaintiff had failed to discharge the burden of proving the alleged 2^nd Oral Agreement.  

Purchase of Chai Wan flat

34.  Counsel for the plaintiff understandably did not spend much time on this part of the claim since it is closely connected to the case regarding the 1^st and 2^nd Oral Agreements. 

Observations on the plaintiff’s case on the Chai Wan flat

35.  By way of observation specific to the Chai Wan flat, it should be noted that as per the table of cost²⁷ in the Consolidated Statement of Claim, the mortgage burden on the defendant represented 95% of the purchase price (even more than the mortgage burden for the North Point flat).  The North Point flat was sold only 2 years later, so it could not be said that this second mortgage burden (for the Chai Wan flat) was only a short-term obligation.  Further, as the Chai Wan flat was not let out but was used as the residence of the Mother and the defendant and his family, the monthly mortgage instalment was not reduced by rents.  There would have been no reason for the defendant to have agreed to the 3^rd Oral Agreement, especially as he had married the year before and would have had to provide for his wife and any future children they might have.

36.  In light of these observations and the judge’s acceptance of the defendant’s evidence, there is no basis for interfering with the judge’s finding that the plaintiff had failed to discharge the burden of proving the alleged 3^rd Oral Agreement either. 

Order on appeal

37.  For the above reasons, I dismissed the plaintiff’s appeal with costs. 

38.  Finally I would add by way of observation that in recent years there seems to be an increasing number of cases involving litigants from the same family, quite often after the death of elderly parents.  I would emphasize that domestic arrangements, where various members of a family might contribute to the “family pot” and derive various benefits from it, do not normally give rise to legal rights and obligations.  Whatever one may think of another family member’s sense of fairness or honour (or the absence thereof) in taking more from the family pot than he gave, arguments arising from such domestic arrangements are not justiciable in courts of law. In any event, to save potentially ruinous legal costs and to avoid stress and further hostility (often passed down to the next generation), mediation should be the preferred method of resolution of disputes between family members.  It is regrettable in the present case that two brothers who had to struggle in their youth but who enjoyed a more comfortable way of life in their middle age should have to face each other in court.

Decision on Reserved Costs

39.  Finally I shall deal with the parties’ submissions on the reserved costs of an application for security for costs.

40.1.   About 2 weeks after the plaintiff filed his Notice of Appeal, the defendant²⁸ issued a summons for security for costs on 8 February 2017 seeking security in the sum of approximately $242,000.  This had been preceded by a letter from the defendant’s solicitors to the plaintiff to the same effect.

40.2.   In support of that summons, the defendant’s solicitors filed an affirmation deposing to the fact that the plaintiff was retired and had no income other than his pension, and that in mid-2015 he had disposed of his interest in his own HOS flat to his wife, possibly with a view to defeating costs orders that may be made against him. 

41.  The plaintiff filed an affirmation in opposition in which he said: (1) he had planned to assign his interest to his wife for some time, (2) he has two properties on the mainland worth $400,000, (3) he is entitled to a pension of $13,430 pm, and (4) he had recently set up a joint bank account with his son into which his son had deposited $380,000.

42.  I shall not repeat the parties’ respective submissions made in their affirmations regarding the merits of the appeal, as the views of this court are clear from the Reasons above.

43.  The parties duly provided written submissions for determination of the summons by a single judge of the Court of Appeal.  In the skeleton submissions of the plaintiff’s counsel, the offer was made (for the first time) that the plaintiff was prepared to undertake to the court not to dispose of the fund of $380,000 in the joint account until the determination of the appeal.  In the skeleton submissions of the defendant’s counsel in reply, that undertaking was accepted.

44.  On 4 September 2017, Poon JA suggested the disposition of the summons for security for costs in the following manner:

“By consent and without determination on merits, and upon the plaintiff undertaking to the court not to dispose of HK$200,000 standing in the plaintiff’s joint account with his son ..., there will be no order on the defendant’s application for security for costs with costs reserved”.

45.  This court is now required to determine those reserved costs.  In my view, the defendant was entitled to apply for security for costs given the plaintiff’s apparent lack of adequate financial resources.  Since the transfer of his interest in the HOS flat to his wife, he has no real property in Hong Kong. Even if his valuation of his properties on the mainland is accepted, it would be difficult to enforce an order against foreign land.  And with respect to the plaintiff, a pension of $13,000 a month would mean that enforcement of a costs order (assuming it is possible) would take an inordinately lengthy amount of time.  As far as the funds in the joint account with his son is concerned, he has said that the amount was paid in by his son, and obviously there was nothing to stop his son withdrawing them, until the undertaking was offered in the skeleton submissions of the plaintiff’s counsel.  Given that the offer was made after the costs of making and preparing for the summons had been incurred, the defendant should be entitled to the reserved costs, and I would so order. 

Hon Chu JA:

46.   I agree with Yuen JA’s Reasons for Judgment and Decision on reserved costs.