RE LEUNG WANG FAI

HCB 15328/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 15328 OF 2003

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D E C I S I O N

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Background

1. The respondent, Madam Leung May Siu (“Leung”) is 82 years old.  She resides at Flat D, 4^th floor, Shing On Building, 38 - 46 Shing On Street, Hong Kong (“Property”) with her 83 year old husband and her son, Leung Wang Fai (“Son”).  The Property was purchased in 1990 and registered in the joint names of Leung and the Son.  In 2003, the Son was made bankrupt on his own petition.  In June 2012, the trustees in bankruptcy of the Son’s estate (“Trustees”) applied for the Property to be sold under s 6 of the Partition Ordinance and s 60 of the Bankruptcy Ordinance.  Leung opposes the sale on the ground that the Son does not in fact have any beneficial interest in the Property, that he was merely holding his half share in the Property on trust for Leung, and alternatively, that an order for sale of the Property should not be made as it would cause great hardship to Leung and her husband.

Issues

2. The issues for determination are:

(1) whether Leung is the sole beneficial owner of the Property; and

(2) if the Son is a joint owner, whether the court should refuse to make an order for sale on the ground of hardship to Leung.

Ownership of the Property

3. The parties do not dispute that the primary task of the court in this case is to ascertain the intention of the parties with regard to the ownership of the Property at the time when the relevant purchase and transfer of the Property was made.

4. On the evidence filed, the Property was purchased when Leung was 59 years old.  Her husband was then 62 years old and the Son was then aged 20 and still studying in a design school.  Leung and her husband were both working, and Leung had invested in a restaurant business.  She had accumulated some savings, and decided in February 1990 that with her savings, income and her husband’s salary, she was in a position to purchase the Property.  She wanted the Property to be bought as a residence for herself, her husband and her Son. 

5. The Provisional Agreement for sale and purchase of the Property (“Provisional Agreement”) was entered into by Leung in her sole name.  The consideration for the purchase of the Property was $360,000. Leung claims that the initial deposit of HK $10,000 was paid by her in cash out on her own savings and her income from managing the restaurant.

6. According to Leung, she was advised by her lawyer that, as she was approaching the age of 60, in order to obtain a mortgage loan to finance the purchase of the Property, she should add her Son as co-owner and joint tenant.  On such advice, Leung agreed to include the Son’s name on the formal Agreement for sale and purchase of the Property, “for the sole purpose of facilitating (her) application for a mortgage loan and complete the purchase of the Property”.  She claims that the mortgage loan was successfully obtained from the bank which took into account proof of her income, as well as the Son’s age.  The mortgage loan was for a term of 5 years, in the sum of $240,000 (“1^st Mortgage”).  Leung claims that the 60 monthly installments of $5,000 each for repayment of the 1^st Mortgage were all paid by her, by direct debit from her savings account.

7. Leung claims that the balance of the purchase price in the sum of $84,000, stamp duty payable on the assignment of the Property, and all legal fees in respect of the purchase were paid by her solely, as were the decoration fees and the costs of the furniture for the Property.  According to Leung, she had no intention to make a gift to her Son of half, or any part, of the Property.  He was just a bare trustee, holding his interest in the Property on trust for her benefit.  Leung claims that in 1990, the Son was still studying, had no savings, no assets, and had no intention of contributing and did not in fact contribute any money towards the purchase price or the repayment of the mortgage loan for the Property.  His name was added as co-owner simply to facilitate the obtaining of the 1^st Mortgage from the bank to complete the purchase.

8. It is Leung’s evidence that after full repayment of the 1^st Mortgage loan in 1995, the title deeds had been returned to her and that they had remained in her custody. She claims that it was the mutual understanding of her Son and herself that she was the sole owner of the Property.

9. The Son confirmed Leung’s evidence.  According to the Son, he was still relying on his parents for a living and for school fees in 1990.  He did not have money to contribute to the purchase price of the Property, and his mother had not said to him that she intended to make a gift of any part of the Property to him.  He claims that Leung had used all her savings to pay for the purchase of the Property and the 1^st Mortgage installment payments.

10. In 2002, the Son incurred debts on his credit cards, and he was able to obtain loans from WOC Finance Company Limited using the Property as security for a mortgage (“2^nd Mortgage”). According to Leung’s evidence, her Son had “begged her to let him have the title documents of the Property so that he might borrow loans for the relief of his credit card debts”, and had promised her that he would pay off the loan by himself and would return the title deeds to her.  She had asked her Son about the title deeds some years after 2003, and was told that he was dealing with the matter and paying off the debt.  It was only in 2012, on being served with the Trustees’ application, that she realized that the Son had been made bankrupt and that his half share in the Property had been vested in the Trustees.

11. The Son simply agreed with what Leung stated in her affirmation, explaining that he had not wanted to trouble his parents about his bankruptcy, as they had by then both retired and had no income.  Even after the bankruptcy order, the Son had continued to pay the installments due under the 2^nd Mortgage, as he had promised his mother that he would return the title deeds of the Property to her.

12. On behalf of the Trustees, it was highlighted that where one party asserts that there was intention for the beneficial interests in a property to be different from their legal interests, he bears the burden of proving this (Wong Kwok Ki Stephen and another v Lee lai Ying [2013] HKEC 1896).  At paragraph 10 of the judgment in Wong Kwok Ki Stephen, the court stated thus:

“Since the Property was conveyed to the defendants as joint tenants, the starting point (which counsel agreed) is that, prima facie, they each have legal and beneficial joint tenancy until the contrary is proved: Stack v Dowden [2007] 2 AC 432, per Baroness Hale.

“The burden will therefore be on the person seeking to show that the parties did intend the beneficial interests to be different from their legal interests, and in what way.” ”

13. On the face of the documents, the Property was assigned to Leung and the Son as joint tenants.  Prima facie, both Leung and the Son have interests in the Property, and the burden therefore is on Leung to establish that she is in fact the sole beneficial owner, and that the Son at all material times held and still holds the Property on trust for Leung.

14. Mr Yip (who appears for Leung) submits that there is ample evidence that Leung and the Son intended Leung to be the sole beneficial owner of the Property at the time of the purchase, and that there was no change of intention thereafter.  He referred to the signing of the Provisional Agreement in Leung’s sole name, the payment of the purchase price, costs and 1^st Mortgage repayments by Leung solely, and her retention of the title deeds.

15. The Trustees however point to the lack of independent documentary evidence to establish the source of funds for Leung’s payments, and emphasized that there are only bare assertions of alleged intention, all made by Leung and the Son after the event.

16. I agree that the assertions and declarations made by Leung in these proceedings, as to her intention at the time when the Property was purchased in 1990, are self serving, as are the assertions made by the Son in his affirmation made in opposition to the Trustees’ application for sale.  They have to be looked at with some circumspection and reservation.

17. Contrasting with the claims made by the Son in these proceedings, that he had no interest in the Property and that Leung is the sole owner, are the contradictory claims he made in the bankruptcy proceedings.  In the Son’s affirmation of his Statement of Affairs made on 13 August 2003, he claims that the Property was jointly owned by Leung and himself, that Leung is his dependent, and that he was responsible for the mortgage installment repayments for the Property.  It may be that by 2003, since Leung had retired, and the Son was indeed making payment of the installments due on the 2^nd Mortgage in respect of his own debts, the last 2 statements are not inaccurate.  However, his declaration that the Property was jointly owned by him with Leung runs contrary to the claims now made in these proceedings, that he is a bare trustee, that Leung is the sole beneficial owner, and that the Son has no interest in the Property.

18. As for the assertions made by Leung, she claims that due to the lapse of time, she can no longer produce her bank statements or records to prove that the purchase of the Property and the repayment of the 1^st Mortgage installments before 1995 had all been financed by her, from her own savings, with no contribution from the Son.  Taken to its highest, even if I accept Leung’s claim that she had purchased the Property and paid for the incidental costs as well as the mortgage repayments from her own savings, since the Son was still studying and had no income in 1990, I am not persuaded that the Son’s name was included in the Assignment of the Property for the sole purpose of facilitating the purchase of the Property with a mortgage loan from the bank - as Leung claims.

19. If it is true, as Leung asserts, that the Son had not made any contribution to the payment of the purchase price and the mortgage instalment repayments under the 1^st Mortgage, she had assigned a joint interest in the Property to the Son without receiving any consideration. Why would she do so, and not hold the Property in her sole name? She claims that it was purely for the purpose of obtaining a mortgage loan, as by adding the Son’s name, the bank would take into account “her proof of income, and his young age”.  This cannot be entirely true, when on Leung’s own case (as supported by the Son), the latter was still studying and had no income in 1990. The inclusion of the Son as co-owner in the application for the 1^st Mortgage could not have served to satisfy the bank of the ability of the proposed mortgagors to repay the debt. 

20. It is equally plausible that the Son was included by Leung as co-owner because he was still young, was in school and unable to support himself, and Leung intended to provide for and maintain him, her only child, and to confer on him a joint interest in the Property.

21. It is not necessary for me to decide whether there is, in law, a presumption that a mother would support and maintain her son.  As the courts have emphasized in more recent cases, such presumption is only a “device” whereby the courts are entitled to pronounce on an issue notwithstanding that there is no evidence or insufficient evidence about it, a term for the ordinary process of judicial reasoning about facts, and only describes “the readiness of the courts to draw inferences from common human experience” (per Godfrey JA in Overseas Trust Bank Ltd v Lee See Ching John [1999] 3 HKC 197, 201).  I simply consider that it is understandable, normal, and in accordance with human nature that a parent would wish to make provision for his or her child, even an adult child, and would be prepared to make the child co-owner of property which the parent pays for, without any contribution from the child.

22. I also bear in mind that in 1990 when the Property was purchased, the Son had executed the 1^st Mortgage as borrower and both Leung and the Son were jointly and severally liable to the bank under the 1^st Mortgage to repay the loan secured by the Property.  There are authorities that the Son’s acceptance of personal liability or potential liability under the 1^st Mortgage constitutes, in law, his contribution to the purchase of the Property (Re Superyield Holdings [2000] 2 HKC 90, 107; Crisp v Mullings [1976] 2 EGLR 103; Wong Kwok Ki Stephen v Kwan Mei See Macy [2013] HKEC 1896).

23. The fact of the Property being used by the Son in about 2003 for the 2^nd Mortgage, as security for the loans to repay his debts, is consistent with the intention on the part of Leung and the Son that the latter would have beneficial interests and is co-owner of the Property.  Leung claims that she let the Son have the title deeds on his beseech and promise that the deeds would be returned to her.  Counsel for Leung argued that this should be considered as  Leung lending the Property to the Son for obtaining finance, as in Au Yuk Lin v Wong Wang Hin [2013] 4 HKLRD 373.  Obviously, each case has to be decided on its own facts and evidence.  In Au Yuk Lin, there was evidence that the parents had been asked to “lend” the shares in dispute to the sons.  Here, Leung never stated that she was merely lending the title deeds or the Property to the Son.  The Son’s request for the title deeds, and his promise to return the title deeds, cannot by themselves be equated with a request for a “loan” or “lending” of the Property, as counsel argued, whatever that may mean.  The evidence can equally mean that the Son was seeking the consent and agreement of Leung, as co-owner, to the Son’s use (as co-owner) of the Property as security for his loans.  Such consent is required of a co-owner.  At best, the evidence of Leung and the Son in this respect is ambiguous and equivocal, and falls short of discharging their onus of establishing that the Son was never intended and is not a beneficial owner of the Property. This is particularly so when such evidence is considered in conjunction with the assertions made by the Son himself in the bankruptcy proceedings, that he jointly owns the Property with Leung.

24. I reject Leung’s claim that she is the sole beneficial owner, and find that the Son is a joint owner of the Property.

Whether the court should refuse to make an order for sale on the ground of hardship to Leung

25. Leung is now retired and 82 years old.  She has to take care of her husband who is 85 years of age and is ill.  Leung’s husband had a stroke in about 2006.  He has heart disease and had a pacemaker implanted in February 2013.  He also had surgery in 2013 to remove his colon tumor.  Leung claims that if the Property is to be sold at its market price of approximately $2.7 million, she would receive approximately $1.35 million or less, and that it would be very difficult for her to purchase another property where he and her husband can reside.  It is claimed that neither Leung nor her husband has any income, and it has not been disputed that they had no other landed property.

26. The Son was of course made bankrupt in 2003, and discharged in October 2007.  According to the assessment on the Son as a bankrupt, signed by him on 5 May 2004, he had income of $10,800 per month, and total expenses of $6,936 per month, which included $1,080 for supporting his parents, and $500 for his parents’ travelling expenses.  He was to contribute $3,864 per month into his bankruptcy estate account.  He had continued to keep up with the installment payments under the 2^nd Mortgage.  As at 20 January 2012, the total amount of the debts proved in his bankruptcy is $440,402.77.

27. The court should make an order for sale unless it is persuaded, the burden being on the opposing co-owner, that such an order would not be beneficial to all the co-owners or that it would result in very great hardship to one co-owner (Wong Chun Kei v Poon Vai Ching [2007] 1 HKLRD 825).

28. Leung’s position obviously deserves sympathy, but I have taken into consideration all the objective circumstances, including the fact that she would be entitled to a half share of the proceeds of sale of the Property should it be sold.  I have doubts, however, whether Leung would be able to purchase appropriate and reasonable accommodation for herself and for her ailing husband who needs her care with the $1.35 million expected to be payable to her from the proceeds of sale.  The amount would not be sufficient to pay for the rental required for the couple’s alternative accommodation for a long time.  To require an elderly and ailing couple to move out of their already modest home of over 20 years would, in my view, create very grave hardship to Leung.  The alternative of their moving into a home for the aged would appear to be harsh in this case and would constitute a real detriment to them.

29. Having balanced the interests of the Applicant (who has refrained from applying for the sale of the Property for at least 9 years, from the making of the bankruptcy order to the application for sale) and of Leung, the just course in the circumstances of this case is to decline the order for sale of the Property.

30. According to the Trustees’ Summons of 4 June 2012, their claim is for “an account or inquiry as to the rents and profits received by the Respondent”.  The Trustees rely on Byford v Taylor [2003] EWHC 12567 for their claim for occupational rent from Leung, and according to the submissions made on behalf of the Trustees, their share of such occupational rent is $192,900 (based on the rateable value of the Property from 2003 to 2013).  Byford v Taylor, and the cases referred to in the judgment, concern the liability of a co-owner of property for occupational rent when an account is made or taken upon a sale of the property, or where a co-owner seeks repayment or set-off (against the other co-owner or the trustee of such co-owner) in respect of the mortgage installments paid by the first owner for the property.  The courts referred to the equitable accounting which would take place after sale to determine the respective shares to which the owners are entitled, and in Byford v Butler, the court paid heed to the “guiding principle” that neither owner can take the benefit of an increase in the value of the property without making an allowance for what had been expended by the other in order to obtain it (at para 22 of the judgment, citing Re Pavlou [1993] 1 WLR 1046, 1048). In Re Gorman [1990] 1 WLR 616, Vinelott J referred to the practice as not a rule of law to be applied in all the circumstances, but a rule of convenience and more readily applicable between husband and wife, or cohabitees, than between a spouse and the trustee in bankruptcy of the other co-owner.

31. In this case, I have declined to make an order for sale, and I am not satisfied on the facts and evidence available that it would be appropriate, or just, to make an order simply for payment of occupational rent or for an account against Leung. 

Orders

32. The Summons of 4 June 2012 is accordingly dismissed.  The costs of the application are to be borne by the estate, with certificate for counsel.  Leung’s own costs are to be taxed in accordance with the Legal Aid Regulations.