CHAN CHUI MEE v. MAK CHI CHOI, NELSON AND OTHERS

HCMP 1904/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1904 OF 2005

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Dates of Trial:  26, 27 and 28 February 2008 and 27 and 28 August 2008

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J U D G M E N T

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1.  The Plaintiff in these proceedings is the ex-wife of the 1^st Defendant.  Though no document has been produced before me, I was told that the Plaintiff and the 1^st Defendant were divorced in proceedings in the Family Court commenced in April 2005.  The 3^rd Defendant is their son.  The subject matter of the proceedings is a property known as Flat No.1, 1^st Floor, Block A, Pang Ching Court, No.6 Chui Chuk Street, Kowloon [“The Property”].  The Property is held in the name of the 1^st efendant.  Both the Plaintiff and the 3^rd Defendant claim to have beneficial interest in the Property based on their contributions to the mortgage payments.  The Plaintiff also said she paid for the deposit for the acquisition of the Property.  It is their case that the 1^st Defendant has no beneficial interest at all.

2.  The 2^nd Defendant is not a family member.  She is a creditor of the 1^st Defendant.  She obtained a default judgment against the 1^st Defendant in her favour in HCA 19521 of 1998 on 10 December 1998 in the sum of $481,500 plus interest and costs.  The total amount of the judgment debt, according to her calculation, runs up to $800,000 odd by now.

3.  The 2^nd Defendant obtained charging orders in respect of the Property by way of enforcement of the default judgment: charging order nisi was obtained on 8 July 1999 and charging order absolute was obtained on 19 August 1999.  These orders were registered at the Land Registry.

4.  By way of enforcement of the charging order, the 2^nd Defendant commenced Order 88 proceedings against the 1^st Defendant in DCMP 4229 of 2002 which was subsequently transferred to the High Court as HCMP 2100 of 2003.  The 2^nd Defendant sought order for possession and order for sale in respect of the Property.  The 1^st Defendant resisted the application.  In the course of those proceedings, the 1^st Defendant suggested he had decided to transfer his interest in the Property to his son, the 3^rd Defendant and a Deed of Trust was executed on 1 January 1995.  That document was not registered at the Land Registry.  Nor was it stamped.

5.  The 1^st Defendant said nothing about the Plaintiff having any beneficial interest in the Property in HCMP 2100 of 2003.  

6.  At the trial of HCMP 2100 of 2003 before Yam J on 9 June 2005, after some cross-examination by counsel for the 2^nd Defendant, the 1^st Defendant through his lawyer informed the court that he would agree to an order for possession and order for sale being made in respect of the Property.

7.  The 3^rd Defendant was outside court at that hearing.  He was originally asked to attend court to give evidence for the 1^st Defendant to resist the 2^nd Defendant’s application under Order 88.  He said he had not been consulted before the 1^st Defendant consented to the order for possession and order for sale and he was only told that his evidence would no longer be required.  He said he was informed by the solicitor acting for 1^st Defendant as regards the order for possession and order for sale after the hearing.  He had considered to lodge an appeal but he did not do so in view of the present proceedings.

8.  Long before the trial of HCMP 2100 of 2003, notice of the proceedings was given to occupants of the Property.  The Plaintiff and the 3^rd Defendant were residing at the Property at that time and they should be aware of the same.  The 3^rd Defendant cannot deny he had notice since he was asked by the 1^st Defendant to give evidence in the proceedings and he had made an affirmation for such purpose.  The Plaintiff admitted in her oral evidence at the trial of the present proceedings that she was aware of the notice as the 3^rd Defendant had explained it to her.

9.  Neither the 3^rd Defendant nor the Plaintiff applied to be joined as a party or otherwise made application to Yam J to oppose the application for order for possession and order for sale on the basis of their beneficial interest in the Property.

10.  Instead, the Plaintiff issued the present proceedings on 8 September 2005 naming only the 1^st Defendant as defendant.  The relief sought by the Plaintiff is declaratory relief concerning her ownership of the Property. 

11.  In view of the charging orders and the consent order of Yam J, this court considered that it is necessary to join the 2^nd Defendant as a party and ordered the joinder on 28 September 2005.  I should mention that there are other third parties’ interest registered at the Land Registry.  The Property is mortgaged to a bank.  The Plaintiff, the 1^st and 3^rd Defendants accept that no matter how this court decides on the question of beneficial ownership, they cannot contend that the mortgage is not binding on them.  Thus, there is no need to join the bank to the present proceedings.  There is also another charging order in favour of another party.  It was however suggested that the debts had been settled.  Hence, that chargee has no further interest in the Property. 

12.  In the course of the trial of the present proceedings, the 3^rd Defendant (at that stage giving evidence as a witness) testified to the effect that he should have a beneficial interest in the Property.  In order to have the question of beneficial ownership of the Property to be finally resolved once and for all, this court acceded to his application to be joined as the 3^rd Defendant.  The trial was adjourned to enable the 3^rd Defendant to file supplementary evidence.

13.  The trial resumed on 27 August 2008.

14.  As a chargee under the charging order absolute obtained against the 1^st Defendant, the 2^nd Defendant’s right in respect of the Property is circumscribed by the beneficial interest of the 1^st Defendant in it because,

(a)     Under Section 20A of the High Court Ordinance, a charging order can only be imposed on the beneficial interest of a debtor;

(b)    If there are other beneficial owners in the Property, a chargee under a charging order has no right to possession and cannot seek an order for the sale of the Property: see Chan Ching Kit Katherine v Lam Sik Shi HCMP 2239 of 2000, 24 June 2002, Kwan J and Fortis Bank v Yu Kam Hoi HCMP 134 of 2002, 4 March 2004, Reyes J.  However, it is open to such chargee to apply for the appointment of a receiver to receive the income or profit attributable to beneficial interest of the debtor in the property by way of equitable execution, see Chan Ching Kit Katherine. 

15.  Therefore, the main issue that I have to decide is who has or have the beneficial ownership in the Property: the Plaintiff, the 1^st Defendant and/or the 3^rd Defendant.  If I reach the conclusion that more than one of them are the beneficial owners, I shall also have to determine the extent of their beneficial ownership.  Depending on the extent of the 1^st Defendant’s beneficial ownership, I may need to address the question whether anything needs to be done regarding the consent order of Yam J.

The law on beneficial ownership

16.  In the recent case of Stack v Dowden [2007] 2 AC 432, the House of Lords re-examined the law in this area.  That was a case on beneficial ownership when the property was held under joint names.  It was held that since Lloyds Bank v Rosset [1991] 1 AC 107, the law has moved on.  The key is to identify the common intention of the parties.  Baroness Hale said at para. 60,

“The search is to ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it.”

17.  It was also held that in the search for common intention, a holistic approach should be adopted in the quantification of the beneficial interest by undertaking a survey of the whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended.  

18.  At para. 69 of the judgment in Stack, Baroness Hale identified many factors in addition to financial contributions that the court should take into account in a domestic context to divine the parties’ true intentions.  Her Ladyship further said at paragraph 70 that the list is not exhaustive.   

19.  In Abbott v Abbott [2007] UKPC 53, the Privy Council applied the approach in Stack v Dowden [2007] 2 AC 432 in a context where the property in question was registered in the sole name of a husband.  

20.  In the past, the common intention constructive trust was based on actual or inferred common intention.  It was held by the majority of the House of Lords in Pettitt v Pettitt [1970] AC 777 and subsequently accepted by Lord Diplock in Gissing v Gissing [1971] AC 886 that the court cannot impute an intention or understanding on the parties when the evidence shows that they had not thought about the matter.  This was clearly set out by Lord Diplock at p.904E to F of his judgment in Gissing.  This led to Lord Bridge’s dicta regarding the sort of evidence that is necessary to enable the court to draw an inference of common intention in Lloyds Bank v Rosset [1991] 1 AC 107 at p.132-3.

21.  In Ip Man Shan Henry v Ching Hing Construction Co Ltd [2003] 1 HKC 256 at para. 86, I suggested that it is too restrictive to read Lord Bridge’s dicta as laying down a rule of law.  Ultimately, it is a matter of inference to be drawn from the facts and circumstances of each case and the conduct relied upon must be examined against the background as to the dealings between the parties.  That was said in the context of determining whether it is the common intention that a party shall have a beneficial interest.  As we shall see, this is the first stage of the inquiry.

22.  As regards the second stage after deciding the first stage in the affirmative, viz.  the determination of the extent of the beneficial interest, I adopted the approach of Waite LJ in Midland Bank v Cooke [1995] 4 All ER 562 at 574D to F, see para. 192 of Ip Man Shan Henry.  

23.  Chadwick LJ conducted a full review of all the relevant cases on common intention constructive trust in Oxley v Hiscock [2005] Fam 211.  Through a comprehensive analysis of the cases, by reference to the judgment of Lord Diplock in Gissing at p.908-9, the judgment of Sir Browne-Wilkinson VC in Grant v Edwards [1986] Ch 683, the judgment of Nourse LJ in Stokes v Anderson [1991] 1 FLR 391, the judgment of Waite LJ in Midland Bank v Cooke [1995] 4 All ER 562 and the judgment of Peter Gibson LJ in Drake v Whipp [1996] 1 FLR 826, His Lordship concluded that there are two stages in the process of determining the beneficial interest of a claimant by common intention constructive trust. 

24.  The first stage is to examine whether there is a common intention that the claimant should have a beneficial interest in the property.  The dicta of Lord Bridge in Lloyds Bank v Rosset [1991] 1 AC 107 at p.132-3 was held to be pertinent to this stage of the enquiry but not to the second stage (see para. 48 of Oxley).  At para. 68 of Oxley, Chadwick LJ said,

“…the first question is whether there is evidence from which to infer a common intention, communicated by each to the other, that each shall have a beneficial share in the property.  In many cases … there will have been some discussion between the parties at the time of the purchase which provides the answer to that question.  … In other cases --- where the evidence is that the matter was not discussed at all --- an affirmative answer will readily be inferred from the fact that each has made a financial contribution.  … And, if the answer to the first question is that there was a common intention, communicated to each other, that each should have a beneficial share in the property, then the party to who does not become the legal owner will be held to have acted to his or her detriment in making a financial contribution to the purchase in reliance on the common intention.”

25.  Once the common intention as to beneficial ownership is established, the second stage is to ascertain the extent of the parties’ respective interests in the property.  At para. 69 of Oxley, Chadwick LJ set out the approach to be adopted in answering this question.

“… in many such cases, the answer will be provided by evidence of what they said and did at the time of the acquisition.  But, in a case where there is no evidence of any discussion between them as to the amount of the share which each was to have … the question still requires an answer.  It must now be accepted that … the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property.  And, in that context, ‘the whole course of dealing between them in relation to the property’ includes the arrangements which they make from time to time in order to meet the outgoings … which have to be met if they are to live in the property as their home.”

26.  After examining three strands of reasoning identified from earlier cases, His Lordship found it artificial to attribute to the parties a common intention to fix the extent of beneficial interest as from the time of acquisition when all evidence points to the conclusion that they had given no thought to the matter.  He continued to say at para. 71,

“… in the absence of evidence that they gave any thought to the amount of their respective shares, the necessary inference is that they must have intended that question would be answered later on the basis of what was then seen to be fair.”

27.  In Stack v Dowden [2007] 2 AC 432, the House of Lords endorsed the two stage approach, see paras. 61 and 63.  This is further highlighted by Baroness Hale in Abbott v Abbott [2007] UKPC 53 at para. 4.

28.  Baroness Hale stressed that the burden is on the party who alleges that the beneficial interest is not vested in the same manner as the legal interest in a property to establish the same, see paras. 54, 56 and 68.

29.  As far as the second stage is concerned, Baroness Hale preferred the expression of the test of quantification in the Law Commission Discussion Paper on Sharing Homes to the formulation of Chadwick LJ.  The preferred test is as follows,

“If the question really is one of the parties’ ‘common intention’, we believe that there is much to be said for adopting what has been called a ‘holistic approach’ to quantification, undertaking a survey of the whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended.”

See also Abbott v Abbott [2007] UKPC 53 at para. 6.

30.  It is important to have regard to what Her Ladyship went on to say at para. 61 to account for such preference,

“First, it emphasizes that the search is still for the result which reflects what the parties must, in the light of their conduct, be taken to have intended.  Second, therefore, it does not enable the court to abandon that search in favour of the result which the court itself considers fair.  For the court to impose its own view of what is fair upon the situation in which the parties find themselves would be to return to the days before Pettitt v Pettitt [1970] AC 777 without even the fig leaf of section 17 of the 1882 Act.”

31.  At para. 36 of Stack v Dowden, Lord Walker expressly endorsed the same qualification in his approval of Chadwick LJ’s judgment. 

32.  Subsequently, in Holman v Howes [2007] BPIR 1085, Lloyd LJ pinpointed this qualification to the judgment of Chadwick LJ at paras. 30 to 32. 

33.  It is also significant to note that at para. 37 in Stack v Dowden Lord Walker expressed the view that common intention constructive trusts cannot be completely assimilated with proprietary estoppel. 

“Proprietary estoppel typically consists of asserting an equitable claim against the conscience of the ‘true’ owner.  The claim is a ‘mere equity’.  It is to be satisfied by the minimum award necessary to do justice … which may sometimes lead to no more than a monetary award.  A ‘common intention’ constructive trust, by contrast, is identifying the true beneficial owner or owners, and the size of their beneficial interests.”

This statement is important because in some previous English authorities including Grant v Edwards [1986] Ch 683, Yaxley v Gotts [2000] Ch 162 and Oxley, there are suggestions that there would be a convergence of these two equitable doctrines.  It remains to be seen whether the view of Lord Walker will have a great impact on the development of the law in respect of common intention constructive trust in the future.  But one should now read some previous authorities on the assimilation of these two branches of the law with some caution.    

34.  In Ip Man Shan Henry v Ching Hing Construction Co Ltd [2003] 1 HKC 256 at paras. 70 to 74, I referred to the conceptual distinction between pre-acquisition common intention and post-acquisition common intention.  At para. 74, I said,

“If the common understanding was arrived at prior to the acquisition of the property, the beneficial ownership had not yet been crystallized and one may infer a common intention more readily.  On the other hand, if the common understanding were only formed after the acquisition of the property, this would imply a change in the beneficial ownership of the property.  The evidence must support an inference that there was a fresh agreement as to beneficial ownership before the court can give effect to the common understanding.  In other words in that situation, there must be some evidence to infer that the original beneficial owner has agreed to give up some of his interest in the property in favour of the other party.”

35.  I do not think Stack v Dowden and Abbott v Abbott bring about any changes in this regard.  In James v Thomas [2007] 3 FCR 696, a Court of Appeal decision after Stack v Dowden, Chadwick LJ said at p.705,

“More pertinently, if the circumstances so demand, a constructive trust can arise some years after the property has been acquired by, and registered in the sole name of, one party who (at the time of the acquisition) was, beyond dispute, the sole beneficial owner: Gissing v Gissing [1971] AC 886 at 901, Bernard v Josephs [1982] Ch 391 at 404.  But, as those cases show, in the absence of an express post-acquisition agreement, a court will be slow to infer from conduct alone that parties intended to vary existing beneficial interests established at the time of acquisition.”

36.  In the same vein, in his dissenting judgment [1]in Stack v Dowden, Lord Neuberger said at para. 138,

“The fact that the ownership of the beneficial interest in a home is determined at the date of acquisition does not mean that it cannot alter thereafter.  My noble and learned friend Lord Hoffmann suggested during argument that the trust which arises at the date of acquisition, whether resulting or constructive, is of an ambulatory nature.  That elegant characterization does not justify a departure from the application of established legal principles any more than such a departure is justified at the time of acquisition.  It seems to me that ‘compelling evidence’ … is required before one can infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership is held.  Such evidence would normally involve discussions, statements or actions, subsequent to the acquisition, from which an agreement or common understanding as to such a change can properly be inferred.”

37.  In most of the cases where these principles were discussed, the dispute was raised in the context of a piece of litigation between the two co-owners or between a sole owner and a claimant who claimed to have contributed to the acquisition of the property.  However, if the equitable interest of a third party is involved, the concept of ambulatory constructive trust may present problems.  Take the following scenario: during the course of dealings between the two primary claimants, one of them A (who holds the legal title) did something which generates an equitable claim to the property by a third party C, the question may arise whether that equitable claim is binding on the other primary claimant B (who does not hold the legal title but has an interest by way of common intention constructive trust).  If the beneficial interest of B arose from a common intention formed at a time prior to the acquisition by C of his equitable interest, priority will be determined by the rule where equities are equal and neither claimant has the legal estate, the first in time prevails (see Snell’s Equity 31^st Edn Para. 4-03).  The same analysis will apply if the beneficial interest of B arose from a common intention formed after the acquisition by C of his equitable interest. 

38.  Problems arise when there has been a change of common intention in the course of dealings between A and B.  Suppose the common intention at the beginning was that A and B will be beneficial owner in equal shares.  In the course of dealings, that intention was changed to a distribution between A and B of 25:75.  If the equitable interest of C cannot be fully satisfied by 25% of the property and if that equitable interest was acquired by C prior to the change in common intention, should C have priority over B?  The answer to that question depends on the correct analysis on the effect of the change in common intention: whether it is a disposition of beneficial interest or it merely enlarges the extent of an indeterminate existing beneficial interest.   

39.  Perhaps it may not be entirely accurate to confine this discussion to the context of a change in common intention.  The authorities recognized that it is possible that the common intention at the beginning is the understanding that both A and B would have beneficial interest in the property but the share distribution is not to be quantified immediately.  Rather, the intention is to leave that to be determined when mortgage is fully repaid or when the property is disposed of.  See Gissing v Gissing [1971] AC 886 at 909D and Stokes v Anderson [1991] 1 FLR 391 at 399 to 400.

40.  Since the Plaintiff and the 3^rd Defendant did not have legal representation, I do not have the benefit of full arguments on the law.  My tentative view is that in a case where the initial common intention is to have the share distribution to be quantified later, the beneficial interest of A and B can be regarded as indeterminate and the increase and decrease in its size during the course of the dealings will not be treated as the disposition of any beneficial interest.  In that sort of scenario, C cannot contend for any priority over B simply because the extent of B’s interest has increased over time. 

41.  On the other hand, if it is a case of change of common intention which led to change in the share distribution, it must be regarded as a disposition of beneficial interest.  If C acquired an equitable interest prior to such disposition (and assuming his interest is equal to that of B in the eyes of equity), he would be able to claim priority over B’s increase in beneficial ownership. 

42.  In this connection, Mr Yee submitted that the extent of beneficial interest acquired by B should be confined to the contribution he made to the Property prior to the acquisition of the equitable interest by C.  I do not agree.  As I said in Ip Man Shan Henry v Ching Hing Construction Co Ltd [2003] 1 HKC 256 at para. 74, the relevant dichotomy lies in the timing when the common intention is formed as opposed to the making of the contribution.  Although without suffering any detriment B would not acquire any beneficial interest, the case law clearly establishes that it is possible to have a constructive trust with an indeterminate beneficial interest when the common intention was formed.  Further, the effect of the latest authorities is that detriment other than direct contribution to the acquisition of the property can be taken into account and the extent of interest may not be confined to the monetary value of the contribution.     

43.  A fortiori, the same analysis applies if the change of common intention involves change in identities of beneficial owners.            

Application of the law to the facts of the present case

44.  When the Property was acquired in 1992, it is beyond dispute that it was not the intention of the 1^st Defendant that the 3^rd Defendant should have any interest in it.  The question is whether the Plaintiff had any beneficial interest, either exclusively or jointly with the 1^st Defendant.  Since the Property is assigned and registered under the sole name of the 1^st Defendant, the burden is on the Plaintiff to establish her beneficial interest.

45.  In the Order 88 proceedings, the 1^st Defendant described in an affirmation filed on 17 February 2003 how the Property came to be acquired by him.  He said he read an advertisement in the newspaper about the development of Pang Ching Court by the Housing Authority.  He was interested in purchasing his own property by using his pension upon his retirement as a staff station sergeant of the Police Force.  As a retired civil servant, he was entitled to apply by a White Form (see also his affirmation of 12 November 2004).  He therefore made an application and was successful.  He then said,

“I paid an initial deposit of $34,300 and the balance of the purchase price was paid by my raising a bank loan of $646,000 from the Hang Seng Finance Company.  I duly paid for the monthly loan instalment.”

He repeated the assertion that he made payments up to the end of 1994 in his affirmation of 12 November 2004 and 21 April 2005.  He said on top of his monthly pension of $8,000, he had another job after his retirement working as a manager of a finance company earning $10,000 per month.  With such additional income, he said he was able to pay the monthly instalment.  He lost that job in mid 1994.

46.  He went on to depose how the arrangement was changed in 1995.  He said the 3^rd Defendant paid the instalment payments since January 1995. 

47.  He said nothing in his evidence filed in the Order 88 proceedings about any common understanding with the Plaintiff regarding her interest in the Property and contributions made by the Plaintiff towards the initial deposit or the monthly instalment payments.

48.  The 3^rd Defendant also made affirmations in the Order 88 proceedings.  In an affirmation filed on 21 April 2005, he corroborated the story of the 1^st Defendant.  He also said nothing about the Plaintiff making any contribution to the acquisition of the Property prior to 1995.  It is telling to note how he described the change in 1995 came about at paragraph 4 of the affirmation,

“In or around the middle of 1994 [the 1^st Defendant] had a talk with me and he told me that because he had lost his job [in 1994] he had difficulty in paying the monthly mortgage payment and he also needed his pension money to sustain himself.  He asked if I could take over the payment of the mortgage of the Property and he also asked me to look after my mother and younger sister here.  He would then transfer the title of the Property to me.  I had a talk with my mother and she promised that she would be responsible for part of the mortgage payment for the time being until I had the financial means to pay for the full monthly payment.  I then told [the 1^st Defendant] that I was willing to take over the mortgage payment and he was very happy.”

49.  This has to be considered against the background that according to the evidence before me by then, the relationship between the Plaintiff and the 1^st Defendant was not good.  By 1994, he had been living separately.  If all along the 1^st Defendant did not make any contribution to the payments for the Property, he would not have this talk about him not being able to continue with such payment.  If the Plaintiff had been the person who made those payments, and if she needed assistance from the 3^rd Defendant, she would be the person who talked to the 3^rd Defendant instead of the 1^st Defendant.  By necessary implication, the evidence of the 3^rd Defendant in the Order 88 proceedings confirmed that the 1^st Defendant paid for the Property up to at least mid 1994. 

50.  In the present proceedings, the Plaintiff said in her first affirmation of 8 September 2005 that she paid for the initial deposit and all the mortgage instalments.  She said the 1^st Defendant put the Property under his sole name as he was of a dominant character and took things into his own hands.  He decided that, as he was the head of the family, only his name should be registered as owner.  The Plaintiff felt she could do nothing about it.  She further said the 1^st Defendant told her the Property would be for the use of the family and her name needed not be added to the title deeds. 

51.  The Plaintiff deposed to the deterioration of the relationship between her and the 1^st Defendant and the relocation of him to mainland China and Macau.  She claimed that the 1^st Defendant ceased paying her any maintenance after his retirement and she had to go out to work.  She said her earning was about $7,000 per month.

52.  When she was cross-examined at the trial, she elaborated on what happened when decision was made to purchase the Property.  She said there was not much discussion between her and the 1^st Defendant but it was a decision of both of them.  The 1^st Defendant told her to borrow money from her sister to pay the down payment.  As she had money from her own savings, she made the payment since she was happy to have a house for the family.  There was also no discussion about how mortgage payment was to be met though she expected the 1^st Defendant would pay.  But at that point, her evidence became quite confusing.  She said since she had jobs, she could meet the mortgage payments as well. 

53.  The Plaintiff said she undertook several odd jobs during that time.  However, she did not produce any documents to support her income.  Nor did she produce any documents to show money were withdrawn from her bank accounts to pay the mortgage payments.  This court had explained to her the importance of producing contemporaneous documents to support her case at the pre-trial review on 9 January 2008.  In particular, this court explained why the production of pay-in slips might not be sufficient.  Despite the direction from this court, up to the beginning of the trial the Plaintiff only produced the pay-in slips showing money paid into the account of the 1^st Defendant to support her case.  There is no documentary evidence to show the source of funds for such payments.   

54.  It was only on the last day of trial the 3^rd Defendant produced passbook records of the Hang Seng Bank account of the Plaintiff to support the 3^rd Defendant’s case that he had issued cheques paid into the Plaintiff’s account for mortgage payments.  However, the passbook records do not tally completely with the 3^rd Defendant’s claim.  Even on the 3^rd Defendant’s reckoning (as shown in the table in Exhibit D-1), the passbook records only show a payment of $249,550 into the Plaintiff’s bank accounts.  The 3^rd Defendant however said his own bank statements indicated that over the years he had paid $637,600 to the Plaintiff (see his Affirmation of 18 June 2008).  The original passbooks were produced as exhibits D-2(a) to (e). 

55.  More importantly, the passbook records do not tally with the mortgage payment records as evidenced by the pay-in slips.  By way of example, taking November 1995 as an illustration, the pay-in slip for that payment shows that a sum of $5,941.80 was paid into the mortgage account on 2 November 1995 in the name of the 1^st Defendant.  There is no corresponding withdrawal from the Plaintiff’s bank account on that date or around the same time.    

56.  Since the passbooks were only produced at the very last stage of the trial after the Plaintiff finished giving evidence, Mr Yee did not have the opportunity to cross-examine the Plaintiff on the same.  The 3^rd Defendant tried to explain the above discrepancies by saying that the Plaintiff had two other bank accounts.  But the records of those accounts were not produced.  The Plaintiff said in her closing submissions that she rarely used her Standard Chartered Bank account which she only opened to facilitate dealings with her sister.  She said the other bank account had been cancelled.  But she did not explain what steps she had undertaken to obtain records of such bank accounts and why she failed to produce such records notwithstanding the explanation from the court at the hearing of 9 January 2008.

57.  I find the Plaintiff’s evidence on her earnings and her contributions to the mortgage payments rather unsatisfactory.  Not only did she fail to produce reliable contemporaneous documentary evidence to support her case, her evidence on her income in October 1991 is not credible.  She said she worked in the morning at a rice-roll stall at Hunghom together with her sisters, earning about $20 per day.  But she admitted that each morning she practiced Taichi at Kowloon Bay up to 8:00 am.  She said she would travel from Kowloon Bay to Hunghom afterwards and if she were too late for selling rice-roll, she would be responsible for cleaning up.  Common sense tells us that people in the business of selling rice-rolls as breakfast would start early in the day.  It is rather unlikely that one would practice Taichi until 8:00 am before one would travel a distance to run such a stall.  By then most customers would have gone to work.  Moreover, an earning of $20 per day simply did not worth the effort, particularly when the Plaintiff had to pay for the traveling from Kowloon Bay to Hunghom.  In this connection, I find the evidence of the 2^nd Defendant that the Plaintiff did not appear to be working after she practiced Taichi together with the 2^nd Defendant more credible. 

58.  The Plaintiff said she undertaken other odd jobs like alteration of clothes ($10 to $20 per job), part-time cleaning ($100 each time), direct sales (earning $2,000 to $3,000 per month) during that time.  It is unlikely that the earnings from these jobs add up to $7,000 per month.

59.  At a later stage[2], the Plaintiff said she was gainfully engaged as a dancing teacher.  She said she now earned about $15,000 per month.  She said she had been so engaged for more than ten years but she did not tell me how much she earned in the past.  I am therefore left in the dark as to how much of such income could she afford to spend on the mortgage payments, if any.

60.  The Plaintiff referred to the affirmation of the 1^st Defendant filed in the present proceedings on 23 September 2005.  In that affirmation, the 1^st Defendant said he had not made any contribution to the acquisition of the Property and the Plaintiff paid for the same.  What the 1^st Defendant said there is directly contradicted by what he previously said in his affirmations in the Order 88 proceedings.  The 1^st Defendant did not attend the trial and he was not called as a witness by the Plaintiff or the 3^rd Defendant.  Even though I would not go so far to say that the 1^st Defendant is the principal instigator of the present proceedings (as suggested by Mr Yee), it is plain to me that he is on the same side as the Plaintiff and his evidence in the present proceedings should not be taken at its face value.  In the absence of cross-examination and absence of explanation about his previous inconsistent statements in the Order 88 affirmations, I do not feel able to attach weight to his affirmation of 23 September 2005.

61.  In the passbook records of the Plaintiff’s bank accounts (Exhibits D-2(a) to (e)), there were quite a number of credit entries which cannot be explained by the monthly earnings of the Plaintiff as per her evidence.  For example, in May 1995, the total amount deposited into her Hang Seng Bank account adds up to $52,650; in January 1996, the total is $35,700.  At the same time, there were also large withdrawals which go beyond the usual household expenses and mortgage payments: e.g. $24,000 on 1 May 1995; $15,000 on 15 May 1995; $30,281.62 on 10 January 1996; $22,572.50 on 16 January 1997.  On 16 December 2000, there was a deposit of $300,000.  On 1 May 2001, a sum of $40,000 was deposited into her account.  Then on 15 June 2001, another deposit of $25,000; and on 28 July 2001, a deposit of $30,000; on 3 September 2001, a deposit of $16,500; on 16 October 2001, a deposit of $30,000; on 11 January 2002, a deposit of $29,300; on 12 March 2002, a deposit of $16,500; 17 May 2002, a deposit of $119,359; 4 June 2002, a deposit of $27,000; 8 November 2002, a deposit of $33,690; on 20 January 2003, a deposit of $18,000 and on 15 May 2003, a deposit of $20,141,36.  I am not going to speculate the source of these deposits.  There are also some large withdrawals on other dates.  But I think the passbook records show that Plaintiff has not told this court everything about the finance of the family and it certainly is not as simple as she depicted.  Monies in her bank account were certainly not exclusively derived from her own earnings or contributions to household expenses by the 3^rd Defendant.

62.  There is no reliable evidence as to financial position of the family as a whole.  However, there is some evidence suggesting that they were not as financially strained in 1991 as depicted by the Plaintiff.  The family had another flat at Marconi Court, at Marconi Road, held in the name of a company of the 1^st Defendant.  That property was acquired by the company in 1991 at the price of $1.85 million.  The evidence of the 1^st Defendant in the Order 88 proceedings suggested that he had a pension of $8,000 and on top of that he had a monthly salary of $10,000 per month.  In her first affirmation at the last paragraph, the Plaintiff described the 1^st Defendant as a responsible father.  The Plaintiff did not disagree from the proposition that the 1^st Defendant had obtained a lump sum payment on retirement although she said he had used it for investment into his business ventures. 

63.  Though the 3^rd Defendant also gave evidence on the Plaintiff’s contribution to the purchase of the Property, I do not think I can attach much weight to it.  First, as regards contributions between 1992 and 1995, he had no direct personal knowledge.  Second, as mentioned, by necessary implication, this evidence is inconsistent with his affirmation in the Order 88 proceedings.  Third, as explained below, I have some misgivings regarding his credibility in general. 

64.  On the evidence, I am not satisfied that the Plaintiff paid for the deposit and all the mortgage payments.  She might be the person who actually deposited the money into the mortgage account.  However, I do not believe that the 1^st Defendant did not pay her anything for the mortgage payments. 

65.  On the balance of probabilities, I find that the Plaintiff fails to discharge the onus of establishing that she exclusively paid for the acquisition of the Property and the mortgage payments.

66.  However, I accept the Plaintiff’s evidence that when the Property was acquired, the 1^st Defendant had told her the Property would be for the use of the family and it would be sufficient just to put down his name on the title deeds as he was the head of the family.  Is this sufficient to satisfy the hurdle at the first stage?

67.  By itself, such a statement is perhaps too equivocal to establish a common intention to share beneficial ownership between the Plaintiff and the 1^st Defendant.  But as held in Stack v Dowden and Abbott v Abbott, the parties’ whole course of conduct in relation to the property must be taken into account in determining the shared intentions as to its ownership. 

68.  The Property was actually used as a home for the family even though for a period of time the Plaintiff and the 1^st Defendant also stayed at Marconi Court.  The evidence suggested that the 1^st Defendant lived separately from the family in 1994.  He left the Property for the use of the Plaintiff and their children. 

69.  I believe the Plaintiff when she said she was the person who physically took care of the mortgage payments. 

70.  Even though I do not accept the Plaintiff’s evidence that she paid for all the mortgage payments and the deposit, I am satisfied that she did contribute to at least some of the mortgage payments.  It is clear that the 1^st Defendant encountered cashflow difficulties.  He started to borrow money from the 2^nd Defendant in November 1992.  He continued to borrow until 1995 without making any repayment.  On the other hand, his company Konsand Investments Limited (in which he held 40% shareholding) remained as owner until a receiver was appointed in 2004 in respect of the property at Marconi Court.  That property was then sold by the receiver in May 2004.  From the land search of the Property, it can also be seen that the 1^st Defendant had borrowed $300,000 from Good Fortune Finance Company on 23 March 1999 and defaulted in repayment soon afterwards.          

71.  My finding regarding what happened is as follows.  The 1^st Defendant paid monies to the Plaintiff from time to time for household expenses, including the mortgage payments.  In fact, both the Plaintiff and the 1^st Defendant regarded the mortgage payments as an item in the household expenditure to be met by whatever resources available to the family.  Throughout the years, there were occasions where the 1^st Defendant did not pay enough money to the Plaintiff to cover everything and the Plaintiff had to take on jobs to supplement the same.  In so doing, the Plaintiff acted to her detriment in reliance on the common understanding explained in para. 74 below.  I also accept that the Plaintiff has lately been earning $15,000 as a dance teacher but in the absence of any cogent evidence on the commencement of such engagement I am not satisfied that the Plaintiff has been earning that much even before 2000. 

72.  Due to the lapse of time and the lack of reliable evidence before me, it is not possible for this court to reach a conclusion on the relative proportion of contribution to the acquisition of the Property as between the Plaintiff and the 1^st Defendant. 

73.  But on the peculiar facts of this case, it does not matter.  By now, it is well recognized that the parties’ respective share of beneficial interest in the property held on constructive trust does not necessarily coincide with their respective contribution to the acquisition.  Rather, the court is required to take into consideration of all conduct which throws light on the question during the whole course of dealing between the parties (see Midland Bank v Cooke [1995] 4 All ER 562; Drake v Whipp [1996] 1 FLR 826; Oxley v Hiscock [2005] Fam 211 and note the disapproval of Walker v Hall [1984] FLR 126 and Springette v Defoe [1992] 2 FLR 388 at para. 65 in Stack v Dowden [2007] 2 AC 432).  As emphasized in Stack v Dowden, the search is for the result which reflects what the parties must, in the light of their conduct, be taken to have intended.

74.  On the evidence before me, notwithstanding the unsatisfactory state of evidence on the family finance, I am able to conclude that in the light of the conducts of the Plaintiff and the 1^st Defendant in respect of the Property during the whole course of dealing, they must have intended that it would be a family asset in which both of them should have equal share beneficially irrespective of their respective contributions.  The evidence shows a clear intention that the acquisition of the Property was to be funded by the household account into which both parties would pool their resources together.  At the time of acquisition, they were husband and wife with two children and the Property was acquired to provide a home to the family.  Sometimes the Plaintiff contributed more and sometimes the 1^st Defendant contributed more.  But it has never been their intention to say to each other that their respective share of beneficial interest in the Property depends on their precise contribution.  I believe this is the implication when the 1^st Defendant told the Plaintiff that it would be good enough to register the title under his name as head of the family.

75.  Before coming to that conclusion, I have taken into account the reticence on the part of the 1^st and 3^rd Defendants as regards the beneficial interest of the Plaintiff in the Property in the Order 88 proceedings.  I have also borne in mind the failure of the Plaintiff to assert her beneficial interest in those proceedings notwithstanding her knowledge of the same.  I do not believe she did not learn about the consent order until much later.  The 3^rd Defendant was told about it on the same day outside court and given the implications of the order, he must have told the Plaintiff immediately.  In this connection, I find the Plaintiff to be quite evasive when she was cross-examined about her knowledge as to the order of Yam J[3].  

76.  Nonetheless the application for order for possession and order for sale had been resisted (until the 1^st Defendant consented to the order of Yam J after giving evidence).  The affirmations of the 1^st and 3^rd Defendant asserted that the 1^st Defendant did not pay all the mortgage payments.  Though the Plaintiff should have asserted her interest by herself in the Order 88 proceedings (and her failure to do so will have a bearing on the costs of the present proceedings), I can understand why she had left the matter in the hands of the 3^rd Defendant at that time.  After all, if the 3^rd Defendant were able to resist the application, the family home would be secured. 

77.  Unfortunately, the 3^rd Defendant had let the Plaintiff down.  I do not believe the 3^rd Defendant had no prior knowledge as regards the 1^st Defendant’s intention to consent to an order for possession and sale before the order was made.  I find it inherently incredible that he did not enquire about the progress of the matter and he was content with a mere suggestion that his evidence would not be required.  After all, the Property was his residence and he had to be quite concerned as to the reason why he needed not testify.  My finding is that he was not truthful in his testimony about what actually happened between him and the 1^st Defendant’s lawyers outside the courtroom when a decision was made to consent to an order for possession and sale. 

78.  However, on the evidence, I do not feel able to conclude that the Plaintiff agreed with the consent order.  Thus, I will not regard her conducts in relation to the Order 88 proceedings as implied admission on her part that she had no beneficial interest in the Property.

79.  The same can be said with regard to her failure to assert any claim with regard to the Property in the divorce proceedings.  I do not have concrete evidence about the relevant dates of those proceedings.  But it seems that they were conducted by the same firm of solicitors acting for the 1^st Defendant in the Order 88 proceedings.  It therefore comes as no surprise that the Plaintiff acted in the divorce proceedings in a manner consistent with the case put before the court in the Order 88 proceedings. 

80.  How does the 3^rd Defendant’s claim fit into the above analysis?  To deal with this question, one must first establish what really happened in 1994 and 1995. 

81.  The 3^rd Defendant said the 1^st Defendant promised to give the Property to him in 1994 in consideration of the 3^rd Defendant’s agreement to take up the mortgage repayments.  I do not believe his story.  As submitted by Mr Yee, the 3^rd Defendant had been paying contributions to the household expenses at the rate of $2,000 to $3,000 per month even before 1994 on account of his living at the Property.  In 1994, the 3^rd Defendant earned $14,000 per month as a merchandiser.  The mortgage instalment was $5,941.80 per month.  If he had agreed to take up the responsibility for the discharge of the mortgage payments, he should at least pay $8,000 per month to the Plaintiff to cover both his share of the household expenses and the mortgage repayments.  Yet, even on his own evidence, he only paid about $3,000 to $4,000 per month to the Plaintiff up to 1999.  Such amounts were not even sufficient to cover the mortgage payments.  

82.  The only piece of documentary evidence supporting the 3^rd Defendant’s case is the Deed of Trust of January 1995.  However, since that document is not stamped, it is not admissible as evidence (see Section 15 of the Stamp Duty Ordinance Cap.117).  Putting that aside, the lack of stamping and registration at the Land Registry means that there is no reliable independent evidence regarding the date of execution of this document.  Though it was dated 1 January 1995, the first time it was produced was in the context of the Order 88 proceedings in February 2003. 

83.  It is noteworthy that the 1^st Defendant did not put forward the document or the case of trust in favour of the 3^rd Defendant as ground for opposing the making of a charging order on the Property in August 1999.  Even though the 1^st Defendant did not attend the application for charging order absolute, by then he was fully aware of the proceedings by the 2^nd Defendant as he had unsuccessfully appealed against a charging order on shares and a garnishee order before Yeung J (as he then was) in May and June 1999. 

84.  The contents of the document were not wholly consistent with the 3^rd Defendant’s case.  The recital stated that the Property “was in fact [assigned to the 1^st Defendant] as trustee upon trust for [the 3^rd Defendant]”.  According to the evidence of the 3^rd Defendant, that was not the case because at the time when the Property was acquired there was no question of the 1^st Defendant holding it on trust for the 3^rd Defendant. 

85.  The operative parts of the document purported to be a declaration by the 1^st Defendant that he held the Property on trust for the 3^rd Defendant as from 1 January 1995.  It is followed by an agreement on the part of the 1^st Defendant to assign or otherwise dispose of the Property at the request of the 3^rd Defendant in accordance with the latter’s direction. 

86.  However, both the 1^st and 3^rd Defendant were of the view that the document was not effective.  In his Affirmation of 21 September 2005, at para. 3, the 1^st Defendant said the document was invalid in law.  Also, he seemed to be under the impression that the document only entrusted the 3^rd Defendant to manage the Property (“托管”).

87.  In his oral testimony, the 3^rd Defendant told this court he did not regard the document effective in terms of the immediate transfer of title of the Property to him.  He said the intention was not to effect any transfer of title since they were told that a premium had to be paid for such a transfer.  He regarded it as a piece of paper to evidence the promise by the 1^st Defendant.

88.  If that were so, and it was also their evidence that this document was prepared by a lawyer in accordance with their instructions, it is difficult to see why the document was drafted in such a form.  At the highest, the lawyer should only prepare a written agreement to be executed by the 1^st Defendant in favour of the 3^rd Defendant instead of a declaration of trust as from 1^st January 1995.

89.  I have already alluded to the discrepancy between the 3^rd Defendant’s figures on alleged contribution by way of mortgage payments since 1995 ($637,600) and the figures he could demonstrate with reference to exhibit D-1 ($249,550).  He produced no concrete evidence to show that the other sums allegedly withdrawn from his bank account went to his mother’s account.  He did not explain how he could tell that these were amounts for mortgage payments. 

90.  Mr Yee did an analysis of the evidence of mortgage payments and the alleged payments by the 3^rd Defendant and produced a summary in table form to the court.  The analysis shows that for most of the time since 1995, even on his own evidence, the 3^rd Defendant did not meet the mortgage payments in full. 

91.  The 3^rd Defendant explained by saying that his financial situation was not that good and the Plaintiff had agreed to pay for the deficiency.  But if that were so, it is difficult to see why the 1^st Defendant should agree to transfer the whole interest in the Property to him. 

92.  Further, if there is any substance in the 3^rd Defendant’s case, it is difficult to understand why he did not protest against the 1^st Defendant’s consent to the order made by Yam J in the Order 88 proceedings.  As mentioned above, I do not believe that he was not privy to the consent of the 1^st Defendant. 

93.  On the evidence, I am not satisfied that the so-called Deed of Trust was prepared and executed by the 1^st Defendant in 1995.  It is more probable that the document came into existence for the sole purpose of resisting the Order 88 proceedings.  I do not attach any weight on its contents.

94.  Regarding what actually happened in 1994, I do not find the 3^rd Defendant to be a credible witness.  I do not believe his evidence on what he said to have taken place in mid 1994 (and the 1^st Defendant said in early 1995 at para. 3 of his affirmation) between him and the 1^st Defendant. 

95.  In the table prepared by Mr Yee, it would appear that starting from 1999 the 3^rd Defendant had contributed more to the household expenses.  Due to the inadequate evidence on the family finance, I am unable to conclude whether such increase in contribution arose as a result of reduced contribution by the 1^st Defendant and as such the increase was to be taken as the 3^rd Defendant’s share of the mortgage payments.  I decline to infer an understanding on the part of the 1^st Defendant to confer a beneficial ownership on the 3^rd Defendant from such increase.

96.  Further, the creation of beneficial interest in favour of the 3^rd Defendant would be a change in beneficial ownership.  As discussed above, compelling evidence is required to warrant such an inference to be drawn.  The 3^rd Defendant failed to produce such evidence in this trial.

97.  In any event, even on the 3^rd Defendant’s evidence (on which I have already expressed my misgivings on his credibility), the regular increase in contribution by the 3^rd Defendant only occurred in late 1999.  That was after the making of the charging order in favour of the 2^nd Defendant.

Results

98.  I would therefore dismiss the claim of the 3^rd Defendant.  

99.  However, for reasons already given, I would grant a declaration that the Plaintiff and the 1^st Defendant are beneficial owners of the Property in equal share. 

100.  It follows that the 2^nd Defendant cannot enforce the charging order by an order for possession and sale.  Mr Yee indicated to this court that in such event his client would not enforce the order made by Yam J.

101.  I also make an order nisi that subject to costs order previously made, and except that the 1^st Defendant shall pay the costs of the 2^nd Defendant (such costs to be taxed if not agreed), each party shall pay his or her own costs in this action. 

102.  The 2^nd Defendant’s own costs shall be taxed in accordance with Legal Aid Regulations.