WONG KA YAN PATRICK v. CHEUNG KA YU NICOLE formerly known as CHEUNG LEE HUNG

CACV 522/2021, [2023] HKCA 1310

On Appeal From [2021] HKCFI 3199

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 522 OF 2021

(ON APPEAL FROM HCA NO 2102 OF 2017)

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REASONS FOR JUDGMENT

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Hon Au JA (giving the Reasons for Judgment of the court):

A.  INTRODUCTION

1.  This appeal concerns the beneficial ownership of a flat in Wan Chai (“the Property”) which is registered in the name of the defendant (“Nicole”). At the time when the Property was purchased in 2009, the plaintiff (“Wong”), who was a married man with three adult children, and Nicole were in an extra-marital relationship.  Their relationship started sometime in 2007 and ended at the latest in around 2016.

2.  By way of these proceedings taken out in December 2017, Wong claimed against Nicole, amongst others[1], for a declaration that he is the sole beneficial owner of the Property and Nicole has been holding it on trust for him.  He further sought an order that she do forthwith vest the Property in him.

3.  By the judgment (“the Judgment”) dated 27 October 2021, Mimmie Chan J (“the Judge”) dismissed Wong’s above claim against Nicole after trial.

4.  Wong appealed against the Judgment.  At the conclusion of the hearing of the appeal, we dismissed it with costs to Nicole and indicated that we would hand down our reasons at a later date.  This is what we do now.

B.  BACKGROUND

5.  The background relevant to this appeal can be summarized as follows.  This is largely common ground unless otherwise stated.

6.  Wong was a wealthy businessman who operates a business of real estate and property management.

7.  Wong and Nicole first met in September 2007 in a massage parlour where Nicole was working as a masseuse.  After several encounters, they began an extra-marital affair.  Shortly afterwards, Wong asked Nicole to stop working and began to pay her a monthly cash allowance of $20,000.  As Nicole’s residence at the time was small and uncomfortable, in November 2007, Wong rented a flat for her in Hennessy Court, Wan Chai, which was situated near his office so that he could visit her, eat and rest there during lunch hours on weekdays.

8.  By mid-2009, Wong had been renting the Hennessy Court flat for Nicole for just under two years.  It is common ground that:

(1)   By 3 August 2009 at the latest (Wong’s birthday), Nicole knew that Wong was suffering from Parkinson’s disease and was in bad health.

(2)   The suggestion to acquire a property for Nicole to live in (rather than renting a property) came from Wong.

It is also Wong’s case that he purchased the Property also as an investment.

9.  The Property was purchased in August 2009 in Nicole’s sole name for $2.3 million.  It was financed by a mortgage.  The parties have differing explanations as to how the purchase money (including the money for paying the mortgage instalments) came about:

(1)  Wong’s case is that he provided all the money (by way of cash payments to Nicole) used to acquire the Property (including the initial deposit and all the subsequent mortgage repayments), as well as the renovation and other expenses relating to the acquisition.  After acquiring the Property, Wong increased the monthly living allowance paid to Nicole from $20,000 to $30,000 so that she could pay the monthly mortgage instalments.

(2)  In the Family Court proceedings (see below), Nicole claimed Wong had gifted the Property to her.  However, in the pleadings and witness statements in these proceedings, Nicole changed her case and claimed she had paid for the acquisition of the Property with her own funds as follows:

(a)  She received “gift money” of around $700,000 - 800,000 from Wong, which she used to pay part of the initial deposit of $900,000.  She used her own savings (ie, around $100,000) to pay the balance of the said initial deposit.  When testifying, she acknowledged that the purchase money which she had said had come from her own savings in fact also consisted of the money which Wong had given to her, and which she had saved up over the years.

(b)  Subsequently, she paid the monthly mortgage instalments (of around $7,000) having received money from Wong.

10.  The parties’ relationship eventually came to an end sometime in 2016.  It is also Wong’s case that the relationship started to cool off by 2013.

11.  In June 2017, Nicole brought proceedings in the Family Court against Wong (in FCMP 121/2017) (“the Family Court Proceedings”) for a declaration of paternity and for maintenance of her son born in April 2016. Apparently, Wong denies that the son is his.

12.  In December 2017, Wong brought the present action against Nicole.

C.  THE JUDGMENT

13.  The action was tried before the Judge.  Both Wong and Nicole gave evidence at the trial.

14.  As summarized in the Judgment, Wong’s case for claiming beneficial interest in the Property is premised on common intention constructive trust.  Wong’s evidence in support was that it was his and Nicole’s common intention and mutual understanding (“Mutual Understanding”) at the time the Property was purchased that she was to hold the Property on trust for him entirely.  The Property was registered in Nicole’s name only for the purpose of preventing his wife from finding out that it belonged to him beneficially. The Mutual Understanding was communicated orally and made expressly clear to Nicole on at least two occasions prior to the purchase of the Property[2].

15.  Nicole denied that there was the Mutual Understanding.  It was her case, as mentioned above, that all the funds used to purchase the Property, including the paying off of the mortgage, was her own money, derived from her savings and money given to her as gift by Wong over the years.  It was in any event also her case that Wong had indicated that he purchased the Property for her.

16.  The Judge first accepted that Nicole’s evidence on the source of funds used to purchase the Property kept changing and was inconsistent as submitted by Wong’s counsel[3].  On the other hand, she dismissed Wong’s claim for the following main reasons:

(1)  The Judge adopted the well-established principles applicable to a case based on common intention constructive trust that, as the starting presumption is that the beneficial interest follows the legal interest, it was for Wong to prove with evidence that there was the Mutual Understanding as he claimed[4].

(2)  The Judge then went on to find Wong’s evidence that there was an oral agreement for the Mutual Understanding not credible but instead hold that Nicole’s consistent case that Wong had purchased the Property for her was more credible in light of, among others, the following indisputable essential factual contexts[5]:

(a)  Wong and Nicole had a long relationship (that lasted from 2007 to 2016), which was still a very close one in 2009;

(b)  the purchase of the Property was within a very comfortable budget for Wong given his enormous wealth[6]; and

(c)  at the time of the purchase, Wong had just been diagnosed to have Parkinson’s disease, and it would be an incentive for him to buy a slightly bigger flat and also to avoid paying rent for the Hennessy Court flat.

(3)  The Judge also found Wong’s evidence that he purchased the Property as an investment and he registered it in Nicole’s name only to avoid his wife finding out his interest in it was incredible given[7]:

(a)  the way to purchase the Property was very different from his usual pattern of holding and investing in properties in the names of limited companies; and

(b)  he never asked for a written document to be signed by Nicole to reflect the alleged trusteeship.

17.  In the premises, on the entirety of the evidence, the Judge rejected Wong’s claim that there was any oral agreement, or any Mutual Understanding as he alleged[8].

18.  Although she did not accept Nicole’s evidence that she had sufficient savings of her own to make any significant financial contribution to the purchase of the Property, the Judge further found that the payments made by Wong for the purchase of it were by way of gifts to acquire the Property for Nicole, and there was no other unequivocal conduct to form any basis to infer a common intention for the Property to be held on trust by Nicole for Wong.  She therefore held that any presumption of resulting trust was rebutted[9].

D.  THIS APPEAL

D1.   Grounds of Appeal

19.  By the Notice of Appeal filed on 24 November 2021, Wong seeks to inter alia set aside the Judgment and asks for a declaration that he was and is the sole beneficial owner of the Property.  The grounds of appeal are, in gist:

(1)  The Judge erred in finding that it would have been natural and easy for Wong to have used a limited company to hold the Property, and that the purchase of the Property was entirely unique in his pattern of holding and investing in real estate (see [20] - [21] of the Judgment) (“Ground 1”);

(2)  The Judge erred in finding that it beggars belief that Wong never asked Nicole to execute a written document to reflect her trusteeship (see [22] of the Judgment) (“Ground 2”);

(3)  The Judge erred in questioning Wong’s assertion that he would not have made a substantial gift of the Property to Nicole in his allegedly casual relationship with her on the basis that the purchase price would have been within a very comfortable budget for him.  The Judge should have taken into account the money given by Wong to Nicole over the years (around $20,000 to $30,000 monthly) and recognised the substantiality of the Property as a gift in comparison (“Ground 3”); and

(4)  The Judge was wrong to prefer Nicole’s case over that of Wong’s given the errors set out in Grounds 1 - 3 and the Judge’s own criticism of the inconsistencies in Nicole’s evidence (“Ground 4”).

20.  Nicole has also filed a Respondent’s Notice on 1 December 2021 setting out further or alternative grounds on which the Judgment may be affirmed.  We will only deal with these alternative or additional grounds as and when necessary.

D2.   Applicable principles

21.  The grounds of appeal set out in the Notice of Appeal are essentially challenges to the Judge’s finding of facts.  The principles concerning the appellate court’s interference with the trial judge’s finding of facts are trite and not in dispute[10]:

(1)  Findings of fact may be categorised as:

(a)  findings of primary fact;

(b)  findings based on evaluation of facts; and

(c)  findings based on inferences.

(2)  For (a), the Court of Appeal will not disturb a finding of primary facts unless it is “plainly wrong”.  The Court of Appeal must be satisfied that the judge had fallen into “palpable error” in his finding of primary fact, such as where the conclusion was one (i) which there was no evidence to support; (ii) which was based on a misunderstanding of the evidence, (iii) which no reasonable judge could have reached.  The greater the advantage is enjoyed by the judge over the appellate court in terms of fact-finding (eg, seeing and hearing the witnesses), the more reluctant the appellate court would be to interfere.

(3)  For (b), it involves an assessment of a number of factors which have to be weighed against each other.  As in appeals against judges’ exercise of discretion, the Court of Appeal will not interfere so long as it is within the degree upon which different judges can legitimately differ.

(4)  For (c), depending on whether the inference is made from primary facts or after a process of evaluation, the Court of Appeal adopts the same above approach.

22.  Bearing these principles in mind, we now turn to consider the grounds of appeal.

D3.   Ground 1

23.  Under this ground, Wong seeks to challenge the Judge’s reasons for rejecting Wong’s evidence that he purchased the Property for investment purpose and registered it in Nicole’s name to avoid his wife knowing that it belonged to him as set out at [20] and [21] of the Judgment as follows:

“20. What is most telling is that of the properties in Hong Kong that Nicole has been able to find evidence as to Wong’s interests, all of them are held in the names of limited companies. The matrimonial home is held in the name of Happy Place Limited, of which Wong is a 50% shareholder and director. Happy Place Limited is also the registered owner of another property at Burrows Street. Five other properties in Hennessy Road, Taikoo Shing, and Russell Street are likewise registered in the names of four separate limited companies, of which Wong is a 50% shareholder and director.

21.  Wong’s purchase of the Property is entirely unique in his pattern of holding and investing in estate.  If he had indeed intended to invest in the Property, to save on the monthly rental of $4,000 for Hennessy Court, and to benefit from the rise in value of the Property, or if he had wished simply to withhold from his wife the fact of his interests in the Property, it would have been natural and easy for him to have used a limited company to hold the Property for him, instead of entrusting it to Nicole, with whom he merely had a casual relationship, and particularly if (as he suggested) the Property was such an expensive acquisition.”

24.  Mr Chang SC[11] for Wong submits that the Judge erred in making such a finding for two reasons.

25.  First, counsel submits that it was not open to the Judge to take this into account in rejecting Wong’s evidence since it was procedurally unfair for Nicole to run this point only in her closing submissions when her counsel had not cross-examined Wong on this in evidence. As such, Wong was deprived of an opportunity to explain why he did not use a limited company to purchase and hold the Property as an investment.  If he had been given such an opportunity, he might well have been able to give some credible explanations such as the following:

(1)  Wong’s case (which was unchallenged) was that he did not want his wife to detect the acquisition of the Property.  Indeed, according to Nicole, Wong had told her that he could not let his wife find out about it.

(2)  If Wong had used a limited company to hold the Property, there can be no dispute that a search of the Companies Registry records would reveal Wong’s connection to the Property as the director and / or shareholder of the company, thereby defeating Wong’s intention of ensuring that the Property was not to be detected by his wife.

(3)  Notably, the other properties mentioned in the Judgment were all held by limited companies in which Wong was a named shareholder / director together with his wife / business partner.  Thus, Wong could not use the same method to hold the Property, as it would link him to the Property.

26.  In support of the above submissions, Mr Chang relies on the rule in Browne v Dunn (1893) 6 R 67, the effect of which is that where the court is asked to disbelieve a witness, the witness should be cross-examined and the failure to cross-examine on some material part of his evidence may be treated as an acceptance of the truth of that part of his evidence[12].  In this connection, Mr Chang also draws the court’s attention to the observation made by Floyd LJ in Edwards Lifesciences LLC v Boston Scientific Scimed, Inc [2018] FSR 29 at [66] as follows:

“66 ... The rule applies with particular force where a witness gives direct evidence of a fact of which he has knowledge and which it is proposed to invite the court to disbelieve. Fairness to the witness and to the parties demands that the witness should be challenged on his factual evidence so as to give him the opportunity of affirming or commenting on the challenge, or on a positive matter which it is proposed to set against his evidence.” (emphasis added)

27.  We are not persuaded by these submissions.

28.  In our view, there is no procedural unfairness to Wong in the present case.  As Mr Chang fairly accepted at the hearing, when this point was raised in Nicole’s written closing submissions, it was entirely open to Wong’s counsel to either object to this point being relied upon or to ask to recall Wong to give evidence in this respect.  As noted by Floyd LJ at Edwards Lifesciences at [62] and [63] as follows:

“62 Phipson on Evidence, 19th edn (2016) summarises the obligation to cross-examine a witness in the following way at para.12-12:

‘In general a party is required to challenge in cross-examination the evidence of any witness of the opposing party if he wishes to submit to the court that the evidence should not be accepted on that point. The rule applies in civil cases as it does in criminal. In general the CPR does not alter that position. This rule serves the important function of giving the witness the opportunity of explaining any contradiction or alleged problem with his evidence. If a party has decided not to cross-examine on a particular important point, he will be in difficulty in submitting that the evidence should be rejected. However, the rule is not an inflexible one. For example, if there is a time-limit imposed by the judge on cross-examination it may not be practicable to cross-examine on every minor point, particularly where a lengthy witness statement has been served and treated as evidence-in-chief. Thus, in practice there is bound to be at least some relaxation of the rule. Failure to put a relevant matter to a witness may be most appropriately remedied by the court permitting the recall of that witness to have the matter put to him.’

63 As made clear by cases from Browne v Dunn (1893) 6 R. 67 to Markem Corp v Zipher Ltd [2005] EWCA Civ 267; [2005] R.P.C. 31 , the rule is an important one. However, it is not an inflexible one. Procedural rules such as this are the servants of justice and not the other way round.” (emphasis added)

29.  However, as Mr Chang also confirmed, no such objection or any application to recall Wong was made.  In the premises, it is now not open to Wong to complain on appeal that there was unfairness to him for not being provided an opportunity to explain why he did not purchase the Property through a limited company.

30.  We therefore reject this submission.

31.  Second, Mr Chang further contends that the Judge was plainly wrong in linking Wong’s pattern of holding and investing in other properties to the likelihood of Wong entrusting the Property solely to Nicole, as Wong was always a named shareholder and director in the other holding companies and the same pattern cannot be followed in respect of the Property given the need to conceal the Property from Wong’s wife.

32.  There is no merit in this argument.  Wong’s past pattern of investment must plainly be a relevant matter in light of Wong’s assertion that he purchased the Property also for the purpose of investment.  In addition, and more importantly, in making her finding, the Judge also took into account a host of other matters including the relationship of the parties at the time of the purchase, that the purchase price would have been within a very comfortable budget for Wong, Wong’s own background in the business of real estate and property management and the undisputed fact that Wong never asked Nicole to sign a written document to record the trusteeship (see [18] - [19], and [22] of the Judgment).  Having taken all these factors into consideration holistically, it must at least be reasonably open to the Judge to reject Wong’s evidence and conclude that he purchased the Property for Nicole at that time as a gift.  It certainly cannot be said that the Judge was plainly wrong.

33.  We reject Ground 1.

D4.   Ground 2

34.  This ground challenges the Judge’s view that it “beggars belief” that Wong never asked for a written document to reflect Nicole’s trusteeship despite his background and experience in property holding and transactions.  The Judge explained this at [22] of the Judgment as follows:

“22. As Counsel for Nicole pointed out, Wong himself is in the business of real estate and property management, and is well familiar with matters concerning holding properties and transactions in properties. He would have been familiar with the use of written instruments and declarations of trust, if he had genuinely intended the Property to be held by Nicole on trust for him. The fact that he never asked for a written document to be signed by Nicole to reflect this trusteeship beggars belief.”

35.  Mr Chang argues that there was no evidential basis for the Judge to find that Wong would have been familiar with the use of declarations of trust in property holding and that the Judge failed to consider that Nicole also did not ask Wong to sign any written document to confirm her beneficial ownership of the Property.

36.  There is also no substance in these contentions.

37.  First, it was plainly open to the Judge on the evidence to take into account the fact that Wong did not make use of a declaration of trust or a written document, to reflect his intention and protect his interest.  Wong was specifically asked in cross examination as to why he did not prepare a trust document or written document to protect his position.  His only response was that he did not do so because he trusted Nicole[13]. It was never his evidence that he was unfamiliar with the use of such document.

38.  Second, Mr Chang complains that the Judge did not also check Nicole’s case that Wong purchased the Property for her as a gift against her lack of use of a written document to reflect that.

39.  This argument is a red-herring.  Leaving aside the rather unusual proposition that one has to ask the person who makes a gift to record it on a written document, Nicole is in fact the registered legal owner of the Property.  There is already a legal written document reflecting her interest in it.  As the Judge made clear in applying the applicable principles, the burden was squarely on Wong to prove that the beneficial ownership did not follow the legal ownership, not the other way around.  In the premises, in arriving at her conclusion, there is nothing incorrect or amiss for the Judge not to have taken into account the fact that Nicole did not ask for a written document from Wong to confirm that he purchased the Property for her.

40.  For these reasons, we also reject Ground 2.

D5.   Ground 3

41.  Under this ground, Wong seeks to challenge the Judge’s view that the purchase price of the Property would have been within a very comfortable budget for Wong ([19] of the Judgment).  In relation to this, the Judge observed as follows:

“19. A relevant consideration in this case is the fact that the purchase of the Property must have been within a very comfortable budget for Wong. He does not dispute Nicole’s evidence, that he held beneficial interests in 7 properties in Hong Kong, and 2 more properties outside Hong Kong. The property at Tai Hang Road, which was the matrimonial home for Wong and his wife, was worth over $88 million, and Wong holds 50% of the shares in the company which holds the property. Wong does not dispute that he had informed Nicole that his total assets were worth $800 million. I therefore have huge reservations as to the reliability of Wong’s assertion, that he would not make such a ‘substantial’ gift of the Property for his allegedly casual affair. However casual as Wong purported the relationship to be, it did last from 2007 until 2016 (on the state of the evidence), although Wong’s case is that it had cooled off by 2013, and had completely broken down in mid-2016.”

42.  Mr Chang argues that this is an irrelevant consideration, as the substantiality of the Property should be measured against the pattern of gifts by Wong to Nicole rather than against Wong’s own assets.

43.  This is a non-starter.  It is simple logic and common sense that whether a person is capable and thus inherently more likely to make a gift of significant monetary value (and $2.3 million cannot be said to be not a significant value) must be related to his financial ability.  This is plainly a relevant factor that the Judge was entitled to take into account in assessing Wong’s case.

44.  Ground 3 must also fail.

D6.   Ground 4

45.  As submitted by Mr Chang at paragraph 29 of his written submissions, this ground is premised on Wong succeeding in the above three grounds, and on that basis, Wong asks this court to reassess the evidence as a whole on its own (without taking into account those considerations challenged under Grounds 1 - 3) and allow his claim.

46.  Given that we have rejected all the above grounds of appeal, this ground must also fall away and be dismissed.  In the premises, it is also not necessary for us to deal specifically with the alternative grounds set out in the Respondent’s Notice.

E.  DISPOSITION

47.  For all the above reasons, we dismissed the appeal with costs to Nicole.