NG LUK MUI AND ANOTHER v. SHIU TSUN WAI, VINCENT AND ANOTHER

CACV 51/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 51 OF 2011

(ON APPEAL FROM DCCJ NO. 2533 OF 2008)

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BETWEEN

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JUDGMENT

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Hon Yeung VP:

1.  I agree with the judgment of Kwan JA and could make the orders she proposes under paragraphs 43 and 44 hereof.

Hon Yuen JA:

 2.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

3.  This is the appeal of the 2^nd defendant, Madam Lam Shing Hei (“Madam Lam”), from the judgment of HH Judge H.C. Wong on 4 October 2010.  The dispute in this action was over a property in Tai Lung House, No. 123 Quarry Bay Street, Hong Kong (“the Property”).  The plaintiffs, Madam Ng Luk Mui (“Madam Ng”) and Madam Lo Kwok Sheung (“Madam Lo”), sought a declaration that the transfer of the Property by the 1^st defendant, Shiu Tsun Wai Vincent (“Vincent”) to Madam Lam was in breach of trust and an order against Madam Lam requiring her to execute an assignment of the Property in favour of the plaintiffs as joint tenants.  The judge made the declaration in favour of the plaintiffs and ordered Madam Lam to execute an assignment of the Property in favour of Madam Ng.

The background

4.  The relevant background matters may be stated as follows.

5.  Madam Ng, who is in her eighties, is the mother of Madam Lo and the grandmother of Vincent.  Madam Lo is Vincent’s mother.  Vincent has a son Victor with his first wife who passed away in less than a year after giving birth to Victor in 1994.  Madam Lam was married to Vincent in January 2005.  She petitioned for divorce in March 2008 and a decree nisi was granted in October that year.

6.  In September 1982, Madam Ng acquired a shelf company Silver Fortune Co. Ltd. (“Silver Fortune”) on the advice of her accountant for investment purposes.  To satisfy the statutory requirement at the time of having a second shareholder, she nominated Vincent for this purpose.  He was then 16 years old.  100,000 shares were allotted to him and 300,000 shares were allotted to Madam Ng.  Vincent did not pay for his shares.

7.  On 11 February 1992, Madam Ng purchased the Property at $600,000.  The entire purchase price and the related expenses were provided by her.  On the advice of her accountant, the Property was registered in the name of Silver Fortune to reduce estate duty.  Vincent had by then completed his studies in America.  He returned to Hong Kong with his newly wedded wife and they lived in the Property with the plaintiffs for less than a year, until Vincent’s wife went to give birth in the United States and subsequently died there. 

8.  In late 1998, Madam Ng was suffering from ill health and decided to transfer the Property to Vincent, to avoid the need of applying for probate or administration of her estate.  By an assignment dated 10 December 1998, Silver Fortune assigned the Property to Vincent as the purchaser at the stated price of $600,000, but no money was actually paid by Vincent.  It is the plaintiffs’ case that the Property was transferred to Vincent to hold on trust for the plaintiffs for their respective lives or until Victor should attain the age of 21 years whichever came last.  Whether there was such a trust as alleged was one of the major issues in dispute at trial.  Silver Fortune became dormant and was de-registered by the Registrar of Companies in October 2007.

9.  Vincent met Madam Lam in 2002 in the karaoke where she worked and they cohabited soon after in her residence in Mongkok.  They got married in January 2005.  It was the second marriage for both.  After their marriage, Vincent lived with Madam Lam and her daughter from her first marriage in her residence in Choi Hung Estate.  Victor continued to reside with his great-grandmother Madam Ng.

10.  By an assignment dated 16 June 2005, Vincent assigned the Property to Madam Lam as the purchaser.  The stated consideration was $450,000.  This is the transfer of property impugned by the plaintiffs in this action.

11.  Madam Lam and Vincent had marital problems in early 2007.  In June and July 2007, Madam Lam engaged a contractor to renovate the Property and paid the total costs of renovation of $101,000.  She put up the Property for rental on completion of the renovation and signed a tenancy agreement to let the Property in an estate agent’s office on 27 August 2007 at $5,800 a month.  This was done in Vincent’s presence.  She and Vincent had a row the next day and he left their home in Choi Hung Estate.  They never lived together again.  On 29 August, she brought the estate agent and the tenant to the Property and discovered that it was occupied by the plaintiffs.  She called the police when the plaintiffs refused to vacate the premises.  The police did not take action, treating this as a family dispute.  Vincent made a statutory declaration on 30 August claiming that he had held the Property on trust and registered his declaration against the Property in the Land Registry. 

12.  Madam Lam petitioned for divorce on the ground of unreasonable behaviour in March 2008.  In the financial statement she filed in the matrimonial proceedings on 25 July 2008, she listed the Property as among her assets and estimated its value at that time as $900,000.  A month before that, and on 16 June 2008, the plaintiffs issued the writ in this action against Vincent and Madam Lam.

The judgment below

13.  The plaintiffs and Vincent gave evidence that they and Victor had been residing in the Property continuously since it was purchased in 1992, that Vincent had only moved out when he married Madam Lam in January 2005 and that the others had stayed on and moved out of the Property temporarily when Madam Lam arranged for its renovation in June 2007.  Madam Lam disputed this, she gave evidence that the plaintiffs and Victor had been living elsewhere all along.  She produced evidence from the Water Supplies Department that the last payment of water bills for the Property before the renovation in June 2007 was in September 1999.  She called the contractor Mr Yip who gave a detailed description of the dilapidated condition of the Property when he inspected it in June 2007.  The water pipes were blocked due to disuse.  The judge accepted her evidence and found that the Property was left vacant before its renovation.

14.  It is not in dispute the Property was purchased with money provided by Madam Ng.  The judge also accepted the evidence of the plaintiffs and Vincent that the latter did not pay the purchase price when Madam Ng caused Silver Fortune to transfer the Property to him in 1998.  For the transfer to Vincent in 1998, the judge held that the presumption of advancement did not arise as Madam Ng did not put herself in loco parentis and assumed parental offices and duties in making provision for Vincent.  The judge then considered the evidence of actual intention of the parties. 

15.  Madam Ng denied that the transfer was a gift to Vincent, and asserted that he was to hold the Property on trust for the plaintiffs for the duration of their lives and on behalf of Victor until the age of 21.  Her evidence was supported by Vincent.  Madam Lo gave evidence that the title deeds of the Property were kept by her in her bank deposit box since the Property was purchased, and this remained the position even after the assignment to Vincent.  The judge found the retention of the title deeds “the most telling evidence” regarding the intention of the transferor. 

16.  The judge declined to find that the transfer to Vincent was in the nature of a gift.  As Madam Ng had put up the money to purchase the Property which was first put in the name of Silver Fortune and later transferred to Vincent, the judge found a presumption of resulting trust in her favour which has not been rebutted. 

17.  Regarding the circumstances leading to Vincent’s transfer of the Property to Madam Lam in June 2005, the judge accepted the evidence of Madam Lam and her elder brother Lam Chi Lap (“Mr Lam”), and rejected the evidence of Vincent and Madam Lo.  The judge find the Lam siblings to be truthful and straightforward witnesses, that Vincent was a “thoroughly untruthful witness, [who] tried to conceal he had borrowed from Madam Lam to feed his gambling habits and pay his gambling debts”, and that he was “ready to lie to get out of a difficult situation”.  No presumption of advancement from husband to wife arose here, as it was not Madam Lam’s case that the transfer was a gift to her from Vincent.  The pertinent matters in the evidence of the Lam siblings in this respect, as accepted by the judge, may be summarised as follows.

18.  Vincent had incurred heavy gambling debts when he was cohabiting with Madam Lam, before and after their marriage.  In around May 2005, he pleaded with her for help to repay his gambling debts, which amounted to over $400,000.  She agreed to help to save their marriage.  She sold her jewellery and raised $70,000 so he could pay off part of the gambling debts.  At that time, she was under threat from constant telephone calls from his creditors demanding repayment.  She raised further sums of $250,000 by borrowing from a former intimate friend and gave the money to Vincent to settle his debts.  There was still a shortfall of over $100,000. 

19.  Vincent suggested to Madam Lam to borrow the remaining sum from her brother, a Mainland resident who operated a trading business in agricultural produce.  To persuade Mr Lam to lend him the money, Vincent suggested to Mr Lam to transfer the Property to him.  On the repeated urgings of Madam Lam and their mother, Mr Lam finally agreed to advance RMB 120,000 to settle Vincent’s debts.  As this was before the change of policy which made it easier for Mainlanders to visit Hong Kong, Mr Lam suggested to Vincent and Madam Lam that the Property was to be transferred to Madam Lam instead, for the gambling debts settled with funds raised by her, including the RMB 120,000 which would be regarded as a loan to Madam Lam.  This was agreed to by Vincent and Madam Lam.

20.  Vincent engaged a solicitors’ firm to prepare the legal documentation for the transfer of the Property to Madam Lam.  He falsely claimed that he had lost or mislaid the original title deeds and made a declaration to that effect prepared by his solicitors on his instructions.  The purchase price of $450,000 was a figure put forward by Vincent.

21.  After the assignment to Madam Lam was executed, Mr Lam gave RMB 120,000 to Vincent in Dongguan, in the presence of Madam Lam.

22.  After the gambling debts were paid off in 2005, Vincent incurred new gambling debts which amounted to several hundred thousand dollars at the end of 2006.  He and Madam Lo requested Madam Lam to transfer the Property to a Mr Ngan as repayment of his debts, but she refused.  Meanwhile, Mr Lam was pressing Madam Lam for repayment of the RMB 120,000.  After discussing with Mr Lam and Vincent, Madam Lam decided to let the Property and use the rental to repay Mr Lam by instalments.  She engaged a contractor to carry out renovations in the summer of 2007 and looked for a tenant.

23.  The judge accepted Madam Lam’s evidence that Vincent had never told her he was holding the Property on trust for the plaintiffs and his son.  The judge was convinced that Madam Lam was deceived by Vincent that the Property had belonged to him when he assigned it to her in June 2005.  Both Madam Ng and Madam Lo claimed they were ignorant of Vincent’s assignment of the Property to Madam Lam until late August 2007.  The judge found it “highly unlikely” that Madam Lo did not know about the assignment and the loans from Madam Lam or she would not have requested Madam Lam to transfer the Property to Mr Ngan in 2006.

24.  The judge held that Madam Lam should fail in her claim that she is the legal and beneficial owner of the Property for the reasons appearing in paragraph 36 of the judgment:

“It is not disputed that at the time of transfer the value of the said Property exceeded $450,000 as Madam Lam herself admitted the property was valued at $900,000 (see her financial statement [in the matrimonial proceedings]). Even though Madam Lam claimed she had been lending money to Vincent for his gambling debts before and during their marriage, it was her evidence that the total amount of the money lent by her including the loans obtained through her did not amount to anything close to $900,000. It follows she was not a bona fide purchaser of good value of the said Property.”

25.  As Madam Ng has succeeded in her claim of resulting trust, the judge ordered Madam Lam to restore the legal title of the Property to her.  On the basis that Madam Lam is divested of her ownership in the Property, the judge gave judgment in her favour on her counterclaim (which was made on the premise that she was held not to be the beneficial owner of the Property, contrary to her primary position) that Madam Ng should pay her the sums of $101,000 for the costs of renovation and $13,479 for rates and management fees, and that Vincent should pay her the sums of $14,500 for the estate agent’s commission and double deposit penalty to the tenant and $427,040 being the total sum raised by Madam Lam to settle his gambling debts in June 2005.

The issues on appeal

26.  Mr Charles Wong, who did not appear at the trial, initially took two main issues on Madam Lam’s behalf in this appeal:

(1)  whether the judge was correct in holding that the Property was subject to the resulting trust of Madam Ng; and

(2)  if so, whether Madam Lam took the assignment of the Property to her as a bona fide purchaser for value without notice.

27.  In his skeleton submission in reply, Mr Wong accepted that whether the Property was held by Vincent on a resulting trust with no intention to pass the beneficial interest to him or whether the transfer of the Property to him was a conditional gift subject to conditions which were unfulfilled would probably not be a determining factor in this appeal and he would not seek to pursue the issue in (1). I think he is right in taking that position.  Irrespective of whether there was a resulting trust in favour of Madam Ng or whether there was a gift to Vincent subject to conditions which were unfulfilled, Vincent held the Property subject to the equitable interest of Madam Ng.

28.  That being the case, there is no need to address the arguments advanced by Mr Joseph Vaughan for the plaintiffs and Mr Lawrence Ngai for Vincent on the issue in (1) and resolve that issue.  I turn to consider the remaining issue in (2).

Bona fide purchaser for value without notice

29.  The judge had found the value of Madam Lam’s loan to Vincent to be $427,040, and ordered him to repay that amount to her, having decided against her that she should restore the legal ownership of the Property to Madam Ng.  Mr Wong submitted that must be on the premise that the assignment of the Property was used to satisfy and set off against her loan to Vincent of $427,040, and that would appear to be the reason why the consideration in the assignment to Madam Lam was stated as $450,000.

30.  In paragraph 36 of the judgment quoted earlier, the judge found Madam Lam was not a “bona fide purchaser of good value” because the value of the Property at the time of the transfer exceeded $450,000 and the total amount of the money lent by Madam Lam to Vincent did not amount to anything close to the value of the Property admitted by her to be $900,000.

31.  Mr Wong submitted the judge was in error in two respects.

32.  Firstly, the words “for value” in the context of a purchaser for value does not necessarily mean full value.  It means any consideration in money, money’s worth and includes the satisfaction of an existing debt (Megarry & Wade on The Law of Real Property, 7^th ed., para. 8-008).  It need not be shown that the consideration was adequate, provided it was not a nominal consideration (Snell’s Equity, 32^nd ed., para. 4-022).  To defeat a prior equitable interest, a purchaser must have given value but he does not have to give full consideration for the court will not enquire into the adequacy of the consideration (Hong Kong Land Law by Sarah Nield, 2^nd ed., para. 2.3.2; Midland Bank Trust Co. Ltd. v. Green [1981] AC 513 at 531).  The purchase price of $450,000 in satisfaction of the loan of $427,040 was not a nominal consideration and value was provided by Madam Lam.

33.  Secondly, the figure of $900,000 given by Madam Lam as the estimated value of the Property was the market value at the time she filed her financial statement in the matrimonial proceedings in July 2008, it was not the market value of the Property at the time of the assignment to her in June 2005.  The only evidence on the market value at the time of that assignment came from the plaintiffs, who asserted that offers were made by developers to the flat owners in the building of $1.25 million to $1.5 million.  Any such offer would have included a premium for redevelopment value and is not truly reflective of the market price of the Property.  Besides, Madam Lam had no knowledge of these offers, and this was accepted by Vincent.  There was no evidence she had knowledge of the market value of the Property at that time.

34.  Mr Wong submitted that it would appear from paragraph 36 of the judgment that on the erroneous premise Madam Lam was not a purchaser “for value”, the judge simply held she was not a “bona fide” purchaser.  In so doing, the judge had failed to apply the appropriate test in law and failed to have regard to the findings she made as to the circumstances surrounding the assignment.

35.  It is still necessary to show good faith on the part of the purchaser even if the absence of notice of a prior equitable right is proved.  However, in view of the development of the doctrine of notice, it is difficult to imagine a case in which the purchaser does not have notice and yet is not acting in good faith (Snell’s Equity, para. 4-021; see also Megarry & Wade at para. 8-007).

36.  On the findings of the judge, Madam Lam was deceived by Vincent that the Property had belonged to him when he assigned it to her.  She was never told that he was holding the Property on trust for the plaintiffs and his son.  She was misled by Vincent that he had lost the title deeds.  It was Vincent who initially suggested transferring the Property to her brother for a loan of RMB 120,000.  She had sold her jewellery and borrowed from her friend and her relative to settle the gambling debts of Vincent.  The judge found the value of her loan to him to be $427,040. The figure of $450,000 was stated in the assignment at Vincent’s suggestion.  On these facts, Mr Wong submitted that the judge should have found Madam Lam a bona fide purchaser for value without notice.

37.  Mr Vaughan and Mr Ngai sought to uphold the judge’s conclusion that Madam Lam was not a bona fide purchaser for value.  The difficulty with their position is that the judge did not appear to have considered the bona fides of Madam Lam in paragraph 36 of the judgment.  They advanced a number of arguments.

38.  Firstly, it was contended that the Property was transferred to Madam Lam at a substantial undervalue, so it could be inferred that she had taken advantage of the circumstances, that the transfer of the Property to her was unconscionable, and she was not acting bona fide.  Reliance was placed on the plaintiffs’ evidence there were offers from developers for flats in the building at that time of $1.25 to $1.5 million.  I reject this contention.  As mentioned earlier, the evidence of Madam Lam, as supported by Vincent, was that she was not aware of any such offers from developers.  Mr Wong also made a valid point that one should take into account the dilapidated condition of the Property in assessing its market value in 2005.  Madam Lam had to spend about $100,000 when she renovated the Property in 2007 before it could be let.  The contention that Madam Lam had taken advantage of the situation was contrary to the evidence of the Lam siblings, as accepted by the judge, how the transfer of the Property to Madam Lam came to be made, as I have mentioned earlier. 

39.  Secondly, the respondents sought to argue that Madam Lam was not a “purchaser” because her evidence was that she agreed to cover Vincent’s gambling debts to save their marriage, that she did not mention in evidence that the consideration of $450,000 represented a set-off or satisfaction of what Vincent owed her, that the $320,000 she gave to Vincent to settle part of his gambling debts was provided before the assignment was made and was past consideration, that the RMB 120,000 provided by Mr Lam was not consideration that moved from Madam Lam, and that there was no genuine sale and purchase of the Property to her. 

40.  In my view, none of these contentions are valid as they were not borne out by the evidence and are bad in law.  “Purchaser” in this context is a term of art, it is not confined to the situation of a sale and purchase.  The important thing is whether any consideration in money or money’s worth, including the satisfaction of an existing debt, was provided for the transfer of property.  That Madam Lam had acted with the motive of saving her marriage did not alter the fact that valuable consideration was provided by her.

41.  The consideration she provided for the transfer of the Property was not past consideration, being the satisfaction of Vincent’s existing debt to her, nor was the RMB 120,000 put up by Mr Lam consideration that did not move from her.  Although the word set-off or satisfaction was not used by her, Mr Lam and Vincent in their discussion, it is the evidence of the Lam siblings, as accepted by the judge, that the loan to cover the gambling debts of $427,040 was treated as the consideration for the assignment.  That was the reason why Vincent gave the figure of $450,000 as the purchase price.  All three parties had conducted themselves on the basis that with the transfer of the Property to Madam Lam, Vincent would have no liability to repay Madam Lam or Mr Lam.  Mr Lam confirmed in evidence that he treated the RMB 120,000 as money lent to Madam Lam, and chased her for repayment in 2007.  Madam Lam had assumed the responsibility of paying her brother and that was why she renovated the Property for letting in 2007.

42.  I accept Mr Wong’s submissions.  The judge should have held that Madam Lam was a bona fide purchaser for value without notice and she has succeeded in defeating the prior equitable right of Madam Ng in the Property.

Orders

43.  I would allow Madam Lam’s appeal, set aside the orders of the judge in respect of the claim and counterclaim and in lieu thereof order that the claims of the plaintiffs against Madam Lam in this action be dismissed.  On Madam Lam’s counterclaim, I would order the plaintiffs and Vincent to deliver up vacant possession of the Property to her, and award damages to Madam Lam against the plaintiffs and Vincent, jointly and severally, for their wrongful occupation of the Property since 29 August 2007 until the delivery up of vacant possession.  The damages are to be assessed by the court below, with interest thereon at half the judgment rate.

44.  I would not disturb the order for costs made by the judge.  For the costs of this appeal, the respondents do not seek costs as between them.  I would order the plaintiffs and Vincent to pay Madam Lam’s costs of this appeal and that her own costs are to be taxed in accordance with the Legal Aid Regulations.