LAW SAU WAH v. LAU CHU MUI, the Personal Representative of Lam Kwok Kum, Deceased AND ANOTHER

HCA 1219/2013

[2019] HKCFI 2519

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1219 OF 2013

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JUDGMENT

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A. INTRODUCTION

1.  These proceedings arise out of a dispute over the sale proceeds of a property known as Cockloft, No 179 Tung Choi Street, Kowloon (“the Property”).

B. THE RELEVANT FACTUAL BACKGROUND

2.  The plaintiff and the late Mr Lam Kwok Kum (“the Deceased”) were married in Hong Kong on 17 January 1985. 

3.  On 4 June 1985, the plaintiff and the Deceased became joint tenants of the property known as Unit D on 16^th Floor of Block 7, Richland Gardens, No 80 Wang Kwong Road, Kowloon (“the Richland Gardens Property”).

4.  On 12 October 1987, the plaintiff and the Deceased became joint tenants of the Property. 

5.  The Deceased was a gift and trophy merchant, and the Property was used as a business place of the Deceased’s company, 國鑫獎品有限公司.

6.  On 25 February 1989, the Deceased became the sole registered owner of the property known as 3^rd Floor, No 162 Tung Choi Street, Kowloon (“the 162 Tung Choi Street Property”).

7.  On 10 January 1995, a decree nisi between the plaintiff and the Deceased was made final and absolute, and their marriage was dissolved.

8.  On 25 November 1997, the plaintiff assigned her interest in the Richland Gardens Property to the Deceased.

9.  On 18 August 1998, the Deceased became the owner of 中山市港口鎮星晨花園碧麗園365座 (“the Morningstar Property”).

10.  On 8 April 1999, the plaintiff and the 2^nd defendant were married in Mainland China.

11.  The plaintiff became the owner of the Morningstar Property on 18 February 2004.

12.  By a mortgage dated 16 April 2008, the Deceased mortgaged the 162 Tung Choi Street Property to Citibank (Hong Kong) Limited as security for all monies owing by the Deceased to the bank (“the 162 Tung Choi Street Mortgage”).

13.  By a provisional agreement of sale and purchase dated 1 June 2011, the Property was sold for HK$5,300,000 (“the Provisional SPA”).

14.  On 27 June 2011, a sum of HK$80,000 was paid by the Deceased to the plaintiff by way of a cheque.

15.  On 2 August 2011, a sum of HK$700,000 was paid by the Deceased to the plaintiff by way of a cheque.

16.  On 5 September 2011, the 162 Tung Choi Street Mortgage was discharged.

17.  By an assignment by way of gift dated 11 September 2012, the 162 Tung Choi Street Property was assigned to the Deceased and the 2^nd defendant as joint tenants (“the Assignment”).

18.  The Deceased passed away in Hong Kong on 10 November 2012.

C.          THE PLAINTIFF’S CLAIM

19.  The plaintiff’s claims are based on an oral agreement between the plaintiff and the Deceased that was allegedly made in June 2011 (“the Agreement”).  The terms of the Agreement are pleaded by the plaintiff as follows:

(1) “ The Plaintiff and the Deceased shall issue a letter of authorization to [a firm] (of solicitors) to draw cheques for the net purchase price under the [Provisional SPA] in the sole name of the Deceased in order for the Deceased to receive the net balance of the sale proceeds of the Property under the [Provisional SPA] (‘the Net Proceeds’) for himself and for and on behalf of the plaintiff.”

(2) “ The Net Proceeds shall be divided between them as joint tenants in equal shares and the Plaintiff and the Deceased would each be entitled to receive half of the Net Proceeds.”

(3) “ The Deceased shall receive and hold half of the Net Proceeds on trust for the Plaintiff.  The Deceased shall pay half of the Net Proceeds to the Plaintiff.  The Deceased received the initial deposit of HK$150,000 from the Purchaser and the further deposit of HK$380,000 and holding half of the sum on trust for the Plaintiff.”

20.  The plaintiff further alleges that:

(1) the Net Proceeds was HK$4,684,328.58 and her half share of the Net Proceeds was HK$2,342,164.29;

(2) between June and August 2011, the Deceased paid to the plaintiff a total sum of HK$780,000 in partial performance of the Agreement, leaving an outstanding balance of HK$1,562,164.29 to be payable to the plaintiff (“the Outstanding Balance”);

(3) in breach of the Agreement and in breach of trust, the Deceased failed to pay the Outstanding Balance to the plaintiff;

(4) in order to evade liability to the plaintiff, the Deceased used the Outstanding Balance to discharge the 162 Tung Choi Street Mortgage and made the Assignment in bad faith and with intent to defraud creditors when the Deceased was insolvent, thereby rendering the Assignment voidable under section 60 of the Conveyancing and Property Ordinance (Cap 219) (“CPO”);

(5) the Deceased held the Outstanding Balance on trust for the plaintiff;

(6) the 2^nd defendant acted dishonestly in assisting the Deceased’s breach of trust, and the Deceased made the Assignment in breach of trust such that it was unconscionable for the 2^nd defendant to retain any interest in the 162 Tung Choi Street Property, and therefore the 2^nd defendant is liable to account to the plaintiff for the Outstanding Balance as a constructive trustee on the grounds of knowing receipt and dishonest assistance;

(7) she is entitled to an equitable lien over the 162 Tung Choi Street Property to secure the payment of the Outstanding Balance to her.

D. THE ISSUES

21.  It seems to me that there are the following three main issues for the Court’s determination at this trial:

(1) Whether there was an Agreement;

(2) Whether the Assignment was made with the intention to defraud the plaintiff as a creditor and is therefore voidable under section 60 of the CPO;

(3) Whether the 2^nd defendant is liable to account as a constructive trustee for the Outstanding Balance.

22.  On behalf of the plaintiff, Mr Matthew Chong accepted that the plaintiff’s claims stand or fall with the plaintiff’s ability to establish the existence of the Agreement. 

E. WHETHER THERE WAS AN AGREEMENT?

E1. My approach in assessing credibility and fact finding

23.  Whether or not the Agreement existed is ultimately a question of fact and depends essentially on the credibility of the plaintiff.

24.  In making my findings of fact in this case, I adopt the following general principles as to fact finding and assessment of credibility I set out in Hui Cheung Fai v Daiwa Development Ltd (unreported, HCA 1734/2009, 8 April 2014) at §§77 – 82:

“ 77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce) …

78. In deciding whether to accept a witness’s account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses: Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36 – 37 (Bokhary PJ).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination. …”

E2. My assessment of the evidence and my findings

25.  The plaintiff’s witness statement was prepared in Chinese and merely contains one paragraph in relation to the Agreement in almost identical terms to what is pleaded in the plaintiff’s Statement of Claim.

26.  However, the plaintiff told the Court on numerous occasions in her cross-examination that the Deceased had said that the plaintiff’s share from the sale of the Property would only be given to the plaintiff after the Deceased had sold the 162 Tung Choi Street Property (“the Further Statement”). In her re-examination, the plaintiff said that the Further Statement was made by the Deceased at the same time when the Agreement was made in June 2011.

27.  It is immediately apparent that the Further Statement is directly inconsistent with the terms of the Agreement pleaded by the plaintiff and mentioned in the plaintiff’s witness statement:

(1) According to the plaintiff’s pleading and witness statement, the Deceased would pay half of the Net Proceeds from the sale of the Property to the plaintiff. The implication is that the payment to the plaintiff would be made immediately. If such payment was not meant to be made immediately by the Deceased, there would be no basis for the plaintiff to complain in her pleading that the Deceased wrongfully used the Outstanding Balance to pay off the 162 Tung Choi Street Mortgage.

(2) It is plain that the Further Statement is inconsistent with the plaintiff’s pleaded case and witness statement that the Deceased would immediately pay half of the Net Proceeds from the sale of the Property to the plaintiff.

(3) Further, the Further Statement is also inconsistent with the plaintiff’s pleaded case that the Deceased wrongfully used the Outstanding Balance to discharge the 162 Tung Choi Street Mortgage.

28.  When the plaintiff was asked by the Court as to why she did not mention the Further Statement in her witness statement, she was unable to provide any cogent explanation.

29.  Apart from the above inconsistencies, there were other inconsistencies within the plaintiff’s oral testimony during her cross-examination. The payment of management fee for the Morningstar Property is a good example. In her cross-examination, the plaintiff initially said that it was she who paid the management fees whenever she visited the property in Mainland China. But that testimony was shown to be inconsistent with (1) the debit note for the management fee for September 2012 showing that it was sent to the Deceased at the Property in Hong Kong and (2) the statement dated 18 September 2012 showing that the management fee for the Morningstar Property was settled by a direct bank debit. The plaintiff later in cross-examination changed her testimony by saying that the management fees were paid by a cleaning worker, who would subsequently be reimbursed by the plaintiff. The plaintiff eventually accepted that the Deceased paid the management fees of this property by bank debits until September 2012.

30.  Moreover, there are other parts of the plaintiff’s oral testimony which I found inherently implausible. The prime example relates to the reason put forward by the plaintiff as to why she entered into the Agreement with the Deceased in June 2011:

(1) In her cross-examination, the plaintiff said that:

(a) the Deceased bought her interest in the Richland Gardens Property after their divorce for HK$1,500,000, and the assignment of the plaintiff’s interest was made in November 1997;

(b) she never received HK$1,500,000 from the Deceased because the Deceased refused to pay despite the plaintiff’s repeated demands;

(c) eventually, the Deceased transferred the Morningstar Property to the plaintiff in 2004 in full and final settlement of the Deceased’s obligation to pay the HK$1,500,000.

(2) In relation to the Deceased’s obligation to pay the HK$1,500,000 from 1997 to 2004, the plaintiff’s evidence is that the Deceased cheated her and failed to honour his obligation.

(3) According to the plaintiff, the reason why she entered into the Agreement with the Deceased in June 2011 was that she trusted him. Given that the plaintiff had (according to her own case) already been cheated once by the Deceased in failing to honour his previous payment obligation and that she had to make repeatedly demands for seven years, it seems inherently unlikely that the plaintiff would have made the Agreement with the Deceased in June 2011 on the alleged basis of trust and confidence.

(4) The plaintiff said in cross-examination that the reason why she still believed in the Deceased in June 2011 even after having previously been cheated by him was that the Deceased was ill and that they had been together for a long time. In view of the extensive references made by the plaintiff to how the Deceased had allegedly cheated her in the past, I do not find the plaintiff’s explanation convincing.

31.  For the above reasons, I am of the clear view that the plaintiff has completely failed to prove that the Agreement was made between her and the Deceased as alleged by the plaintiff. I also disbelieve her evidence in relation to the provenance and details of the Agreement. I find that the Agreement did not exist.

F. THE PLAINTIFF’S OTHER CLAIMS

32.  The plaintiff’s claims under section 60 of the CPO and in knowing receipt and dishonest assistance all depend on the plaintiff’s ability to establish the existence of the Agreement. Given that I have found that the Agreement did not exist, it follows that all of the plaintiff’s other claims must also fail:

(1) The plaintiff’s claim under section 60 of the CPO is made on the basis that she is a creditor of the Deceased under the Agreement. If there was no Agreement, the plaintiff can no longer contend that she was defrauded as a creditor of the Deceased. In any event, there is no evidence to suggest that the Deceased was insolvent at the time when the 162 Tung Choi Street Mortgage was discharged (in September 2011). The plaintiff said in cross-examination that she did not know when the Deceased’s business became unviable because she was not married to him towards the end of the Deceased’s life.

(2) In relation to knowing receipt and dishonest assistance, it is well-established that both of these causes of action depend on the existence of a breach of trust or fiduciary duty. The plaintiff relies on the existence of the Agreement to contend that there was a trust between the Deceased as trustee and the plaintiff as beneficiary. Given that there was no Agreement, there is no basis for the plaintiff to assert that the Deceased held anything on trust for her. It follows that the plaintiff’s claims for knowing receipt and dishonest assistance must also fail. In any event, the plaintiff has completely failed to establish that the 2^nd defendant was in any way dishonest when dealing with the 162 Tung Choi Street Property at any time.

G. CONCLUSION

33.  In the light of my conclusions above, I dismiss all of the plaintiff’s claims against the defendants.

34.  I also make an order nisi that the defendants’ costs in this action (including any reserved costs) be paid by the plaintiff, to be taxed if not agreed. The costs order nisi shall be made absolute 14 days from the date of this judgment.