YUE SHIU NGAM v. ZEN SHE LIN AND ANOTHER

A11148 of 1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CIVIL JURISDICTION

ACTION NO. 11148 OF 1993

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J U D G M E N T

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1. In this action the Plaintiff seeks Declarations that he is the sole beneficial owner of premises known as Flat A6, 6th Floor, Mirador Mansions, 54-64 Nathan Road, Kowloon; that the 1st Defendant holds the premises on a resulting trust for him; that an Assignment by D1 of the property to D2 made 13th July 1992 is subject to that trust; that the 2nd Defendant has no legal or beneficial estate in the premises and seeks an Order that the 2nd Defendant re-assign the premises to him. He also sought damages to be assessed.

2. The basic facts of the case are not disputed. The case appears to arise from a family disagreement the reasons for which were not very clear, but a dispute of the type which commonly clog court lists and waste resources. Here a two day trial was needed for a matter that was well within the parties competence to resolve, without recourse to a Court.

The Facts

3. The Plaintiff (P) is the elder brother of the 2nd Defendant (D2) who is married to the 1st Defendant (D1). In 1972 D1 was sole owner of the suit premises, having acquired them in 1969.

4. In 1970 D1 was sued in the Small Claims Tribunal as one of 2 guarantors of a bank loan, from the Canton Trust and Commercial Bank Limited (the Bank), to a Mr. Tong. The Bank obtained judgment and early in 1972 the P, to prevent the Bank charging his property, transferred the premises to D1. The P's evidence was that this was at D2's suggestion but D1 and D2 claimed the idea was the P's. At this stage it is not relevant whose idea it was.

5. The transfer was effected and it was common ground that although the consideration was stated as $37,800.00 in the Assignment, no such sum was paid, or intended to be paid, by either deft, nor was there any element of gift.

6. According to the P's evidence it was agreed that he would continue to live in the premises; pay all outgoings; that D1 would reassign the premises unconditionally by way of gift whenever he asked and that D1 would not dispose of the premises without P's consent or approval. The Defendants said that no such agreement was reached.

7. The Assignment was executed on 4th February 1972 and registered on 6th March 1972, but the Bank's Charging Order Nisi had been registered ahead of it on 4th January 1972. The return date was 23rd May 1972 - that summons was served on P by substituted service. P's evidence was that he did not know of the Charging Order Nisi until told of it by the solicitor after the Assignment had been executed and registered.

8. Between the dates of the Assignment and the return date of the Charging Order Nisi, P paid his share of the amount owed under the guarantee and the Charging Order Nisi was discharged. There was some dispute between the parties as to the source of funds and manner of payment, but it was agreed that the Bank's claim had been settled. The P's share of the outstanding debt was fairly small, around $2,800.00.

9. The P continued to live in the premises until the present time. Between 1974 and 1976 he made what appears to have been an unsuccessful attempt to settle in Canada and eventually returned to Hong Kong. While he was away his younger brother lived in the flat and paid rent to him. The title deeds, including the original assignment, continued to be held by the P.

10. The P stated that in 1973 and 1974 he orally requested that the property be reassigned to him. He also produced copies of letters dated 1977, 1983 and 1989 which he said he sent to D1 requesting the reassignment, but D1 and D2 denied receipt of those letters and denied the oral requests.

11. In 1992 and 1993 the P again requested the reassignment, without success. D1, on the latter occasion, refused to do so and told the P that he had transferred the premises to D2 on 13th July 1992 for a purported consideration of $1,600,000.00. There was no evidence that such consideration had ever been paid, nor were there any documents produced evidencing a gift. D2, in evidence, said that this Assignment was made possible because she had applied for replacement title deeds in 1982. She did not say on what basis she had applied to obtain replacement deeds.

12. D1 and D2 contended that even if as P argued, there was a resulting trust in relation to the initial agreement to assign to avoid the Bank charge, there had been a separate agreement in 1974 whereby P agreed to transfer the property to D2 as payment of profits he owed her from their joint trading in shares in 1972 and 1973. As this alleged agreement had not been honoured by the P, Defendants sought an order for delivery of vacant possession of the premises to D2.

13. The basic questions for the Court to decide were whether the P was entitled to recover the property, despite his assigning the property to avoid his liability to the Bank and whether there was an agreement in 1974 by which he transferred his interest in the property to the D2.

The Law

14. Generally property transferred under an illegal contract cannot be recovered by the transferor as a matter not so much of law but as a tenet of public policy. There are certain exceptions e.g. a person may be able to reclaim property thus transferred if he repudiates the illegal purpose in time, or, where the purpose of the transfer was to defraud creditors, the fact that no creditor was defrauded would entitle the transferee to recover the property. A full examination of the general principle, its development and its later refinement in respect of exceptions to it, is found in the leading case of Tinsley v. Milligan [1994] 1A.C., a case referred to extensively by both parties.

15. The Defendants argued that the P's case was founded on the illegality and that there was not, as the P argued, any resulting trust in favour of the P. Defendants submitted that as the property had been assigned in 1972, the agreement had been executed and relied on the judgment of Lord Jauncey of Tullichettle in Tinsley (supra) where, at page 366B he said: Third, it has, however, for some years been recognised that a completely executed transfer of property or of an interest in property made in pursuance of an unlawful agreement is valid and the court will assist the transferee in the protection of his interest provided that he does not require to found on the unlawful agreement.

16. It was not disputed that the purpose of the P, a purpose known and accepted by D1, was to keep the property out of the Bank's reach, but that the outstanding debt was settled by the P shortly after the assignment was registered. The intended purpose of the assignment was never capable of fulfillment as the Bank's Charging Order Nisi was registered against the property a month before.

17. It was conceded by Defendants that if the P did not need to rely on the illegality, but could rely on some legitimate transaction to uphold the said transfer, the P could recover the property under that legitimate head, in this case the presumption of a resulting trust. In arguing against such resulting trust the Defendant endeavoured to distinguish the authorities on which the P relied from the present case.

18. Those authorities were Tinsley v. Morgan (supra) Rowan v. Dann [1991] 64 P. & C.R. 202 Taylor v. Bowers [1876] 1 QBD 291 and Tribe v. Tribe [1996] Ch. 107.

19. Taylor v. Bowers and Rowan v. Dann make it clear that the transferor can recover the property when, if the purpose was to defraud creditors, no creditor was defrauded. Here the creditor bank's interest in the property was not blocked in any way and the P met his obligations under the guarantee before the Charging Order could be made absolute.

20. Tribe v. Tribe held that where no question of advancement arose, a transferor could recover property transferred without consideration, if he could do so without reliance on an illegality and could show an intention to retain a beneficial interest in the property; and that that exception to the general rule applied where the presumption of advancement arose, but the illegal purpose, which the transferor had to rely on in order to rebut the presumption, had not been carried into effect in any way.

21. On the facts of this case there was no presumption of advancement and the P did not have to rely on the illegality to prove his right. D1 did not pay any consideration for the property and there was therefore a presumption of a resulting trust in favour of the P. No evidence established that the subsequent transfer by D1 to D2 was for any consideration either, despite a consideration of $1.6 million being stated in the Assignment. D2 therefore took the property subject to the resulting trust, she being aware at all times of the original arrangement and thus not a genuine purchaser for value without notice.

22. Having considered the first question in the light of the facts derived from the evidence I am satisfied on the balance of probabilities that the P is entitled to have the property returned to him on the basis of the original agreement despite the initial intention to avoid the Bank's charge.

The 1974 Agreement

23. D2 claimed that regardless of the original arrangement to assign, the P agreed in 1974 to transfer the property to her to repay her for profits due to her from their joint share trading. There was no dispute that there had been such joint trading, with P trading for his and D2's benefit.

24. P stated that a basic sum of $60,000.00 had funded the trading, he and D2 contributing $30,000.00 each and benefitting or losing equally. D2 produced details of amounts she said had been contributed by her; the total was around $35,000.00 - to that extent there was agreement about the size of the basic fund. Later in the venture trading was done on margin. The P said the profits were "a few tens of thousands", although when he traded on margin the profits were greater. When the market crashed in 1973 the joint loss was $40,000.00. The P said he had repaid D2 $15,000.00 at that stage and therefore he owed her nothing. He denied he had ever agreed to transfer the property to D2 as repayment for these losses.

25. D2 in evidence said that she had lent money to P for unknown purposes in 1968 and 1969. This money was lent by and used by her without D1's knowledge. From 1972 she joined in the share trading. She claimed that at the height of the trading the profit was around $1 million and that when the share venture ended in 1974, when P left for Canada, it was around $500,000.00. The P allegedly told her that he needed all the share profits for Canada and that he intended to use it to apply for D2 and her family to emigrate also. D2 alleged that his reason for taking this money with him was because he was in financial difficulties.

26. P admitted borrowing some money from a younger brother to augment his own funds to finance his and his two sons' emigration to Canada, but denied that he had been in bad financial standing. He said he took to Canada $2,000.00 of his own funds plus $8,000.00 borrowed from his brother, quite a substantial sum in 1974. He agreed his finances were tight in Canada, but said that was because he was no longer a self-employed tailor as he had been in Hong Kong, but was working for the minimum wage in the garment industry.

27. I found D2's account of this alleged 1974 agreement inherently improbable and did not find her a convincing witness as to the truth of the events she was describing. She appears to have played a lone hand in grasping her brother's property to herself. D1 was clearly under her thumb and was, when it suited her, kept in the dark about various matters. D1, who appeared stressed when giving his evidence, broke down at one point and admitted that he was under great strain, as a result of having been drawn against his will, into what appears to have been a later disagreement between D2 and the P.

28. D2, despite the alleged agreement in 1974, did not appear to have made any attempt to require the P to transfer the property to her and her claim that the share dealing had been very profitable was rather unlikely, given the small sum used as initial funding. Further if, as she claimed, the P had taken $500,000.00 to Canada with him, one would not expect P's letters from Canada to refer, as they did, to the financial strictures under which he was living and the minimum wage for which he was working.

29. Both the P and D1 agreed that after P's return from Canada the family relationship progressed amicably, with regular visits for meals and mahjong, although D2 would only agree that the relationship was "so so". If, as D2 alleged, an agreement whereby the P agreed to transfer the flat to her had been unhonoured, it is highly improbable that the family relationship would have continued at all, let alone in so amicable a manner. It appeared that D2 was playing down the relationship for her own purposes.

30. Overall I could not be satisfied on the balance of probabilities that there had been any 1974 agreement as D2 alleged. If there had been such an agreement there was nothing to prevent a transfer from D1 to D2 at that stage; given that there would be no difficulty in P's handing over the title documents. The 1974 agreement appeared to be an afterthought of D2's when this litigation was set in train by the P. It was significant that D1 did not appear to know about it. In evidence D1 also said that no mention was made of his owning the suit premises when he and D2 applied to purchase a property under the Home Ownership Scheme in 1978, another indicator that the arrangement regarding the suit premises was more likely to have been as P described it.

31. Having considered the facts and the evidence adduced I find for the P in this action. I grant;

(a) A Declaration that the P is the sole beneficial owner of the premises at Flat A6, 6/F, Mirador Mansion, 54-64 Nathan Road, Kowloon, Hong Kong.

(b) A Declaration that from on or about 4th February 1972 to on or before 13th July 1992 the D1 held the premises on a resulting trust in favour of the P.

(c) A Declaration that the assignment dated 13th July 1992 registered at the Land Office under Memorial Number 5372949 was and is subject to the resulting trust referred to in (b) above.

(d) A Declaration that the D2 has no legal or beneficial interest in the premises.

(e) An Order that the D2 do reassign the premises to the P within 14 days after delivery of this judgment.

(f) Damages to be assessed by a Master, unless otherwise agreed by the parties, or forgone by the P.

(g) Interest pursuant to s.48 of the High Court Ordinance, Cap. 4 Laws of Hong Kong.

(h) An Order Nisi for costs of the action to be to the P, such to be taxed if not agreed.

(i) Liberty to apply.

32. The Defendants counterclaim is dismissed with costs to the P.