CHAN MOW KAY AND ANOTHER v. LO WAI LIN

1993 No. A10503

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is the consolidated case of a civil action and a matrimonial suit. Trial took place on 9th to 11th November 1998. By consent, the parties made final submissions and replies in writing. I have now received and considered all submissions and replies.

2. The 1st and 2nd plaintiffs in the civil action are respectively father and son. The defendant is the divorced wife of the son. In the matrimonial suit, the petitioner is the wife. I shall call the parties, father, husband and wife respectively. The bone of contention between the parties is the proceeds from sale of the matrimonial home. The amount involved is $2,258,796.11 of which $1,000,000 has been frozen pending resolution of the disputes between the parties.

3. Put simply, the father and husband allege that there was an agreement in 1991 between the parties whereby the father and husband were to have two-thirds of the interest in the matrimonial home as against the wife's one-third interest. Further or alternatively, the contributions from the father and husband were such that they are entitled to two-thirds of the net proceeds from the sale of the matrimonial home. The wife, on the other hand, denies any agreement between the parties. Her case is that, although the husband should be entitled to a share in the interest of the matrimonial home, the share is not as large as claimed by the husband.

4. Counsel have referred me to some authorities which represent trite law. I do not think it is necessary to go into them. This case really turns on the facts.

5. At the trial, it emerged that in 1982 or 1983 the husband and his younger brother purchased a property in Sun Shing Centre in their joint names with help from their parents. The purchase price was $244,000. It is still not clear how the purchase was financed except that at least some of the money came from family resources. In 1985 or 1986, the husband sold his half share in the property to his younger brother for $140,000. This money was handed over by the husband to his parents. Thereafter, the wife entered the picture and three properties were bought and sold back to back.

6. The first property, a flat in Kornhill, was bought by the husband in 1986 for $426,600. This first property was bought as an uncompleted flat in the sole name of the husband. The father and husband say that the father lent $156,600 to the husband for the down payment and conveyancing costs. There is no dispute that the husband paid the mortgage instalments at about $2,700-$2,800 per month for two years between 1986 and 1988. During those two years, the husband's earnings were approximately $5,000 per month.

7. In October 1997, the first property was completed. The wife's name was added as a joint owner with the husband even though the two were not yet married and not living together. The first property was left vacant but gradually filled with decoration and furniture ever a period of one year. In October 1988, the husband and wife married and moved into the first property.

8. As the husband and wife married, the mortgage of the first property was transferred to the Standard Chartered Bank to take advantage of the concessionary interest rate the wife could obtain from the bank as a staff of the bank. From that time onwards, the mortgage instalments were paid by direct debit against the wife's account at about $1,000 per month. The husband admits that from then on until the first property was sold, he could only give less than $1,500 per month to the wife for all purposes and even that could not be kept up regularly.

9. The first property was sold in June 1990 giving net proceeds of sale of $733,000. Of this amount, the husband took $400,000 to pay off his business debts for which the wife cannot be held responsible, leaving a balance of $333,000.

10. The second property in Nam Fung Sun Chuen was bought in July 1990 by down payment using the balance of the net proceeds of sale from the first property and mortgage loan of $400,000 from, again, the Standard Chartered Bank at concessionary interest rate. There is no dispute that all the mortgage instalments at a little over $4,000 per month were paid by the husband during the entire period this second property was held. The husband's other contribution to the household in the same period was less than $1,000 per month being payment of some outgoings totalling $500-$600 per month.

11. It should be noted that the second property was put in the joint names of the parents of the husband. The second property was sold in October 1991 producing net proceeds of $775,575 which were placed in a banking account in the joint names of the husband's parents.

12. The third property in Kornhill again was purchased in October 1991 with the net proceeds from the sale of the second property and a further $220,000 in cash from the wife. The purchase price was 1,880,000 and the balance of the purchase price came from, again, a Standard Chartered Bank loan.

13. The wife was the sole registered owner of the third property and she paid about $6,000 per month for the mortgage instalments throughout. During the period the third property was held by the wife, the husband gave her $4,500 per month as his contribution to the household.

14. The third property was sold in September 1993 without the knowledge or consent of the husband. The net proceeds of the sale at $2,258,796.11 were retained by the wife.

15. After the parties failed to agree on how the net proceeds from the sale of the third property should be distributed, the father and the husband issued proceedings which is HCA 10503 of 1993. At the end of 1993, the wife also petitioned for divorce on the fact of unreasonable behaviour. Divorce decree absolute has been granted. What remains in the matrimonial cause is the question of ancillary relief. The wife seeks periodical payment after dissolution of marriage at $3,300 per month and lump sum. The husband seeks two-thirds of the net proceeds from the sale of the matrimonial home.

16. I think I have fairly set out the facts in this case which cannot be seriously disputed. The only remaining factual disputes that may be relevant relate to decoration expenses and furniture bought for the three properties and the intention or agreement of the parties on rights in the three properties.

17. In her final submission, counsel for the father and husband says I should not approach the dispute over the third property as a matrimonial matter. Instead I should determine the beneficial interests of the parties according to their respective contributions. I am not so sure if strict and straight investment analysis is the correct approach. One should look at the dispute with a degree of sensitivity and flexibility.

The First Property

18. There is absolutely no evidence that the father, the husband and the wife had any sort of agreement regarding the father's interest in the first property. The wife says that she did not know the first property was originally purchased by the husband with substantial financial support from his family. In my view, even if she knew, that per se is not sufficient to create an equitable interest in the first property in favour of the father.

19. The case of the father and the husband is quite clear: the amount of down payment paid for the first property was a loan from the husband's family. That being the case, the loan, even if it was a contrived loan instead of an advancement to set up the husband, I think it is a matter between the father and the husband. A lender per se does not have a share in any property bought with the money lent.

20. According to the evidence of the wife, before the marriage, the husband told her that in contemplation of their marriage, her name would be added to the first property. That is not denied by the husband. The husband says that the wife's name was added to take advantage of the concessionary mortgage interest rate. I have no doubt that the parties naturally wanted to take advantage of the concessionary mortgage rate. But it must be remembered that the wife's name was added as a joint owner in 1987. Concessionary mortgage was obtained one year later when the parties married. The inevitable conclusion must be that the wife was made a joint owner in contemplation of marriage independently of the consideration for concessionary mortgage. In other words, there was an ante-nuptial agreement whereby, in contemplation of marriage, which is good consideration, the wife was given one half share in the interest of the first property and her interest was not entailed in any way. For the avoidance of doubt, this conclusion is not based on the presumption of advancement, but on explicit agreement.

21. It follows that the wife should be entitled to half of the net proceeds in the event of sale of the first property irrespective of her meagre contributions towards the equity in the first property.

The Second Property

22. The facts are quite clear that of the net proceeds from the sale of the first property of $733,000, the husband took $400,000 to repay his own business and other debts for which the wife was not responsible. I should, therefore, find that the husband had in so doing withdrawn all his interest in the matrimonial property. By that stage, the ante-nuptial agreement had terminated with the sale of the first property. There followed no operative agreement between the parties on property rights. And the circumstances at the time does not justify presumption of advancement in any direction.

23. Counsel for the father and husband argues that the facts that the second property was registered in the joint names of the parents of the husband and that the net proceeds from the sale of the second property were placed in the joint account of the two elder gentle folks should be taken as recognition of the interests of the parents in the matrimonial property. With respect, I cannot accept that. Such argument lightly and unjustifiably brushes aside the joint interests of the husband and wife in the first property and the withdrawal of $400,000 by the husband. Moreover, as the husband frankly admits, he was quite heavily in debts. The wife told the court that the husband was so concerned that he told her to live with her mother so that she would not be bothered by creditors coming to the matrimonial home.

24. In my view, putting the proceeds from the sale of the first property and the second property in the name of the parents were merely ploys to prevent creditors from laying their hands on assets which to strangers could be perceived as joint property of the husband and wife.

25. In the premises, I regard the second property as bought with down payment entirely from the wife. The actual amount paid was slightly more than the remaining net proceeds from the sale of the first property, but the husband took more than half of the net proceeds.

26. The husband paid all the mortgage instalments for the second property until it was sold. The total amount paid, even including other monthly outgoing, is about $60,000 calculated to the time the second property was sold.

27. So, roughly and slightly generous towards the husband, I hold that the interests of the husband and wife in the second property, which should at this stage be determined on investment contribution basis, may be split one-seventh for the husband and six-sevenths for the wife.

28. Could the second property be said to be held by the parents on trust for the husband and wife in equal shares? There is no evidence that the wife regarded the husband as having a full half share in the second property. As counsel for the husband has quite rightly pointed out, in these days the presumption of advancement in these circumstances is very weak. She, counsel, of course said so to promote the husband's case that he did not intend to give away interest in property to the wife. But what goes for the goose should go for the gander as well.

29. In the premises, I hold that the husband should be entitled to one-seventh of the net proceeds from the sale of the second property and the wife six-sevenths.

The Third Property

30. The third property was purchased with $775,575 from the sale of the second property and $220,000 extra cash from the wife. These two sums made up the down payment. The contributions from the husband and wife were, therefore, one-sixteenth from the husband and fifteen-sixteenths from the wife.

31. As to the mortgage payments, the wife paid $6,000 per month, but she had $4,500 per month from the husband for the household. I would say the husband and wife contributed equally, $3,000 each per month, to the mortgage payments. That being so, the respective interests of the husband and wife in the third property remain undisturbed at 1/16 and 15/16 respectively.

32. Counsel for the father and husband says in her final submission that the wife admitted under cross-examination that the husband had a share in the third property. I do not see how such fair admission can be taken to the exaggerated level that the husband gets one half share of the third property. Despite what is pleaded in the civil action, there is no evidence at all to support an agreement between the parties and the circumstances do not support an implied agreement in favour of the father and husband as they claim. Moreover, by that time the husband had intimated that he had another woman and separation, if not dissolution of marriage, was in the air. The fact that the third property was registered in the sole name of the wife, I should think, goes even stronger against the view that the third property was owned by the husband and wife in equal shares. It is also true that the wife offered at some stage to have the husband's name put in as a joint owner. The explanation to that from the wife is that she was anxious to save the marriage. I believe her. As it turned out, the husband did not take up the offer.

33. The net proceeds from the sale of the third property were $2,258,796.11. Dividing that into sixteen shares, the husband according to his contribution would be entitled to $140,000.

34. So far, I have not dealt with the contributions to decoration expenses and furniture. These come to at least $200,000 in total for the three properties. The husband says he paid for all of them. The wife says all the payments were made with her money. There is no objective or documentary evidence to prove one way or the other. The husband says he had the invoices and bills but these were taken and thrown away by the wife. Well, even if the invoices and bills are presented to Solomon, I doubt very much if the wisest man can determine from the face of the invoices and bills as to who paid them. Looking at the matter realistically, bearing in mind that the husband had begun to have financial difficulties and business failures since one year after the marriage, he could not possibly have contributed significantly to the decoration and furniture.

35. On the other hand, the wife has been questioned closely about her resources and ability to pay for decoration and furniture. It does appear that she could make substantial contributions on these items. Counsel for the father and husband says in her final submission that the wife did not have enough means to pay for all she claimed she spent on the third property. Counsel does this by pulling together various sums making a total in excess of $1 million on one side of the balance sheet and, on the other side, simply adding up the wife's earnings over the years after marriage. In the process, the wife's savings before marriage and her share in the proceeds of sale from the second property is blindly ignored. One cannot even begin to deal with such economics sensibly. It follows that the wife's stake is even higher.

36. The other factor is the concessionary mortgages. Credit should be due to the wife for it was her status as an employee of the bank that the properties could be purchased with cheap mortgage finance. It is a matter of simple arithmetic that cheap mortgage finance constitutes very significant contribution to the equity. To give just an example, the mortgage payment at concessionary rate for the first property was $1,000 per month; payment at normal rate was $2,300.

37. Without giving credit to the wife for her contributions towards decoration and furniture and by way of cheap mortgage finance, the husband's entitlement in the net proceeds of sale of the third property is, as I have calculated, $140,000. All the figures are, of course, rough round sums because one can never get to exact dollars and cents without accurate accountancy.

38. For settling the dispute between the parties, I think the husband should have no cause to complain if he be given a lump sum of $300,000 (without interest) to cover his equity and interest upto now on the equity.

39. The father's claim in the civil action based on breach of contract and resulting trust, obviously, is untenable. Counsel for the father and husband quite fairly conceded this in her reply to final submissions from counsel for the wife.

Maintenance

40. The wife seeks periodical payment from the husband at $3,300 per month and a lump sum by way of ancillary relief in the matrimonial suit.

41. I am dealing with a young couple. The marriage lasted only 5 years. The wife has clear earning capacity. There are no children of the family. There is no doubt that the wife can re-marry as soon as she wants. In any event, the history of the couple shows that the wife had never really depended on the husband. This must be a classic case for a clean break.

42. In the circumstances, and in view of the substantial money she has from the sale of the matrimonial property, an order for periodical payment or lump sum is unjustified.

Order

43. Accordingly, I dismiss all the plaintiffs claims in the civil action HCA 10503 of 1993.

44. I made no order on the petitioner's application for ancillary relief.

45. In full and final settlement of the parties claims in the net proceeds from the sale of the matrimonial property, I order that a sum of $300,000 without interest be paid out of the amount held by stake holder to the respondent husband within 14 days from today and the balance be paid to the petitioner wife at the same time.

Costs

46. The subject matter in the civil action and in the matrimonial suit overlaps. Counsel for each side in final submission devotes considerable space to argue that the other side has acted irresponsibly in dragging on this litigation. The simple fact is that the father and husband have been claiming a combined interests of two-thirds in the net proceeds of sale from the third property on the pleadings and, in negotiations for settlement, their side wanted an offer of $700,000 which was upped to over $1 million later. It is implicit in my judgment that the father and husband have been pursuing an unrealistically high gaol. Taking all factors and circumstances into account, in exercise of my discretion, I an order nisi that each party bears its own costs incurred for all proceedings before the High Court. For costs incurred in the Family Court before transfer to the High Court, if they are not already covered by order of the Family Court, I make a further order nisi that the respondent shall bear the petitioner's costs, such costs to be taxed according to District Court scale if not agreed, with certificate for counsel for appearance before the Family Court.