TONG KA NIN v. TAM CHUN WAH AND ANOTHER

HCMP 912/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 912 OF 2011

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DECISION

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1.  This is the 2^nd defendant’s appeal against the decision of Master J Wong dated 20 January 2012, ordering that, inter alia, the share of the plaintiff and the 1^st defendant’s beneficial interests in the property known as Flat D on 25^th Floor, Tower 1, Ocean Pointe, No. 8 Sham Tsz Street, Sham Tseng, New Territories (“the Property”) as 73% and 27% respectively.

BACKGROUND  

2.  The Property was jointly purchased by the plaintiff and the 1^st defendant as tenants-in-common on 20 December 2001.  According to the plaintiff, the 1^st defendant was the boy-friend of his mother.

3.  It is the plaintiff’s case that:

(i)  at the time of the purchase of the Property, both the plaintiff and the 1^st defendant had each contributed $83,450, totalling $166,900, being 5% of the total purchase price whilst the remaining 95% was financed by raising a first mortgage (“the 1^st Mortgage”) with the Bank of East Asia Limited (“BEA”) and a second mortgage (“the 2^nd Mortgage”) with Pettico Limited (“Pettico”);

(ii)  at that time, it was agreed between the plaintiff and the 1^st defendant that both parties were responsible for half of the mortgage repayments to BEA and Pettico;

(iii)  in November 2004, the 1^st defendant indicated to the plaintiff that he was no longer be able to pay the instalments for the 2^nd Mortgage, and the plaintiff thereafter bore the 1^st defendant’s share of mortgage repayments under the 2^nd Mortgage;

(iv)  it was then agreed between the plaintiff and the 1^st defendant that, in return for his increased contribution in the mortgage repayments, the plaintiff would obtain a corresponding increase in his beneficial holding in the Property (“the Agreement”);

(v)  in July 2007, the 1^st defendant indicated to the plaintiff that he was no longer be able to repay the 1^st Mortgage as well, and thereafter the plaintiff also bore the 1^st defendant’s share of mortgage repayments under the 1^st Mortgage.

4.  By High Court Action, HCA No 2619 of 2008 (“the Loan Action”), the plaintiff obtained judgment against the 1^st defendant in the sum of $1,114,700 in relation to an outstanding loan which was unrelated to the mortgage repayments.  By an order of Master de Souza dated 2 March 2009, the plaintiff obtained a charging order absolute against the Property (“the plaintiff’s Charging Order”).

5.  By 2 charging orders absolute both dated 6 May 2009 (“the 2^nd defendant’s Charging Orders”), the 2^nd defendant charged, inter alia, the Property for the repayment of the sums of $568,583.14 and $160,830 from the 1^st defendant.

6.  By an order of To J dated 9 November 2009, the 1^st defendant was adjudged bankrupt.

7.  On 19 May 2011, the plaintiff took out the present proceedings against the 1^st defendant claiming for an order for the sale of the Property which was subject to the plaintiff’s Charging Order.  The 1^st defendant did not contest the claim.  On 8 July 2011, the 2^nd defendant applied successfully to join as a party to the proceedings, and it objected the plaintiff’s proposed apportionment of the beneficial interests of the plaintiff and the 1^st defendant in the Property in the ratio of 73%:27%.  Obviously, the proposed apportionment would affect the 2^nd defendant’s interest under the 2^nd defendant’s Charging Orders.

8.  By an order of Master Ko dated 30 August 2011, the plaintiff was given leave to enforce the plaintiff’s Charging Order by selling the Property.  By paragraph 8 of the same order, Master Ko fixed a hearing for argument before a Master so that the question of the extent of the 1^st defendant’s beneficial interest in the Property could be determined.  Such hearing was fixed before Master J Wong on 11 November 2011.

9.  By a decision dated 20 January 2012, the Master held that the Agreement and the plaintiff’s subsequent mortgage repayments gave rise to a post-acquisition “common intention constructive trust with the common intention being that the share distribution would be undetermined to be quantified later in light of the total contribution by the plaintiff”.  Based on such finding, the Master apportioned the interests of the plaintiff and the 1^st defendant in the ratio of 73%:27%.

10.  The 2^nd defendant now seeks to appeal against the said decision of Master J Wong.

THE DECISION OF THE MASTER

11.  It is the plaintiff’s primary case that notwithstanding the beneficial interest of the 1^st defendant in the Property at the time of the purchase, there was a post-acquisition common intention constructive trust in the plaintiff’s favour rendering his beneficial interest in the Property proportionate to the total amount of contribution he made for the purchase of the Property and the mortgage repayments.  The Master accepted the plaintiff’s case and assessed the beneficial interests of the plaintiff and the 1^st defendant accordingly.

12.  According to the affirmations of the plaintiff, at the time of the purchase of the Property, it was the intention of the plaintiff and the 1^st defendant that they would each hold 50% of the interest thereof.  They and the plaintiff’s mother then lived together in the Property until mid-2007 when the mother and the 1^st defendant moved out. However, before that in or around the end of 2004, the jewellery business of the 1^st defendant was having financial difficulty and so the 1^st defendant could no longer make contribution for the mortgage repayments.  As the property prices were still rising at that time, it was eventually agreed between them that the plaintiff would pay the 1^st defendant’s share of the mortgage repayments, but in return, he would obtain an increase in his beneficial holding in the Property which would correspond to his additional mortgage contribution.  Pursuant to and in reliance on such Agreement, the plaintiff paid the 1^st defendant’s share of the mortgage repayments in respect of the 2^nd Mortgage after November 2004 and the 1^st Mortgage after July 2007.  Further, the plaintiff claimed that he did not regard the additional contribution as part of the loan under the judgment and charging order in the Loan Action.  The plaintiff also produced copies of various deposit forms evidencing his mortgage repayments.

13.  The 1^st defendant also filed an affirmation to support the existence of the Agreement and the common understanding between the plaintiff and himself.

14.  The Master accepted the two-stage test for the determination of a claim for common intention constructive trust as enunciated by Lam J in Chan Chui Mee v Mak Chi Choi [2009] 1 HKLRD 343 at §§24 & 25:

(i)  the examination as to whether there is, in fact, a common intention that the claimant should have a beneficial interest in the property; and

(ii)  the determination of the extent of the parties’ respective interest in the property.

15.  There may be complication with the common intention constructive trust if there is competing third party interest.  In such case, the court may have to determine whether the change in the beneficial ownership represents a disposition of beneficial interest or merely an enlargement of the extent of an indeterminate existing beneficial interest.  In Chan Chiu Mee, Lam J said the following:

38.  … … … Suppose the common intention at the beginning was that A and B will be beneficial owner in equal shares.  In the course of dealings, that intention was changed to a distribution between A and B of 25:75.  If the equitable interest of C cannot be fully satisfied by 25% of the property and if that equitable interest was acquired by C prior to the change in common intention, should C have priority over B? The answer to that question depends on the correct analysis on the effect of the change in common intention: whether it is a disposition of beneficial interest or it merely enlarges the extent of an indeterminate existing beneficial interest.

…. … …

40.  … … … My tentative view is that in a case where the initial common intention is to have the share distribution to be quantified later, the beneficial interest of A and B can be regarded as indeterminate and the increase and decrease in its size during the course of the dealings will not be treated as the disposition of any beneficial interest.  In that sort of scenario, C cannot contend for any priority over B simply because the extent of B’s interest has increased over time.

41.  On the other hand, if it is a case of change of common intention which led to change in the share distribution, it must be regarded as a disposition of beneficial interest.  If C acquired an equitable interest prior to such disposition (and assuming his interest is equal to that of B in the eyes of equity), he would be able to claim priority over B’s increase in beneficial ownership.”

16.  The Master accepted that the plaintiff had managed to establish the existence of the Agreement and a post-acquisition common intention constructive trust in the plaintiff’s favour rendering his beneficial interest in the Property proportionate to his total contribution.  Further, the Master accepted the tentative view of Lam J in Chan Chiu Mee and found that the common intention of the plaintiff and the 1^st defendant was to have the share distribution to be undetermined to be quantified later in light of the total contribution by the plaintiff.  As the plaintiff’s contribution amounts to about 73% of the total contribution, the Master apportioned the interests in the ratio of 73%:27%.

GROUNDS OF APPEAL

17.  The 2^nd defendant puts forward 2 grounds of appeal. Firstly, although the plaintiff claims that there was a post-acquisition common intention constructive trust, he has failed to discharge the burden of proving that such constructive trust existed or that the plaintiff had paid the 1^st defendant’s share of mortgage repayments. Secondly, even if the Agreement and the common understanding did exist, they are not enforceable under ss. 5 and 6 of the Conveyancing and Property Ordinance, Cap. 219 (“the CPO”) because they were not in writing.  In such case, the share of beneficial interests of the plaintiff and the 1^st defendant in the Property should be in the ratio of 50%:50% as originally agreed by them before the purchase of the Property.

18.  I will deal with each ground of appeal in turn.

(i)  Sufficiency of the evidence to establish the post-acquisition common intention constructive trust

19.  Ms Leung, counsel for the 2^nd defendant, relies on the following dicta of Lord Neuberger in Stack v Dowden [2007] 2 AC 432 at §132 to submit that there must be “compelling evidence” to establish a common intention constructive trust after the acquisition of the property:

“The fact that the ownership of the beneficial interest in a home is determined at the date of acquisition does not mean that it cannot alter thereafter. My noble and learned friend Lord Hoffmann suggested during argument that the trust which arises at the date of acquisition, whether resulting or constructive, is of an ambulatory nature. That elegant characterisation does not justify a departure from the application of established legal principles any more than such a departure is justified at the time of acquisition. It seems to me that ‘compelling evidence’, to use Lord Hope’s expression in para 11, is required before one can infer that, subsequent to the acquisition of the home, the parties intended a change in the shares in which the beneficial ownership is held. Such evidence would normally involve discussions, statements or actions, subsequent to the acquisition, from which an agreement or common understanding as to such a change can properly be inferred.”

20.  Lord Neuberger’s dicta were adopted by Lam J in Chan Chui Mee v Mak Chi Choi, supra.   At paragraph 34, Lam J, citing his own judgment in Ip Man Shan Henry v Ching Hing Construction Co Ltd [2003] 1 HKC 256, said:

“If the common understanding was arrived at prior to the acquisition of the property, the beneficial ownership had not yet been crystallized and one may infer a common intention more readily. On the other hand, if the common understanding were only formed after the acquisition of the property, this would imply a change in the beneficial ownership of the property. The evidence must support an inference that there was a fresh agreement as to beneficial ownership before the court can give effect to the common understanding. In others in that situation, there must be some evidence to infer that the original beneficial owner has agreed to give up some of his interest in the property in favour of the other party.”

21.  Ms Leung submits that the plaintiff has failed to discharge such burden of proof.  In particular, Ms. Leung raises the following doubts about the evidence of the plaintiff and the 1^st defendant:

(i)  the plaintiff’s solicitors did not mention the common understanding or the Agreement in  their previous correspondence with the 2^nd defendant’s solicitors and the plaintiff and the 1^st defendant only first raised the allegation about the Agreement and the common understanding in their affirmations dated 6 September 2011;

(ii)  there was some doubt as to when the common understanding or the Agreement was actually made;

(iii)  there was some doubt as to exactly when the 1^st defendant was unable to make the mortgage repayments;

(iv)  even though the plaintiff deposed that the 1^st defendant had moved out of the Property in 2007, the 1^st defendant still cited the Property as his address in his affirmation; and

(v)  there is no documentary evidence showing that the mortgage repayments were in fact paid out of the plaintiff’s account since 2004.

22.  I agree with the observation of Ms Leung that an allegation about a common intention constructive trust after the acquisition of the property is one easy to make but difficult for a third party like the 2^nd defendant to rebut.  Such kind of trust, if found to have existed, will invariably affect the interest of a third party.  Despite such heavy burden of proof, it remains a matter of fact in each case as to whether such burden has been discharged.

23.  In fact, Mr K H Chan, solicitor for the 2^nd defendant in the hearing before the Master, had also raised similar queries about the evidence of the plaintiff and the 1^st defendant.  After considering the 2^nd defendant’s submission, the Master made the following findings in paragraph 19 of his decision:

“(a) there is un-contradicted contemporaneous payment record produced by the Plaintiff about the mortgage payments.

(b) There is also un-contradicted evidence produced by both the Plaintiff and the 1^st Defendant about the arrangement of payment of mortgage payments, the common intention and the agreement.

(c) Mr. Chan diligently referred me to the ‘changes’ of the case of the Plaintiff by reference to the pre-action letter, the supporting affirmation and the affirmation in reply. It was said the Plaintiff started to rely on ‘the monthly payment’ in the beginning, then ‘common intention’, and only finally, ‘an agreement between the 1^st Defendant and him’. Mr. Chan further suggested that the relation between the Plaintiff and the 1^st Defendant through the Plaintiff’s mother also gave rise to a possibility of concerted practice.

(d) However, the difficulty with Mr. Chan is that the 2^nd Defendant does not have any positive evidence to contradict those of the Plaintiff and the 1^st Defendant. As such, the best he could do is to try to cast doubt on the reliability of the Plaintiff’s case.

(e) Having weighed (c) against (a) and (b) above, as well as taken into account the circumstances in the proceedings HCA No.2619/2008, including the claim of various loans lent by the Plaintiff to the 1^st Defendant and the subsequent execution thereof, I take the view that the Plaintiff has adduced sufficient and/or compelling evidence to prove his case on balance.

(f) One further observation may be added.  There is no argument between the Plaintiff and the 2^nd Defendant that the charging order of the former ranks prior to those of the latter.  If the Plaintiff had included the ‘mortgage repayment’ as ‘loans’ in HCA No.2619/2008, such part of ‘judgment’ would also enjoy priority over the charging orders of the 2^nd Defendant.”

24.  I agree with such findings.  As pointed out by the Master, the difficulty with the 2^nd defendant’s case is that it does not have any positive evidence to contradict that of the plaintiff and the 1^st defendant.  At most, the 2^nd defendant is only able to refer to some ambiguities in the affirmations.  Without any substantive reason as to why their evidence should be rejected, the court is entitled to rely on the evidence of the plaintiff and the 1^st defendant to find, in a summary manner, that they had made the Agreement and reached a common understanding about their beneficial interests in the Property.

25.  Further, the 2^nd defendant had not made any application to cross-examine the plaintiff and the 1^st defendant before the Master.  If it had done so, the Master might have more materials before him in assessing the creditability of the evidence of the plaintiff and the 1^st defendant.  Although Ms Leung has referred to some ambiguities in their affirmation evidence, without giving them an opportunity of clarification, such ambiguities are not, in my judgment, sufficient for the court to conclude that they were lying.  In particular, if the plaintiff wanted to obtain an unfair advantage over other third parties like the 2^nd defendant, he could have simply included the mortgage repayments he paid on behalf of the 1^st defendant in his claim in the Loan Action.  Hence, there is some degree of truth in the plaintiff’s allegations.

26.  Facing such difficulty, Ms Leung made an application to cross-examine the plaintiff and the 1^st defendant before me.  However, granting such application would virtually mean that the court will have to consider new evidence in the appeal proceedings.  Under the new O 58 r 1(5) of the RHC introduced by the Civil Justice Reform, no further evidence, other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made, may be received in the hearing of an appeal from master except on “special grounds”.  It is trite law that the phrase “special grounds” requires the strict conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 to be satisfied (see Hong Kong Civil Procedure 2012, vol 1, at §58/1/3).  In this regard, the 2^nd defendant has not adduced any evidence to justify the admission of new evidence.  As the Ladd v Marshall conditions are not satisfied, I refused the 2^nd defendant’s application to cross-examine the plaintiff and the 1^st defendant in the hearing.

27.  The plaintiff accepts that the burden is on him to show that the beneficial interests in the Property are divided other than equally, and “compelling evidence” is required before the court should find for a post-acquisition common intention constructive trust.  Despite such heavy burden of proof, there is no positive evidence to contradict or rebut the plaintiff’s case in this regard.  Hence, I agree with the Master that the plaintiff has managed to prove his case on the post-acquisition common intention constructive trust and that he had paid the 1^st defendant’s share of mortgage repayments in respect of the 2^nd Mortgage after November 2004 and the 1^st Mortgage after July 2007.

28.  On the basis of such findings, it seems that Ms Leung is not challenging the decision of the Master that, in accordance with the tentative view of Lam J in Chan Chui Mee, the share distribution of the plaintiff and the 1^st defendant would be undetermined to be quantified later in light of total contributions made by the parties both before and after the 2^nd defendant’s Charging Orders.  In such case, the first ground of appeal must fail.

(ii)  Sections 5 and 6 of the CPO

29.  According to the second ground of appeal, the 2^nd defendant claims that the Agreement and the common understanding of the plaintiff and the 1^st defendant are not enforceable under ss. 5 and 6 of the CPO because they were not in writing.  In my judgment, this argument also cannot succeed.

30.  Under s 5(2) of the CPO, the requirement of document in writing in s. 5(1) does not affect the creation or operation of resulting, implied or constructive trust.  As the Agreement is a kind of post-acquisition common intention constructive trust, s. 5(1) is not applicable.

31.  Further, according to the Agreement which was made before the 2^nd defendant’s Charging Orders, it is clear that the common intention of the plaintiff and the 1^st defendant was to have the share distribution to be quantified at a later date after taking into account the total contribution made by each party.  In accordance with the tentative view of Lam J in Chan Chui Mee, such change in the beneficial ownership should be regarded as an enlargement of the extent of an indeterminate existing beneficial interest rather than a disposition of beneficial interest.  In my judgment, it would simply be too artificial to regard each additional mortgage repayment he paid on behalf of the 1^st defendant, which would result in a corresponding increase in his beneficial interest, as a separate deposition of beneficial interest, and as such each transaction had to be evidenced in writing in order to be enforceable.  Hence, the second ground of appeal also fails.

OTHER ISSUES

32.  In this appeal, Ms Leung has also raised the following issues about the terms in paragraph 5(v) of the draft order of the Master dated 20 January 2012:

(i)  payment of costs of the order for sale under HCMP No 860 of 2010 in the sum of $23,000; and

(ii)  interest on the outstanding sum of $70,700.

33.  The order of the Master had yet been perfected before the appeal hearing, and so I directed the parties to submit the perfected order to the court as soon as possible after the hearing.  Since the proposed paragraph 5(v) does not appear in the final perfected order, it is not necessary for me to deal with these other issues raised by Ms Leung.  In any event, Ms. Leung, in the hearing, has conceded the arguments of Mr Lee, counsel for the plaintiff, on these issues.

34.  Based on the aforesaid, I dismiss the 2^nd defendant’s appeal.  I also make an order nisi that the plaintiff’s costs in this appeal be paid by the 2^nd defendant, which shall be made absolute 14 days after the date of the handing down of this decision.