DCMP 1611/2012
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
MISCELLANEOUS PROCEEDINGS NO 1611 OF 2012
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IN THE MATTER OF Section 6 of the Partition Ordinance, Cap 352 of the Laws of Hong Kong
and
IN THE MATTER OF ALL THAT the estate right title benefit and interest of and in ALL THOSE 3 equal undivided 216th parts or shares of and in ALL THOSE pieces or parcels of ground registered in Land Registry as SECTION B OF NEW KOWLOON INLAND LOT NO 2498 AND THE REMAINING PORTION OF NEW KOWLOON INLAND LOT NO 2498 AND THE EXTENSION THERETO and of and in the messuages erections and buildings erected thereon TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy Flat C on 1st floor, To Yuen Mansion, 39 To Yuen Street, Kowloon
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BETWEEN
TONG, STELLA WAI YAN
Plaintiff
and
WONG KWOK WING, WENDY
Defendant
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Before: His Honour Judge Alex Lee in Court
Dates of Hearing: 20 & 21 May 2013 and 11 June 2013
Date of Judgment: 9 July 2013
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JUDGMENT
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INTRODUCTION
1. This is about a dispute over an apartment (“the Property”) in Kowloon which the plaintiff’s father (PW1) and the defendant had previously owned as joint tenants and occupied as a co-habiting couple. After their breaking up, PW1 severed the joint tenancy and years later assigned to the plaintiff his interest in the Property. The plaintiff, who resides not in Hong Kong but in the United States, applies for an order for sale and asks that the net proceeds be shared equally between herself and the defendant.
2. The defendant initially opposed the application. Affirmation evidence, written openings and case authorities were filed by both parties on the assumption that there would be argument on whether a sale should be ordered. However, at the commencement of the trial Mr Pun, counsel for the defendant, informed that the defendant would no longer oppose the sale. Thus, the remaining issue is one of apportionment only.
THE ISSUES
3. It has been the position of Mr Leung, counsel for the plaintiff, that the parties should each be entitled to 50% of the net proceeds of sale of the Property. Mr Leung relied on the fact that the Property had been purchased and mortgaged in the joint names of PW1 and the defendant and therefore it was clear that their common intention was that there should be equal ownership. This was so, despite the plaintiff’s case that PW1 had in fact contributed more than the defendant had done towards acquisition of the Property and the subsequent repayment of the mortgage loan. Mr Leung submitted that there was no or not sufficient evidence to show any change of the common intention. As such, the plaintiff (as the successor in title of PW1) and the defendant should each be entitled to a 50% share. Mr Leung relied on Stack v Dowden [2007] 2 AC 432.
4. Mr Pun did not dispute that it had been the common intention of PW1 and the defendant that the Property be held in equal ownership. However, it was submitted that the common intention had changed as a result of events which occurred after the breaking up, with the result that a new common intention should be inferred or imputed that the defendant be entitled to more than a half share. Mr Pun relied on Jones v Kernott [2012] 1 All ER 1265. Alternatively, Mr Pun submitted that credits should be given to the sums the defendant spent on mortgage repayment and also maintenance and improvement of the Property after PW1 had ceased to repay any of the mortgage loan since January 2000. Reliance was placed on Cracknell v Cracknell [1971] 356, 363D-E.
5. Apart from the issue of apportionment, there is also a side issue of occupation rent. As the defendant has been in sole occupation of the Property after PW1 moving out in late 1997/early 1998, it was submitted by the plaintiff that the defendant should pay an occupation rent to her for the entire period that the defendant is in sole occupation of the Property. This was opposed by the defendant on the basis that the defendant was entitled to stay on the Property by virtue of her co-ownership. It was also pointed out that PW1 had moved out on his own account rather than being expelled by the defendant. In his closing submission, the position adopted by Mr Leung was that, in order to facilitate the sale of the property and a matter of fairness, the defendant should be ordered to vacate the Property on or before a date to be fixed by the court and if the defendant fails to compile with that order, then she should be made to pay an occupation rent to the plaintiff after that date. Mr Pun’s position is that the defendant should be allowed to stay until before the completion of the proposed sale and there should be no occupation rent.
THE RELEVANT LEGAL PRINCIPLES
6. The leading authority of the relevant law is the judgment of the English Supreme Court in Stack v Dowden , supra. The starting point is that in the case of the purchase of a house or flat in joint names for joint occupation by a married or unmarried couple, where both are responsible for any mortgage, there is no presumption of a resulting trust arising from their having contributed to the purchase price in unequal shares. The presumption is that the parties intended a joint tenancy both in law and in equity. But that presumption can be rebutted by evidence of a contrary intention, which may more readily be shown where the parties did not share their financial resources.
7. The principle in Stack v Dowden has been applied and developed in the subsequent cases and the most important of which is the judgment of the Supreme Court in Jones v Kernott , supra. It is noted that in Stack v Dowden , the search is primarily to ascertain the parties’ actual shared intentions, whether expressed or to be inferred from their conduct. However, in Jones v Kernott , the court goes further and holds that in appropriate cases where the actual intentions cannot be ascertained or inferred, the court may impute an intention to the parties which they might never had, by reference to what the court considered fair having regard to the whole course of dealing between them in relation to the property. The distinction between inference and imputation is clearly explained in the minority judgment of Lord Neuberger in Jones Kernott as follows:-
“ [126] An inferred intention is one which is objectively deduced to be the subjective actual intention of the parties, in the light of their actions and statements. An imputed intention is one which is attributed to the parties, even though no such actual intention can be deduced from their actions and statements, and even though they had no such intention. Imputation involves concluding what the parties would have intended, whereas inference involves concluding what they did intend.”
8. The principles of “common intention constructive trust” in respect of family home in joint-name cases, as recast in the joint leading judgment of Lord Walker and Lady Hale in Jones v Kernott , to which Lord Collins, Lord Kerr and Lord Wilson agree, are as follows:-
(i) In joint names cases, the starting point is that equity follows the law. One begins the search for the proper allocation of shares in the property with the presumption that the parties are joint tenants and are thus entitled to equal shares.
(ii) That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home or (b) that they later formed the common intention that their respective shares would change.
(iii) The common intention, if it can be inferred, is to be deduced objectively from the parties’ conduct: the relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he did not consciously formulate that intention in his own mind or even acted with some different intention which he did not communicate to the other party.
(iv) Where it was clear either (a) that the parties did not intend joint tenancy at the outset, or (b) had changed their original intention, but it was not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, the answer is that each was entitled to that share which the court considers fair, having regard to the whole course of dealing between the parties.
(v) ‘The whole course of dealing in relation to the property’ should be given a broad meaning, enabling a similar range of factors to be taken into account as might be relevant to ascertaining the parties’ actual intentions.
(vi) Each case will turn on its own facts. Although financial contributions are relevant, there are many other factors which might enable the court to decide what shares were either intended (as in case (iii)) or fair (as in case (iv)).
Although Lord Kerr and Lord Wilson in the minority differed from the other members of the court as to whether there was sufficient evidence in that case to infer a change of the common intention of the parties, both of them concurred with the majority that the appeal should be allowed but on the different basis that such a change of intention should be imputed to the parties.
9. An example of the court imputing an intention to the parties can be found in Aspden v Elvy [2012] 2 FCR 435, where Behrens J, applying Jones v Kernott , found that there had been no express discussions between the parties as to the value of the claimant’s interest and that it was necessary to impute an intention by reference to what was fair having regard to the whole course of dealing between them.
10. As regards Cracknell v Cracknell , it concerned taking accounts between a divorced couple in matrimonial proceedings. In this regard, I note that the equitable accounting applies whether the parties are married or not. I note also that the credits and debits in the accounting exercise do not alter the shares in the property, but operate to adjust the sums ultimately payable on sale: see Snell’s Equity , 32nd edition, §20-063. However, I also note that such equitable accounting between the parties should normally be considered only after the property has been sold: Wilcox v Tait [ 2007] 2 FLR 871.
THE RELEVANT EVIDENCE AND FACTS
11. In the present case, as it is the defendant who asserts that there was a change of the common intention between PW1 and herself as to their respective shares in the Property, the burden is on her to satisfy the court, on balance of probabilities, that that was the case.
12. Because of the common ground between the parties that the Property was purchased by PW1 and the defendant with the common intention at there should be equal ownership regardless of the respective amounts contributed by the parties, this Court is saved from making findings on a number of matters about which the parties have given different versions. Examples of such peripheral matters include but not limited to the following:-
(a) when and how PW1 and the defendant came to know each other and started their intimate relationship;
(b) whether PW1 had made any false representations to the defendant about the status of his marriage, whether he had ever intended to marry her, whether he had introduced her to other people as his wife and how many times she had undergone abortions for his sake;
(c) how much exactly each of them had contributed to the purchase price of the Property;
(d) what role, if any, the defendant had played in PW1’s business; and
(e) after the breaking up, whether PW1 promised to support the defendant’s study of Chinese medicine and if so, whether it was conditional upon her agreeing to sell the Property.
13. For the present purpose, the facts can be summarized as follows. PW1 was a married businessman. Like many people in Hong Kong in 1980s, PW1 and his family had emigrated to Canada and he alone shuttled between Canada and Hong Kong looking for business opportunities. When he was in Hong Kong, he would lodge at different places including his sister’s home. In or about late 1985, he formed an intimate relationship with the defendant who was then also lodging with his sister. At the time, PW1 was about 38 years’ old and the defendant about 25. The defendant knew that PW1 was a married man. However, PW1 seemed to have told her that he had already separated from his wife and was going to have a divorce.
14. PW1 and the defendant had intended their relationship to be a long-term one. Therefore, sometime after their co-habitation they started to look for a property as a family home. A joint bank account was opened for the intended purchase. Eventually, in 1996 they came down to the Property which was at Flat C, 1st floor, To Yuen Mansion, 39 To Yuen Street, Kowloon. Money from the joint bank account was used for part payment. Besides, both PW1 and the defendant contributed additional monies for the acquisition and PW1 agreed that the defendant’s contribution was about $500,000. Moreover, a $1 million mortgage loan was taken out the repayment of which both of them were jointly liable.
15. PW1 and the defendant moved in the Property in June 1996 and co-habited there as a couple. However, their relationship came to an end in early July 1997 after the defendant’s return from a trip to Canada. It is not entirely clear from the evidence what the cause of the breaking up was. It is apparent that whilst in Canada, the defendant had occasion to meet PW1’s family and was able to see for herself PW1’s family situation there. There is evidence that PW1 and his wife only separated in Canada in about 1992 and up to the day of the trial that marriage had not been formally dissolved. The court was also told that PW1’s wife was and is his business partner.
16. After the breaking up, PW1 proposed to sell the Property. It was PW1’s evidence that he proposed to split the proceeds equally but the defendant refused to sell. The defendant’s evidence was that PW1 had only offered to pay her $1 million but she wanted a roof over her head. I do not find it necessary to decide which version is to be accepted. Assuming that the Property was worth about $2.8 million at the time, after deducting the outstanding mortgage,[1] expenses and costs, a 50% split of the net proceeds would be more or less $1 million.
17. On 20 August 1997, PW1 executed a notice of severance so that he and the defendant became tenants-in-common of the Property. The notice of severance was registered with the Land Office on 30 August 1997. The defendant, however, denied that she had been aware of the severance. Her evidence, which I accept for the reasons to be given below, was that she only became aware of the severance as late as 2011.
18. PW1 said that he moved out of the Property in late 1997 or early 1998. After that, there had been virtually no contacts between him and the defendant. As PW1 ceased to pay the management expenses of the Property from February 1998 onwards, the inference is that he had already moved out before that month.
19. For the sake of convenience, I list out the chronology of events, which is largely not in dispute, as follows:-
20. The defendant remains single and is still living in the Property. She said that she has finished her study of Chinese medicine but has not practiced because of her ill health and lack of capital. She attributed her bad health to her abortions. She said that apart from the Property and a small amount of cash, she has no other assets. She said that she relies on her family members, who are living in Guangzhou, for financial assistance.
SUBMISSIONS ON CHANGE OF COMMON INTENTION
21. Mr Pun relied on the following and argued that there had been a change of the common intention:-
(i) the original intention of PW1 and the defendant that the Property be used as their family home and the subsequent request by PW1 that the Property be sold after the breaking up of the relationship;
(ii) the execution by PW1 of the notice of severance on 20 August 1997;
(iii) the purchase by PW1 of an office premises for his company APL on 28 July 1998; and
(iv) the cessation of PW1’s contribution to the mortgage repayment and other expenses from January 2000 onwards;
(v) the purchase by PW1 of a property in Mei Foo under the name of his company (APL) on 6 March 2002 and the subsequent transfer of that property to his estranged wife (the plaintiff’s mother) on 2 July 2007.
(vi) the assignment by PW1 of his interest in the Property to the plaintiff in October 2010.
22. Mr Pun submitted that in view of the above PW1’s interest in the Property, like the situation in Jones v Kernott , should have crystallized at a time which was no later than 2008. Alternatively, it was submitted that the defendant should be entitled to the increase in the value of the Property as a result of the repairs or improvement done by the defendant and also of the capital element in the repayment of mortgage installments made by her ever since PW1 had left the property in late 1997 or early 1998.
23. Mr Leung, on the other hand, submitted that none of the above events relied upon by the defendant evinced a change of the common intention of equal ownership between PW1 and the defendant.
CONSIDERATION OF SUBMISSIONS
Notice of severance
24. PW1 was 13 years older than the defendant. I find that the proper inference of PW1’s purpose of executing the notice of severance is that he wanted to avoid the defendant getting his interest in the Property by the right of survivorship. However, the effect of the severance was not to create unequal shares immediately between PW1 and the defendant, as it was stated in the notice that “the Property shall henceforth belong to you and me in equal shares”.
25. As to when the defendant became aware of the severance, I accept the defendant’s evidence that she only became aware of it until 2011. My reasons are as follows:-
(a) PW1’s solicitors, who prepared the notice of severance, say that they have since misplaced/lost the relevant file and their staff member who handled the matter is no longer in their employ. Therefore, the solicitors are unable to confirm whether the notice had in fact been served on the defendant, although they say that in the normal course of event they would have done so.
(b) I note also that the notice of severance was written in English, a language which she does not know.
(c) The defendant’s evidence, which I accept after having considered all the evidence as a whole, was that in 2004 when she was so seriously ill, she believed then that her share in the Property would go to PW1 after she died. She said that it was only when she applied for a government loan for renovation of the building that she first discovered that the Property was no longer held in joint-tenant. The defendant put the date of her discovery about the severance as late as 2011.
(d) The defendant’s evidence in this regard is consistent with her letter to PW1’s solicitors dated 19 July 2011 in which the defendant still alluded to survivorship.
26. I remind myself that a secret intention harboured by a party is not relevant since it cannot support an inference of a shared intention: see Fowler v Barron [2008] EWCA Civ 377, at §§ 37, 52 & 57. I also remind myself that in the present case the primary search is about the common intention of the parties which is to be deduced objectively from their conduct. The relevant intention of each party is the intention which was reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he or she did not consciously formulate that intention in his or her own mind or even acted with some different intention which he or she did not communicate to the other party.
27. In my judgment, the fact that PW1 executed the notice of severance, on its own, is not evidence of a change of the common intention. However, the severance allowed the possibility of future changes in the shares by subsequent events. Moreover, I find that the proper inference to be drawn is that PW1 was aware of that possibility as he had engaged solicitors to help him prepare the notice of severance.
Purchase of other properties by PW1
28. As regards PW1’s purchase of the office premises for APL and the Mei Foo property in 2002, the situation was not similar to Jones v Kernott .[2] The Supreme Court has emphasized that each case will depend on its own facts. In that case, the majority of the court was able to infer a change of common intention of the parties from the fact that after their separation they cashed in a joint life insurance policy so that Mr Kernott was able to buy a new home for himself. There was also a finding that Mr Kernott would not have been able to do this had he still had to contribute towards the mortgage, endowment policy and other outgoings on the premises the subject matter of the dispute. The inference that the majority of the court drew was that the parties intended that Mr Kernott’s interest in the subject premises should crystallize then. Just as he would have the sole benefit of any capital gain in his own home, Ms Jones would have the sole benefit of any capital gain in the subject premises.
29. In the present case, however, there is no evidence before me that the purchase prices of the office premises or the property in Mei Foo came from any joint resources of PW1 and the defendant. Moreover, there is nothing to suggest that PW1 would have not been able to purchase these two properties had he still had to contribute towards the mortgage and other outgoings of the Property. There is no evidence before me as to PW1’s purposes of the purchases and none was suggested by Mr Pun. Moreover, there is no evidence before me that the defendant was aware of PW1’s purchase of the two properties at the time.
30. In my judgment, the purchase of the two properties and the subsequent disposal of one of them is not evidence from which a common intention can be inferred or imputed.
Was there a change of the common intention
31. Based on the evidence before me, I make the following findings and draw inferences which are objectively deduced from the conduct of PW1 and the defendant:
(i) It had been the common contention of PW1 and the defendant to acquire the Property as their family home and to own it in equal shares.
(ii) Shortly after the breaking up, the defendant had requested that PW1 transferred his share in the Property to her and she was ready to be responsible solely for the remaining installments of mortgage repayment.
(iii) PW1, by executing the notice of severance shortly after the breaking up of his relationship with the defendant, was aware that his and the defendant’s shares in the Property might be affected by future events.
(iv) After his breaking up with the defendant PW1 continued to repay the mortgage because, as he said in court, he knew that the defendant was unable to repay and at the time he was still hopeful of the defendant consenting to a sale.
(v) PW1 stopped his mortgage repayment at the end of 1999 because, as he said in court, the defendant had refused to sell the Property and also because his business had changed for the worse. I infer that from that point of time onwards he did not intend to spend any more money on the Property.
(vi) PW1, by disappearing for years, not discussing with either the defendant or the bank about the mortgage and ceasing to contribute anything to the mortgage repayment, abandoned his financial responsibility for the Property and he did not care how his inaction might affect to the Property or his share.
(vii) The defendant resignedly accepted (“無奈地接受”) PW1 abandoning his responsibility and she shouldered all financial responsibility in respect of the Property. I infer that she expected some credit or recognition to be given to her expenditure on the Property. This is evident from her reply letter to the plaintiff’s former solicitors, Messrs George YC Mok & Co, dated 19 July 2011.
(viii) Shortly after their breaking up PW1 and the defendant changed their intention so that the parties intended from then onwards that credit should be given for their respective contributions. However, it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property.
32. By applying Jones v Kernott , in deciding what each party is entitled to, the court has to consider what is fair having regard to the whole course of dealing between PW1 and the defendant in relation to the Property. In this regards, I take into account the following:-
(i) Although it was the defendant’s evidence that she had been keen to introduce mainland business to PW1 during the currency of their relationship, she was unable to quantify her contribution in money terms. I accepted PW1’s evidence that the actual profit thus generated had not been significant. PW1’s evidence was that there was only one concluded deal which was about the sale of a quantity of satellite discs from Canada to the Mainland. Whether or not the defendant had played any significant role in PW1’s business, after the breaking up in July 1997 her involvement would have come to an end.
(ii) As regards the mortgage repayment, despite the fact that he had broken up with the defendant, he continued to repay the mortgage for a period of time. The principal repaid between June 1996 and December 1999 was $502,972.03. It can further be broken down as follows:-
June 1996 - July 1997
$75,016.07
August - October 1997
$300,000.00
November 1998 - December 1999
$127,955.96
Thus, the repayment of principal by PW1 after the breaking up of his relationship with the defendant in July 1997 was $427,955.96.
(iii) It is an admitted fact that all the mortgage repayments made between June 1996 and December 1999 came from the bank account of APL Co which was a firm of PW1. As to the source of the above repayments, I drew the inference that the majority, if not all, of the monies came from PW1’s own resources. In this regard, I have not ignored the fact that there was a withdrawal of $103,281.03 on 3 July 1997 by PW1 from a fixed deposit account which he jointly held with the defendant and a subsequent lump sum repayment made by PW1 in or about August 1997 in the amount of $300,000. I find, however, that PW1 was the major contributor to the deposit in that joint account.
(iv) After the repayment of the mortgage installment in December 1999, the balance of mortgage loan was $425,899.75. The sum was wholly repaid by the defendant. Besides, the defendant had also the following expenses which in my view are important to the substantial improvement and proper maintenance of the Property or the building:
Building maintenance fund
$29,000.00
Repayment of a government
$50,000.00
Loan for building maintenance:-
Lifts repair
$14,993.30
Building maintenance
$50,835.60
__________
Total
$144,828.90
=========
I have not taken into account the costs of the discharge ($1,800), the renovation of the toilet ($9,030) and the building insurance ($25,110.70) which are not relevant or not important to the impairment or maintenance of the Property or the building. Thus, the total relevant expenditure by the defendant would be about $570,728.65 ($425,899.75 + $144,828.90).
33. By a rough calculation, if one takes into account the respective expenses of PW1 and the defendant on the Property after the breaking up of their relationship, the ratio is $427,955.96: $570,728.65 which is about 4:6. In all the circumstances, I consider this to the fair ratio of the respective shares of PW1 and the defendant in the net proceeds of the Property.
Equitable Accounting
34. Given my decision above, I do not think it is necessary to consider the question of equitable accounting. In fact, even if there should be an equitable accounting between the parties, it would be more appropriate for it to be done after the sale of the Property and perhaps the filing of further evidence as regards their respective expenditure relating to the Property.
DIRECTION FOR SALE
35. The parties have reached substantial agreement for the mechanism of the proposed sale. I am content with their agreement. There are only two matters which require my direction:-
(i) when should the defendant vacate the Property and whether she should pay an occupation rent; and
(ii) when the Registrar of the District Court should sign on the documents relating to the proposed sale on behalf of a party who refuses to sign.
36. As regards (i), I see no reason why the defendant should be required to vacate the Property before the completion of the proposed sale, provided that she is willing to give reasonable access to potential purchasers to inspect the Property on reasonable notice.
37. As to whether the defendant should pay an occupation rent from the date of this judgment up to the date she vacates from the Property, that has not been pleaded in the prayer of the originating summons. Moreover, there is no evidence before me as to what the level the market rent is. In the circumstances, I am not inclined to make such an order. Of course, if the defendant fails to vacate the Property on or after the completion of the proposed sale, that would be subject matter of a separation cause of action.
38. As to (ii), for the sake of avoiding any future problem on title, I direct that the Registrar of the District Court should sign on behalf of a party on a document relating to the proposed sale who refuses to do so.
ORDER
39. I make the following orders and directions pursuant to s 6 of the Partition Ordinance, Cap 352, and Order 31 of the Rules of the District Court, Cap 336H:-
(a) the Property be sold on the basis that vacant possession be delivered to the purchaser;
(b) the net proceeds of sale be divided between the plaintiff and the defendant in the ratio of 4:6 in the defendant’s fair;
(c) the sale be conducted according to the terms as agreed between the parties save and except that:-
(i) the defendant do deliver vacant possession and the key(s) of the Property to the purchaser upon completion of the sale, which completion date shall not be less than 60 days from the date of the provisional agreement. The defendant may however vacate from the Property before the completion date as she wishes. In such case, the defendant shall inform and deliver the key(s) of the Property to the Estate Agent. The defendant shall remove all her chattels upon vacating from the Property, failing which the chattels will be regarded as abandoned property and the plaintiff may discard them; and
(ii) if a party fails to sign a document relating to the sale of the Property within the 14 days after being requested to do so by the firm of solicitors appointed by the parties to handle the sale, the Registrar of the District Court can sign on behalf of that party.
40. As mentioned above, the defendant’s concession to the application for sale of the Property was made at the eleventh hour. That belated concession had reduced much of the relevancy of the affirmation evidence and written submissions filed. Had the concession be made earlier, a lot of costs may have been saved and the matter may have been dealt with earlier to the benefit of both parties. Because of this, I also make an order nisi that there be no order as to costs.
( Alex Lee )
District Judge
Mr Richard Leung, instructed by K&L Gates, for the plaintiff
Mr Chase Pun, instructed by Cheung, Chan & Chung, for the defendant
[1] The outstanding mortgage loan was $544,449.51
[2] supra, at paragraph 48