YES CAPITAL LTD v. YEUNG SE WANG STEPHEN AND ANOTHER

HCMP 66/2024

[2025] HKCFI 3891

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 66 OF 2024

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BETWEEN

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J U D G M E N T

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INTRODUCTION

1.  By this action, the Plaintiff (“P”), a licensed money lender, seeks to enforce a mortgage of the half share of the 1^st Defendant (“D1”) in a residential property in Kowloon (“Property”) as security for a loan, which D1 had defaulted in repayment. Judgment was entered against D1 on 31 July 2024. The 2^nd Defendant (“D2”), who is D1’s divorced wife, resists P’s claim. She contends that D1’s half share in the Property is held by D1 for her under a common intention constructive trust, which is said to have arisen following an agreement between D1 and D2 in 2012; and the sale of the Property would cause undue hardship on her.

BACKGROUND

2.  D1 and D2 got married in 1993. They gave birth to a daughter in 1996. D2 used to be a secretary. She gave up work and became a full-time housewife in 1997. D1 is the sole breadwinner of the family.

3.  In 2003, D1 and D2 purchased the Property as joint tenants. D1 paid the purchase price with a mortgage from a bank (“First Mortgage”). He was responsible for the mortgage repayments.

4.  In 2016, the relationship between D1 and D2 broke down after D2 discovered that D1 was having an extra-marital affair. D2 moved out of the Property with her daughter in September 2016. They returned after two weeks to try to reconcile with D1, which was unsuccessful. D2 petitioned for divorce in October 2016. D1 moved out of the Property in November 2016, although sometimes he would return and stay overnight and sleep in the living room. D2 said she let him do so because she was soft-hearted. D1 kept the key to the Property. He returned for the last time in December 2016 to collect his clothes and personal belongings.

5.  On 27 October 2017, D1 executed a notice of severance to sever his joint tenancy with D2 in the Property to a tenancy in common in equal shares. This was to enable him to charge his half share to a finance company (“Wings Finance”) for a loan. A second legal charge over his half share was executed (“Second Legal Charge”) on the same day. D1 did not consult D2 when he severed the joint tenancy or charged his half share. D2 said that she only came to know about the severance in the divorce proceedings when her lawyers explained to her briefly. She did not really understand what was explained to her, but she paid little attention because her lawyers said it did not have much impact on the divorce.

6.  On 1 December 2017, D1 and D2 entered into a consent order in their divorce proceedings (“FCMC Order”) which dealt with financial provision and ancillary relief. Under the FCMC Order, D1 was ordered to transfer all his legal and beneficial interests in the Property to D2 within one month from the date of the final payment of the outstanding mortgage repayments under the First Mortgage. D1 and D2 undertook to each other, and were ordered, not to further charge, mortgage, pledge or transfer any of their legal and beneficial interests in the Property pending the transfer. D1 also undertook to continue to make the monthly mortgage repayments under the First Mortgage until its full discharge.

7.  By a loan agreement dated 10 August 2018 (“Loan Agreement”), D1 obtained a loan of HK$3,000,000 from P repayable by 84 monthly instalments. By a second mortgage executed on the same day (“Second Mortgage”), D1 mortgaged his half share in the Property to P as security for the loan. Part of the loan was used to repay Wings Finance and to discharge the Second Legal Charge.

8.  Since October 2019, D1 stopped making mortgage repayment for the First Mortgage (save for the months of March to May 2020). D2 made the repayments in excess of HK$400,000.

9.  Also in October 2019, D1 entered into a third mortgage (“Third Mortgage”) for his half share in the Property with another finance company (“Cash Square”) for a loan.

10.  In November 2019, the FCMC Order was registered by D2 in the Land Registry against the Property.

11.  From June 2020 onwards, D1 defaulted in the repayment of the principal and interest under the Loan Agreement. In January 2021, D1 was adjudged bankrupt. P brought this action in January 2024 to enforce the Second Mortgage. As at July 2024, the total amount of loan principal owed by D1 to P was in excess of HK$4,800,000 plus interest and default interest, for which judgment was entered against D1. There is no realistic prospect of P recovering the outstanding loan and interest from D1 other than through the sale of the Property.

COMMON INTENTION CONSTRUCTIVE TRUST

12.  Equity follows the law. Joint legal ownership is presumed to be joint beneficial ownership. The burden is upon the person seeking to show that the parties intended their beneficial interests to be different from their legal interests, and in what way. In joint ownership cases, it is upon the joint owner who claims to have other than a joint beneficial interest: Stack v Dowden [2007] 2 AC 432 at [56].

13.  The burden may be discharged by proof, on a balance of probabilities, that: (1) the parties had a different common intention at the time of purchase (or exceptionally, at some later date) on how the property is to be held beneficially; (2) the party who claims a different beneficial ownership has altered his position in detrimental reliance on the common intention; and (3) it is unconscionable for the property owner to depart from the common intention and assert ownership in reliance on the legal title: Mo Ying v Brillex Development Ltd [2015] 2 HKLRD 985 at [5.6] and [6.12]; Primecredit Ltd v Yeung Chun Pang Barry [2017] 4 HKLRD 327 at [2.3]; Hudson v Hathway [2023] KB 345 at [153]. A common intention constructive trust will then arise to give effect to the common intention.

14.  Common intention of the parties may be established by proof of an agreement, arrangement or understanding between them on how the property is held beneficially. Where there is no evidence to support such an agreement or arrangement, the Court may rely on the conduct of the parties (e.g. direct contributions to the purchase price, or other forms of non-monetary contributions to the matrimonial home) as the basis from which to infer the common intention. In a Chinese setting, especially for the older generations, where explicit discussions on property rights within the family are not that common, the Court has to pay more regard to circumstantial matters: Primecredit (supra) at [1.6], [2.3]-[2.4].

15.  Where a post-acquisition common intention is alleged (as in the present case), this would imply a change in the ownership of the property. There must be some evidence to infer that the original beneficial owner (here, D1) has agreed to give up some of his interest in the property in favour of the other party (here, D2). In the absence of an express post-acquisition agreement, the Court will be slow to infer from conduct alone – and compelling evidence is required – that parties intended to vary existing beneficial interests established at the time of acquisition: Chan Chui Mee v Mak Chi Choi [2009] 1 HKLRD 343 at [34]-[36]; Chan Gordon v Lee Wai Hing [2011] 2 HKLRD 506 at [57]-[58].

16.  In ascertaining the objective intentions of the parties, the Court will take a holistic approach in light of their whole course of conduct. The relevant intention of each party is the intention that was reasonably understood by the other party to be manifested by that party’s words and 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 with the other party: Mo Ying (supra) at [5.15]-[5.16].

17.  Central to D2’s claim for common intention constructive trust is that in 2012, D1, having been diagnosed with Parkinson’s disease, made the following representation to D2 reassuring her that D1 intended that the Property would belong to her solely:

“Sometime in 2011, the 1^st Defendant was diagnosed with Parkinson’s disease, he would shake unintentionally, became slow and have difficulty with balance and coordination. After his diagnosis, I was worried that he would pass away before me, leaving my daughter and I with no support. In light of the foregoing, sometime in 2012, the 1^st Defendant told me that I do not have to worry about anything as he had already purchased a number of insurance policies and that he had always intended that the Property would belong to me solely. He said that because I have been retired since 1997, I would not be able to obtain a mortgage when we purchase the Property, which was why the Property was purchased in our joint names.” (paragraph 6 of D2’s 1^st affirmation dated 8 May 2024)

18.  In D2’s 2^nd affirmation dated 19 August 2024, she said as follows (at paragraph 12):

“I am not a person who is good at expressing my feelings so even though I was very worried, I did not say or do anything. It was the 1^st Defendant who noticed that I was different from my usual self and asked me what was going on, I believe it was sometime in 2012. I told him that I was worried I might los[e] him and how could our daughter and I survive. I also remember I told him I could go and find a job. However, the 1^st Defendant had in very certain terms told me I do not have to worry about the future as he intended the Property to belong to me. He said he had planned that way back when we purchased the Property but did not feel the need to spell it out. We discussed about this on a couple of occasions and of course I could not remember the exact dates, but they were usually after we finish dinner or before we sleep.”

19.  In her oral evidence, D2 said that she could not recall D1’s precise words (字眼上我真係唔記得咁清晰). D1 said to her that all along he intended to give the Property to her (我層樓一路都諗住畀妳). Her understanding was that the Property belonged to her the moment D1 made the promise (由佢嗰一刻講，我就當係應承咗㗎喇，咁我就覺得已經係我㗎喇).

20.  In D1’s affirmation dated 19 August 2024, he said as follows (at paragraph 7):

“After the diagnosis, I noticed that the 2^nd Defendant was not acting like her usual self, so I asked her what was the reason behind. She told me that she was extremely worried about my situation and scared that I would pass away or lost my working capacity and left our daughter and her with no support. She asked whether she needs to start going back to work and earn money for the family. We had a few discussions in relation to the aforementioned sometime in 2012, I told the 2^nd Defendant that she does not have to worry about anything as I had already purchased a number of insurance investment policies and that I had always intended that the Property would belong to her solely. I also told her there is no need for her to go and find a job, she just needed to continue looking after our daughter and the family as she had always done. I said to her that I was confident I could continue to work and I have also planned ahead, the insurance investment policies and the Property should be able to cover their basic needs. I did not think of transferring the ownership of the property to her as I don’t really understand or think about the concept of legal and beneficial ownership, all we knew and understood was that the Property would belong to my then wife, the 2^nd Defendant, whatever happens.”

21.  D1’s oral evidence suggested that he intended to transfer the Property to D2 in the future, and only then would D2 become the full beneficial owner:

(1) “佢哋擔心佢嗰個生活嘅狀況，所以我就專登同佢講「層樓畀咗妳，係咪都，就算我唔喺度，早走一步」，next of kin，take it in yourself 都係佢㗎喇”;

(2) “為咗comfort佢，咁我就話「我畀層樓妳，妳keep住，第二時妳個名嘅」，等佢做一個sole ownership”;

(3) “我嗰時見到佢係好憂慮嘅，咁我同佢講，我話「妳唔使擔心嘅，以後嘅生計，我哋都仲okay嘅，將嗰層樓嘅資產，我轉畀妳，咁妳咪可以自己調整嗰啲經濟嘅開銷嗰啲，即係起碼有個渣拿喺度」”.

22.  While I accept D1 and D2’s evidence that there was some discussion between them on the matter of beneficial ownership of the Property in 2012, this discussion did not meet the requisite standard of an agreement or common understanding for the following reasons.

23.  First, the understanding as to the beneficial interest of the Property was not shared between D1 and D2.

24.  D2’s belief was that the transfer of the beneficial interest in the Property from D1 to D2 was to have immediate effect when D1 made the “promise” to her in 2012. However, the representations by D1 (as D1 recounted in his oral evidence) suggest that the beneficial interest in the Property would belong to D2 at an unknown point in time in the future. He was trying to pacify D2 whom he thought was worrying too much.

25.  The absence of a specified time as to when D1’s beneficial interest in the Property would be transferred means that the representations could be open to multiple interpretations by the parties, including that the Property would naturally belong to D2 upon D1’s death by survivorship. The failure to specify and show when the transfer was intended to take place also suggests the absence of a common intention: Kwok Mei Ha May v Chiu Yung [2020] HKCFI 2405 at [50].

26.  Second, in the Form E (Financial Statement) filed by D2 in the divorce proceedings, D2 stated that the Property is held in the joint names of D1 and D2, and her share of beneficial interest is 50%. She sought an order for the transfer of D1’s legal and beneficial interest in the Property to her as a home for herself and her daughter, and this culminated in the FCMC Order which recorded and recognized that D1 had beneficial interests in the Property to be transferred to D2. This is inconsistent with any common understanding between D1 and D2 that D2 owned 100% of the beneficial interest in the Property as from 2012.

27.  I reject the submission of Mr Matthew Lai (counsel for D2) that when filling in Form E, being a non-sophisticated housewife without legal training, D2 did not understand the significance of filling in her beneficial interest as 50% as opposed to 100%. D2 was represented by solicitors in the divorce proceedings. She signed off the Form E under oath to confirm that its contents are true and the information given is a full, frank, clear and accurate disclosure of her financial and other circumstances. She could not have misunderstood the significance of her accepting her half share in beneficial interest in the Property in the Form E.

28.  Third, in a whatsapp message sent by D1 to D2 in September 2016, D1 stated that if he “re-offends” (i.e. by cheating on D2 again), D2 can immediately petition for divorce and the Property will belong to D2 (如果再犯 你可以立刻同我離婚 層樓嘅資產歸你所有). D1 would be making an empty promise to D2 if there was a common understanding since 2012 that D2 already held 100% beneficial interest in the Property: D1 would not be in a position to give away the Property to D2 (as his punishment for cheating on D2 again) if D2 already owned its entire beneficial interest. In addition, the fact that D2 did not correct D1 or respond that the entire Property was hers further militates against the existence of the alleged common understanding.

29.  Fourth, in his capacity as a beneficial owner of the Property, D1 mortgaged his half share to Wings Finance in 2017, to P in 2018, and to Cash Square in 2019, without having to seek D2’s permission. All the relevant contractual documents (namely, the Second Legal Charge, Loan Agreement, Second Mortgage and Third Mortgage) stated that D1 had a beneficial interest in half share in the Property. There is no evidence from D1 that he disagreed with the contents. D1 is bound by his signature.

30.  I also accept the submission of Ms Christine Yu (counsel for P) that D2 has failed to show any detrimental reliance that is referrable to the alleged common intention in 2012:

(1) D2 did not significantly alter her position by staying on as a full-time housewife. She has already been a full-time housewife since 1997. She only had a fleeting thought to return to the workforce. She did not look for jobs in 2012. Objectively speaking, it would be difficult for her to return to the workforce after lapse of around 15 years. She was not confident that she could find a job herself.

(2) Insofar as D2 suggests that she has suffered detriment in that she did not ask for more maintenance in the divorce proceedings, she did not articulate what other claim she desisted from making against D1, let alone establishing that such claim(s) offered her a real prospect of benefit.

(3) D2 was not acting upon the common intention in paying the mortgage instalments under the First Mortgage. She only started paying the First Mortgagee in October 2019, around 7 years after the alleged common intention was reached in 2012. In her own words, she “had no choice” which is understandable as the First Mortgage was taken out by D1 and D2, and D2 has at least a half share in the Property. D2 also said in oral evidence that she had kept all the payment recipients as she intended to recover them from D1. If D2 intends to seek reimbursement from D1, she should not be considered to have suffered any financial detriment.

31.  For the above reasons, I conclude that D2’s case on common intention constructive trust has not been made out.

PROPRIETARY ESTOPPEL

32.  During the parties’ oral opening submissions, I asked counsel to consider the legal significance of the FCMC Order, and whether some form of proprietary interest or equity arose when D1 was ordered by the Court to transfer his half share in the Property to D2. My thinking is that the FCMC Order may arguably constitute a representation by D1 to D2 that D1 will transfer all his beneficial interest in the Property to D2 within one month from the date of full payment of the mortgage repayments under the First Mortgage. D2 was led to believe that she would obtain some right or benefit over D1’s beneficial interest in the Property in due course. It is unconscionable for D1 to take advantage of D2 by taking out the Second Mortgage with P, with the consequence that D2 is unable to have D1’s beneficial interest in the Property transferred to her due to the granting of an order for delivery of possession and sale of the Property.

33.  Ms Yu relies on Mui So Bing v Wan Chi Shing [2019] HKCA 1341 at [23.1]-[23.3] for the proposition that merely pleading facts with a specific legal consequence, leaving his opponent and the Court to second-guess what other legal consequences he may argue at trial, is contrary to the underlying objectives of the Civil Justice Reform, including promoting fairness between the parties and procedural economy.

34.  Mr Lai emphasizes that there are no pleadings in this action which bind the parties; the issue on proprietary estoppel was raised before parties gave evidence so P could have dealt with it in cross-examination; and this issue and common intention constructive trust arise on the same facts, and there were no new facts adduced by D2.

35.  In the end, I am persuaded by Ms Yu that D2 should not be allowed to rely on proprietary estoppel:

(1) The lack of pleadings does not mean that parties have a free hand to run whatever case they wish in submissions. Indeed, it is precisely because there are no pleadings that the four corners of the parties’ rival contentions should be made clear in the affirmations to avoid shifting goalposts or surprises.

(2) Up until I asked counsel to address the significance of the FCMC Order, the FCMC Order had only been raised by D2 in the context of her common intention constructive trust claim. It would be unfair to P if D2 was allowed to rely on proprietary estoppel only in closing submissions. P did not have a fair opportunity to plan its cross-examination of D1 or D2 ahead of trial on the facts specifically concerned with the elements necessary to establish proprietary estoppel, notably detrimental reliance.

36.  In any event, given D2’s evidence is based on common intention constructive trust alone, D2 did not put forward any evidence of detrimental reliance on the FCMC Order, for example D2 has not raised any claim to ancillary relief forsaken by her. Any reliance on proprietary estoppel does not get off the ground on the evidence before me.

37.  In a future case, it may be possible (and I put it no higher than that) to argue that the a consent order such as the FCMC Order, giving rise to an enforceable obligation, may be capable of creating a constructive trust akin to a vendor-purchaser constructive trust. One can see the force in that argument given the Court would readily agree to enforce a consent order specifically. That issue does not arise on the facts of this case, when the FCMC Order was registered after the Second Mortgage was executed and registered, and would therefore rank behind it in terms of priority.

38.  It is also unnecessary to address the parties’ submissions on whether any unwritten equity can co-exist with the FCMC Order which is a registrable instrument, the effect of D2’s failure to register the FCMC Order timeously (before the Second Mortgage), and the extent of equitable relief to be granted if proprietary estoppel can be established.

39.  In closing submissions, Mr Lai seeks to run a further case of proprietary estoppel arising out of D1’s assurance or promise to D2 made sometime in 2012, as a further alternative to proprietary estoppel arising out of the FCMC Order.

40.  For the same reasons set out above in respect of the FCMC Order, I do not allow D2 to run such a further alternative case only in her closing submissions, which in any event does not get off the ground for want of proof of detrimental reliance: see [30] above.

RED FLAGS AND CONSTRUCTIVE NOTICE

41.  Given my conclusion that D2 has not made out her case on common intention constructive trust, it is unnecessary to address whether there were red flags[1] that put P on inquiry of D2’s rights in D1’s half share in the Property, and whether P failed to make reasonable inquiry with the result that P is bound by D2’s rights over D1’s half share.

ORDER FOR SALE

42.  The next question is whether in the circumstances of the case, I should make an order for sale of the Property.

43.  Where any property in land is held by two or more persons, whether as joint tenants or tenants in common, the Court may: (1) order a partition of the property in question under section 4 of the Partition Ordinance (Cap 352); (2) order a sale of the property under section 6 of the Ordinance; or (3) refuse to make any order. The Property is a residential unit in a housing estate and it is impractical to order its partition. My choices are limited to making an order for sale or no order at all.

44.  I am guided by the principles set out in Wong Chun Kei Johnny v Poon Vai Ching [2007] 1 HKLRD 825 at [18]-[19]:

(1) A co-owner has a basic right to rid himself of the shackles of co-ownership and, if he has no other remedy, ask for an order for partition or sale.

(2) When it is impracticable to make an order for partition, the Court should make an order for sale unless it is persuaded (the burden being on the opposing co-owner(s)) that such an order will not be beneficial to all the co-owners or that it will result in very great hardship to one co-owner.

(3) Whether an order for sale is beneficial to all the co-owners is not determined by the dissent of the opposing co-owners or the assertion by them that it is not beneficial. It has to be determined by the Court objectively.

45.  Mr Lai submits that an order for sale of the Property would cause great hardship to D2 and her daughter. They have been residing in the Property for over 20 years. It would be very hard for them to move to a similar home given their limited financial capabilities: D2 has not been in any employment for over 20 years. Further, to order such a sale would go against the spirit of the FCMC Order where D2 should get the full ownership of the Property. He therefore urges the Court to exercise its discretion to refuse to order a sale.

46.  Whilst I have great sympathy on D2, I am unable to accept that the circumstances of the present case warrant this Court to exercise its discretion to refuse an order for sale:

(1) D2 has not disclosed her current assets. She has not shown the extent of the financial hardship on her if she has to look for alternative accommodation after the sale of the Property.

(2) D2’s daughter is in stable employment and income, and can provide some financial support to D2.

(3) The market value of the Property as at 20 December 2023, with the benefit of vacant possession, is in the region of HK$8,500,000. Even taking into account property market fluctuation since then, upon the sale of the Property, half of the net proceeds payable to D2 will still be sizeable, and will enable her to purchase, or at least rent, another place to live for a long period of time.

(4) Whilst it is true that D1 was prima facie in breach of the FCMC Order, D2’s recourse lies elsewhere, against D1. P has every legal right to enforce the Second Mortgage.

DISPOSITION

47.  The parties have agreed on the terms of the order for sale. I therefore give judgment in favour of P against D2 and make an order in terms of the Originating Summons dated 12 January 2024, save that the price (by private treaty) and the reserved price (by public auction) in paragraph 2 of the Originating Summons be adjusted to HK$7,700,000 as agreed by the parties at the hearing.

48.  I dismiss D2’s counterclaim for a declaration that D1 has been holding the Property on trust for her since 2012 or 2016, or a vesting order against D1 in relation to his half share in the Property.

49.  Costs should follow the event. D2 should bear the costs of P in these proceedings. Having considered the parties’ statements of costs and lists of objections, on a broad brush basis, I summarily assess the costs payable by D2 to P to be HK$400,000.

50.  I thank counsel for their assistance.