CHU TSAN LEUNG v. LEUNG MEE LING AMY AND OTHERS

HCMP 774/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 774 OF 2016

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J U D G M E N T

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Introduction

1.  The marriage of Mr Chu and Madam Leung was dissolved by consent in 2004. Their former matrimonial home (“the Property”) is still registered in their joint names. Madam Leung was adjudicated bankrupt upon her own petition in 2014. The present dispute is about the beneficial interest in the Property and this is the only issue calling for my determination.

2.  The protagonists in these proceedings are Mr Chu on the one part and Mr Lee and Ms Chow who are the trustees in bankruptcy of Madam Leung (“the Trustees”) on the other. Mr Chu contends as his alternate case that he acquired the beneficial interest of Madam Leung in the Property and hence became the sole beneficial owner by reason of the consent order made in the matrimonial proceedings by Deputy Judge S. Remedios (as she then was) dated 15 December 2003 (“the Consent Order”). It was ordered by the Consent Order that Madam Leung should transfer her entire right, interest and/or shares in the Property upon pronouncement of the decree absolute in the matrimonial proceedings.

3.  The Trustees, however, maintain that the Consent Order should be set aside on account of undue influence and hence the beneficial interest in the Property should remain vested in the bankruptcy estate of Madam Leung.

4.  Madam Leung filed her Acknowledge of Service in May 2016 and indicated that she would contest the proceedings. She filed an affirmation dated 1 June 2016 to oppose these proceedings (“the Affirmation”). However, at the hearing, Madam Leung indicated unequivocally that she agrees that she no longer has any beneficial interest in the Property after the conclusion of the matrimonial proceedings and Mr Chu has become the sole beneficial owner.

Background facts and procedural history   

5.  I should first briefly state the background facts and procedural history which are either undisputed or indisputable.

6.  Mr Chu and Madam Leung got married in 1992. Their daughter was born in 1994 and their son was born in 1996.

7.  They purchased the Property in 1996 from the Housing Authority under the Home Ownership Scheme. The Property has all along been registered in their joint names. Madam Leung agrees that Mr Chu alone provided all the purchase monies and made the mortgage payments to Hang Seng Bank (“the Mortgagee Bank”). The Mortgagee Bank has a legal charge on the Property.

8.  Mr Chu and Madam Leung resided in the Property until 2000 when Madam Leung moved out due to matrimonial discord. Mr Chu commenced the matrimonial proceedings by presenting a petition in April 2002 (“the Divorce Petition”).

9.  Madam Leung acted in person throughout the matrimonial proceedings. She filed a Form 4 (“the Form”) and the following answers can be found in the Form. First, she indicated that she did not wish to defend the petition and she agreed that there should be a transfer to Mr Chu in respect of the matrimonial properties. She wished to have access to the children twice a week.  She did not claim any maintenance. Lastly, she indicated that the residence right in respect of the Home Ownership Scheme property, whatever it meant, should be to Mr Chu (居屋住權給男方).

10.  In the Form, Madam Leung stated the address of a street newspaper stall (“the Stall”) to be her address for service.

11.  Mr Chu and Madam Leung signed a consent summons dated 23 June 2003 (“the Consent Summons”). The parties apparently agreed that Mr Chu should be granted the custody of the children with reasonable access to Madam Leung twice a week and the children should not leave Hong Kong more than 3 months until they attained the age of 18.

12.  It was further agreed that Madam Leung should transfer to Mr Chu her entire interest in the Property upon pronouncement of the decree absolute in the matrimonial proceedings.

13.  Based upon the Consent Summons, the Consent Order was made and the same obligation of Madam Leung to transfer her entire interest in the Property could be found in the Consent Order.

14.  The decree absolute was pronounced by an order dated 27 February 2004.

15.  Notwithstanding the Consent Order and the decree absolute, Madam Leung has never done anything to transfer her legal title to the Property to Mr Chu.

16.  The Mortgagee Bank issued a letter dated 23 January 2017 to both Mr Chu and Madam Leung to demand payment of a legal fee for the discharge of the legal charge registered against the Property. Apparently, all the mortgage payments have been made.

17.  Madam Leung filed the petition to bankrupt herself on 6 August 2014 and by an order dated 23 September 2014, a bankruptcy order was made against her (“the Bankruptcy Order”).

18.  In the Statement of Affairs filed by Madam Leung on 6 August 2014, there were only two unsecured creditors, namely, PrimeCredit Limited and Public Finance Limited. She made no mention of the Property when she gave an account of all her properties.

19.  On 2 January 2015, at the general meeting of creditors, the Trustees were appointed. By virtue of section 58 of the Bankruptcy Ordinance, Cap. 6, all the properties of Madam Leung would be vested in the Trustees.

20.  The Trustees wrote to Mr Chu on 22 June 2015 and asked Mr Chu whether he would consider purchasing the interest of Madam Leung in the Property or selling the Property jointly with the Trustees. Mr Chu through his former solicitors, Messrs L & L Lawyers, wrote to the Trustees on or about 20 November 2015 asserting his sole beneficial ownership of the Property by virtue of the Consent Order. The Trustees did not accept his position.

21.  Mr Chu, thus, commenced these proceedings by originating summons dated 11 March 2016 against Madam Leung and the Trustees. Originally, the Official Receiver was made a defendant but subsequently Mr Chu discontinued the action against the Official Receiver.

22.  All the parties having filed their respective affirmations, Ng J made an order that Mr Chu should file his Points of Claim and the Trustees should file their Defence and Counterclaim. No order was made for Madam Leung’s filing of any pleadings.

23.  Mr Chu and the Trustees duly complied with the order of Ng J. In his Points of Claim, Mr Chu claims for a declaration that prior to the bankruptcy order, Mr Chu and Madam Leung held the Property on trust for Mr Chu solely as joint tenants and a declaration that Madam Leung and the Trustees are estopped from denying Mr Chu’s sole beneficial interest in the Property. He further claims for an order vesting the legal and beneficial interest in the Property in Mr Chu solely.

24.  The Trustees, apart from denying the claim of Mr Chu, counterclaim for an order that the Consent Order be set aside and a declaration that the Property is now beneficially owned by Mr Chu and the bankruptcy estate of Madam Leung as tenants-in-common in equal shares.

Discussion

25.  To resolve the material differences between the parties, I should dispose of these issues in turn:

(1)   Whether the Consent Order should be set aside;

(2)   If not, whether any laches/acquiescence debars Mr Chu from enforcing the Consent Order; and

(3)   Regardless of the validity and enforceability of the Consent Order, whether Madam Leung had in fact never acquired any beneficial interest in the Property prior to the Bankruptcy Order and Mr Chu has been the sole beneficial owner throughout. 

Setting aside the Consent Order?

26.  The pleaded case of the Trustees about the alleged invalidity of the Consent Order can be summarised as follows.

27.  First, it is alleged that there was no valid, informed agreement or consent between Mr Chu and Madam Leung that Madam Leung would transfer all her interest in the Property to Mr Chu in the matrimonial proceedings. It is further alleged that the legal effect of the Consent Summons and the Consent Order had not been explained to Madam Leung before the Consent Order was made. Then the Trustees go on to allege that when Madam Leung signed the Consent Summons, she was under the presumed undue influence of Mr Chu and/or his another set of former solicitors whom are alleged to have actual, imputed or constructive notice of the same. The Consent Summons was alleged to be manifestly disadvantageous and/or oppressive to Madam Leung. Lastly, it is alleged that Madam Leung would not have agreed to the terms of the Consent Summons if she had full knowledge and understanding of the same.

28.  In essence, the Trustees’ case is presumed undue influence. The insufficiency of Madam Leung’s knowledge of the contents of the Consent Summons alone can hardly afford Madam Leung a valid ground to set aside the same. The following dictum of Litton NPJ in Bank of China (Hong Kong) Ltd v Fung Chin Kan (2002) 5 HKCFAR 515 at 533, cited with approval by Ribeiro PJ in Ming Shiu Chung & Ors. v Ming Shiu Sum & Ors. (2006) 9 HKCFAR 334, makes this very clear:

“......the fundamental principle that, generally speaking, when a person signs a legal document, he or she is bound by the act of signature : As a matter of general law, it is no defence to say that he or she did not understand the contents of a legal document; that person takes the chance of being bound by its terms, as he or she can take the simple precaution of not signing until its contents have been fully explained and understood.”

29.  Mr Oh, for the Trustees, heavily relies on Bank of China (Hong Kong) Ltd v Wong King Sing & Anor [2002] 1 HKLRD 358 in which Recorder Ma SC (as the Chief Justice then was) elaborated the defence of presumed undue influence after a thorough review of the relevant English authorities. Mr Oh submits that the presumed undue influence here is in the category of Class 2(B).

30.  Recorder Ma SC in the Bank of China (Hong Kong) Ltd case adopted the classification of the English Court of Appeal in Bank of Credit and Commerce International SA v. Aboody [1990] QB 923, summarised by Lord Browne‑Wilkinson in his speech in Barclays Bank Plc v. O’Brien at 189–190. The definition of Class 2(B) set out in §37 is as follows:

Even if there is no relationship falling within Class 2(A), if the complainant proves the de facto existence of a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence.  In a Class 2(B) case therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the impugned transaction merely by proof that the complainant reposed trust and confidence in the wrongdoer without having to prove that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence in relation to the particular transaction impugned.”

31.  The Recorder made it clear that in Class 2(B) cases, the complaint needs to do more before the presumption arises (at §47). He has first to show that:

(a) he placed trust and confidence in the influencer or that the influencer had acquired an ascendancy or domination over him; (“the First Requirement”) and

(b) the transaction cannot be readily explicable by the relationship of the parties (“the Second Requirement”).

32.   The Second Requirement usually entails the need to show manifest disadvantage. At §54, the Recorder explained,

“It is not, as is sometimes thought, restricted to purely commercial considerations. The Court is required to take a broader view. See : Royal Bank of Scotland v. Etridge at 1032–1034 paragraphs 21–31 per Lord Nicholls of Birkenhead, 1088 paragraph 220 per Lord Scott of Foscote.”

33.  The Recorder went on to explain that once the presumption of undue influence arises, the onus then shifts to the influencer, to demonstrate that the relevant transaction was not one in which undue influence could have existed (§55).

34.  With these guiding principles in mind, I turn to the evidence of Madam Leung to see whether Class 2(B) presumed undue influence can be made out.

35.  I have perused the Affirmation, which Madam Leung adopted as her evidence in chief at the hearing, and she had nothing to add to the same. In her evidence, it is alarming that she did not suggest that she had ever placed her trust and confidence in Mr Chu or that Mr Chu had acquired an ascendancy or domination over her at all.

36.  Quite on the contrary, Madam Leung agreed that it was upon her suggestion that Mr Chu took over the newspaper vending business from her brother in 1999. This somehow shows that Mr Chu was amenable to the idea of Madam Leung in making a big decision.

37.  It should also be borne in mind that Madam Leung had actually left home for about 2 years before Mr Chu presented the Divorce Petition. It was clearly stated in the Divorce Petition that their marriage had broken down irretrievably.  In the circumstances, it is difficult to believe that at the material time when Madam Leung signed the Form and the Consent Summons, she reposed any trust and confidence in Mr Chu or Mr Chu had still had an ascendancy or domination over him.

38.  Madam Leung was merely briefly cross-examined by Mr Oh and nothing she said in cross-examination began to fulfil the First Requirement.

39.  It is clear that the First Requirement cannot be met. The plea of Class 2(B) undue influence does not get off the ground.

40.  Nevertheless, I proceed to consider the Second Requirement, given the fact that the Trustees also rely on the allegedly unconscionable nature of the terms of the Consent Order as a separate ground to set aside the Consent Order.

41.  Mr Oh highlights to this court that under the Consent Order, Madam Leung was entitled to neither the custody of the children nor any maintenance. Most importantly, she also gave up her interest in the Property. These terms were manifestly disadvantageous and unconscionable in his submissions.

42.  I cannot agree with him. In the first place, I note that these terms did not materially deviate from Madam Leung’s own proposal in the Form. There is no allegation that Madam Leung was under any undue influence when completing the Form on her own.

43.  Moreover, to assess the fairness of these terms, one cannot take a blinkered approach and focus merely on the monetary side of the matter. One has to know sufficiently about their marriage and all background facts to form an informed opinion as to whether these terms are fair. It is common ground that the Property was acquired to be their matrimonial home. At the time when Madam Leung left home, the children were very small and Mr Chu, then working as a construction site worker, had to take care of them as a single parent. It is not difficult to fathom his hardship.

44.  Against this background, the mere fact that Madam Leung agreed to transfer her beneficial interest in the Property to him does not appear to me to be any evidence suggestive of the unconscionable or manifestly disadvantageous nature of the terms in the Consent Summons agreed by both parties.  There is nothing unusual that the Consent Order was made in terms of the Consent Summons.

45.  Hence, I conclude that the Trustees have in any event failed to meet the Second Requirement.

46.  Absent valid vitiating factors, the Consent Order must be given effect and is binding on both Mr Chu and Madam Leung. Madam Leung cannot be heard to say that she in fact did not agree to the terms particularly given the fact that she had signed the Consent Summons: see Ming Shiu Chung & Ors. v Ming Shiu Sum & Ors., supra.. I should make a mention of the Trustees’ allegation put to Mr Chu in cross-examination that he had delayed in enforcing the Consent Order because of his knowledge of its impropriety. This is absurd, with respect, given Mr Chu’s present reliance of the Consent Order and it was naturally denied by Mr Chu.

47.  There is simply nothing in the allegation of the Trustees that the Consent Summons was only given to Madam Leung at the Stall on the roadside when she was at work. It was actually the address given by Madam Leung for service and I find nothing untoward about such a service. I am not persuaded that Madam Leung was prejudiced to have received the Consent Summons in this way.

48.  For completeness, I should expressly reject the hearsay evidence that the Consent Summons was signed by Madam Leung at the office of the former solicitors of Mr Chu after they had explained to her its contents. The solicitors had no independent memory and personal knowledge of the event at all. This is, however, immaterial. Since the First and Second Requirements could not be fulfilled, Mr Chu bears no onus to disprove undue influence.

49.  Once the decree absolute was pronounced, Madam Leung is obliged to complete the legal procedure for the transfer of both the legal title to and beneficial interest in the Property to Mr Chu. In my view, there and then, she ceased to have any beneficial interest even though she has managed to remain one of the registered owners of the Property. She has merely been holding the Property jointly with Mr Chu on trust for Mr Chu.  This took place long before the Bankruptcy Order.

50.  Based on the foregoing analysis, I have no hesitation in concluding that the Property does not form any part of the bankruptcy estate of Madam Leung and Mr Chu has become the sole beneficial owner of the Property since the decree absolute was made.

Laches and/or acquiescence

51.  Mr Oh complains about the delay of Mr Chu of over 13 years to enforce the Consent Order. As a result of the delay, he submits that Madam Leung’s memory about the making of the Consent Summons and the Consent Order has faded away.

52.  With respect, this argument is utterly unmeritorious.

53.  In the first place, whilst laches and delay may act as a bar to equitable relief, Mr Chu is not really asking for equitable relief here: see Chapman v Michaelson [1909] 1 Ch. 238 (CA). 

54.  After the conclusion of the matrimonial proceedings, as admitted by Madam Leung, she has all along considered that the Property no longer has anything to do with her and she does not have any beneficial interest in the same. Her conduct bore this out. She has never used the Property to secure her loans. She did not include the Property in the Statement of Affairs. I fail to see any prejudice that Madam Leung would suffer if she is to complete the procedure to transfer the legal title to Mr Chu through the Trustees in compliance with the Consent Order. Quite on the contrary, if her failure to do so has amounted to a civil contempt, it is only right for her to purge the same.

55.  Her alleged loss of memory about the circumstances under which she signed the Consent Summons is a complete non-point given the glaring non-fulfilment of the First and Second Requirements. The plea of presumed undue influence has no evidential basis whatsoever to begin with.

Beneficial ownership prior to the Bankruptcy Order

56.  In view of the conclusions this court has reached on the two foregoing issues, the answer to this matter is clear and needs no elaboration. Unfortunately, I still have to deal with the primary contention of Mr Chu that he has from the very outset been the sole beneficial owner of the Property ever since the acquisition of the same albeit registered in the joint names.

57.  Mr Fong, for Mr Chu, basically relies on two matters to support this contention. First, there is no dispute that Mr Chu had provided all the purchase monies and made all the mortgage payments and Madam Leung did not make any financial contribution at all. Second, Madam Leung under cross-examination uttered that she did not consider herself to be a beneficial owner of the Property.

58.  The Property was acquired in joint names and the burden is on Mr Chu to rebut the presumption that the equitable ownership is different from the legal ownership: Stack v Dowden [2007] 2 AC 432.

59.  The Property was the only matrimonial home and it was not acquired for investment. It is not uncommon for married men to single-handedly finance the purchase of matrimonial homes registered in joint names with their wives. The fact that Mr Chu being one of those men does not mean that the actual intention of Mr Chu was that Madam Leung merely held half share of the Property on trust for him.

60.  Instead of making such an allegation of his actual intention, Mr Chu in fact even agreed in his testimony that, at the time of acquisition of the Property, he intended Madam Leung to have a share in the Property. In light of this piece of evidence, he effectively gave up his attempt to argue a different equitable ownership. The equivocal assertion of Madam Leung made out of the blue cannot suffice to reopen the issue.

61.  It should also be noted that it was presupposed by the terms of the Consent Summons prepared by Mr Chu’s former solicitors that Madam Leung did have some beneficial interest in the Property to be transferred to Mr Chu. Should Mr Chu be of the view that he was the sole beneficial owner from start to finish, the Consent Summons should have been drafted in another manner.   

62.  In the premises, I am of the view that Mr Chu and Madam Leung had remained equal beneficial owners of the Property until the pronouncement of the decree absolute, thereafter Mr Chu became the sole beneficial owner of the Property.

Conclusion and Order

63.  For the reasons given above, I conclude that Madam Leung had ceased to have any beneficial interest in the Property after the conclusion of the matrimonial proceedings in 2004. It follows that the bankruptcy estate of Madam Leung cannot include any beneficial interest in the Property. I shall grant a declaration to this effect. The first declaration presently sought by Mr Chu in his pleading is not satisfactory and should be revised accordingly for my approval.

64.  Further, I decline to make a declaration that Madam Leung and the Trustees are estopped from denying Mr Chu’s sole beneficial interest in the Property. I am not convinced that such a declaration is necessary.

65.  I am not minded to accede to Mr Chu’s request for a vesting order for a transfer of the legal title to the Property to him pursuant to the Consent Order. I decide against exercising my discretion under section 52 of the Trustee Ordinance, Cap. 29 to make such an order because I do not find it expedient to do so in the absence of any evidence that the Trustees are unwilling to follow the findings of this court in this Judgment. I give Mr Chu liberty to apply in case of any unexpected occurrences.

66.  Based on all these conclusions, the counterclaim of the Trustees must be dismissed.

67.  Now I turn to the issue of costs. There is no reason why costs should not follow the event. Madam Leung and the Trustees should pay the costs of Mr Chu of these proceedings including the Trustees’ counterclaim and all previously reserved costs. On the other hand, I find the defence to be completely devoid of merits, particularly given the existence of the Consent Order. The affirmation evidence of Madam Leung taken at its highest could not be sufficient to substantiate a plea of undue influence. In my view, Mr Chu is entitled to indemnity costs against Madam Leung and the Trustees, to be taxed if not agreed. I make an order nisi in these terms.

68.  It crossed my mind that an order made under O.62 r.6(2), Rules of the High Court, against the Trustees might be appropriate but I eventually decided against it, though I have to say it was not a straightforward question. I do expect that the Trustees, being legal practitioners themselves, should exercise their expertise in the administration of the affairs of Madam Leung and should not have taken Madam Leung’s words at face value. They really should have thought twice before taking any step in these proceedings.